Diamond Foods Inc.‘s (DMND) second-quarter fiscal 2011 earnings of 91 cents robustly grew 89.6% from the prior-year quarters’ earnings of 48 cents, primarily driven by strong top-line growth and improved margins. Also, the second-quarter earnings surpassed the Zacks Consensus Estimate by 2 cents.
Revenue for the reported quarter was $257.6 million, up 39.9% from $184.2 million recorded in the year-ago quarter. Better-than-expected performance of retail brands and the acquisition of Kettle primarily resulted in year-over-year increase. However, the top line fell short of the Zacks Consensus Estimate of $265.0 million.
Total retail sales increased 63% year over year to $215.6 million in the second quarter of fiscal 2011, driven by a robust increase in Snack, Culinary sales, and In-shell sales. However, total non-retail sales declined 19.2% to $42.0 million over the prior-year period attributable to weak performance in North American Ingredient/Food Service sales due to non-offering of the USDA school lunch program.
Gross profit increased 74.6% year over year to $70.9 million. Gross margin improved by 5.5% to 27.5% for the quarter compared with the prior-year quarters’ gross margin of 22%, primarily attributable to favorable product mix and better cost efficiency initiatives. Operating income in the quarter more than doubled to $35.9 million compared with $13.1 million in the prior-year quarter. Operating margin came in at 14% for the quarter compared with 7.1% in the prior-year quarter.
Diamond Foods ended the quarter with cash & equivalents of $2.3 million compared with $12.0 million at the end of the second quarter of fiscal 2010. Total debt at the end of the quarter came in at $548.9 million, up by more than fivefold from $97.5 million in the prior-year quarter.
The company paid a dividend of 4.5 cents a share as of February 04, 2011 to shareholders of record as of January 28, 2011.
2Q11 and Fiscal-Year 2011 Guidance
Diamond Foods provided earnings per share guidance for the third quarter of fiscal 2011 in the range of 45 cents to 50 cents. For fiscal 2011, the company expects earnings per share to be in the range of $2.45 to $2.51, revised upward from $2.43 to $2.49.
The company provided revenue guidance for third-quarter 2011 in the range of $210.0 million and $220.0 million. The company expects revenue to be in the range of $925.0 million to $950.0 million for fiscal 2011, revised upward from $920.0 million to $945.0 million. Snacks sales estimated to be in the range of $545.0 million to $560 million, revised upward from $540.0 million to $560.0 million.
Net income is expected to grow in a band of 53% to 57% year over year in fiscal 2011.The company has projected gross margin to grow 200 to 300 basis points year over year. The company forecasts operating margin in the range of 11% to 12% for fiscal 2011 reflecting an increase of 1.5% to 2.5% over prior fiscal. The company expects capital expenditure in the range of $35 million to $40 million.
The company intends to invest heavily in advertising for brand promotion; for this purpose, it has revised upward its expenditure guidance under this head to $43.0 million to $45.0 million from $40.0 million to $43.0 million.
Diamond Foods, which faces intense competition from Kraft Foods Inc. (KFT), Blue Diamond Growers, Sunkist, and John B Sanfilippo & Son Inc. (JBSS), currently holds a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock. Besides, the company retains a long-term ‘Neutral’ recommendation on the stock.
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