Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported
financial results for its fiscal 2014 first quarter ended October
31, 2013.
First Quarter Fiscal 2014 Highlights
- Net sales decreased 9.2% to $234.7 million
- Snacks sales increased 1.2% to $112.6 million and Nuts sales
decreased 17.1% to $122.1 million
- Gross margin was 24.7% compared to 22.7%
- Net loss was $42.2 million and non-GAAP net income was $5.0
million
- Adjusted EBITDA decreased 6.1% to $29.1 million
(All comparisons above are to the first quarter fiscal year
2013. Non-GAAP financial measures are reconciled in the tables
below)
"Our first quarter financial results were in line with our
expectations and reflect the headwinds we anticipated from lower
walnut supply and Emerald re-launch costs," said Brian Driscoll,
President and CEO. "We continue to focus on gross margin
improvement strategies as well as investing in brand building and
innovation as we seek to achieve long-term sustainable growth.
Looking ahead, we expect to benefit from the improved foundation of
our business, and remain confident that we are on track to achieve
earnings improvement in fiscal 2014."
First Quarter Fiscal 2014
Net sales decreased 9.2% to $234.7 million compared to $258.5
million in the prior year period and gross profit as a percent of
net sales was 24.7% compared to 22.7% last year.
Net loss was $42.2 million, or a loss of $1.92 per share on a
fully diluted basis. During the quarter, Diamond incurred $23.5
million in expenses for the mark to market adjustments related to
shares issuable in connection with the settlement of the securities
class action lawsuit, a $5.0 million expense associated with the
Company's estimated future impact from a potential resolution of
the Securities and Exchange Commission investigation and a $17.0
million charge related to a change in the fair value of the Oaktree
warrant liability. Excluding these charges, non-GAAP net income for
the first quarter was $5.0 million and non-GAAP fully diluted
earnings per share was $0.18. Adjusted EBITDA was $29.1 million
compared to $31.0 million in the prior year period. Adjusted EBITDA
is a non-GAAP financial measure. Please refer to the tables in this
press release for a reconciliation of all non-GAAP financial
measures.
As of October 31, 2013, net debt outstanding was $583.0 million,
including the Oaktree debt at its carrying value. Cash and
availability on Diamond's bank revolving line of credit on October
31, 2013 was approximately $85.3 million.
Segment Review
The Company has two reportable segments: 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.
Snacks Segment: Net sales during the first
quarter increased 1.2% to $112.6 million compared to prior year
period. Gross profit during the first quarter was $39.4 million,
35.0% of net sales, compared to $38.3 million, 34.4% of net sales,
in the prior year period.
Nuts Segment: Net sales during the first
quarter decreased 17.1% to $122.1 million compared to the prior
year period. Gross profit during the first quarter was $18.5
million, 15.2% of net sales, compared to $20.3 million, 13.8% of
net sales, in the prior year period.
Outlook
The Company expects year-over-year improvement in fiscal 2014
Adjusted EBITDA as it continues to benefit from the execution of
its multi-year turnaround strategy.
Conference Call
The Company will host a conference call with members of the
executive management team to discuss these results with additional
comments and details. The conference call is scheduled to begin
today at 4:30 p.m. ET. To participate on the live call listeners in
North America may dial (888) 401-4669 and international listeners
may dial (719) 457-1035.
In addition, the call will be broadcast live over the Internet
hosted at the "Investor Relations" section of the Company's website
at http://www.diamondfoods.com and will be archived online
through December 19, 2013. A telephonic playback will be available
from 7:30 p.m. ET, December 5, 2013, through December 19, 2013.
North America listeners may dial (877) 870-5176 and international
listeners may dial (858) 384-5517; the passcode is 6123819.
About Diamond Foods
Diamond Foods is an innovative packaged food company focused on
building and energizing brands including Kettle® Chips, Emerald®
snack nuts, Pop Secret® popcorn, and Diamond of California® nuts.
Diamond's products are distributed in a wide range of stores where
snacks and culinary nuts are sold. For more information, visit the
Company's corporate web site: http://www.diamondfoods.com.
