Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond" or the "Company")
today reported financial results for its fiscal 2015 second quarter
and six months ended January 31, 2015.
Second Quarter Fiscal 2015 Highlights
- Net sales were $229.7 million, up 4.1%
- Snacks segment net sales were $120.4 million, up 3.2%
- Nuts segment net sales were $109.2 million, up 5.2%
- Gross margin was 26.6%, compared to 25.4%
- GAAP net income was $11.2 million and GAAP diluted earnings per
share ("EPS") was $0.35
- Non-GAAP net income was $11.2 million and non-GAAP diluted EPS
was $0.35, up 191.7%
- Adjusted EBITDA was $33.8 million, up 18.4%
Year-to-Date Fiscal 2015 Highlights
- Net sales were $476.3 million, up 4.6%
- Snacks segment net sales were $237.0 million, up 3.3%
- Nuts segment net sales were $239.3 million, up 5.9%
- Gross margin was 25.3%, compared to 25.0%
- GAAP net income was $18.9 million and GAAP diluted earnings per
share ("EPS") was $0.59
- Non-GAAP net income was $20.1 million and non-GAAP diluted EPS
was $0.64, up 88.2%
- Adjusted EBITDA was $64.5 million, up 11.9%
(All comparisons above are to the second quarter and first six
months of fiscal 2014. Non-GAAP financial measures are reconciled
in the tables below.)
"We are encouraged with our earnings performance in the second
quarter. Strong sales and margin improvement in the US drove these
results, but our overall sales were muted by continued challenges
in the UK," said Brian J. Driscoll, President and CEO. "While the
third quarter is seasonally our lowest for sales and earnings, and
we face challenges including an intensely competitive promotional
environment and the effects of a strong dollar, we believe that we
are on track to achieve our updated annual adjusted EBITDA and EPS
outlook."
Second Quarter Fiscal 2015
Consolidated net sales during the quarter were $229.7 million,
up 4.1%, compared to the same quarter of the prior year, mainly due
to higher sales in the US for both the Snacks and Nuts segments,
partially offset by lower sales in the UK, primarily due to
increased promotional activity. Gross profit was $61.2 million, or
26.6% of net sales, for the second quarter of fiscal 2015, compared
to $55.9 million, or 25.4% of net sales, for the same quarter in
the prior year.
GAAP net income during the quarter was $11.2 million. GAAP
diluted EPS was $0.35 in the second quarter of fiscal 2015 compared
to a loss of $0.68 in the second quarter of fiscal 2014. Excluding
certain items described below, non-GAAP net income for the second
quarter of fiscal 2015 was $11.2 million and non-GAAP diluted EPS
was $0.35, compared to $0.12 in the second quarter of fiscal 2014.
Adjusted EBITDA was $33.8 million in the second quarter of fiscal
2015, compared to $28.6 million in the prior year. Due to a shift
in the mix of pre-tax income between the US and the UK, the
non-GAAP effective tax rate was 26.7% compared to 14.0% in the same
quarter of the prior year. Please refer to the table at the end of
this press release for a reconciliation of GAAP to non-GAAP
information.
Year-to-Date Fiscal 2015
Consolidated net sales for the first six months of fiscal 2015
increased 4.6% to $476.3 million compared to $455.2 million in the
first half of last year. This increase was primarily due to higher
sales in the US for both the Snacks and Nuts segments, partially
offset by lower sales in the UK, primarily due to increased
promotional activity. Gross profit as a percent of net sales was
25.3% compared to 25.0% in the first six months last fiscal
year.
GAAP net income was $18.9 million, or income of $0.59 per share
on a fully diluted basis. Excluding certain items described below,
non-GAAP net income for the first six months of fiscal 2015 was
$20.1 million and non-GAAP fully diluted earnings per share was
$0.64. Adjusted EBITDA was $64.5 million, compared to $57.7 million
last year. Please refer to the table at the end of this press
release for a reconciliation of GAAP to non-GAAP information.
