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Diamond Foods Slumps on Dismal Q4 Sales, Earnings Beat

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Shares of specialty food retailer, Diamond Foods Inc.DMND slumped nearly 4.3% in afterhours trading session after the company reported dismal sales for the fourth quarter of fiscal 2015. However, the company's bottom-line results were impressive backed by strong gross margin improvement in the quarter.

Furthermore, the company's bottom line benefited from sustained strength of Kettle in North America, market share gains for Pop Secret brand and initial success of the Emerald transition.

The company reported adjusted earnings of 23 cents per share for the fourth quarter, which increased substantially from 19 cents earned in the prior-year quarter and also came ahead of the Zacks Consensus Estimate of 22 cents.

Diamond Foods Inc. - Earnings Surprise | FindTheBest

Quarter in Detail

Total sales were at $201.8 million, down 7.9% from $219.1 million recorded in the year-ago comparable quarter and short of the Zacks Consensus Estimate of $205 million. The top line mainly declined due to the exit of certain high volume, low margin nut SKUs, coupled with negative foreign currency impact.

Net sales at the company's Snacks segment fell 0.2% to $129.8 million while at the Nuts segment net sales went down 19% year over year to $72 million.

Gross profit for the quarter rose 10.5% to $54.5 million from $49.3 million in the year-ago quarter. Gross margin expanded 450 basis points (bps) to 27% from 22.5% in the year-earlier quarter.

Gross profit at Diamond Foods' Snacks segment rose 5.3% year over year to $47.3 million. Gross margin at the segment expanded 190 bps to 36.4%, mainly due to lower ingredient costs, improved volumes, and elevated net price realization for Kettle in North America, offset by lower price realization for Kettle in the UK.

At the Nuts segment, gross profit surged 63.6% to $7.2 million. Moreover, gross margin expanded 510 bps to 10% from 4.9% in the year-ago quarter due to higher price realizations and lower walnut costs, offset in part by increased other tree nut commodity costs.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter came in at $29.3 million, up 22.4% from the year-ago comparable quarter.

Financial Update

Diamond Foods ended fiscal 2015 with total current assets of $283.2 million compared with $243.9 million available at the end of fiscal 2014. As of Jul 31, 2015, long-term debt obligation was at $633.1 million while shareholders' equity was $308.6 million.

Guidance

Following the close of fiscal 2015, the company initiated its guidance for fiscal 2016. Diamond Foods expects adjusted earnings to come in the range of $1.21-$1.32 per share. The earnings guidance range is based on 32 million diluted shares outstanding, stock-based compensation of $10.5 million and a non-GAAP effective tax rate of about 30% to 32%. Other assumptions include input cost inflation of 1% to 2%, productivity improvements of 2% to 3% and a U.S./U.K. exchange rate of $1.55 per (Pound) 1.00, 75 cents per C$1.00 for fiscal 2016.

Furthermore, this Zacks Rank #3 (Hold) company projects adjusted EBITDA in the range of $131-$136 million.

Stocks to Consider

Some better-ranked stocks in the same industry include Cal-Maine Foods, Inc. CALM , Omega Protein Corporation OME and Boulder Brands Inc. BDBD . While both Cal-Maine Foods and Omega Protein sport a Zacks Rank #1 (Strong Buy), Boulder Brands holds a Zacks Rank #2 (Buy).

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DIAMOND FOODS (DMND): Free Stock Analysis Report

CAL-MAINE FOODS (CALM): Free Stock Analysis Report

BOULDER BRANDS (BDBD): Free Stock Analysis Report

OMEGA PROTEIN (OME): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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