- Consolidated net sales were $220.8 million, down from $262.4
million
- Snacks segment net sales grew 7.2 percent and Nuts segment net
sales declined 29.6 percent
- Gross profit was $50.6 million, up from $41.9 million
- Gross margin was 22.9 percent, up from 16.0 percent
- GAAP net income was $10.1 million, compared to a GAAP net loss
of $20.2 million
- Adjusted EBITDA was $22.9 million, up from $16.6 million
(All comparisons above are to the second quarter of fiscal
2012)
Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported
financial results for its fiscal 2013 second quarter ended January
31, 2013.
In the second quarter of fiscal 2013, Diamond's GAAP net income
was $10.1 million and GAAP diluted earnings per share (EPS) was
$0.43. GAAP results for the quarter included $6.7 million of net
charges primarily for audit committee investigation,
restatement-related expenses, consulting fees, retention, severance
and accrued contract termination expenses, offset in part by the
clawback of bonuses previously paid to the former CEO and the
reversal of certain previously recorded stock compensation expenses
associated with former executives. GAAP results also included an
$18.6 million gain related to a change in the fair value of the
Oaktree warrant liability. Excluding these net charges and gain,
Diamond's non-GAAP net income for the second quarter of fiscal 2013
was $1.1 million and non-GAAP diluted EPS was $0.05.
"Our second quarter results reflect continued progress against
our key initiatives, which are aimed at driving margin expansion
and a more sustainable topline growth profile over time," said
Diamond's Chief Executive Officer Brian J. Driscoll.
Financial Review
During the second quarter of fiscal 2013, the Company changed
its operating and reportable segments. While the Company previously
had one operating and reportable segment, it now aggregates its
operating segments into two reportable segments, which are Snacks
and Nuts. The Snacks segment includes products sold under the
Kettle U.S., Kettle U.K. and Pop Secret brands. The Nuts
segment includes products sold under the Diamond of California and
Emerald brands.
Consolidated net sales during the quarter decreased 15.8
percent, to $220.8 million, compared to the same quarter of the
prior year, which was consistent with the Company's plan to reduce
reliance on discounting over time and eliminate underperforming
SKUs. Gross profit was $50.6 million, or 22.9 percent of net
sales, for the second quarter of fiscal 2013, compared to $41.9
million and 16.0 percent of net sales for the same quarter in the
prior year.
Snacks Performance: Snacks net sales
increased 7.2 percent, to $105.4 million, driven by an increase in
net price realization on a 2 percent volume increase. Snacks
gross profit was $34.8 million, or 33.0 percent of net sales, for
the second quarter of fiscal 2013, compared to $28.4 million, or
28.9 percent of net sales, for the same quarter in the prior year.
Improvement in Snacks gross profit as a percentage of net sales
reflects an increase in net price realization.
Nuts Performance: Nuts net sales decreased
29.6 percent, to $115.4 million, driven by a 37.1 percent volume
decline. The primary drivers of the decline relate to lower
walnut supply, planned reductions in SKUs and promotional spending
associated with the Emerald brand. Nuts gross profit was
$15.7 million, or 13.6 percent of net sales, in the second quarter
of fiscal 2013, compared to $13.5 million, or 8.2 percent of net
sales, for the same quarter in the prior year. Improvement in Nuts
gross profit as a percentage of net sales in the current quarter
reflects a focus on increasing price realization, reducing lower
performing SKUs and cost savings initiatives.
SG&A expense decreased to $32.3 million during the
second quarter of fiscal 2013, compared to $34.3 million during the
same quarter in the prior year. Included in the second quarter
of fiscal 2013 are $6.7 million of certain SG&A items related
primarily to restatement-related expenses, consulting fees, accrued
contract termination expenses, retention and severance accruals,
offset in part by the clawback of bonuses previously paid to the
former CEO and the reversal of certain previously recorded stock
compensation expenses associated with former executives. Included
in the second quarter of fiscal 2012 are $10.7 million of certain
SG&A expenses related primarily to the audit committee
investigation and walnut labeling settlement.
