Diamond Foods Inc’s (DMND) fiscal fourth-quarter earnings from continuing operations came in at 34 cents per share, surpassing the Zacks Consensus Estimate of 28 cents. This also compares favorably with 25 cents incurred in the year-ago period. Net income from continuing operations for the quarter was $7.5 million versus $4.2 million reported in fourth-quarter 2009.
Including $1.3 million in acquisition and integration costs related to the purchase of Kettle Foods in March, Diamond Foods reported a net income of $6.7 million or 30 cents per share, compared with $4.2 million or 25 cents reported in fourth-quarter 2010.
Revenue for the reported quarter was $176.6 million, up 55% from $113.8 million recorded in the year-ago quarter. Better-than-expected performance of retail brands and the acquisition of Kettle primarily resulted in the year-over-year increase. However, the top line fell short of the Zacks Consensus Estimate of $191 million.
Total retail sales increased 81% year over year to $167.9 million in the fiscal fourth quarter, driven by an increase in Snack and Culinary sales, partially offset by a decline in In-shell sales.
Total non-retail sales declined 58% over the prior-year period attributable to weak performance in International non-retail sales and N. American Ingredient/Food Service sales.
Gross profit increased 33% year over year. Selling, general and administrative expense was $20.3 million, compared with $16.7 million in the prior-year quarter.
Operating income in the fiscal fourth quarter was $15.3 million, up 80% year over year.
Fiscal Year 2010
The company’s fiscal 2010 earnings from continuing operations came in at $1.91 per share. This also compares favorably with $1.45 in the year-ago period. Net income from continuing operations for fiscal 2010 was $36.8 million versus $24.3 million reported in fiscal 2009.
Including $10.6 million related to adjustments to remove loss on extinguishment of debt, fees for tax projects and other credits and adjustments to remove costs associated with the Kettle Foods acquisition and integration, Diamond Foods reported a net income of $26.2 million or $1.36 per share, compared with $23.7 million or $1.42 reported in fiscal 2009.
The prior year net income included adjustments to remove loss on extinguishment of debt, fees for tax projects and other credits of $0.5 million.
Revenue for the fiscal year 2010 was $680.2 million, up 19.0% from $570.9 million recorded in the year-ago quarter. Total retail, as well as total non-retail sales, drove the increase.
Total retail sales increased 23% year over year to $570.4 million in fiscal 2010, driven by an increase in Snacks, partially offset by a decline in Culinary and In-shell sales.
Total non-retail increased 4% over the prior-year period largely driven by an increase in International non-retail sales.
Gross profit spiked 19% year over year. Selling, general and administrative expense was $64.3 million compared with $61.0 million in fiscal 2009.
Operating income in the fiscal year 2010 was $52.2 million, up 14% year over year.
Financial Update
Diamond Foods ended fiscal 2010 with cash & cash equivalents of $5.6 million, substantially lower than $24.8 million at the end of fiscal 2009.
Total debt at the end of the fiscal year was $556.1 million, up by more than fourfold from $115.1 million at fiscal 2009 end.
Dividend
The company paid a dividend of 4.5 cents a share on August 6, 2010, to shareholders of record as of July 30, 2010.
Fiscal-Year 2011 Guidance
Diamond Foods expects fiscal year 2011 earnings to be in the range of $2.38 to $2.48 per share, revised upward from $2.35 to $2.45. Net income is expected to grow in a band of 45% to 50% year over year in fiscal 2011.
The company guided revenue in the range of $910 million to $940 million with Snacks sales estimated to come in between $540 million and $560 million.
The company projects gross margin to grow 250 to 300 basis points year over year on the heels of a 90% spur in retail sales.
The company intends to invest heavily in advertising for brand promotion; for this purpose, it expects expenditure under this head to be in the range of $38 million to $43 million for 2011.
The company expects operating margin in the range of 11.5% to 12.0% and the effective tax rate in a band of 34% to 36%.
The company expects capital expenditures in the range of $30 million to $35 million.
Diamond Foods is focused on increasing market share by expanding the existing nut product lines and introducing new nut products in the United States and worldwide. Also, the company plans substantial investment in advertising for brand promotion to drive higher sales.
However, a high debt burden, intense competition, fluctuation in availability and prices of raw materials keep us on the sidelines.
We maintain our Neutral recommendation on Diamond Foods. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward directional pressure on the shares over the near term.
DIAMOND FOODS (DMND): Free Stock Analysis Report
Zacks Investment Research
