Snack and nut company Diamond Foods (Nasdaq:DMND) continued its successful earnings run with a strong fiscal fourth quarter and strong full-year results. The company provided guidance for its fiscal 2012, which should show further results from its acquisitions and expansion. It all adds up to Diamond Foods reinforcing its move toward becoming a major force in the snack food industry. (For more on mergers and acquisitions, read M&A Competition Is Cutthroat For Acquirers.)
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Cracking Open the Earnings
Diamond's non-GAAP earnings, which exclude the $9.4 million charge for integrating Kettle Foods, produced $11.9 million net income, or 52 cents a share, compared to $7.5 million in the year ago fourth quarter. GAAP earnings were $8.5 million net income or 37 cents a share, compared to $6.7 million and 30 cents a share. Revenue rose to $232.8 billion from $176.6 billion.
On an organic basis, snack sales grew 16% in the quarter and 72% on an annual basis. The annual growth was partly due to integration of acquisitions, mostly Kettle Foods. Similarly, sales for the year rose to $965 million from $680 million, while non-GAAP income was $50 million compared to $26 million the prior year. All its divisions produced strong results for Diamond, including the product it's most known for, snack nuts. The company raised guidance for 2012.
Mergers, Splits and Mad Pursuit
Diamond Foods' expansion positions the once-small niche snack player as a growing force. Although it has averaged around $1 billion in annual sales and currently has a market cap of roughly $2 billion, its Pringles' purchase for $1.5 billion sets it up not only to enter the land of the snack giants, but to become one. One of those giants, Pepsico (NYSE:PEP) and its Frito-Lay division, has nearly a $100 billion market cap and had over $60 billion sales in the last 12 months. Diamond Foods will be positioned to be the second-largest snack company behind Pepsico.
It's been noted in the industry that some of the food companies recently have been spinning off operations in a bid to enhance profits. Most notably Kraft Foods (NYSE:KFT) announced it will split into a global snacks business and a North American grocery segment. This is after Kraft integrated Cadbury after acquiring it 18 months ago. (For more read Parents And Spinoffs: When To Buy And When To Sell.)
Sara Lee (NYSE:SLE), with a different situation, also has attempted to narrow down its operations. Sara Lee is more a niche player than a giant. It will split into a North American food services and retail division, and a separate international bakery segment. The genesis of Sara Lee's move is different from Kraft's. Kraft sees more opportunities ahead, whereas Sara Lee was struggling and had a failed takeover bid. Then, too, there's the Con Agra (NYSE:CAG) mad pursuit of Ralcorp (NYSE:RAH), which has been contentious and downright flinty with Con Agra's recent ultimatum on its $5.2 billion offer. While the pursued, Ralcorp, is a cereal maker and not mainly a snack company, Con Agra is more like Kraft: large, diverse (even sprawling) and does do business in the snack trade.
There's some speculation or thought that Pepsi should split, as its Frito-Lay snacks division has a daunting 48.5% market share, well ahead of General Mills (NYSE:GIS) and Kraft, which both hover around 5%. There's no indication, however, despite Pepsi's tougher competition with beverage leader Coca Cola (NYSE:KO), that it's inclined to separate its snacks from its drinks, at least yet. So into this active arena, Diamond Foods has entered boldly. It stands squarely as a grown and fiercely strong fighter, especially with its reinforced chip lines, Kettle and Pringles. Diamond's moves have been on the money thus far, so we'll see how well its management has gauged the landscape for its chip business and greater competition.
The Bottom Line
The growth as well as the trajectory of Diamond Foods are both impressive. Diamond continues to add-on to its operations and does a superb job of integrating them. The quarterly and annual results are a testament to how well Diamond's strategy is being executed and how much it's paying off. There's more on the horizon for Diamond in terms of success ahead. The only disappointing news for investors who like to buy at bargain prices is that the stock rocketed more than 13% after its report and looks fully priced. (For more on the effect of growth stock on your portfolio, read Steady Growth Stocks Win The Race.)
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