Diamond Foods (DMND) to Build Innovation Center in Salem - Analyst Blog

After concluding fiscal 2014 on a strong note, Diamond Foods Inc. (DMND) is now gearing up to regain its lost market share through expansion of the existing product lines and introduction of new products in the United States. For this, the Stockton, CA-based specialty food company announced the construction of a new innovation center in Salem, OR, next to the Kettle Brand's facility.

Covering a space of approximately 7,000 square feet, the new two-story innovation center will be designed in the shape of a majestic Oak tree by ZGF Architects LLP. Construction at the site has already begun and is expected to be fully operational by next year.

The center will be responsible for developing and innovating new packaging, products and flavors with the help of a dedicated team of employees, including sensory personnel, food scientists, and packaging, marketing and regulatory experts,.

With the opening of this new innovation center Diamond Foods is taking its strategic plan of providing higher-margin branded products at premium price points a step further. We believe that the company's strategic investment in product innovation and brand building will increase its customer base and profitability.

Diamond Foods has been able to successfully revive itself after accounting mishaps in 2012 which deteriorated its top and bottom lines. The company is progressing well with its planned cost containment endeavors and operational initiatives.

We believe that the company's turnaround strategies, such as improving price realization, lowering underperforming SKUs and reducing dependency on discount, have placed it on the path to success, as evident from improved margins and earnings results for fiscal 2014.

Further, we expect the company's future results to exhibit more sustained growth of its brands due to product innovation and differentiation as well as improved cost structure.

However, the company remains susceptible to near-term headwinds such as challenges related to procurement of walnut supplies and mending ties with growers. Furthermore, we remain skeptical about the company's performance going forward due to its highly leveraged balance sheet.

Diamond Foods currently has a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked retail stocks worth investing include The Hain Celestial Group, Inc. (HAIN) and Aramark (ARMK) with a Zacks Rank #1 (Strong Buy), and ConAgra Foods, Inc. (CAG), carrying a Zacks Rank #2 (Buy).