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Diamond Foods Rises on Q2 Earnings Beat

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Shares of Diamond Foods Inc. rose 5.8% in yesterday’s after-hour trading session after the company announced better-than-expected bottom-line results for the second quarter of fiscal 2014. The company’s quarterly adjusted earnings per share of 9 cents registered year-over-year growth of 80% and beat the Zacks Consensus Estimate of 8 cents.

The results were primarily attributable to strong sales performance and margin expansion at the company’s Snacks segment, partly offset by weak performance at its Nuts segment. Further, including one-time items, the company reported loss per share of 68 cents during the quarter against a loss of 37 cents in second-quarter fiscal 2013.

Quarter in Detail

Total sales for the reported quarter were $220.6 million, marginally down from $220.8 million recorded in the year-ago comparable quarter. However, the top line surpassed the Zacks Consensus Estimate of $219.0 million. The robust performance at Snacks division was offset by weak performance in the Nuts segment.

Net sales at the company’s Snacks segment increased 10.8% to $116.8 million while the Nuts segment net sales fell 10.1% to $103.8 million.

Gross profit for the quarter increased 10.6% year over year to $55.9 million from $50.6 million in the year-ago quarter. Nevertheless, gross margin increased 250 basis points (bps) to 25.4% from 22.9% in the year-earlier quarter. The rise in gross margin was mainly driven by strong performance at Snacks division owing to better price realization.

Gross profit at Diamond Foods’ Snacks segment increased 22.1% year over year to $42.5 million while as a percentage of sales, it improved 340 bps to 36.4%. At the Nuts segment, gross profit declined 14.6% to $13.4 million and gross margin contracted 70 bps to 12.9%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter came in at $28.6 million versus $22.9 million in the year-ago comparable quarter. Adjusted EBITDA margin increased 250 bps to 12.9%, primarily driven by solid margin expansion at the Snacks division.

Financial Gist

Diamond Foods ended second-quarter fiscal 2014 with cash and availability of $74.4 million under its total revolving credit facility. As of Jan 31, 2014, net debt was $551.8 million, including the Oaktree notes.

Fiscal 2014 Outlook

Despite commodity costs’ pressure on its Nuts division, Diamond Foods expects adjusted EBITDA to improve year over year in fiscal 2014, based on the impact of its ongoing multi-year turnaround initiatives.

Other Stocks to Consider

Currently, Diamond Foods has a Zacks Rank #2 (Buy). Investors interested in the food industry could also consider stocks like The Hain Celestial Group, Inc. (HAIN - Free Report) , Inventure Foods, Inc. and J&J Snack Foods Corp. (JJSF - Free Report) . All of these carry a Zacks Rank #2 (Buy).

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