Advertising expense was $12.3 million, or 5.6 percent of
net sales, during the second quarter of fiscal 2013, compared to
$11.6 million, or 4.4 percent of net sales, in the same quarter in
the prior year. This increase in advertising expense was due
to programs related to Pop Secret and the 100th anniversary of the
Diamond of California culinary nut brand.
The Company recognized an $18.6 million gain on the
Oaktree warrant liability in the quarter, primarily due to a
decrease in the Company's stock price on January 31, 2013, as
compared to October 31, 2012.
Net interest expense was $14.2 million in the second
quarter of fiscal 2013, compared to $6.5 million in the same
quarter in the prior year. The increase was primarily due to
the interest rate increase on the Secured Credit Agreement and the
new Oaktree debt.
The Company's effective tax rate was 2.5 percent for the
second quarter of fiscal 2013.
GAAP net income was $10.1 million compared to a loss of
($20.2) million in the same quarter last year. On a non-GAAP basis,
net income was $1.1 million compared to $0.2 million last
year.
EPS for the second quarter of fiscal 2013 on a GAAP
diluted basis was $0.43 compared to a loss of $0.93 in the prior
year. Non-GAAP EPS on a diluted basis was $0.05 compared to
$0.01 in the prior year.
The non-GAAP fully diluted EPS calculation includes 1.4
million and 1.8 million shares related to the Oaktree warrants
based on the Treasury stock method for the second quarter and
year-to-date periods, respectively.
Capital expenditures were $1.6 million for the second
quarter of fiscal 2013.
Adjusted EBITDA was $22.9 million, or 10.4 percent of net
sales, in the second quarter of fiscal 2013, compared to $16.6
million, or 6.3 percent of net sales, in the same quarter in the
prior year. Year-to-date adjusted EBITDA increased $7.6
million, to $54.0 million, compared to prior year. Please
refer to the table in the back of this press release for a
reconciliation of GAAP to non-GAAP information.
As of January 31, 2013, net debt outstanding was $553.8
million, including the Oaktree debt at its carrying value, as
described in Footnote 3 of the Notes to Consolidated Financial
Statements included as a part of Diamond's Quarterly Report on Form
10-Q.
Cash and availability on Diamond's bank revolving line of
credit on March 8, 2013 was approximately $80 million.
The Company expects to continue its strategy to seek
improvements to net price realization through reductions in
discounting and to rationalize Emerald SKUs. This continued
strategic emphasis should result in consolidated net sales in the
second half of fiscal 2013 to be down more on a year-over-year
basis as compared to the first half of the fiscal year. The Company
currently believes that its consolidated margin in the first half
of fiscal 2013 represents a reasonable estimate for the remainder
of fiscal year 2013, although it may fluctuate if brand development
tactics change and/or walnut or other commodity costs
increase. The Company also expects to continue investing in
advertising across its brands as part of the focus on balancing
promotional spending with consumer oriented activities.
Conference Call
Diamond will host an investor conference call and webcast
on March 11, 2013, at 1:30 p.m. Pacific Daylight Time, to discuss
results for the second quarter of fiscal 2013.
To participate in the call via telephone dial (888) 213-3934
from the U.S./Canada or (913) 312-1447 elsewhere and enter the
participant pass code of 742-4396. To listen to the call over the
internet, visit the company's website at
http://www.diamondfoods.com and select "Investor Relations."
Archived audio replays of the call will be available on the
company's website and via telephone. The latter will begin
approximately two hours after the call's conclusion and remain
available through 5:00 p.m. Pacific Daylight Time March 18, 2013.
It can be accessed by dialing (888) 203-1112 from the U.S./Canada
or (719) 457-0820 elsewhere. Both phone numbers require the
participant pass code 742-4396.
To receive email notification of future press releases from
Diamond Foods, please visit
http://investor.diamondfoods.com and select "email
alerts."
