GAAP and non-GAAP EPS of between $0.42 to $0.48.
Diamond's longer term goals include the following:
- Average total sales growth of 6% to 8% and North American retail sales
growth of 14% to 18% per year through 2011;
- Total snack sales of $200 million to $250 million for fiscal year
2011;
- Gross margin and operating margin of 20% and 10%, respectively, by
fiscal year 2011;
- Average EPS growth of 40% to 50% through 2011;
- Average EBITDA growth of approximately 30% through 2011.
Financial Results
Net sales by product line were:
Three months ended Twelve months ended
July 31, July 31,
(in thousands) 2007 2006 2007 2006
Culinary $37,353 $35,996 $207,015 $189,391
Snack 26,328 16,633 79,642 40,743
In-shell 374 1,142 46,460 44,745
Total North American
Retail 64,055 53,771 333,117 274,879
North American Ingredient 19,104 23,203 73,822 84,475
International 28,714 29,860 112,830 114,781
Other 562 356 2,816 3,070
Total $112,435 $107,190 $522,585 $477,205
Gross margin as a percentage of net sales was 14.8% and 14.5% for the
three months ended July 31, 2007 and 2006, respectively. Gross margin as a
percentage of net sales was 15.0% and 14.3% for the twelve months ended July
31, 2007 and 2006, respectively. (Data for the twelve months ended July 31,
2006 is presented on a non-GAAP basis, as discussed below.)
Selling, general and administrative expense for the three months ended
July 31, 2007 was $10.2 million compared to $10.7 million for the comparable
prior year period, and includes $2.0 million and $1.2 million of stock based
compensation, respectively. Selling, general and administrative expense as a
percentage of net sales was 9.1% in the quarter, compared to 10.0% in the same
quarter last year. Selling, general and administrative expense for the twelve
months ended July 31, 2007 was $42.5 million compared to $37.0 million for the
comparable prior year period, and includes $5.9 million and $4.0 million of
stock based compensation, respectively. Selling, general and administrative
expense as a percentage of net sales was 8.1% for the twelve months ended July
31, 2007 compared to 7.8% for the same period last year. The increase in
selling, general and administrative expense for the twelve month period ended
July 31, 2007 is primarily related to additional sales and marketing costs and
non-cash stock based compensation expense.
Advertising expense for the three months ended July 31, 2007 was $4.8
million compared to $1.7 million for the comparable prior year period.
Advertising expense for the twelve months ended July 31, 2007 was $20.4
million compared to $18.0 million for the comparable prior year period.
Restructuring and other costs were $0.3 million for the three months ended
July 31, 2007 and $0 million for the twelve months ended July 31, 2007. These
amounts principally related to 1) costs of closing Diamond's Lemont, Illinois
facility and consolidation of operations in the Fishers, Indiana facility, 2)
contract termination costs and certain professional service fees and 3) a gain
on the sale of the Lemont facility.
For the twelve months ended July 31, 2007, the Company recorded a net
charge for the termination of its defined benefit administrative pension plan
of $3.1 million. The charge is substantially all non-cash.
Net interest and other expenses for the three and twelve months ended July
31, 2007 were $0.2 million and $1.4 million, compared to $0.1 million and $0.6
million for the prior year's comparable periods.
As of July 31, 2007, Diamond had $33.8 million in cash and cash
equivalents, $20 million in long-term debt, and 15.8 million common shares
issued and outstanding. EBITDA, excluding the loss on termination of a
defined benefit plan and restructuring and other costs, for the year ended
July 31, 2007 was approximately $29.1 million compared to $22.7 million in
2006.
Conference Call
Diamond will host an investor conference call and web cast today,
September 20, 2007 at 1:30 p.m. Pacific Time to discuss fiscal fourth quarter
2007 results and outlook for fiscal 2008. The dial-in number for the
conference call is 877-243-0333 for U.S./Canada participants and 706-634-1263
for international participants. The conference ID is 150-75540.
A taped replay of the conference call will be available beginning
approximately two hours after the call's conclusion, and will remain available
through September 27, 2007 at midnight Eastern Time, and can be accessed by
dialing 800-642-1687 for U.S./Canada callers and 706-645-9291 for
international callers, with the conference ID above. To access the live web
cast of the call, visit the Diamond Foods website at
http://www.diamondfoods.com/and select "Investor Relations". An archived web
cast will also be available at http://www.diamondfoods.com/ under "Investor
Relations".
