On Jul 3, 2014, we issued an updated research report on Diamond Foods, Inc. (DMND).
The company recently posted its third-quarter fiscal 2014 adjusted earnings of 11 cents per share. Though earnings missed the Zacks Consensus Estimate of 16 cents, it registered 37.5% year-over-year growth.
Moreover, the company’s top line climbed 3.2% year over year to $190.9 million, marginally surpassing the Zacks Consensus Estimate of $189.0 million. Robust performance at the Snacks division was offset by increased walnut prices that weighed on the Nuts segment’s performance.
Diamond Foods’ vertically integrated business model allows the company to quickly react to the market trends and exploit new opportunities. Moreover, the company’s nut roasting facilities and patented glazing technologies provide a self-stable glazed nut for the mass market.
Also, the company is benefiting from its sustained cost-curtailment endeavors. We believe that the company’s turnaround strategies such as improving price realization, lowering underperforming SKUs and reducing dependency on discount have placed it on the path to success, as evident from improved margins and earnings results for third-quarter fiscal 2014.
Additionally, Diamond Foods is focusing on gaining its lost market share through expansion of the existing product lines and introduction of new products in the United States. Management’s strategic plan is based on providing higher-margin branded products at premium price points.
Further, we expect the company’s future results to exhibit more sustained growth of its brands due to product innovation and differentiation, improved cost structure and revived relationship with walnut suppliers.
However, the company remains susceptible to near- term headwinds such as challenges related to procurement of walnut supplies and mending ties with growers. Furthermore, we remain skeptical about the company’s performance going forward due to its highly leveraged balance sheet.
Diamond Foods currently has a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked retail stocks worth investing include The Hain Celestial Group, Inc. (HAIN) and Treehouse Foods, Inc. (THS) with a Zacks Rank #1 (Strong Buy) and Phibro Animal Health Corporation (PAHC), carrying a Zacks Rank #2 (Buy).