I think everybody has this backwards. Here is why-
Read this Barrons article from Nov 7th issue, page 46. A short outfit started beating them up on this issue of an extra payment to the walnut growers. Backing up, what seems to have happened as best I can tell from the article was that the amount DMND paid their growers for walnuts (probably by some contractual formula) ended up being way lower than the market price in this particular year (it has gone the other way in other years). So there was grower grumbling. Diamond may have gotten soft and made an extra payment in September. Maybe something like, we hear you, but our hands are tied for last year's crop (FY 7/2011), but we'll try to make it up to you in this year’s crop.
[Note, however it COULD be that all this payment is, is a somewhat earlier first payment on the 2012 crop and they will again stick to the formula in 2012. Then there is absolutely nothing wrong here!! They just mnade a payment for 7/2012 a month earlier than ususal, and that's the extent of the bone they threw to growers, and there is no accounting issue. Nontheless, let’s continue to pursue the other darker scenario…]
The Company said they did budget for this momentum payment and include it in their Fiscal 7/2012 year guidance. But the short newsletter charges (note this is probably where the outside letter came from)- Hey Diamond low-balled FY 7/2011 earnings, should have included/accrued for this extra payment in Fiscal 7/2011, in order to get a better deal on Pringles (pay less shares to P&G). Here is the problem with this argument- Like P&G is more concerned on pricing the deal on earnings for a year that ended well before the deal was even scheduled to close??? Wouldn’t you be more likely to tie the number of Diamond shares you want for Pringles to FUTURE earnings? Like for the year that they'll only be part way through (ends 7/2012) by the time this deal was to close, then tying the number of shares to last year’s earnings? Yeah, me too.
So here is the KEY POINT, as all this seems to me- If they should have booked this special payment, (THAT IS INCLUDED IN Fiscal year ending 7/2012 GUIDANCE), in FY 7/2011 instead, then fantastic!... Guess what gets removed from 7/2012 guidance?? The special payment. BOOM up goes 7/2012 guidance!!!! Since that is what the price should have been tied to ... forward earnings expectations, not past, maybe we SHOULD renegotiate the deal!! … and have to pay LESS shares, because future Diamond earnings forecasts are now higher! Fantastic… What on earth is all the selling about?? I've been a buyer recently. Make sense? Read the Barrons article from 11/7 page 46. They of course put a negative slant on their articlem, becasue that's what Barrons does, but using the same bones of the article I see it much more favorably.
Sorry for taking offense and thank you for explaining. I think farming and the valley is special with respect to someones word and trust. I farm and work for many farms and have never used a contract, everything is someones word. I have many six figure jobs that I have never lost a minutes sleep over. I don't know any business that operates today in America like we do. I was in Diamond from 2001-2003, went to meetings and watched Mendes. I left because of lack of grower return. My simple thoughts on Diamond is that it was a crappy coop and it is now a crappy public company.
You live in the Valley. I've lived there twice, done a lot of business there. My experience is that personal, even family, relationships are often more important than pieces of paper. I'm not making a value judgement here, just recounting my experience, which I enjoyed very much. I could usually count on someone to be as good as their word, which is not always true where I live now in the Bay Area.
So I meant no offense, quite the opposite. Actually, I think your posts have provided some real insight into what is now happening at DMND, and how it will all work out.
I've had the same question from the outset. If DMND had not paid the full contract price for the 2011 nuts, there would have been litigation, yet none was disclosed in their 2011 10K. Not to mention there are two growers on DMND's Board who would have complained loud and long.
Offsetting all that is their silence--why say nothing and postpone the deal for six whole months if it is that simple?
So I'm following Dennis Gartman's dictum--there is never just one cockroach! But I am looking at call options as a way to recoup some of my losses.
That's a very pie in sky interpretation. Regardless, DMND needs to step up and spin this story in a very positive, innocent way. Their silence has left too much room for doubt. Now, we not only wonder what the payment story is but we are left questioning everything.
I went long a few days ago because I cannot imagine a realistic scenario that doesn't force the short covering on this stock to raise price into mid-to-high 40s. That said, the longer the silence the less likely we see the squeeze we could.