As of January 31, 2015, net debt outstanding was $590.3 million
and the net availability under the ABL Revolver was $119.8
million.
Segment Review
Snacks Segment: Net sales during the quarter
were $120.4 million, up 3.2% compared to the prior year period.
Gross profit was $41.8 million, or 34.7% of net sales, for the
second quarter of fiscal 2015, compared to $42.5 million, or 36.4%
of net sales, for the same quarter in the prior year. Gross profit
as a percent of net sales decreased primarily due to increased
promotional spending in the US and UK.
Net sales during the first six months of fiscal 2015 were $237.0
million, up 3.3% compared to the first half of last year. Gross
profit during the first six months of fiscal 2015 was $84.7
million, 35.7% of net sales, compared to $82.0 million, or 35.7% of
net sales, in the prior year period.
Nuts Segment: Net sales during the quarter were
$109.2 million, up 5.2% compared to the prior year period. Gross
profit was $19.4 million, or 17.8% of net sales, in the second
quarter of fiscal 2015, compared to $13.4 million, or 12.9% of net
sales, for the same quarter in the prior year. Gross profit as a
percent of net sales increased primarily due to improved net price
realization and lower walnut costs, partially offset by higher
other tree nut costs.
Net sales during the first six months of fiscal 2015 were $239.3
million, up 5.9% compared to the first half of last year. Gross
profit during the first six months of fiscal 2015 was $35.8
million, or 15.0% of net sales, compared to $31.9 million, or 14.1%
of net sales, in the prior year periods.
Outlook
The Company is updating its fiscal 2015 outlook. The Company now
expects to achieve adjusted EBITDA of $117 million to $123 million,
compared to its previous range of $115 million to $123 million. The
Company now expects non-GAAP diluted EPS of $0.95 to $1.10,
compared to its previous range of $0.90 to $1.10. The Company's
outlook includes the following expectations: input cost inflation
of 3% to 4%, productivity improvements of 2% to 3%, a US/UK
exchange rate of $1.50 per £1.00 for the remainder of the fiscal
year, a non-GAAP effective tax rate of between 28% to 30%,
stock-based compensation of $9.7 million and 31.9 million fully
diluted shares outstanding.
Fiscal 2015 adjusted EBITDA, a non-GAAP financial measure,
excludes items such as interest expense, income taxes,
depreciation, amortization, stock based compensation as well as
certain legal expenses and litigation settlements,
acquisition-related costs, asset impairments and certain other
actual and projected costs.
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) 515-2880 and international listeners
may dial (719) 457-2715.
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
March 19, 2015. A telephonic playback will be available from 7:30
p.m. ET, March 5, 2015, through March 19, 2015. North America
listeners may dial (877) 870-5176 and international listeners may
dial (858) 384-5517; the passcode is 8572313.
