The company was incorporated only six years ago as the result of the merger between Diamond Walnut Greens into Diamond Food (DMND, Financial). Diamond Foods focuses on building, acquiring and energizing brands of packaged food. It specializes in processing, marketing, distributing snack products and culinary, in-shell and ingredient nuts.
The business has encountered significant growth via acquisition of several brands along with the existing brands of culinary nuts of Diamond of California brand and snack nuts under Emerald brand: Pop Secret in 2008, the brand of microwave popcorn products, and Kettle Foods in 2010, premium potato chips in the U.S. and UK. And just recently in April of this year, it announced the merge of P&G’s Pringles business into Diamond Foods. The company’s entrance into the snacks market has made the revenue from snacks on total sales go from 33% in 2009 to 57% in fiscal year of 2011.
For the snack and food businesses, the distribution channel plays a vital role. In North America, Diamond Foods markets products through sales personnel into large national grocery, mass merchandiser, club, convenience stores and drug store chains. The distribution network brought Kettle potato chips to grocery, convenient and natural food stores. In the UK, the chips are sold via the company’s sales personnel directly to stores.
Recently in the fourth-quarter 2011 release, Diamond Foods had announced impressive sales and earnings growth. Fourth-quarter sales increased 32% whereas earnings were up 58% compared to the same period last year. For the full year, sales increased up to $966 million, a jump of 42%, mainly due to the snack sales increase of 72% and 37% for the earnings. The synergy of the Kettle acquisition seems to be very good for the company. From that time, the organic growth in the snack business in the first four periods reached 16% each. The snacks brands is growing faster than the category as a whole and it is gaining more market share. Along with the growth in the top line and bottom line, Diamond Foods records the high growth in CFO with the EBIDTA up 72% to $146 million.
With the consumer goods business, especially the snack business, it has to encounter the high growth of A&P (advertising and promotion) expenses. For this year, the total advertising expense has increased 35% to $44.4 million. The increase is mainly for Kettle and the launch of Breakfast on the Go!.
For financial health, nearly 67% of total asset lies in the item of goodwill and intangible assets, whereas the company employs a high level of debt. The long-term debt of 38% and the debt/asset ratio currently stays at 64%. Meanwhile, the free cash flow has fluctuated quite widely over the last six years. If taking into account the acquisition costs to grow the business, the free cash flow after acquisition is much worse.
However, from 2009, the stock price has had very nice run-ups. At the beginning of 2009, it was $20 a share, and now, 2.5 years later, it has been more than four times of $87 a share, resulting in the annualized compounded gain of an astonishing 80%. And the company historically enjoyed a high earnings multiple for the last five years, ranging from 19x to 47x, average of 30x. But it is trading at the higher valuation of 39x compared to its five-year average P/E.
Source: Google Finance
The business, with a high level of long-term debt and little free cash flow production, has recently enjoyed run-ups in the stock price. And it is valued at 2.5% earnings yield — definitely not a good investment for value investors. Of course, in the short run, it can still enjoy a more upward trend in the share price, but with this price, long-term investors should stay away.
This is the subjective viewpoint of the author, and it is not the recommendation to buy, hold or sell the stocks mentioned in this analysis. Anyone who wishes to buy, hold or sell the stocks has to do his/her own analysis at his/her own risk.
The business has encountered significant growth via acquisition of several brands along with the existing brands of culinary nuts of Diamond of California brand and snack nuts under Emerald brand: Pop Secret in 2008, the brand of microwave popcorn products, and Kettle Foods in 2010, premium potato chips in the U.S. and UK. And just recently in April of this year, it announced the merge of P&G’s Pringles business into Diamond Foods. The company’s entrance into the snacks market has made the revenue from snacks on total sales go from 33% in 2009 to 57% in fiscal year of 2011.
For the snack and food businesses, the distribution channel plays a vital role. In North America, Diamond Foods markets products through sales personnel into large national grocery, mass merchandiser, club, convenience stores and drug store chains. The distribution network brought Kettle potato chips to grocery, convenient and natural food stores. In the UK, the chips are sold via the company’s sales personnel directly to stores.
Recently in the fourth-quarter 2011 release, Diamond Foods had announced impressive sales and earnings growth. Fourth-quarter sales increased 32% whereas earnings were up 58% compared to the same period last year. For the full year, sales increased up to $966 million, a jump of 42%, mainly due to the snack sales increase of 72% and 37% for the earnings. The synergy of the Kettle acquisition seems to be very good for the company. From that time, the organic growth in the snack business in the first four periods reached 16% each. The snacks brands is growing faster than the category as a whole and it is gaining more market share. Along with the growth in the top line and bottom line, Diamond Foods records the high growth in CFO with the EBIDTA up 72% to $146 million.
With the consumer goods business, especially the snack business, it has to encounter the high growth of A&P (advertising and promotion) expenses. For this year, the total advertising expense has increased 35% to $44.4 million. The increase is mainly for Kettle and the launch of Breakfast on the Go!.
For financial health, nearly 67% of total asset lies in the item of goodwill and intangible assets, whereas the company employs a high level of debt. The long-term debt of 38% and the debt/asset ratio currently stays at 64%. Meanwhile, the free cash flow has fluctuated quite widely over the last six years. If taking into account the acquisition costs to grow the business, the free cash flow after acquisition is much worse.
However, from 2009, the stock price has had very nice run-ups. At the beginning of 2009, it was $20 a share, and now, 2.5 years later, it has been more than four times of $87 a share, resulting in the annualized compounded gain of an astonishing 80%. And the company historically enjoyed a high earnings multiple for the last five years, ranging from 19x to 47x, average of 30x. But it is trading at the higher valuation of 39x compared to its five-year average P/E.
Source: Google Finance
The business, with a high level of long-term debt and little free cash flow production, has recently enjoyed run-ups in the stock price. And it is valued at 2.5% earnings yield — definitely not a good investment for value investors. Of course, in the short run, it can still enjoy a more upward trend in the share price, but with this price, long-term investors should stay away.
This is the subjective viewpoint of the author, and it is not the recommendation to buy, hold or sell the stocks mentioned in this analysis. Anyone who wishes to buy, hold or sell the stocks has to do his/her own analysis at his/her own risk.
