Diamond Foods, Inc. (DMND) reported strong results for the fourth quarter of 2009 with earnings of 25 cents per share. Earnings were well above the Zacks Consensus Estimate of 19 cents and were up 56% year-over-year. For the full year earnings were $1.47 per share, up 61.5% compared to 91 cents in fiscal 2008.

Net sales for the quarter grew marginally by 1% year-over-year to $113.8 million driven by higher snack and In-shell sales which were partially offset by an increase in promotion spending on culinary nuts and a decline in non-retail walnut sales.

However, for the full fiscal 2009 year, net sales increased 7% to $570.9 million driven by North American retail sales, which increased 26%, as snack sales grew 113% and culinary sales grew 1%.

For fiscal 2009, Emerald’s food store sales grew 25% attributable to a 21% increase in volume. Further, Pop Secret sales also grew 4.8% while Diamond’s culinary nut sales grew 2%.

Gross margin for the quarter grew a robust 1240 basis points (bps) to 28.9% versus 16.5% in the comparable prior-year quarter. The increase was primarily attributable to profitable product mix of retail sales, greater scale in snacks, moderating input costs, manufacturing efficiency initiatives and the elimination of low margin SKU’s. The operating margin for the quarter also expanded 442 bps to 7.5% compared to 3.0% in the prior-year quarter.

For fiscal 2009, gross margin increased 719 bps to 23.7%, while the operating margin expanded 353 bps to 8.0%.

Cash and cash equivalents for the year were $24.8 million while long-term debt at the end of fiscal 2009 was $115.1 million.

Based on the performance of fiscal 2009, management raised its guidance for fiscal 2010. Annual earnings are now expected in the range of $1.70 to $1.80 per share compared to the previous guidance of $1.55 to $1.70. Net sales for the year are expected in the range of $585 million to $605 million, while snack net sales are forecasted in the range of $220 million to $230 million.

Advertising expenses for fiscal 2010 is expected in the range of $29 million to $34 million. For the first quarter of fiscal 2010, the company expects earnings in the 70 cents to 85 cents range.
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