Diamond Foods (DMND) Plunges Despite Earnings Beat

Joel Anderson |

Shares of snack-food maker Diamond Foods (DMND) fell sharply on Tuesday after the company’s earnings report, released after market close on Monday, included a lower outlook for future earnings. Shares fell over 10 percent, cutting into year-to-date gains of nearly 80 percent as of last week’s close. The fall came despite Q3 and year-end earnings for 2013 that beat consensus estimates.

Earnings are up despite declining nut sales

Diamond reported Q4 earnings that beat expectations. At $0.09 a share, earnings were significantly better than Zacks consensus estimates that the company would break even. Total sales also exceeded Zacks estimates, coming in at $199.8 million. While that represents a 10.8 percent decline, year over year, consensus was for just $192 million.

Holding back sales was a disappointing performance in the nut segment. Diamond has many prominent snack food brands, including Kettle brand chips, Pop Secret popcorn, and the recently relaunched Emerald Snack Nuts. Sales in the snack segment grew year-over-year by 3.3 percent to $117.1 million, but this was despite a 25.2 percent decline in the nuts segment to $82.7 million off a 34 percent drop in volume.

On the whole, gross profit jumped 25.5 percent from the same quarter in 2012, climbing to $53.1 million from $42.3 million the year prior. Gross margin also climbed to 26.6 percent from its 18.9 percent last year. Full-year earnings of $0.40 per share exceeded Zacks estimates of $0.33. On the whole, it appeared that Diamond continued its recovery from the accounting scandal that prevented them from buying Pringles from Proctor & Gamble (PG) and sent the company’s stock into the tank in late 2011.

Dreary outlook for next quarter hits stock hard

While much of the earnings news was positive, the outlook for the next quarter was negative, pushing down Diamond shares.

"While Diamond might be close to stopping the bleeding, the return to sustained growth might still be a few quarters away," wrote Thilo Wrede of Jefferies (JEF) .

The costs associated with the Emerald Nuts relaunch, combined with an increase in walnut prices, is expected to create downward pressure on sales and earnings in the first quarter of 2014.

“Although recent results seem to be moving in the right direction, we point out that Diamond is still a company undergoing a major restructuring and still has significant challenges ahead of it," said Akshay Jagdale of KeyBanc Capital Markets (KEY) .

[Image Courtesy of Wikimedia Commons]

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Symbol Name Price Change % Volume
DMND Diamond Foods Inc. n/a n/a n/a 0
KEY KeyCorp 13.04 0.02 0.15 10,194,614
KMNFF Mitchell Resources Ltd 0.09 0.00 0.00 0
PG Procter & Gamble Company (The) 84.33 -0.60 -0.71 13,974,139


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