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Analyst Blog

Diamond Foods Inc.'s (DMND - Analyst Report) fourth-quarter fiscal 2011 earnings of 52 cents per share grew a robust 53% from the prior-year earnings of 34 cents per share, primarily driven by strong top-line growth and improved margins. The fourth-quarter earnings also surpassed the Zacks Consensus Estimate of 44 cents.

Revenue for the reported quarter was $232.8 million, up 32% from $176.6 million recorded in the year-ago quarter. Strong performance in non-retail brands and the snack division drove the year-over-year upside. The top line however missed the Zacks Consensus Estimate of $273.0 million.

Total retail sales climbed 14% year over year to $191.0 million in the fourth quarter of fiscal 2011, driven by healthy performance at Snack. Total non-retail sales posted a massive increase of 380% to $41.8 million over the prior-year period attributable to strong supply especially in the international market.

Gross profit increased 30.0% year over year to $57.1 million. Contrarily, gross margin contracted 50 basis points to 24.5% for the quarter compared with the prior-year quarter’s gross margin of 25%. Operating income in the quarter came in at $21.4 million compared with an operating income of $16.6 million in the prior-year quarter. Operating margin was 9% for the quarter compared with 9.4% in the prior-year quater.

Diamond Foods ended the quarter with cash & equivalents of $3.1 million compared with $5.6 million at the end of the fourth quarter of fiscal 2010. Total debt at the end of the quarter came in at $531.8 million, compared with $556.1 million in the prior-year quarter.

First-Quarter and Fiscal-Year 2012 Guidance

Diamond Foods provided earnings per share guidance for the first half of fiscal 2012 in the range of $1.65 to $1.75. For fiscal 2012, the company expects earnings per share to be in the range of $3.05 to $3.15, revised upward from $3.00 to $23.10.

The company provided revenue guidance for first half of fiscal 2012 between $540.0 million and $560.0 million. The company expects revenue to be in the range of $1.85 billion to $1.95 billion for fiscal 2012.  The company forecasts operating margin in the range of 11.5% to 12% for fiscal 2012.

Diamond Foods, which faces intense competition from Kraft Foods Inc. , Blue Diamond Growers, Sunkist, and John B Sanfilippo & Son Inc. , currently holds a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock. Besides, we have a long-term 'Neutral' recommendation on the stock.