UPDATE: Diamond Foods Expects To Miss Deadline Due To Accounting Probe

Diamond Foods Inc. (DMND) said it expects to miss the filing deadline for its fiscal first-quarter results as it continues to work through an internal accounting investigation into payments to walnut growers.

The accounting questions, which relate to whether payments to walnut growers were properly booked, have hammered Diamond Foods shares over the past month. Shares were recently off 21% to $32.08 in regular trading, making it the worst performer in the S&P 1500. The stock has lost more than two-thirds of its value since late September, shortly after Diamond Foods reported fiscal-year results.

The decline erased nearly all of the gains Diamond Foods' shares notched on Friday after a KeyBanc Capital Markets analyst said the company's accounting inquiry into walnut payments likely won't turn up any wrongdoing.

As a result of missing that filing deadline, which fell on Saturday, Diamond Foods said it expects to receive a note from Nasdaq that it is not in compliance with listing rules. Diamond Foods will continue to trade on the Nasdaq Global Select Market, as the company has a period of time to submit a plan to get back into compliance.

Some walnut growers have challenged Diamond Foods' explanation of what the company called momentum payments. Shareholder suits against the company have claimed that Diamond may have used the payments to shift costs from the fiscal year that ended July 31 into the current year, padding earnings for the previous year.

The company's audit committee currently expects to wrap up its investigation into the matter by the middle of February. Diamond Foods added it will file its fiscal first-quarter results "as soon as practicable" following the conclusion of the investigation.

The probe has caused Diamond Foods to delay to next year its planned $2.35 billion acquisition of the Pringles snack brand from Procter & Gamble Co. (PG). P&G in April agreed to sell the potato-crisp maker to Diamond Foods, a deal that would allow it to triple the size of its snack business.

-By Mia Lamar and John Kell, Dow Jones Newswires;

212-416-3207; mia.lamar@dowjones.com

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