Driven by improved net price realization and effective cost
Diamond Foods Inc
) adjusted earnings for the second quarter of fiscal 2013 jumped
fivefold to 5 cents per share compared with a penny in the
comparable year-ago quarter. Moreover, quarterly earnings were in
line with the Zacks Consensus Estimate.
Including one-time items, the company reported earnings of 43
cents per share during the quarter against a loss of 93 cents in
the second quarter of fiscal 2012.
From second quarter fiscal 2013, Diamond Foods decided to
report its operating results under two segments - Snacks and
Nuts. Products sold under Kettle U.S., Kettle U.K. and Pop Secret
brands will be reported in the Snacks segment, while products
sold under the Diamond of California and Emerald brands will be
included under Nuts segment.
Quarter in Detail
Total sales for the reported quarter were $220.8 million, down
15.8% from $262.4 million recorded in the year-ago comparable
quarter. Moreover, the top line missed the Zacks Consensus
Estimate of $241.0 million. The year-over-year decline in total
sales was mainly due to weak performances delivered at the
company's Nuts segment, partially offset by improved sales at
Net sales at the company's Snacks segment grew 7.2% to $105.4
million in the quarter, primarily driven by a 2% rise in volume
and improved net price realization. However, net sales at the
Nuts segment plummeted 29.6% to $115.4 million due to a fall of
37.1% in volume.
Gross profit for the quarter surged 20.6% year over year to
$50.6 million compared with $41.9 million in the year-ago
quarter. Gross margin expanded 690 basis points (bps) to 22.9%
compared with the year-ago quarter's gross margin of 16.0%. The
expansion in gross margin was a result of better price
realization, effective cost management and benefit coming from
reducing underperforming SKUs.
Gross profit at Diamond Foods' Snacks' segment increased 22.5%
year over year to $34.8 million, while as a percentage of sales
it improved 410 bps to 33.0%. The year-over-year improvement in
the segment's gross margin was primarily driven by enhanced net
Gross profit of Diamond Foods' Nuts segment increased 16.8% to
$15.7 million, whereas gross margin expanded 540 bps to 13.6%.
The year-over-year increase in gross margin was a result of
better price realization, effective cost management and benefit
coming from reducing underperforming SKUs.
Selling, general and administrative (SG&A) expenses
declined 5.9% year over year to $32.3 million, including $6.7
million primarily related to restatement and related expenses,
contract termination costs, and accrued retention and severance
expenses, which were partially offset by recoup of bonuses paid
to the former CEO and reversal of prior recorded stock
However, excluding onetime costs, SG&A expenses came in at
$25.6 million, which is 11.6% of net sales versus 9.0% in the
comparable quarter last year. SG&A expenses in the second
quarter of fiscal 2012 were $23.6 million, which exclude $10.7
million related to audit committee inquiry and settlement of
Advertising expenses in the quarter surged 5.6% year over year
to $12.3 million, primarily due to celebration of 100
anniversary of Diamond of California nut brand and program
associated with Pop Secret brand.
Consequently, on a reported basis, operating income in the
quarter came in at $24.6 million compared with an operating loss
of $16.1 million in the year-ago comparable quarter. Operating
margin for the quarter was 11.2%.
Diamond Foods ended the quarter with cash & equivalents of
$4.6 million compared with $1.3 million at the end of the second
quarter of fiscal 2012. Total debt at the end of the quarter came
in at $558.4 million. On Mar 8, 2013, cash and availability under
the company's bank revolving line of credit was nearly $80.0
million. Capital expenditures for the second quarter totaled $1.6
Fiscal 2013 Outlook
Diamond Foods intends to continue with its strategy of
improving price realization, lowering underperforming SKUs and
reducing dependency on discounting. The company believes that due
to these strategies, sales on a year-over-year basis will fall
more in the remaining two quarters of fiscal 2013 compared with
the fall registered in the first half. Moreover, Diamond Foods
will remain focused on investing in advertisement.
Diamond Foods is swiftly moving ahead with its cost savings
and operational effectiveness initiatives, which are reflected in
its second quarter fiscal 2013 results. Moreover, Diamond Foods
believes that future results will reflect sustained growth of its
brands arising from innovation and differentiation, improving
cost structure and rebuilding walnut supply.
Other Stocks to Consider
Currently, Diamond Foods has a Zacks Rank #4 (Sell). Other
stocks in the specialty food industry that are performing far
ConAgra Foods, Inc.
Campbell Soup Company
The Hain Celestial Group, Inc
). All these stocks hold a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
CAMPBELL SOUP (CPB): Free Stock Analysis
DIAMOND FOODS (DMND): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
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