About Diamond Foods
Diamond Foods is an innovative packaged food company focused on
building and energizing brands including Kettle Brand® 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 and the accompanying conference call include
forward-looking statements that are based on our current
expectations and assumptions only as of the date of this press
release. These forward looking statements, including statements
under the caption "Outlook" or "Guidance," are subject to certain
risks and uncertainties that could cause actual results to differ
materially from the potential results discussed in the
forward-looking statements. In particular, our predictions about
our business and our guidance for adjusted EBITDA and non-GAAP
diluted earnings per share (including related expectations
regarding segment performance, cost inflation, productivity
improvements, exchange rates, our effective tax rate, stock-based
compensation and fully diluted shares outstanding) could be
affected by a variety of factors including: commodity headwinds;
crop harvest; progress against the Company's turnaround plan;
unexpected delays or increased costs in implementing our business
strategies; 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; the dilutive impact of equity
issuances; risks relating to litigation and regulatory proceedings;
uncertainties relating to our relations with growers; availability
and cost of walnuts and other raw materials; increasing competition
and possible loss of key customers; risk associated with our
operations outside the U.S., including foreign currency
fluctuations; general economic and capital markets conditions;
competitive dynamics in the consumer foods industry and the markets
for our products, including new product introductions, advertising
activities, pricing actions, and promotional activities of our
competitors; economic conditions including, changes in inflation
rates, interest rates, tax rates, or the availability of capital;
consumer acceptance of new products and product improvements;
customer and consumer reaction to pricing actions and changes in
promotion levels; acquisitions or dispositions of businesses or
assets; changes in capital structure; changes in the legal and
regulatory environment, including labeling and advertising
regulations and litigation; impairments in the carrying value of
goodwill, other intangible assets, or other long-lived assets, or
changes in the useful lives of other intangible assets; changes in
the accounting standards and the impact of significant accounting
estimates; product quality and safety issues, including recalls and
product liability; changes in consumer preferences and demand for
our products; effectiveness of advertising, marketing and
promotional programs; changes in consumer behavior, trends and
preferences; consolidation in the retail environment, changes in
purchasing and inventory levels of significant customers;
disruption or inefficiencies in the supply chain; benefit plan
expenses; upgrading our information technology infrastructure,
including implementation of a new Enterprise Resource Planning
software planning software platform; failure or breach of our
information technology systems, including those managed by third
parties; and political and economic conditions in other countries.
Risks and uncertainties are discussed in greater detail in the
"Risk Factors" sections of the periodic reports that we file with
the SEC. 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.
Financial Summary
Summarized Statement of Operations:
|
Three Months
Ended |
Six Months
Ended |
|
January
31, |
January
31, |
|
2015 |
2014 |
2015 |
2014 |
Net sales |
$ 229,667 |
$ 220,577 |
$ 476,288 |
$ 455,245 |
Cost of sales |
168,509 |
164,649 |
355,740 |
341,384 |
Gross profit |
