Diamond Foods Inc.’s (DMND) fiscal 2010 third-quarter adjusted earnings almost doubled to 30 cents per share from 16 cents in the year-ago quarter. The quarterly result also came in well ahead of the Zacks Consensus Estimate of 20 cents per share.
During the quarter, Diamond Foods recorded a solid 25.0% growth in sales to $138.7 million from $111.0 million in the year-ago period. The growth was primarily driven by higher snack and culinary sales, aided by the inclusion of sales from Kettle Foods Inc., which Diamond Foods acquired in March of this year. Diamond Foods acquired Kettle through an all-cash deal for $616.2 million.
Gross profit during the quarter rose by 12.5% year-over-year to $31.1 million, while gross margin dipped by 250 basis points (bps) to 22.4%. The lower margin was primarily caused by increased promotional spending on Emerald and Pop Secret products, coupled with commodity inflation.
Total operating expenses surged 52.8% year-over-year to $33.0 million, primarily due to $10.2 million incurred on the acquisition of Kettle Foods, partially offset by lower advertising expenses. Accordingly, Diamond Foods posted an operating loss of $1.9 million, compared to an operating profit of $6.1 million in the year-ago quarter. However, excluding acquisition expenses, operating income grew 37.5% year-over-year to $8.3 million.
Diamond Foods ended the quarter with cash and cash equivalents of $5.4 million, compared to $1.5 million in the year-ago period. The long-term-debt-to-capitalization at the end of the third quarter was 60.0%, compared to 41.0% in prior-year quarter. During the first nine months of the current fiscal year, the company issued $400 million of long-term debt and raised $176 million from revolving credit facilities primarily to fund the acquisition. The company also deployed $6.9 million towards capital expenditure over the same period.
Bolstered by strong quarterly performance, Diamond Foods raised its fiscal 2010 earnings guidance to a range of $2.35 to $2.45 per share, an increase of 10 cents from its earlier prediction. The revised guidance is in line with the Zacks Consensus Estimate of $2.40 per share, which moved up 3 cents in just the past week.
For the fourth quarter of fiscal 2010, Diamond Foods expects earnings of 25 cents to 27 cents per share. This guidance is lower than the Zacks Consensus Estimate of 30 cents per share, which increased by 3 cents over the past 2 months.
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