Diamond Foods has insisted it continues to make good progress on its turnaround plan, despite booking a mixed set of results that saw the top and bottom line remain under continued pressure.
The nut and snack group revealed that second-quarter net sales fell 15.8% to US$220.8m as Diamond delisted “underperforming” SKUs and reduced promotions. The company’s bottom line was also hit by higher SG&A expenses, which partially offset productivity gains.
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In spite of the mixed result – which failed to meet Wall Street expectations and prompted a drop in Diamond’s share price – management struck an upbeat note yesterday (12 March) when it addressed analysts and investors on a call to discuss the second-quarter.
Diamond CEO Brian Driscoll emphasised the strides that the group has made since it embarked on a strategy to drive sustainable, profitable growth and move away from a model that focused on expanding the top line through dilutive discounting initiatives.
“We are focusing on sustainable, organic brand growth and innovation; fixing Emerald with emphasis on our more premium competitively insulated items; reducing our cost structure, while optimizing our operational effectiveness; and rebuilding walnut supply,” Driscoll emphasised.
During the second quarter, Driscoll said Diamond had achieved improved net price realisation, while also targeting investment on brand-building activities. However, he conceded that it “takes time” to build brand value through product development and marketing initiatives.
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By GlobalData“We’re still in the early stages of our journey,” Driscoll said. “The efforts of our innovation team are in development across our portfolio. As a result, our pipeline is not yet as robust as we plan it to be. It takes time to build out the capability necessary to produce the kind of insulating innovation and marketing programs required to win consistently in the marketplace.”
In the near-term, Driscoll stressed that Diamond’s results are feeling the positive influence of its cost-cutting programme, move from “discount-driven growth” and elimination of low-margin SKUs. As a consequence, Diamond was able to book a 690 basis point improvement in its gross margin during the quarter, he added.
However, even as the rationalisation of the group’s portfolio contributed to the firm’s declining sales – a trend that is expacted to accelerate in the back half of the year.
When Diamond delivered its second-quarter results, the firm realigned its reporting structure and provided a breakdown of its snacks and nuts businesses. Snack sales, including the Kettle brand, were up 7.2% in the period, while the nut business witnessed a 30% drop in sales year-on-year.
While the steep drop in sales highlights the challenges that the nuts business is facing, Barclay’s capital analysts were upbeat on the group’s efforts to improve profitability at the unit. “Despite weak sales in the quarter, gross profit dollars actually grew +17% year on year, resulting in gross margin expansion of +540 bps year on year,” they wrote in a note to investors.