Financial Summary
Summarized Statement of Operations:
|
Three months
ended |
Six months
ended |
|
January
31, |
January
31, |
(in thousands,
except per share amounts) |
2013 |
2012 |
2013 |
2012 |
Net sales |
$ 220,844 |
$ 262,351 |
$ 479,306 |
$549,744 |
Cost of sales |
170,275 |
220,429 |
370,191 |
446,515 |
Gross profit |
50,569 |
41,922 |
109,115 |
103,229 |
Operating expenses: |
|
|
|
|
Selling, general and administrative |
32,266 |
34,304 |
70,447 |
63,759 |
Advertising |
12,294 |
11,638 |
21,339 |
24,354 |
Acquisition and integration related
expenses |
-- |
12,091 |
-- |
29,305 |
(Gain) on warrant liability |
(18,625) |
-- |
(11,109) |
-- |
Total operating expenses |
25,935 |
58,033 |
80,677 |
117,418 |
Income (loss) from operations |
24,634 |
(16,111) |
28,438 |
(14,189) |
Interest expense, net |
14,231 |
6,471 |
28,143 |
12,232 |
Income (loss) before income taxes |
10,403 |
(22,582) |
295 |
(26,421) |
Income taxes (benefit) |
262 |
(2,398) |
883 |
(17,038) |
Net income (loss) |
$ 10,141 |
$ (20,184) |
$ (588) |
$(9,383) |
Earnings (loss) per share (EPS): |
|
|
|
|
Basic |
$ 0.46 |
$ (0.93) |
$ (0.03) |
$ (0.43) |
Diluted |
$ 0.43 |
$ (0.93) |
$ (0.03) |
$ (0.43) |
Shares used to compute EPS: |
|
|
|
|
Basic |
21,781 |
21,724 |
21,703 |
21,684 |
Diluted |
23,142 |
21,724 |
21,703 |
21,684 |
Segment information:
|
Three months
ended |
Six months
ended |
|
January
31, |
January
31, |
(in
thousands) |
2013 |
2012 |
2013 |
2012 |
Net sales |
|
|
|
|
Snacks |
$ 105,421 |
$98,356 |
$216,664 |
$209,258 |
Nuts |
115,423 |
163,995 |
262,642 |
340,486 |
Total |
220,844 |
262,351 |
479,306 |
549,744 |
Gross profit |
|
|
|
|
Snacks |
34,836 |
28,448 |
73,129 |
63,445 |
Nuts |
15,733 |
13,474 |
35,986 |
39,784 |
Total |
$ 50,569 |
$ 41,922 |
$ 109,115 |
$ 103,229 |
Summarized Balance Sheet Data:
|
January
31, |
(in
thousands) |
2013 |
2012 |
Cash and cash equivalents |
$4,583 |
$1,333 |
Trade receivables, net |
67,934 |
93,782 |
Inventories |
182,143 |
220,611 |
Current assets |
276,040 |
383,697 |
Property plant and equipment, net |
138,073 |
157,303 |
Other intangible assets, net |
434,401 |
441,669 |
Goodwill |
404,791 |
403,903 |
Current liabilities |
242,228 |
330,231 |
Total debt |
558,360 |
558,449 |
Stockholders' equity |
328,577 |
402,130 |
Non-GAAP Financial
Information
Reconciliation of
income (loss) before income taxes to non-GAAP EPS: |
|
|
|
|
Three months
ended |
Six months
ended |
|
January
31, |
January
31, |
(in thousands,
except per share amounts) |
2013 |
2012 |
2013 |
2012 |
GAAP income (loss) before income taxes |
$10,403 |
$(22,582) |
$295 |
$(26,421) |
|
|
|
|
|
(Gain) on warrant liability |
(18,625) |
-- |
(11,109) |
-- |
Reduction of liability due to lease
assignment |
-- |
-- |
(1,319) |
-- |
Adjustment to remove costs associated
with acquisitions and integrations |
-- |
12,091 |
-- |
29,305 |
Adjustment to exclude certain SG&A
expenses (1) |
6,653 |
10,710 |
18,794 |
12,726 |
Non-GAAP income before income taxes |
(1,569) |
219 |
6,661 |
15,610 |
GAAP income taxes (benefit) |
262 |
(2,398) |
883 |
(17,038) |
Tax effect of Non-GAAP adjustments |
(2,973) |
2,384 |
(513) |
16,070 |
Non-GAAP income taxes (benefit) |
(2,711) |
(14) |
370 |
(968) |
Non-GAAP net income |
$1,142 |
$233 |
$6,291 |
$16,578 |
Non-GAAP EPS-diluted |
$0.05 |
$0.01 |
$0.26 |
$0.75 |
Shares used in computing Non-GAAP
EPS-diluted |
23,523 |
22,056 |
23,882 |
22,044 |
|
(1) Fiscal 2013 SG&A
expenses related primarily to audit committee investigation,
restatement-related expenses, legal investigation expenses,
consulting fees, accrued contract termination expenses, retention
and severance accruals, offset by the clawback of bonuses paid to
former CEO and the reversal of certain previously recorded stock
compensation expenses associated with former executives.
