Snacks up, nuts down for Diamond Foods

Snacks up, nuts down for Diamond Foods

Overall net sales increased in Q3, but higher walnut prices caused a dip in nut sales.

Diamond Foods Inc. (Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2014 third quarter and nine months ended April 30, 2014.

Third quarter fiscal 2014 highlights:

  • Net sales were $190.9 million, up 3.2 percent year-over-year
  • Snacks segment sales increased 9.6 percent to $114.3 million and Nuts segment sales decreased 5.0 percent to $76.6 million
  • Gross margin was 23.6 percent compared to 23.4 percent
  • GAAP loss per share was $3.63 primarily attributable to the extinguishment of the Oaktree debt; non-GAAP earnings per share (EPS) was $0.11
  • Adjusted EBITDA increased 1.5 percent to $23.5 million

Year-to-date fiscal 2014 highlights:

  • Net sales decreased 2.7 percent to $646.1 million
  • Snacks segment sales increased 7.1 percent to $343.6 million and Nuts segment sales decreased 11.9 percent to $302.5 million
  • Gross margin was 24.6 percent compared to 23.0 percent
  • GAAP loss per share was $6.69; non-GAAP EPS was $0.44
  • Adjusted EBITDA increased 5.3 percent to $81.2 million

"We are very pleased with the overall performance of our Snacks segment in the third quarter, as we continued to deliver solid year-over-year sales growth and gross margin expansion," said Brian J. Driscoll, president and CEO. "While these results reflect strong progress against our overall turnaround plan, in the Nuts segment a walnut cost increase this quarter impacted our results by $2.2 million."

Third quarter fiscal 2014
Consolidated net sales during the quarter increased 3.2 percent, to $190.9 million, compared to the same quarter of the prior year. Gross profit was $45.1 million, or 23.6 percent of net sales, for the third quarter of fiscal 2014, compared to $43.4 million, or 23.4 percent of net sales, for the same quarter in the prior year.

GAAP net loss was $105.6 million and GAAP diluted loss per share ("EPS") was ($3.63) in the third quarter of fiscal 2014. On February 19, 2014, the Company re-financed its outstanding debt, including the Oaktree notes, and Oaktree exercised their warrant of 4.4 million shares. A charge of $83.0 million relating to the refinancing transactions was expensed in the quarter including: $41.6 million representing the difference between the reacquisition price and the carrying value of the Oaktree debt, $28.7 million of Oaktree debt call premium, and $12.7 million of refinancing transaction costs. In addition, we incurred a $15.0 million Oaktree warrant exercise inducement fee and $2.0 million for the change in the fair value of the Oaktree warrant liability. Excluding these items and other adjustments, non-GAAP net income for the third quarter of fiscal 2014 was $3.5 million and non-GAAP diluted EPS was $0.11. Adjusted EBITDA was $23.5 million in the third quarter of fiscal 2014, compared to $23.2 million in the prior year. Please refer to the table at the end of this press release for a reconciliation of GAAP to non-GAAP information.

Year-to-date fiscal 2014
Net sales for the first nine months of fiscal 2014 decreased 2.7 percent to $646.1 million compared to $664.2 million during the first nine months of last year, and gross profit as a percent of net sales was 24.6 percent compared to 23.0 percent last year.

Net loss was $162.8 million, or a loss of $6.69 per share on a fully diluted basis. Excluding certain charges, non-GAAP net income for the first nine months of fiscal 2014 was $13.3 million and non-GAAP fully diluted earnings per share was $0.44. Adjusted EBITDA was $81.2 million, compared to $77.2 million last year. Adjusted EBITDA is a non-GAAP financial measure. Please refer to the tables in this press release for a reconciliation of all non-GAAP financial measures.

As of April 30, 2014, net debt outstanding was $635.4 million and the$125 million ABL Revolver was undrawn.

Segment Review
The Company has two reportable segments: Snacks and Nuts. The Snacks segment includes products sold under the Kettle U.S., Kettle U.K. and Pop Secret brands. The Nuts segment includes products sold under the Diamond of California and Emerald brands.

Snacks segment: Net sales during the third quarter increased 9.6 percent, to $114.3 million compared to the prior year period. Gross profit was $41.7 million, or 36.5 percent of net sales, for the third quarter of fiscal 2014, compared to $36.7 million, or 35.2 percent of net sales, for the same quarter in the prior year.

Net sales during the first nine months of fiscal 2014 were $343.6 million, a 7.1 percent increase compared to the first nine months of last year. Gross profit during the first nine months of fiscal 2014 was $123.7 million, 36.0 percent of net sales, compared to $109.8 million, 34.2 percent of net sales, in the prior year period.

Nuts segment: Net sales during the third quarter decreased 5.0 percent to $76.6 million compared to the prior year period. Gross profit was $3.4 million, or 4.4 percent of net sales, in the third quarter of fiscal 2014, compared to $6.7 million, or 8.3 percent of net sales, for the same quarter in the prior year.

Net sales during the first nine months of fiscal 2014 were $302.5 million, an 11.9 percent decrease compared to the first nine months of last year. Gross profit during the first nine months of fiscal 2014 was $35.3 million, 11.7 percent of net sales, compared to $42.7 million, 12.4 percent of net sales, in the prior year period.

Outlook
Despite headwinds associated with tree nut commodity costs in fiscal 2014 that adversely impacted the Nuts segment; the Company expects to realize an increase in Adjusted EBITDA year-over-year.

 

 

 

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