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Diamond Foods Slumps on Earnings Miss

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Shares of Diamond Foods Inc. fell 9.33% in yesterday’s after-hour trading session after the company announced lower-than-expected bottom-line results for the third quarter of fiscal 2014. The company’s quarterly adjusted earnings per share of 11 cents fell short of the Zacks Consensus Estimate of 16 cents per share. However, the company registered year-over-year earnings growth of 37.5% in the quarter.

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 $3.63 during the quarter against a loss of 71 cents in third-quarter fiscal 2013.

Quarter in Detail

Total sales for the reported quarter were $190.9 million, up 3.2% from $184.9 million recorded in the year ago comparable quarter. The top line marginally surpassed the Zacks Consensus Estimate of $189 million. Robust performance at the Snacks division was offset by increased walnut prices that weighed on the performance of the Nuts segment.

Net sales at the company’s Snacks segment increased 9.6% to $114.3 million while at the Nuts segment net sales fell 5.0% to $76.6 million.

Gross profit for the quarter increased 3.9% year over year to $45.1 million from $43.4 million in the year-ago quarter. Gross margin increased 20 basis points (bps) to 23.6% from 23.4% in the year-earlier quarter. The rise in gross margin was mainly driven by strong performance at the Snacks division owing to better price realization.

Gross profit at Diamond Foods’ Snacks segment increased 13.6% year over year to $41.7 million while as a percentage of sales, it improved 130 bps to 36.5%. At the Nuts segment, gross profit declined 49.3% to $3.4 million and gross margin contracted 390 bps to 4.4%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter came in at $23.5 million versus $23.2 million in the year-ago comparable quarter. Adjusted EBITDA margin contracted 20 bps to 12.3%.

Financial Update

Diamond Foods ended third-quarter fiscal 2014 with cash and availability of $127.2 million compared with $74.4 million available at the end of second quarter fiscal 2014. As of Apr 30, 2014, net debt outstanding was $635.4 million while the company had $125 million undrawn under the ABL Revolver.

Fiscal 2014 Guidance

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 #4 (Sell). Better-ranked stocks in the food industry include B&G Foods Inc. (BGS - Free Report) , The Hain Celestial Group Inc. (HAIN - Free Report) and Inventure Foods Inc. . All of these stocks carry a Zacks Rank #2 (Buy).

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The Hain Celestial Group, Inc. (HAIN) - free report >>

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