Driven by improved net price realization and effective cost
Diamond Foods Inc
) posted adjusted earnings of 5 cents per share for third quarter
fiscal 2013 that fared better than a loss of 22 cents a
share in the comparable year-ago quarter, and the Zacks
Consensus Estimate of a loss of 16 cents.
The market welcomed the news as the shares of this specialty
food company jumped 8.0% to close at $17.54 yesterday.
Including one-time items, the company reported loss of 71
cents per share during the quarter that also portrayed a
substantial improvement over a loss of $2.02 in the third quarter
of fiscal 2012.
From second quarter fiscal 2013, Diamond Foods started to
report its operating results under 2 segments - Snacks and Nuts.
Products sold under Kettle U.S., Kettle U.K. and Pop Secret
brands were included in the Snacks segment, while products under
the Diamond of California and Emerald brands came under Nuts.
Quarter in Detail
Total sales for the quarter came in at $184.9 million, down
11.0% from $207.7 million in the comparable year-ago quarter.
Moreover, the top line remains almost in line with the Zacks
Consensus Estimate of $185.0 million. The year-over-year decline
in total sales was mainly due to a weak performance by the
company's Nuts segment, partially offset by higher sales at
Net sales at Snacks inched up 1.6% to $104.2 million in the
quarter, primarily driven by improved net price realization but
partially offset by a 5.5% decline in volume. However, net sales
at the Nuts segment plummeted 23.2% to $80.7 million due to a
fall of 40.3% in volume.
Gross profit for the quarter surged 26.9% year over year to
$43.4 million versus $34.2 million in the year-ago quarter. Gross
margin expanded 690 basis points (bps) to 23.4% compared with the
year-ago quarter's gross margin of 16.5%. The expansion in gross
margin came on the back of better price realization and effective
Gross profit at Diamond Foods' Snacks division increased 30.6%
year over year to $36.7 million, while as a percentage of sales
it rose 780 bps to 35.2%. Higher net price realization and lower
unit processing costs primarily drove the year-over-year
improvement in this segment's gross margin.
Gross profit of the company's Nuts segment increased 9.8% to
$6.7 million, whereas gross margin expanded 250 bps to 8.3%. The
year-over-year increase in gross margin was attributable to
better price realization, effective cost management and benefits
from the reduction of underperforming SKUs, partially offset by
rise in commodity cost for certain items.
Selling, general and administrative (SG&A) expenses rose
6.0% year over year to $35.3 million, including charges of $12.9
million primarily related to Fishers plant closure, impairment of
an intangible asset, consulting fees and legal expenses.
SG&A expenses in third quarter fiscal 2012 were $33.3
million, which included $8.3 million related to audit committee
inquiry, restatement and legal expenses. However, excluding
one-time costs, SG&A expenses came in at $22.4 million, which
is 12.1% of net sales versus 12.0% in the comparable year-ago
Advertising expenses in the quarter surged 11.4% year over
year to $8.0 million, primarily due to increased advertisement
expenses to support Pop Secret and Kettle brands.
Consequently, on a reported basis, operating loss in the
quarter came in at $1.9 million versus $17.6 million in the
comparable year-ago quarter.
Adjusted EBITDA jumped over twofold to $23.2 million in the
quarter compared with $11.2 million in the year-ago comparable
quarter. Consequently, adjusted EBITDA margin improved 720 bps
year over year to 12.6%.
Long-term debt at the end of the quarter came in at $579.2
million. On Jun 7, 2013, cash and availability under the
company's bank revolving line of credit was nearly $96.0 million.
Capital expenditure for the third quarter totaled $2.1
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
further in fourth quarter fiscal 2013 as compared with the third
quarter. Moreover, Diamond Foods will remain focused on investing
Notably, the company is progressing well with its cost savings
and operational effectiveness initiatives, as reflected in its
third-quarter fiscal 2013 results. Moreover, the company believes
that future results will reflect sustained growth of its brands
arising from innovation and differentiation, an improved cost
structure and restored walnut supply.
Other Stocks to Consider
Currently, Diamond Foods carries a Zacks Rank #3 (Hold).
Better performing stocks in the specialty food industry include
Campbell Soup Company
Boulder Brands, Inc
), all of which have a Zacks Rank #2 (Buy).
BOULDER BRANDS (BDBD): Free Stock Analysis
ANNIES INC (BNNY): Free Stock Analysis Report
CAMPBELL SOUP (CPB): Free Stock Analysis
DIAMOND FOODS (DMND): Free Stock Analysis
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