61,158 |
55,928 |
120,548 |
113,861 |
Operating expenses: |
|
|
|
|
Selling, general and administrative |
29,171 |
33,822 |
57,753 |
90,378 |
Advertising |
9,708 |
13,129 |
21,524 |
23,787 |
Acquisition related expenses |
633 |
— |
633 |
— |
Loss on warrant liability |
— |
6,962 |
— |
23,938 |
Total operating expenses |
39,512 |
53,913 |
79,910 |
138,103 |
Income (loss) from operations |
21,646 |
2,015 |
40,638 |
(24,242) |
Interest expense, net |
10,273 |
16,104 |
20,509 |
30,952 |
Income (loss) before income taxes |
11,373 |
(14,089) |
20,129 |
(55,194) |
Income taxes |
196 |
971 |
1,258 |
2,019 |
Net income (loss) |
$ 11,177 |
$ (15,060) |
$ 18,871 |
$ (57,213) |
Income (loss) per share: |
|
|
|
|
Basic |
$ 0.36 |
$ (0.68) |
$ 0.60 |
$ (2.60) |
Diluted |
$ 0.35 |
$ (0.68) |
$ 0.59 |
$ (2.60) |
Shares used to compute income (loss) per
share: |
|
|
|
|
Basic |
31,127 |
22,052 |
31,075 |
22,019 |
Diluted |
31,545 |
22,052 |
31,483 |
22,019 |
Segment Information:
|
Three Months
Ended |
% Change |
Six Months
Ended |
% Change |
|
January
31, |
from |
January
31, |
from |
|
2015 |
2014 |
2014 to 2015 |
2015 |
2014 |
2014 to 2015 |
Net sales |
|
|
|
|
|
|
Snacks |
$ 120,437 |
$ 116,756 |
3.2% |
$ 237,027 |
$ 229,346 |
3.3% |
Nuts |
109,230 |
103,821 |
5.2% |
239,261 |
225,899 |
5.9% |
Total |
$ 229,667 |
$ 220,577 |
4.1% |
$ 476,288 |
$ 455,245 |
4.6% |
Gross profit |
|
|
|
|
|
|
Snacks |
$ 41,767 |
$ 42,538 |
(1.8)% |
$ 84,723 |
$ 81,961 |
3.4% |
Nuts |
19,391 |
13,390 |
44.8% |
35,825 |
31,900 |
12.3% |
Total |
$ 61,158 |
$ 55,928 |
9.4% |
$ 120,548 |
$ 113,861 |
5.9% |
Summarized Balance Sheet Data:
|
January
31, |
|
2015 |
2014 |
ASSETS |
|
|
Total current assets |
$ 352,800 |
$ 280,055 |
Property, plant and equipment, net |
131,747 |
130,112 |
Goodwill |
400,089 |
408,089 |
Other intangible assets, net |
375,181 |
393,099 |
Other long-term assets |
12,175 |
17,402 |
Total assets |
$ 1,271,992 |
$ 1,228,757 |
LIABILITIES AND STOCKHOLDER'S
EQUITY |
|
|
Total current liabilities |
$ 220,815 |
$ 418,885 |
Long-term obligations |
635,252 |
549,390 |
Deferred income taxes |
111,979 |
107,317 |
Other liabilities |
20,435 |
21,862 |
Total stockholders' equity |
283,511 |
131,303 |
Total liabilities and stockholders'
equity |
$ 1,271,992 |
$ 1,228,757 |
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, |
|
2015 |
2014 |
2015 |
2014 |
GAAP income (loss) before income taxes |
$ 11,373 |
$ (14,089) |
$ 20,129 |
$ (55,194) |
Loss on warrant liability |
— |
6,962 |
— |
23,938 |
Loss on Securities settlement
liability |
— |
8,678 |
— |
32,174 |
Amortization of deferred financing costs
and discounts |
1,490 |
1,829 |
2,942 |
3,553 |
SEC settlement |
— |
— |
— |
5,000 |
Shareholder derivative suit gain |
— |
— |
— |
(1,600) |
Certain legal expenses |
1,434 |
641 |
3,265 |
2,327 |
Litigation settlement reserve and related
legal expenses |
10 |
— |
171 |
— |
Plant closure and related costs |
158 |
— |
540 |
— |
Certain expenses associated with the
Emerald brand packaging transition |
110 |
— |
110 |
— |
Acquisition related expenses |
633 |
— |
633 |
— |
Asset impairment |
— |
— |
244 |
— |
Other SG&A adjustments(1) |
— |
310 |
(141) |
310 |
Non-GAAP income before income taxes |
15,208 |
4,331 |
27,893 |
10,508 |
GAAP income taxes |
196 |
971 |
1,258 |
2,019 |
Adjustments to GAAP income taxes |
3,860 |
(364) |
6,580 |
(1,335) |
Non-GAAP income taxes(2) |
4,056 |
607 |
7,838 |
684 |
Non-GAAP net income |
$ 11,152 |
$ 3,724 |
$ 20,055 |
$ 9,824 |
Non-GAAP EPS-diluted |
|
|
|
|
EPS-diluted |
$ 0.35 |
$ 0.12 |
$ 0.64 |
$ 0.34 |
Shares used in computing Non-GAAP(3) |
31,545 |
29,922 |
31,483 |
29,209 |
|
(1) Represents
U.K. compensation alignment benefit and foreign distributor exit
benefit for fiscal 2015. Represents historical debt maintenance
