We have downgraded our long-term recommendation on
Diamond Foods, Inc.
) to 'Underperform' following its dismal first-quarter fiscal
2013 performance. The stock also bears a Zacks #5 (Strong Sell)
Rank, while its prime competitors
ConAgra Foods, Inc
Mondelez International, Inc.
) carry Zacks #2 (Buy) and Zacks #3 (Hold) Ranks,
Diamond Foods' first-quarter fiscal 2013 adjusted earnings of
24 cents per share plummeted 66.2% from the year-ago quarter's
earnings of 71 cents, primarily due to weak top-line performance
and increased operating expenses as a percentage of sales. Total
sales for the reported quarter were $258.5 million, down 10.1%
from $287.4 million recorded in the year-ago quarter, mainly due
to sluggish performances delivered by the company's both segments
- Retail and Non-Retail.
Moreover, the company remained silent about any future sales
and earnings outlook. However, it expects advertisement expenses
to surge in the remaining period of fiscal 2013. The company's
performance may also get impacted due to difficulty on its part
to secure walnut supplies and repair its ties with the growers.
The company was charged for irregular payments to nut growers and
accounting the same in other periods.
Further, the company has to look towards generating higher
cash flow; otherwise, a highly leveraged balance sheet may stop
it from taking strategic initiatives. Further, continued
macroeconomic headwinds, intense competition, product recalls and
fluctuations in raw material prices may undermine its future
growth prospects and sustainability.
In addition, based on forward earnings estimates, Diamond
Foods is trading at 60.54x, substantially at premium from the
peer group average of 15.80x. The company has a TTM pre-tax
margin of negative 9.5%, significantly lower the peer group
average of positive 6.6%. Further, it generates a TTM net margin
of negative 11.3%, well below the peer group average of positive
4.1%. The company's TTM Return on Equity (ROE) of 0.2%, TTM
Return on Investment (ROI) of 0.1% and TTM Return on Asset (ROA)
of 0.0% are all worse than the peer group averages. Looking at
the valuations, we believe that it would not be prudent to invest
at the current juncture.
CONAGRA FOODS (CAG): Free Stock Analysis
DIAMOND FOODS (DMND): Free Stock Analysis
MONDELEZ INTL (MDLZ): Free Stock Analysis
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