Financial Statements
Diamond's financial results for the three and twelve months ended July 31,
2007 and 2006 were as follows:
Three months ended Twelve months ended
(in thousands, except per share July 31, July 31,
amounts) 2007 2006 2007 2006
Net sales $112,435 $107,190 $522,585 $477,205
Cost of sales 95,782 91,603 443,945 409,039
Cost of sales-NRV amount -- -- -- 2,770
Total cost of sales 95,782 91,603 443,945 411,809
Gross margin 16,653 15,587 78,640 65,396
Operating expenses:
Selling, general and
administrative 10,214 10,690 42,541 37,046
Advertising 4,818 1,691 20,445 17,977
Restructuring and other costs, net 307 3,442 (15) 3,442
Loss on termination of defined
benefit plan 1,414 -- 3,054 --
Total operating expenses 16,753 15,823 66,025 58,465
Income (loss) from operations (100) (236) 12,615 6,931
Interest expense, net 222 84 1,291 295
Other (income) expense, net 26 (22) 98 310
Income (loss) before income tax
expense (benefit) (348) (298) 11,226 6,326
Income tax expense (benefit) (1,122) (3,658) 2,793 (1,010)
Net income $774 $3,360 $8,433 $7,336
Earnings per share:
Basic $0.05 $0.21 $0.53 $0.47
Diluted $0.05 $0.21 $0.53 $0.47
Shares used to compute earnings per
share:
Basic 15,826 15,722 15,786 15,634
Diluted 15,826 15,722 15,786 15,653
Non-GAAP Financial Information
Diamond has provided the following non-GAAP financial information for the
three and twelve months ended July 31, 2007 and 2006. In 2006, such
information excludes a one-time charge to cost of sales as a result of the
conversion from a cooperative to a public company in July 2005. This charge
relates to the company's use of net realizable value (NRV) accounting for
certain inventories acquired prior to August 1, 2005. Starting August 1, 2005
Diamond began using the lower of cost or market method of valuing walnut
inventories acquired subsequent to that date. As a result of using NRV
accounting for certain inventories through July 31, 2005, these inventories
were valued higher than they would have been under the lower of cost or market
method. Therefore, the amount charged to cost of goods sold was higher as
these inventories were sold. Diamond's non-GAAP financial information
excludes restructuring and other costs, the charge on the termination of its
defined benefit administrative pension plan and certain discrete tax items.
Non-GAAP Financial Information
Three months ended Twelve months ended
July 31, July 31,
(in thousands) 2007 2006 2007 2006
Net sales $112,435 $107,190 $522,585 $477,205
Non-GAAP cost of sales 95,782 91,603 443,945 409,039
Non-GAAP gross margin 16,653 15,587 78,640 68,166
Operating expenses:
Selling, general and
administrative 10,214 10,690 42,541 37,046
Advertising 4,818 1,691 20,445 17,977
Non-GAAP total operating
expenses 15,032 12,381 62,986 55,023
Non-GAAP operating income 1,621 3,206 15,654 13,143
Interest expense, net 222 84 1,291 295
Other (income) expense, net 26 (22) 98 310
Non-GAAP income before income
tax expense $1,373 $3,144 $14,265 $12,538
Reconciliation of GAAP to non-GAAP financial information:
Three months ended Twelve months ended
(in thousands, except per share July 31, July 31,
amounts) 2007 2006 2007 2006
GAAP income (loss) before income tax
expense (benefit) $(348) $(298) $11,226 $6,326
Adjustment to remove one-time
impact of accounting for
certain inventories on NRV basis -- -- -- 2,770
Adjustments to remove restructuring
and other costs and loss on
termination of defined
benefit plan 1,721 3,442 3,039 3,442
Non-GAAP income before income tax
expense 1,373 3,144 14,265 12,538
GAAP income tax expense (benefit) (1,122) (3,658) 2,793 (1,010)
Adjustment for tax effects of
Non-GAAP adjustments 654 1,446 1,155 2,609
Adjustment for effects of discrete
tax items 987 3,533 1,470 3,667
Non-GAAP income tax expense 519 1,321 5,418 5,266
Non-GAAP net income $854 $1,823 $8,847 $7,272
Non-GAAP EPS-diluted $0.05 $0.12 $0.56 $0.46
Shares used in computing Non-GAAP
EPS-diluted 15,826 15,722 15,786 15,653
Year ended July 31,
Guidance 2008
(in thousands) 2007 2006 Low end High end
Income from operations $12,615 $6,931 $22,100 $24,700
Stock-based compensation expense 5,859 3,992 6,800 6,800
Depreciation and amortization 7,561 5,532 7,000 7,000
Restructuring and other costs, net (15) 3,442 -- --
Loss on termination of defined
benefit plan 3,054 -- -- --
Cost of sales - NRV amount -- 2,770 -- --
Non-GAAP EBITDA $29,074 $22,667 $35,900 $38,500
2008 stock-based compensation represents the mid-point of guidance.
About Diamond's non-GAAP Financial Measures. This release contains
non-GAAP financial measures of Diamond's performance ("non-GAAP measures") for
different periods. Non-GAAP financial measures should not be considered as a
substitute for financial measures prepared in accordance with GAAP. Diamond's
non-GAAP financial measures do not reflect a comprehensive system of
accounting, and differ both from GAAP financial measures and from non-GAAP
financial measures used by other companies. Diamond urges investors to review
its reconciliation of non-GAAP financial measures to GAAP financial measures
and its financial statements to evaluate its business.
