US: Diamond Foods shares fall after Q4 loss

By Dean Best | 10 December 2012

  • Diamond posts Q4 loss
  • CEO insists FY results "do not reflect" new "direction"
  • Shares down 
Diamond CEO Driscoll said FY results do not reflect companys new direction

Diamond CEO Driscoll said FY results do not reflect company's new direction

Shares in Kettle Chips owner Diamond Foods tumbled today (10 December), the first day of trading after the US snack group reported a fourth-quarter loss.

Diamond's stock was down almost 9% today after the company booked a loss of US$32.9m for the three months to 31 July. The quarterly loss meant Diamond made an annual loss of $86.3m.

The filing brought Diamond's financial results up to date after delays in reporting its accounts in the wake of an accounting scandal at the business.

Last month, Diamond booked a loss for the first three quarter of the year and posted lower profits for 2010 and 2011. Diamond had to refile results for those years after it found it had incorrectly accounted for payments to walnut growers, which led to the departure of its CEO and CFO.

Diamond's fourth-quarter loss was thanks in part to cost from its investigation into payments to walnut growers and the restatement of its results. It also booked an impairment charge of $10.1m after the closure of a plant in Indiana. Quarterly sales were down 5% at $224m. Annual sales were up 2% at $981.4m.

"The 2012 financial results do not reflect our recent change in strategic direction with a focus on sustainable growth of our brands based on innovation and differentiation, improving our cost structure and rebuilding our walnut supply," Diamond CEO Brian Driscoll said on Friday (7 December). "Diamond is moving aggressively to execute against our objectives as we seek to better position the company for long-term success."

Last week, Diamond told just-food it saw "significant opportunities" to lower its cost base by reducing its overhead structure and tightening its supply chain.

Diamond said on Friday it will hold a conference call on the fourth-quarter results when it files its 10-Q statement to the Nasdaq stock exchange.

Diamond's shares were down 8.91% at $13.49 at 13:27 ET.

Show the press release

Diamond Foods Reports Fourth Quarter and Full Year Fiscal 2012 Financial Results
  • Net sales in the fourth quarter was $223.9 million and $981.4 million for the fiscal year
  • Gross margin in the fourth quarter was 18.9 percent and 18.3 percent for the fiscal year
  • GAAP net loss in the fourth quarter was $32.9 million and $86.3 million for the fiscal year
  • Adjusted EBITDA in the fourth quarter was $21.8 million and $79.4 million for the fiscal year

SAN FRANCISCO, Dec. 7, 2012 (GLOBE NEWSWIRE) -- Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2012 fourth quarter and full year ended July 31, 2012.

In the fourth quarter 2012, GAAP net loss was $32.9 million and GAAP fully diluted loss per share was$1.52. Diamond incurred $10.0 million for selling, general and administrative ("SG&A") costs primarily related to audit committee investigation, restatement, and related expenses. The Company also incurred a$10.4 million charge related to a change in the fair value of the Oaktree warrant liability and a $10.1 million charge related to asset impairment associated with the closure of the Fishers, Indiana plant during the quarter. Excluding these charges, non-GAAP net income declined 80 percent from the prior year's quarter to $1.0 million and non-GAAP fully diluted earnings per share declined 78 percent from the prior year's quarter to $0.05.

For the twelve months ended July 31, 2012, GAAP net loss was $86.3 million, and GAAP fully diluted loss per share was $3.98. During the fiscal year, Diamond incurred $30.6 million for certain SG&A costs primarily related to audit committee investigation, restatement, and related charges. The Company also incurred a $10.4 million charge related to a change in the fair value of the Oaktree warrant liability and a $10.1 million charge related to asset impairment at the Fishers, Indiana plant during the year. Excluding these charges, non-GAAP net income declined 68 percent from the prior year period to $12.7 million and non-GAAP fully diluted EPS declined 67 percent to $0.58.

"Diamond continues to make progress towards implementing our recently announced cost savings and operational effectiveness initiatives," said Diamond's Chief Executive Officer Brian J. Driscoll. "The 2012 financial results do not reflect our recent change in strategic direction with a focus on sustainable growth of our brands based on innovation and differentiation, improving our cost structure and rebuilding our walnut supply. Diamond is moving aggressively to execute against our objectives as we seek to better position the Company for long-term success."

