Diamond Foods Reports Weak 1Q - Analyst Blog
December 18 2012 - 3:00AM
Zacks
Diamond Foods
Inc.'s (DMND) first-quarter fiscal 2013 adjusted earnings
of 24 cents per share plummeted 66.2% from the year-ago quarter’s
earnings of 71 cents, primarily driven by weak top-line performance
and deleveraged operating expenses. However, the earnings were
above the Zacks Consensus Estimate of 23 cents.
Including certain items, the
company reported a loss of 49 cents during the quarter against
earnings of 47 cents in the first quarter of fiscal 2012.
Total sales for the reported
quarter were $258.5 million, down 10.1% from $287.4 million
recorded in the year-ago quarter. Moreover, the top line missed the
Zacks Consensus Estimate of $274.0 million. The year-over-year
decline in total sales was mainly due to weak performances
delivered at the company’s both segments.
Total retail sales decreased 4.1%
year over year to $244.8 million in the first quarter of fiscal
2013, including snack sales of $154.1 million that were down 2.0%.
The decline in snack sales was attributed to the fall in Emerald
and Kettle sales, partially offset by better Pop Secret sales.
Moreover, total non-retail sales plunged 57.5% to $13.7 million
over the year-ago quarter.
Quarter in
Detail
Gross profit for the quarter
declined 4.5% year over year to $58.5 million primarily due to a
drop in sales. However, gross margin expanded 140 basis points to
22.7% compared with the year-ago quarter’s gross margin of 21.3%.
The expansion in gross margin was a result of better price
realization and benefit coming from reducing underperforming
SKUs.
Selling, general and administrative
(SG&A) expenses augmented 29.6% year over year to $38.2
million, including $11.8 million primarily related to audit
committee investigation, restatement, and related expenses.
However, excluding these costs, SG&A expenses came at $26.4
million, which is 10.2% of net sales versus 9.5% in the comparable
quarter last year.
Advertising expenses in the quarter
declined 29.1% year over year to $9.0 million primarily due to
shift in timings of spending to the remaining period of fiscal
2013.
Consequently, on a reported basis,
operating income in the quarter came in at $3.8 million compared
with an operating income of $1.9 million in the year-ago
quarter.
Financial Gist
Diamond Foods ended the quarter
with cash & equivalents of $9.9 million compared with $4.5
million at the end of the first quarter of fiscal 2012. Total debt
at the end of the quarter came in at $613.1 million, compared with
$576.8 million in the prior-year quarter.
Cash and availability on Diamond's
bank revolving line of credit on Dec 14, 2012 was approximately
$95.0 million.
Capital expenditures for the first
quarter totaled $2.9 million. The company’s major recent expansions
including the UK and Beloit, Wisconsin Kettle expansions were
completed in the fall of 2011 and spring of 2012, respectively.
Our Take
Diamond Foods is swiftly moving
ahead with its recently announced cost savings and operational
effectiveness initiatives. Though the company’s first quarter
fiscal 2013 results do not reflect much of the strategic changes,
the company believes future results will reflect sustained growth
of its brands arising from innovation and differentiation,
improving cost structure and rebuilding walnut supply.
Diamond Foods, which faces intense
competition from Mondelez International Inc.
(MDLZ) and ConAgra Foods Inc. (CAG), currently,
holds a Zacks #5 Rank, implying a short-term Strong Sell rating on
the stock.
CONAGRA FOODS (CAG): Free Stock Analysis Report
DIAMOND FOODS (DMND): Free Stock Analysis Report
MONDELEZ INTL (MDLZ): Free Stock Analysis Report
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