Diamond Foods Beats on Q1 Earnings, Retains FY15 View - Analyst Blog

Diamond Foods Inc. (DMND) stepped into fiscal 2015 with solid first-quarter earnings results. The company's adjusted earnings for the quarter jumped 33.3% to 28 cents per share, mainly benefiting from strong market share gains. Moreover, adjusted earnings surpassed the Zacks Consensus Estimate of 24 cents per share.

Including one-time items, the company reported earnings per share of 24 cents during the quarter against a loss of $1.92 in first-quarter fiscal 2014.

Following the announcement of the better-than-anticipated first-quarter results, shares of this packaged foods company gained about 2% in yesterday's after-hours trading session.

Quarter in Detail

Total sales for the reported quarter were $246.6 million, up 5.1% from $234.7 million recorded in the year-ago comparable quarter. However, the company's top line fell short of the Zacks Consensus Estimate of $255 million. The year-over-year improvement was driven by strong market share gains in the U.S. owing to robust performance of Kettle US, Diamond of California and Emerald 100 calorie pack. This was partially offset by a decline in the U.K. due to the loss of a private label contract.

Net sales at the company's Snacks segment increased 3.6% to $116.6 million while at the Nuts segment net sales improved 6.5% year over year to $130.0 million.

Gross profit for the quarter rose 2.5% year over year to $59.4 million from $57.9 million in the year-ago quarter. Gross margin contracted 60 basis points (bps) to 24.1% from 24.7% in the year-earlier quarter.

Gross profit at Diamond Foods' Snacks segment increased 9% year over year to $43 million. As a percentage of sales, it expanded 180 bps to 36.8%, mainly due to higher productivity and lower input costs.

At the Nuts segment, gross profit declined 11.2% to $16.4 million due to unfavorable channel and product mix and increased tree nut commodity costs. Meanwhile, gross margin contracted 260 bps to 12.6%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter came in at $30.7 million versus $29.1 million in the year-ago comparable quarter. However, adjusted EBITDA margin remained flat at 12.4%.

Financial Update

Diamond Foods, which competes with ConAgra Foods Inc. (CAG), ended the quarter with total current assets of $403.3 million compared with $362.2 million available at the end of first-quarter fiscal 2014. As of Oct 31, 2014, long-term debt obligation was at $636.3 million while shareholders' equity was $280.6 million.

Fiscal 2015 Guidance

After concluding first-quarter fiscal 2014 on a high note, Diamond Foods retained its fiscal 2015 guidance, wherein it expects adjusted earnings to come in the range of 90 cents to $1.10 per share. The adjusted earnings guidance range is based on 31.9 million diluted shares outstanding, stock based compensation of $9.7 million and an effective tax rate of about 26% to 28%. Other assumptions include input cost inflation of 3% to 4%, productivity improvements of 2% to 3% and a U.S./U.K. exchange rate of $1.60 per (Pounds).

Furthermore, the company projects adjusted EBITDA to come in between $115 million and $123 million.

Other Stocks to Consider

Currently, Diamond Foods has a Zacks Rank #3 (Hold). Some better-ranked stocks in the food industry include Aramark (ARMK), holding a Zacks Rank #1 (Strong Buy), and The Hain Celestial Group Inc. (HAIN), carrying a Zacks Rank #2 (Buy).

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