consulting expenses for fiscal 2014. |
(2) The GAAP
tax rate for the three and six months ended January 31, 2015, was
1.72% and 6.2% respectively and the Non-GAAP tax rates were 26.7%
and 28.1%, respectively. The difference between the GAAP and
Non-GAAP rates is caused by certain items not included in the
Non-GAAP tax calculation. |
(3) The shares
used in computing Non-GAAP EPS for the second quarter fiscal 2014
include the 4,450,000 shares that were issued February 21, 2014 to
settle the securities class action lawsuit. For purposes of
Non-GAAP EPS, it was assumed that the shares were outstanding
beginning August 21, 2013. The calculation also includes 2,654,974
shares related to Oaktree Capital Management, L.P.'s exercise of
their warrant on February 19, 2014. The shares used in computing
Non-GAAP EPS for year to date fiscal 2014 include the weighted
average of the 4,450,000 shares that were issued February 21, 2014
to settle the securities class action lawsuit. For purposes of
Non-GAAP EPS, it was assumed that the shares were outstanding
beginning August 21, 2013 to obtain a weighted average share amount
of 3,990,489 utilized in this calculation. The calculation
also includes 2,531,474 shares related to Oaktree Capital
Management, L.P.'s exercise of their warrant on February 19,
2014. The share amount related to the Oaktree Capital
Management warrant exercise was calculated utilizing the treasury
stock method. The actual shares issued to Oaktree were
4,420,859. |
Reconciliation of Net Income (Loss) to Adjusted
EBITDA:
|
Three Months
Ended |
Six Months
Ended |
|
January
31, |
January
31, |
|
2015 |
2014 |
2015 |
2014 |
Net income (loss) |
$ 11,177 |
$ (15,060) |
$ 18,871 |
$ (57,213) |
Income taxes |
196 |
971 |
1,258 |
2,019 |
Income (loss) before income taxes |
11,373 |
(14,089) |
20,129 |
(55,194) |
Interest expense, net |
10,273 |
16,104 |
20,509 |
30,952 |
Income (loss) from operations |
21,646 |
2,015 |
40,638 |
(24,242) |
Loss on warrant liability |
— |
6,962 |
— |
23,938 |
Loss on Securities settlement liability |
— |
8,678 |
— |
32,174 |
SEC settlement |
— |
— |
— |
5,000 |
Shareholder derivative suit gain |
— |
— |
— |
(1,600) |
Certain legal expenses |
1,434 |
641 |
3,265 |
2,327 |
Litigation settlement reserve and related
legal expenses |
10 |
— |
171 |
— |
Plant closure and related costs |
158 |
— |
540 |
— |
Certain expenses associated with the Emerald
brand packaging transition |
110 |
— |
110 |
— |
Acquisition related expenses |
633 |
— |
633 |
— |
Asset impairment |
— |
— |
244 |
— |
Other SG&A adjustments(1) |
— |
310 |
(141) |
310 |
Stock-based compensation expense |
2,628 |
1,987 |
4,609 |
3,464 |
Depreciation and amortization |
7,175 |
7,958 |
14,452 |
16,293 |
Adjusted EBITDA |
$ 33,794 |
$ 28,551 |
$ 64,521 |
$ 57,664 |
|
|
|
|
|
(1) Represents U.K.
compensation alignment benefit and foreign distributor exit benefit
for fiscal 2015. Represents historical debt maintenance consulting
expenses for fiscal 2014. |
Reconciliation of GAAP Selling, general and
administrative ("SG&A") expenses to Adjusted Selling, general
and administrative expenses:
|
Three Months
Ended |
Six Months
Ended |
|
January
31, |
January
31, |
|
2015 |
2014 |
2015 |
2014 |
SG&A |
$ 29,171 |
$ 33,822 |
$ 57,753 |
$ 90,378 |
Less: |
|
|
|
|
Loss on Securities settlement
liability |
— |
8,678 |
— |
32,174 |
SEC settlement |
— |
— |
— |
5,000 |
Shareholder derivative suit gain |
— |
— |
— |
(1,600) |
Certain legal expenses |
1,434 |
641 |
3,265 |
2,327 |
Litigation settlement reserve and related
legal expenses |
10 |
— |
171 |
— |
Plant closure and related costs |
158 |
— |
540 |
— |
Asset impairment |
— |
— |
244 |
— |
Other SG&A adjustments(1) |
— |
310 |
(141) |
310 |
Adjusted SG&A |
$ 27,569 |
$ 24,193 |
$ 53,674 |
$ 52,167 |
|
|
|
|
|
(1) Represents U.K.
