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Diamond Foods Q1 Earnings & Sales Miss, FY16 View Intact

Zacks Equity Research
Updated

Diamond Foods Inc.’s DMND first-quarter fiscal 2016 adjusted earnings of 28 cents per share were flat with the prior-year quarter figure but short of the Zacks Consensus Estimate of 32 cents. The company’s bottom-line results gained from strong gross margin improvement which was offset by soft sales.

Diamond Foods Inc. (DMND) BNRI EPS - Last 5 Quarters | FindTheCompany

Furthermore, the company’s bottom line benefited from sustained strength of Kettle U.S., signs of recovery in the U.K. and by keeping track with the Emerald transition.

Quarter in Detail

Total sales were at $224.8 million, down 8.8% from $246.6 million recorded in the year-ago comparable quarter and short of the Zacks Consensus Estimate of $232.2 million. The top line mainly declined due to the exit of certain high volume, low margin nut SKUs, coupled with lower net price realization in international walnut sales and negative foreign currency impact.

Net sales at the company’s Snacks segment fell 0.7% to $115.8 million while at the Nuts segment net sales went down 16.1% year over year to $109.1 million.

Gross profit for the quarter rose 2.5% to $60.9 million from $59.4 million in the year-ago quarter. Gross margin expanded 300 basis points (bps) to 27.1% from 24.1% in the year-earlier quarter. The improvement was backed by higher net realized price in Diamond of California, Emerald and Kettle U.S. as well as improved walnut costs; partly offset by lower net realized price in international walnuts, Kettle U.K. and Pop Secret, along with increased other tree nut costs and negative foreign currency impact.

Gross profit at Diamond Foods’ Snacks segment rose 1.6% year over year to $42.3 million. Gross margin at the segment contracted 30 bps to 36.5%, mainly due to lower realized prices for Kettle U.K and Pop Secret and negative currency impact, offset by strong Kettle U.S. results.

At the Nuts segment, gross profit surged 13.4% to $18.6 million. Moreover, gross margin expanded 440 bps to 17% from 12.6% in the year-ago quarter due to higher price realizations at Diamond of California and Emerald brands 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 $30.4 million, up nearly 1% from the year-ago comparable quarter.

Financial Update

Diamond Foods ended first-quarter fiscal 2016 with total current assets of $353.2 million compared with $403.3 million available at the end of first-quarter fiscal 2015. As of Oct 31, 2015, net debt outstanding was at $637.3 million while shareholders’ equity was $314.7 million.

Other Developments

On Oct 28, Diamond Foods signed a merger agreement with Charlotte-based snack maker – Snyder's-Lance Inc. LNCE. Per this agreement, the latter will buy all of Diamond Foods shares in a cash and stock deal. Including debt worth roughly $640 million, the transaction is valued at $1.91 billion.

Under the terms of the agreement, all of Diamond Foods’ shareholders will be entitled to 0.775 Snyder's shares along with cash of $12.50 per share on closure of the deal that is expected in first quarter of calendar 2016.

Guidance

Diamond Foods expects to close the proposed merger of Snyder's-Lance in the first quarter of calendar 2016, which may remain independent throughout fiscal 2016. Thus, the company retains its initial guidance for fiscal 2016, excluding the impact from the acquisition.

Diamond Foods expects fiscal 2016 adjusted earnings in the range of $1.21–$1.32 per share and adjusted EBITDA of $131–$136 million. The guidance 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.

Additionally, this Zacks Rank #3 (Hold) company expects about $1 million of cash tax payment in fiscal 2016, resulting from the current $348million tax net operating loss carry forward.

Stocks to Consider

Some better-ranked stocks in the same industry include Campbell Soup Company CPB and Omega Protein Corporation OME, both carrying a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DIAMOND FOODS (DMND): Free Stock Analysis Report
 
CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
SNYDERS-LANCE (LNCE): Free Stock Analysis Report
 
OMEGA PROTEIN (OME): Free Stock Analysis Report
 
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Zacks Investment Research