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Diamond Foods' Prospects Still Sharp
Snack food maker Diamond Foods (Nasdaq:DMND) reported a profit drop for its fiscal first quarter in 2011. The company did report strong sales, however, as its net revenues increased 40% from the year ago quarter; it also raised guidance. Let's take a look at the company's results, and its prospects going forward.
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The Market's Reaction to Diamond Foods' Earnings
On initial news of the earnings report, Diamond stock popped by 10%. Less than a full day later the stock was trading up 6% and was still rising. Although Diamond's net income fell to $14.21 million from $14.9 million in the year-ago quarter, or 64 cents per diluted share compared to 88 cents per share, this decline was less than expected.
Revenue increased to $252.56 million from $186.6 million, despite an expected late tree nut harvest, which knocked down non-retail sales. Retail sales increased by 58%, while guidance for full-year sales was increased to between $920 million and $945 million. Income guidance was also increased for a full-year EPS in the $2.43 to $2.49 range.
Hard Snack Wars
Diamond, which in addition to its Diamond Nuts also owns the Pop Secret popcorn brand and purchased Kettle brand potato chips, which it integrated this year, goes up against snack giants such as Pepsico (NYSE:PEP) with Frito-Lay, Con Agra (NYSE:CAG) with its Orville Redenbacher popcorn brand, Kraft Foods' (NYSE:KFT) Planter's nuts and John B Sanfilippo & Son (Nasdaq:JBSS).
Yet Diamond, despite the speed bump in this quarter's earnings, has been growing its business at, well, a nutty pace. This growth should resume as the company continues to build out its infrastructure, expand its non-retail markets and invest in more advertising, brand promotion and new products in and outside of the U.S. The snack sales portion of its revenue is expected to grow to between $540 million and $560 million in fiscal 2011.
Future Growth
Although growth for Diamond snack brands was mostly still strong in the U.S. despite the recession's hangover, U.K. sales with its Kettle brand grew 10% during the quarter. Drugstore and mass-selling channels other than grocery stores saw growth for Diamond nuts and Kettle Brand potato chips. Also, the company has been adept at growing its gross margins and forecasts that it will continue to do so.
Diamond's Long-Term View
This is a company that has excelled at long-term growth and expansion. Although it carries considerable long-term debt for its size, $516 million, this concern is mitigated by that fact that it's an extremely well-managed company. Its combination of acquisitions and expansion, and the strengthening of its brands has made it a formidable competitor in the snack industry, despite its relatively small size. One analyst pegged Diamond's earnings potential in the next few years at as high as 60% above its current levels. Overall, this looks to be a winning company that's going to keep growing for some time to come.
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IN PICTURES: 8 Tips For Starting Your Own Business
The Market's Reaction to Diamond Foods' Earnings
On initial news of the earnings report, Diamond stock popped by 10%. Less than a full day later the stock was trading up 6% and was still rising. Although Diamond's net income fell to $14.21 million from $14.9 million in the year-ago quarter, or 64 cents per diluted share compared to 88 cents per share, this decline was less than expected.
Revenue increased to $252.56 million from $186.6 million, despite an expected late tree nut harvest, which knocked down non-retail sales. Retail sales increased by 58%, while guidance for full-year sales was increased to between $920 million and $945 million. Income guidance was also increased for a full-year EPS in the $2.43 to $2.49 range.
Diamond, which in addition to its Diamond Nuts also owns the Pop Secret popcorn brand and purchased Kettle brand potato chips, which it integrated this year, goes up against snack giants such as Pepsico (NYSE:PEP) with Frito-Lay, Con Agra (NYSE:CAG) with its Orville Redenbacher popcorn brand, Kraft Foods' (NYSE:KFT) Planter's nuts and John B Sanfilippo & Son (Nasdaq:JBSS).
Yet Diamond, despite the speed bump in this quarter's earnings, has been growing its business at, well, a nutty pace. This growth should resume as the company continues to build out its infrastructure, expand its non-retail markets and invest in more advertising, brand promotion and new products in and outside of the U.S. The snack sales portion of its revenue is expected to grow to between $540 million and $560 million in fiscal 2011.
Future Growth
Although growth for Diamond snack brands was mostly still strong in the U.S. despite the recession's hangover, U.K. sales with its Kettle brand grew 10% during the quarter. Drugstore and mass-selling channels other than grocery stores saw growth for Diamond nuts and Kettle Brand potato chips. Also, the company has been adept at growing its gross margins and forecasts that it will continue to do so.
Diamond's Long-Term View
This is a company that has excelled at long-term growth and expansion. Although it carries considerable long-term debt for its size, $516 million, this concern is mitigated by that fact that it's an extremely well-managed company. Its combination of acquisitions and expansion, and the strengthening of its brands has made it a formidable competitor in the snack industry, despite its relatively small size. One analyst pegged Diamond's earnings potential in the next few years at as high as 60% above its current levels. Overall, this looks to be a winning company that's going to keep growing for some time to come.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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