Diamond Foods (DMND, Financial), a processed and packaged foods company operating through two segments – snacks and nuts – that processes, markets and distributes snack products and nuts. The second-quarter fiscal 2015 results were a case of mixed bag as the company failed to impress the analysts on revenue but beat the earnings estimates. Let’s recap the results and see what the business holds, going forward.
Second-quarter recap
- Total sales increased 4.1% year over year and came in at $229.7 million. The year-over-year growth was on the back of strong performance of both the segments in the U.S., partly offset by a weak performance in the U.K. due to increased promotional activity and negative impact of currency translations. Snacks and Nuts segments registered year-over-year increase of 3.2% and 5.2%, respectively. However, the company failed to match up to analysts’ estimates on top line by $6.75 million.
- On the back of strong sales and margin expansion in the U.S., adjusted earnings per share came in at $0.35 versus $0.12 in the year-ago quarter and trumped analysts’ estimates by $0.10.
- The processed and packaged foods company exited the second-quarter with total current assets of $352.8 million, long-term debt of $635.3 million, and shareholders’ equity of $283.5 million.
Initiatives to drive growth
Diamond Foods is moving away from advertising and focusing on promotional spending. As a result of this move, advertising expenses declined by $3.4 million compared to the year-ago quarter.
Recently, the company announced acquisition of majority stake in of Yellow Chips, a manufacturer of high quality vegetable and organic potato chips based in the Netherlands. During the earnings call, Brian J. Driscoll, president, CEO and director, said:
“We're excited about this acquisition, which better enables us to compete in the U.K. and Europe. We'll leverage this acquisition with our existing distribution and capitalize on the rapid on-trend growth of vegetable chips. Long term, we believe Yellow Chips will help us grow our overall sales and market share in the UK and Europe.”
During the reported quarter, to further bolster its already strong Kettle brand, the company soft-launched three new flavors and launched Thick and Bold Dill Pickle and Carolina Barbecue into small format. Going forward, these new products will be launched nationally in summer.
In the nuts segment, the company introduced two new products into the line of raspberry-glazed and honey-glazed almonds. Going forward, several new varieties are planned during the current fiscal.
Looking ahead
Going forward, the company is confident of sustaining the momentum on the back of new product launches, cost control, acquisitions and promotional spends. Diamond has already gained momentum with social media and field marketing platform, using which is tested the soft-launches of few new products.
Buoyed by good earnings growth in the second-quarter fiscal 2015, the company has narrowed down the EPS guided range to $0.95 to $1.10 per share compared to $0.90 to $1010 earlier. In addition, the company now expects EBITDA in the range of $117–$123 million, versus $115–$123 million projected earlier.
Wrapping up
The accounting scandal that had troubled the company is now a thing of the past. Diamond is gaining momentum after having underperformed for three years. During the last one year the stock has lost around 8% on the Street. For the next five years analysts expect a compound annual growth of 33.40%. On the downside, negative impact of currency translations will be a drag on performance. However, I still consider Diamond Foods to be a good bet for the long run.