Diamond believes that its non-GAAP financial measures provide meaningful
information regarding operating results because they exclude amounts that
Diamond excludes when monitoring operating results and assessing performance
of the business. Diamond believes that its non-GAAP financial measures also
facilitate comparison of results for current periods and business outlook for
future periods. Diamond's non-GAAP financial measures include adjustments for
the following items:
-- A one-time charge in connection with its conversion. As an
agricultural cooperative association, Diamond was required to use net
realizable value (NRV) accounting for certain inventories; as a
for-profit corporation Diamond is required to use the lower of cost or
market method to value all inventories. As a result of using NRV
accounting, certain inventories were valued higher than they would
have been under the lower of cost or market method. Therefore, as
these inventories were sold, the amount charged to cost of goods sold
was higher. Diamond excluded this charge because it is non-recurring
and is not indicative of ongoing operations.
-- Restructuring and other costs which are principally related to the
closure of Diamond's Lemont facility and the costs incurred to
consolidate operations in its Fisher's facility, a gain on the sale of
the Lemont facility, the estimated costs of terminating certain
contracts and certain non-recurring professional service fees.
Diamond's management believes it is useful to investors to exclude
these amounts since they are non-recurring in nature and are not
reflective of the operating results of Diamond on an on-going basis.
-- Amounts associated with terminating its pension plan for
administrative employees due to its non-recurring nature.
-- Income tax benefits from tax credits related to prior years and
certain other discrete tax items since they are non-recurring in
nature.
Diamond's management uses non-GAAP measures in internal reports used to
monitor and make decisions about its business, such as monthly financial
reports prepared for management. The principal limitation of the non-GAAP
measures is that they exclude significant expenses required under GAAP. They
also reflect the exercise of management's judgments about which adjustments
are appropriately made. To mitigate this limitation, Diamond presents the
non-GAAP measures in connection with GAAP results, and recommends that
investors do not give undue weight to them. Diamond believes that non-GAAP
measures provide useful information to investors by allowing them to view the
business through the eyes of management, facilitating comparison of results
across historical and future periods, and providing a focus on the underlying
operating performance of the business.
Note regarding forward-looking statements: This press release contains
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including those relating to Diamond's business outlook and financial guidance.
Our forward-looking statements are based on management's current expectations,
are not guarantees of future performance, and are subject to many risks and
uncertainties that could cause actual results to differ materially from
expectations. We presently consider the following to be among the important
factors that could cause our actual results to differ materially from
expectations: (1) Product recalls or concerns with safety and quality of food
products could harm sales or cause consumers to avoid our products. (2) Our
raw materials are subject to fluctuations in availability and price, and
supply shortages, delayed crop harvests, and/or price increases could hurt our
profitability. (3) We face intense competition from national and regional
competitors, including in the snack food industry, and if we cannot compete
effectively, we may lose customers or suffer reduced sales. (4) We depend on a
few significant customers for a large proportion of our sales, and the loss of
any of these customers or material decrease in their purchases could result in
decreased sales. (5) Our growth depends on penetrating new distribution
channels and expanding distribution in existing channels. (6) Changes in the
food industry, including dietary trends and consumer preferences, could reduce
sales of our products. (7) Acquisitions entail significant risks, including
integration of acquired operations, diversion of management attention, risks
of entering new markets and potential loss of key employees of acquired
organizations. (8) Our international business exposes us to special risks,
including trade restrictions, regulatory developments, currency rate
fluctuations, and supply disruptions. (9) We expect costs associated with
product processing and transportation, such as fuel, electricity, water and
natural gas, to increase, which could reduce our margins and profitability. A
detailed discussion of these and other risks that affect our business is
contained in our SEC filings, including our Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, particularly under the heading "Risk Factors".
Copies of our SEC filings are available online from the SEC or by contacting
Diamond's Investor Relations at 415-445-7430 or by clicking on Investor
Relations on Diamond's website at http://www.diamondfoods.com/. All
information in this release is current as of the date of this release.
Diamond undertakes no duty to update any statement in light of new information
or future events.
About Diamond
Diamond is a leading branded food company specializing in processing,
marketing and distributing culinary nuts and snack products under the Diamond
and Emerald brands.
SOURCE Diamond Foods, Inc. -
09/20/2007
CONTACT:
investors, Bob Philipps, VP, Treasury & Investor Relations,
+1-415-445-7426, bphilipps@diamondfoods.com, or
media, Vicki Zeigler, Public
Relations Manager,
+1-209-932-5639, vzeigler@diamondfoods.com,
both of Diamond
Foods, Inc.
Web site: http://www.diamondfoods.com -
http://www.diamondnuts.com
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