Note Regarding Forward-looking Statements
This press release includes forward-looking statements,
including statements about commodity headwinds, gross margin
improvement strategies, investment in brand building and
innovation, prospects for long-term and sustainable growth,
improvements in the foundation of the business and projections as
to earnings improvement in fiscal 2014. 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. Many of our forward-looking statements include
discussions of trends and anticipated developments under 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. We use the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "seek," "may"
and other similar expressions to identify forward-looking
statements that discuss our future expectations, contain
projections of our results of operations or financial condition or
state other "forward-looking" information. You also should
carefully consider other cautionary statements elsewhere in this
press release and in other documents we file from time to time with
the SEC. We do not undertake any obligation to update
forward-looking statements to reflect events or circumstances
occurring after the date of this press release. Actual results may
differ materially from what we currently expect because of many
risks and uncertainties, such as: unexpected difficulties in
implementing our business strategies; changes in consumer
preferences for snack and nut products; risks relating to our
leverage, including the cost of our debt and its effect on our
ability to respond to changes in our business, markets and
industry; potential difficulties raising additional capital, and
the possibly dilutive impact of such capital; risks relating to
litigation and regulatory proceedings; including uncertainty about
the magnitude of our potential liability associated with the SEC
investigation; uncertainties relating to relations with growers;
availability and cost of walnuts and other raw materials;
increasing competition and possible loss of key customers; and
general economic and capital markets conditions.
|
|
|
Financial
Summary |
|
Summarized Statement of
Operations: |
|
Three
Months Ended October 31, |
|
2013 |
2012 |
Net sales |
$ 234,668 |
$ 258,462 |
Cost of sales |
176,735 |
199,916 |
Gross profit |
57,933 |
58,546 |
Operating expenses: |
|
|
Selling, general and administrative |
56,556 |
38,181 |
Advertising |
10,658 |
9,045 |
(Gain) loss on warrant
liability |
16,976 |
7,516 |
Total operating
expenses |
84,190 |
54,742 |
Income (loss) from operations |
(26,257) |
3,804 |
Interest expense, net |
14,848 |
13,912 |
Loss before income taxes |
(41,105) |
(10,108) |
Income taxes (benefit) |
1,048 |
621 |
Net loss |
$ (42,153) |
$ (10,729) |
|
-- |
|
Loss per share: |
|
|
Basic |
$ (1.92) |
$ (0.49) |
Diluted |
$ (1.92) |
$ (0.49) |
Shares used to compute earnings (loss) per
share: |
|
|
Basic |
21,954 |
21,753 |
Diluted |
21,954 |
21,753 |
|
|
|
|
|
|
|
Segment
Information: |
|
|
|
|
|
Three Months
Ended October 31, |
% Change from |
|
2013 |
2012 |
2012 to 2013 |
Net sales |
|
|
|
Snacks |
$112,589 |
$ 111,243 |
1% |
Nuts |
122,079 |
147,219 |
-17% |
Total |
$234,668 |
$ 258,462 |
-9% |
|
|
|
|
Gross profit |
|
|
|
Snacks |
$ 39,424 |
$ 38,287 |
3% |
Nuts |
18,509 |
20,259 |
-9% |
Total |
$ 57,933 |
$ 58,546 |
-1% |
|
|
|
|
|
|
|
Summarized Balance Sheet
Data: |
|
|
|
|
Three Months
Ended |
|
October
31, |
|
2013 |
2012 |
ASSETS |
|
|
Total current assets |
362,178 |
376,011 |
Restricted cash |
-- |
6,389 |
Property, plant and equipment, net |
128,490 |
143,752 |
Deferred income taxes |
-- |
147 |
Goodwill |
405,809 |
407,196 |
Other intangible assets, net |
392,181 |
438,458 |
Other long-term assets |
18,560 |
23,780 |
Total assets |
$1,307,218 |
$1,395,733 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Total current liabilities |
451,563 |
