Diamond Foods' stock slumps on sales and outlook

Diamond Foods slumps as sales miss estimates and company forecasts bigger second-half decline

Associated Press

NEW YORK (AP) -- Shares of Diamond Foods Inc. slumped Tuesday as the snack food maker reported disappointing second-quarter sales, and offered an estimate for the rest of the fiscal year that also fell short of Wall Street estimates.

THE SPARK: Diamond Foods reported its quarterly results after the market closed Monday. The company said Emerald Nuts revenue declined by 30 percent in the January quarter, and total sales fell 16 percent to $220.8 million. FactSet reports that analysts expected $239.2 million in revenue on average.

In a conference call with analysts and investors, President and CEO Brian Driscoll said the company expects a larger decline in sales in the second half of the year. In the first two quarters of the year, its total revenue fell 13 percent to $479.3 million.

"We do expect consolidated sales in the back half of the fiscal year to be down more compared to prior year than we saw in the first half of this fiscal year," Driscoll said. He said that is because of the elimination of some Emerald Nuts products, lower walnut supplies, and the company's emphasis on better prices and reduced discounts.

Analysts expected the San Francisco company to report $414.5 million in revenue in the second half of the year, which represented a decline of about 4 percent from the same period in fiscal 2012.

THE BIG PICTURE: Diamond Foods sells snacks under the Pop Secret, Kettle, and Emerald Nuts brand names. The company has reported declining sales of Emerald snacks because of reduced walnut supplies, and because it is reducing discounts and eliminating products that were not selling well. Diamond Foods said Monday that it is making progress in addressing its walnut supply problems.

Diamond Foods disclosed in early 2012 that it would have to restate two years of earnings because it had not properly accounted for payments to walnut growers. The company replaced its CEO and chief financial officer, and its effort to buy the Pringles brand collapsed. Kellogg Co. ultimately bought Pringles for $2.7 billion in 2012.

Diamond Foods announced the results of the restatements in November, saying they reduced its fiscal 2010 and fiscal 2011 profit by $56.5 million. It also said it took a loss over the first three quarter of fiscal 2012 because of costs related to the investigation and restatement, and $40.6 million in charges related to the Pringles deal.

THE ANALYSIS: Keybanc Capital Markets analyst Akshay Jagdale said the company's profit margins have improved and are holding steady, and Emerald Nuts sales should start growing in early fiscal 2014. That period starts in August.

Jagdale said Diamond Foods shares will trade at a relatively low price until litigation is resolved, its walnut supplies are restored, and problems with Emerald Nuts are addressed. He maintained a "Hold" rating on the stock.

SHARE ACTION: Diamond Foods shares lost $1.71, or 10 percent, to $15.89 in afternoon trading. The shares have lost 18.5 percent of their value since the company restated its results on Nov. 14.

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