Diamond Foods (DMND) Tanks in After-Hours Trading After Disappointing Q3 Earnings Report

Jianyu Zhao  |

Snack food maker Diamond Foods, Inc. (DMND) reported its Q3 2014 financial earning results after the bell on June 5, causing shares to fall over 9.25 percent in after-hours trading.

According to the financial report, Diamond Foods, the San Francisco, California-based packaged food company had posted a wider loss than expected. Diamond Foods reported a net loss of $105.6 million, or $3.63 per share, compared with a loss of $15.6 million, or $0.71 per share one year earlier.

Though the adjusted earnings had a 3.2 percent year-over-year increase to $0.11 per share on revenue of $190.9 million, it was lower than the average estimate of $0.17 per share on revenue of $191.7 million from a Thomas Reuters poll of analysts.

In addition, a debt charge of $83.0 million relating to the refinancing transactions was expensed in Q3. On February 19, 2014, Diamond Foods re-financed its outstanding debt, including the Oaktree notes, and Oaktree exercised their warrant of 4.4 million shares. $41.6 million of the total charge represented the difference between the reacquisition price and the carrying value of the Oaktree debt. $28.7 of the debt call premium, and $12.7 million of went for refinancing transaction costs.

The company has two major segments: Snacks and Nuts. Snacks segment sales did grow 9.6 percent to $114.3 million, which includes products sold under the Kettle U.S., Kettle U.K. and Pop Secret brands. Meanwhile, nuts segment sales slid

5.0 percent to $76.6 million, which includes products sold under the Diamond of California and Emerald brands.

In a statement, DMND’s CEO Brian J. Driscoll admitted that the Nuts segment did serious damage to the revenues.

“We are very pleased with the overall performance of our Snacks segment in the third quarter, as we continued to deliver solid year-over-year sales growth and gross margin expansion,” he said. “While these results reflect strong progress against our overall turnaround plan, in the Nuts segment a walnut cost increase this quarter impacted our results by $2.2 million.”

The stock of DMND displays a few notable weaknesses, which may have a greater impact than any strengths. The flaws include its deteriorating net income, high debt management risk, disappointing return on equity, and poor profit margins.

On the basis of change in net income, the company has significantly underperformed when compared to that of the S&P 500 and the Food Products industry. The net income plummeted 248.5 percent to -$15.06 million, comparing with that of $10.14 million in Q3 of fiscal 2013.

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