307,473 |
Long-term obligations |
587,265 |
607,642 |
Deferred income taxes |
106,005 |
128,267 |
Other liabilities |
22,374 |
30,208 |
Total stockholders' equity |
140,011 |
322,143 |
Total liabilities and stockholders'
equity |
$1,307,218 |
$1,395,733 |
|
|
|
|
|
|
|
|
Non-Gaap
Financial Information |
|
|
|
Reconciliation of Income
(Loss) Before Income Taxes to Non-GAAP EPS: |
|
|
|
|
|
|
|
Three Months
Ended |
|
|
October
31, |
|
|
2013 |
|
2012 |
|
GAAP income (loss) before income taxes |
$ (41,105) |
|
$(10,108) |
|
(Gain) Loss on warrant liability |
16,976 |
|
7,516 |
|
Reduction of liability due to lease
assignment |
-- |
|
(1,319) |
|
Retention stock-based compensation |
-- |
|
357 |
|
(Gain) Loss on adjustment of fair value
of shares issuable in securities settlement |
23,496 |
|
-- |
|
Estimated potential liability associated
with the SEC investigation |
5,000 |
|
-- |
|
Shareholder derivative suit gain |
(1,600) |
|
-- |
|
Legal Expenses |
1,686 |
|
1,980 |
|
Adjustments to SG&A |
-- |
|
9,804 |
(1) |
Non-GAAP income before income taxes |
4,453 |
|
8,230 |
|
GAAP income taxes (benefit) |
1,048 |
|
621 |
|
Tax effect of Non-GAAP adjustments |
(1,634) |
|
2,391 |
|
Non-GAAP income taxes (benefit) |
(586) |
|
3,012 |
|
Non-GAAP net income (loss) |
5,039 |
|
5,218 |
|
|
|
|
|
|
Non-GAAP EPS-diluted |
|
|
|
|
|
|
|
|
|
Shares used in computing Non-GAAP |
28,460 |
(2) |
22,091 |
|
|
|
|
|
|
EPS-diluted |
$ 0.18 |
|
$ 0.24 |
|
|
|
|
|
|
(1) Related primarily to audit
committee investigation, restatement- related expenses, consulting
fees, retention, and severance. |
(2) Shares used in computing
non-GAAP EPS include the 4,450,000 shares that will be issued to
settle the securities class action lawsuit. |
|
|
|
|
|
|
|
|
|
Reconciliation of Net
Income (Loss) to Adjusted EBITDA: |
|
|
|
|
|
|
Three Months
Ended |
|
|
October
31, |
|
|
2013 |
2012 |
|
Net income (loss) |
$ (42,153) |
$ (10,729) |
|
Income taxes (benefit) |
1,048 |
621 |
|
Income (loss) before income taxes |
(41,105) |
(10,108) |
|
Interest expense, net |
14,848 |
13,912 |
|
Income (loss) from operations |
(26,257) |
3,804 |
|
Reduction of liability due to lease
assignment |
-- |
(1,319) |
|
(Gain) Loss on warrant liability |
16,976 |
7,516 |
|
(Gain) Loss on adjustment of fair value of
shares issuable in securities settlement |
23,496 |
-- |
|
Estimated potential liability associated with
the SEC investigation |
5,000 |
-- |
|
Shareholder derivative suit gain |
(1,600) |
-- |
|
Legal Expenses |
1,686 |
1,980 |
|
Adjustments to SG&A expenses |
-- |
9,804 |
(1) |
Stock-based compensation expense |
1,477 |
1,250 |
|
Depreciation and amortization |
8,335 |
7,967 |
|
Adjusted EBITDA |
$ 29,113 |
$ 31,002 |
|
|
|
|
|
(1) Related primarily to audit
committee investigation, restatement- related expenses, consulting
fees, retention, and severance. |
|
|
|
|
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.
Adjusted EBITDA is used by management as a measure of operating
performance. Adjusted EBITDA is defined as net income before
interest expense, income taxes, stock-based compensation,
depreciation, amortization, and other non-operating expenses,
including the aforementioned expenses related to the proposed
settlement of the private securities class action case, potential
resolution of SEC investigation, Oaktree warrant liability
gains/losses, SG&A expenses primarily related to audit
committee investigation, and restatement and related expenses. 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 financial 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 other amounts 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
Diamond's 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.
CONTACT: Investors:
ICR
Katie Turner
415-230-7952
Media:
ICR
Anton Nicholas/Jessica Liddell
415-445-7431
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