U.S. Markets open in 7 hrs 20 mins

Diamond Foods falls as company gives muted outlook

NEW YORK (AP) -- Shares of Diamond Foods slipped Tuesday as the company forecast difficult business conditions for the first quarter.

THE SPARK: Late Tuesday Diamond Foods Inc., the maker of Pop Secret, Kettle Chips and Emerald Nuts, said that it expects its first-quarter results to be hurt by costs associated with the re-launch of Emerald Nuts and a reduced supply of walnuts.

Its fourth-quarter adjusted earnings and revenue topped Wall Street's expectations.

THE ANALYSIS: Thilo Wrede of Jefferies said in a client note that while Diamond's performance is improving, the muted outlook is giving him pause.

"While Diamond might be close to stopping the bleeding, the return to sustained growth might still be a few quarters away," Wrede wrote.

The analyst kept a "Hold" rating and $21 price target.

Akshay Jagdale of KeyBanc Capital Markets is taking a wait-and-see approach.

"Although recent results seem to be moving in the right direction, we point out that Diamond is still a company undergoing a major restructuring and still has significant challenges ahead of it," he said.

Still, Jagdale said that he was encouraged by the company's continued gross margin improvement — its margin rose to 26.6 percent from 18.9 percent — and its efforts to spend more on advertising and brand building.

The analyst reaffirmed a "Hold" rating.

San Francisco-based Diamond Foods declined to comment.

SHARE ACTION: The stock fell $2.40, or 10.2 percent, to $21.15 in afternoon trading. Over the past year, the shares have traded between $12.85 and $25.32. Year to date, the stock is up 56 percent.