compensation alignment benefit and foreign distributor exit benefit
for fiscal 2015. Represents historical debt maintenance consulting
expenses for fiscal 2014. |
About Diamond's Non-GAAP Financial Measures
This release and the accompanying conference call contain
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
principles, 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 the most directly comparable GAAP financial measures,
and its GAAP financial statements generally to evaluate its
business.
Diamond believes that its non-GAAP financial measures provide
meaningful information to investors because they allow investors to
view the business through the eyes of management. Diamond believes
that its non-GAAP financial measures provide meaningful
supplemental information regarding Diamond's operating results
because they exclude amounts that Diamond excludes when monitoring
operating results and assessing the performance of Diamond's
business. Diamond believes that its non-GAAP financial measures
also facilitate comparison of its results for current periods with
historical periods, and with its business outlook for future
periods.
Non-GAAP net income, non-GAAP diluted earnings per share, and
adjusted EBITDA are used by management as core measures of
Diamond's operating performance. For Diamond, non-GAAP net income
and non-GAAP diluted earnings per share reflect adjustments to
eliminate the effect of loss on warrant liability; loss on
securities settlement liability; adjustments to eliminate the
effect of amortization of deferred financing costs and discounts;
SEC settlement; shareholder derivative suit gain; legal
expenses primarily related to audit committee investigation and
restatement and related matters; litigation settlement reserve and
related legal expenses; Fishers plant closure and related costs;
certain expenses associated with the Emerald brand packaging
transition relating to the conversion from canisters to small bags;
acquisition-related expenses associated with the Yellow Chips
Holding B.V. acquisition; asset impairment; and UK compensation
alignment benefit, foreign distributor exit benefit and debt
maintenance consulting expenses included in SG&A. Adjusted
EBITDA reflects net income plus interest expense, income taxes,
depreciation, amortization, and stock-based compensation, and also
reflects the aforementioned adjustments (other than amortization of
deferred financing costs and discounts, which is included in
interest expense). Adjusted SG&A reflects adjustments to
Selling, general and administrative costs to eliminate the impact
of the aforementioned adjustments to income (other than loss on
warrant liability, amortization of deferred financing costs and
discounts, certain expenses associated with the Emerald brand
packaging transition relating to the conversion from canisters to
small bags; acquisition-related expenses associated with the Yellow
Chips Holding B.V. acquisition; which are not in SG&A). We
believe that non-GAAP net income, non-GAAP diluted EPS, adjusted
EBITDA and adjusted SG&A are useful indicators of Diamond's
ongoing operating performance. As a result, Diamond management
reports feature these non-GAAP financial measures in conjunction
with traditional GAAP measures, as part of our overall assessment
of company performance.
Diamond's management uses these non-GAAP financial measures in
internal reports used to monitor and make decisions about its
business, such as monthly financial reports prepared for management
and quarterly reports to Diamond's Board of Directors. The
principal limitation of the non-GAAP measures is that they exclude
significant expenses that are required under GAAP to be recorded.
They also reflect the exercise of management's judgments about
which charges are excluded from the non-GAAP financial measures.
Consequently, these non-GAAP measures should not be considered in
isolation or as alternatives to GAAP measures. Diamond urges
investors to review the reconciliations of these non-GAAP financial
measures to the comparable GAAP financial measures included in this
press release, and recommends that investors do not give undue
weight to the non-GAAP financial measures or rely on any single
financial measure to evaluate our business.
CONTACT: Investors:
ICR
Katie Turner
415-230-7952
Media:
ICR
Anton Nicholas/Jessica Liddell
415-445-7431
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