Financial Review

Net sales during the quarter decreased 5 percent to $224.0 million. Total retail net sales grew 9 percent to$210.1 million and snack net sales grew 8 percent to $159.2 million in the quarter, driven by increases in Emerald sales. Non-retail net sales totaled $13.9 million for the quarter compared to $10.9 million in the third quarter of fiscal 2012 and $41.8 million in the fourth quarter a year ago.

Full fiscal year net sales increased 2 percent to $981.4 million. Total retail net sales grew 10 percent to$898.6 million and snack net sales grew 9 percent to $605.8 million, driven by increases in Emerald sales.  Non-retail net sales totaled $82.8 million for the full fiscal year compared to $149.9 million a year ago.

Gross profit as a percentage of net sales was 18.9 percent for the fourth quarter and 18.3 percent for the full year as compared to 20.8 percent and 22.4 percent in the prior year periods. 

SG&A expenses were $33.6 million during the quarter compared to $25.9 million in the prior year period. For the full fiscal year, SG&A was $130.6 million, or 13.3 percent of net sales compared to $97.5 million or 10.1 percent of net sales in the prior year period. Included in the fourth quarter and the full fiscal year 2012 SG&A expenses were $10.0 million and $30.6 million, respectively, of SG&A expenses related primarily to audit committee investigation, restatement, and related expenses. 

Advertising expense was $6.4 million during the fourth quarter compared to $10.7 million in the prior year period. For the full fiscal year, advertising expense was $37.9 million or 3.9 percent of net sales, a decrease of $7.1 million compared to the prior year.  

The Company reviewed assets at the Fishers, Indiana location that either are not currently being utilized or will not be utilized for its remaining life. As a result of this review, the Company recorded asset impairment charges of $10.1 million in the fourth quarter. 

The Oaktree warrant is accounted for as a derivative liability that must be marked to market every reporting period. Any gain or loss based on the change in value of the warrant is recognized in earnings. The warrant value is determined using a Black-Scholes option model. The Company recognized in the fourth quarter a $10.4 million loss on the warrant largely due to the value of the warrant liability increasing because of a change in the probability of the special redemption. 

Net interest expense was $14.0 million in the fourth quarter compared to $5.9 million in the prior year period.  The increase in interest was due to higher interest rates associated with the amended bank credit facility and the Oaktree debt, as well as the increase in total debt outstanding compared to the prior year period.  Furthermore, net interest expense includes certain third party costs related to the Oaktree transaction and the bank facility amendment.  Net interest expense incurred in the full fiscal year was$34.0 million compared to $23.9 million in the prior year. 

On a non-GAAP basis in the fourth quarter, the Company recorded a tax benefit of $1.7 million, based on a pre-tax non-GAAP loss of $0.6 million.  The tax benefit reflects the year end actual tax rate applied compared to the cumulative tax rate in the first three quarters of fiscal 2012, including the effect of certain jurisdictional tax rate differences.  When reported for the full fiscal year, an effective tax rate of negative 23.1 percent applies to the non-GAAP taxable income, resulting in a net tax benefit.  On a GAAP basis, the effective tax rate was almost zero percent for the fourth quarter and 2 percent for the full fiscal year. 

Capital expenditures were $4.4 million for the fourth quarter and $45.0 million for the fiscal year. The U.K. and Beloit, Wisconsin Kettle expansions were completed in the fall of 2011 and spring of 2012, respectively.  

Adjusted EBITDA was $21.8 million in the fourth quarter and $79.4 million in the full fiscal year 2012, which compares to $21.5 million and $109.7 million in the prior year periods, respectively. Please refer to page 8 for a reconciliation of non-GAAP information. 

Cash and availability on Diamond's bank revolving line of credit on November 30, 2012 was approximately $88 million. 

Conference Call

Diamond plans to hold a conference call upon filing of its Quarterly Report on Form 10-Q for the quarter ended October 31, 2012, which the Company plans to file as soon as practicable.

Original source: Diamond Foods

Sectors: Financials, Snacks

Companies: Diamond Foods

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