|
|
Reconciliation of GAAP
net income (loss) to Adjusted EBITDA: |
|
|
|
|
Three months
ended |
Six months
ended |
|
January
31, |
January
31, |
(in
thousands) |
2013 |
2012 |
2013 |
2012 |
Net income (loss) |
$10,141 |
$(20,184) |
$(588) |
$(9,383) |
Income taxes (benefit) |
262 |
(2,398) |
883 |
(17,038) |
Income (loss) before income taxes |
10,403 |
(22,582) |
295 |
(26,421) |
Interest expense, net |
14,231 |
6,471 |
28,143 |
12,232 |
Income from operations |
24,634 |
(16,111) |
28,438 |
(14,189) |
|
|
|
|
|
Costs associated with acquisitions and
integrations |
-- |
12,091 |
-- |
29,305 |
Reduction of liability due to lease
assignment |
-- |
-- |
(1,319) |
-- |
(Gain) on warrant liability |
(18,625) |
-- |
(11,109) |
-- |
Certain SG&A expenses (1) |
8,896 |
10,710 |
20,680 |
12,726 |
Stock-based compensation expense (2) |
(128) |
2,949 |
1,122 |
4,851 |
Depreciation and amortization |
8,171 |
6,916 |
16,138 |
13,659 |
Adjusted EBITDA |
$22,948 |
$16,555 |
$53,950 |
$46,352 |
|
(1) Fiscal 2013 SG&A
expenses related primarily to audit committee investigation,
restatement-related expenses, legal investigation expenses,
consulting fees, accrued contract termination expenses, retention
and severance accruals, offset by the clawback of bonuses paid to
former CEO. For Non-GAAP EPS calculations, certain SG&A
expenses also includes retention related stock-based compensation
and the reversal of certain previously recorded stock compensation
expenses associated with former executives. |
(2) Stock-based
compensation for the three and six months ended January 31, 2013,
included a $2.5 million reversal of certain previously recorded
stock compensation expenses associated with former executives. |
About Diamond's
non-GAAP Financial Measures
This release contains non-GAAP financial measures of Diamond's
performance ("non-GAAP measures") for different
periods. Non-GAAP financial measures should not be considered
as a substitute for financial measures prepared in accordance with
GAAP. Diamond's non-GAAP financial measures do not reflect a
comprehensive system of accounting and differ both from GAAP
financial measures and from non-GAAP financial measures used by
other companies. Diamond urges investors to review its
reconciliation of non-GAAP financial measures to GAAP financial
measures and its financial statements to evaluate its business.
Diamond believes that its non-GAAP financial measures provide
meaningful information regarding operating results because they do
not include amounts that Diamond excludes when monitoring operating
results and assessing performance of the business. Diamond
believes that its non-GAAP financial measures also facilitate
comparison of results for current periods and business outlook for
future periods. Diamond's non-GAAP financial measures include
adjustments for the following items:
- In the second quarter of fiscal 2013, $18.6 million due to a
gain on Oaktree warrant liability, $6.7 million due to SG&A
expenses related primarily to restatement-related expenses,
consulting fees, accrued contract termination expenses, retention
and severance accruals, offset by the clawback of stock
compensation and bonuses paid to the former CEO and the reversal of
certain previously recorded stock compensation expenses associated
with former executives.
- In the second quarter of fiscal 2012, $12.1 million in costs
were incurred due to the proposed acquisition of Pringles, $10.7
million due to SG&A expenses related primarily to the audit
committee investigation and walnut labeling settlement, and $2.9
million in stock-based compensation.
- Adjusted EBITDA is used by management as a measure of operating
performance. Adjusted EBITDA is defined as net income before
interest expense, income taxes, equity compensation, depreciation,
amortization, and other non-operating expenses, including the
aforementioned SG&A and acquisition and integration
costs. We believe that adjusted EBITDA is useful as an
indicator of ongoing operating performance. As a result, some
management reports feature adjusted EBITDA, in conjunction with
traditional GAAP measures, as part of our overall assessment of
company performance.
Diamond's management uses non-GAAP measures in internal reports
used to monitor and make decisions about its business, such as
monthly financial reports prepared for management. The
principal limitation of the non-GAAP measures is that they exclude
significant expenses and gains required under GAAP. They also
reflect the exercise of management's judgments about which
adjustments are appropriately made. To mitigate this
limitation, Diamond presents the non-GAAP measures in connection
with GAAP results and recommends that investors do not give undue
weight to them. Diamond believes that non-GAAP measures
provide useful information to investors by allowing them to view
the business through the eyes of management, facilitating
comparison of results across historical and future periods, and
providing a focus on the underlying operating performance of the
business.
Note regarding forward-looking
statements
This press release includes forward-looking statements,
including statements about our progress in key initiatives, margin
expansion and top line or revenue growth, improvements in net price
realization, SKU rationalization, projections for net sales and
gross profit as a percentage of net sales and suggestions about
future financial and operating performance and results that may be
implicit in summaries of recent results. We use the words
"anticipate," "believe," "estimate," "expect," "intend," "plan,"
"seek," "may" and other similar expressions to identify
forward-looking statements. These forward-looking statements are
based on our assumptions, expectations and projections about future
events only as of the date of this press release, and we make such
forward-looking statements pursuant to the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. We do
not undertake any obligation to update forward-looking statements
to reflect events or circumstances occurring after the date of this
press release. Many of our forward-looking statements are
subject to trends and potential developments discussed in the "Risk
Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections of the periodic
reports that we file with the SEC. Actual results may differ
materially from what we currently expect because of many risks and
uncertainties, such as: risks relating to our leverage and
its effect on our ability to respond to changes in our business,
markets and industry; potential increases in the cost of our debt;
uncertainty about our ability to raise additional capital and the
possible dilutive impact of raising such capital; risks relating to
litigation and regulatory proceedings; uncertainties relating to
availability and cost of walnuts and other raw materials;
increasing competition and possible loss of key customers; and
general economic and capital markets
conditions.
About Diamond
Diamond Foods is an innovative packaged food company
focused on building and energizing brands including Kettle® chips,
Emerald® nut varieties, Pop Secret® popcorn, and Diamond of
California® nuts. The Company's products are distributed in a wide
range of stores where snacks and nuts are sold.
Corporate Web Site: www.diamondfoods.com
The Diamond Foods, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=6112
CONTACT: Investors:
Diamond Foods
Linda Segre
SVP, Corporate Strategy
(415) 230-7952
lsegre@diamondfoods.com
Media:
Sard Verbinnen & Co for Diamond Foods
Lucy Neugart/Stacy Roughan
(415) 618-8750 or (310) 201-2040
lneugart@sardverb.com
sroughan@sardverb.com
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