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| Diamond Foods Reports Fiscal 2007 Second Quarter Results |
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*Snack Sales Increase 150% for Quarter; Up 100% Year to Date STOCKTON, Calif., Mar 8 /PRNewswire-FirstCall/ -- Diamond Foods, Inc. (Nasdaq: DMND), a leading branded food company specializing in processing, marketing and distributing culinary and snack products, today reported financial results for its fiscal 2007 second quarter. Net sales grew 16% to $143.6 million for the three months ended January 31, 2007, compared to $124.2 million for the three months ended January 31, 2006. GAAP diluted earnings per share (EPS) were $0.13 compared to $0.20 for the prior year comparable period. Non-GAAP EPS for the quarter was $0.12. For the six months ended January 31, 2007, net sales grew 4% to $313.1 million compared to $302.2 million for the prior year comparable period. GAAP EPS was $0.74 compared to $0.46 for the prior year comparable period. Non-GAAP EPS was $0.60 compared to $0.56 for the prior year comparable period. Non-GAAP EPS excludes: a one time charge to cost of sales in the three months ended October 31, 2005 resulting from Diamond's conversion from a cooperative to a public company; restructuring and other costs; and amounts related to the termination of Diamond's defined benefit plan. Further details are provided below under the heading "About Diamond's Non-GAAP Financial Measures." "We are encouraged by the increase in our snack sales in the quarter," said Michael J. Mendes, President and CEO. "This growth reflects the positive response to our new advertising and promotional campaigns as well as the significant investments we have made to drive sales growth, including costs supporting the launch of three new Emerald products in December, the introduction of new packaging configurations and the repositioning of the Harmony line for growth and profitability." Recent Financial and Corporate Development Highlights
Diamond reiterates its fiscal 2007 guidance as follows:
A reconciliation of GAAP EPS to non-GAAP EPS for fiscal year 2006 and the 2007 outlook is presented below:
Fiscal 2006 2007 Outlook
Actual Low end High end
(in thousands, except per share information)
Net sales $477,205 $501,000 $515,400
GAAP EPS $ 0.47 $ 0.41 $ 0.46
After tax effects of:
Impact of NRV accounting
for inventories 0.10 -- --
Impact of restructuring
and other costs 0.13 0.02 0.02
Impact of tax credits
and other tax adjustments (0.23) -- --
Impact of gain on sale
of facility -- (0.04) (0.04)
Impact of pension
termination expense -- 0.11 0.11
Non-GAAP EPS $ 0.47 $ 0.50 $ 0.55
Financial Results
Net sales and other revenues by product line were (in thousands):
Three months ended Six months ended
January 31, January 31,
2007 2006 2007 2006
Culinary $ 61,657 $ 57,350 $129,378 $123,502
Snack 21,232 8,530 36,623 18,500
Inshell 18,083 12,955 45,640 44,163
Total North American Retail 100,972 78,835 211,641 186,165
North American Ingredient 17,606 20,275 39,775 44,811
International 24,267 24,328 60,248 69,336
Other 777 719 1,470 1,905
$143,622 $124,157 $313,134 $302,217
Gross margin as a percentage of net sales was 14.2% and 15.0% for the three months ended January 31, 2007 and 2006, respectively. Gross margin per pound shipped decreased 8% to $0.370 in 2007 from $0.403 in 2006. This change reflects investments in introductory costs for new snack products and promotional activities and capacity expansion for all snack products as well as increased culinary sales in lower margin channels. Gross margin as a percentage of net sales was 15.4% and 14.6% for the six months ended January 31, 2007 and 2006, respectively. Gross margin per pound shipped increased by 7% to $0.355 in 2007 from $0.333 in 2006. (Data for the six months ended January 31, 2006 is presented on a non-GAAP basis, as discussed below.) Selling, general and administrative expenses for the three months ended January 31, 2007 was $11.5 million compared to $9.0 million for the comparable prior year period, and includes $1.4 million and $1.1 million of stock based compensation for the three months ended January 31, 2007 and 2006, respectively. Selling, general and administrative expenses as a percentage of net sales were 8.0% in 2007 compared to 7.2% in 2006. Selling, general and administrative expenses for the six months ended January 31, 2007 was $23.0 million compared to $18.2 million for the comparable prior year period, and includes $2.6 million and $1.9 million of stock based compensation for the six months ended January 31, 2007 and 2006, respectively. Selling, general and administrative expenses as a percentage of net sales were 7.4% in 2007 compared to 6.0% in 2006. The increase in selling, general and administrative expenses for the three and six month periods ended January 31, 2007 is primarily related to additional sales and marketing costs and non-cash equity compensation expense. Advertising expense for the three months ended January 31, 2007 was $5.1 million compared to $4.3 million for the comparable prior year period. Advertising expense for the six months ended January 31, 2007 was $8.4 million compared to $10.9 million for the comparable prior year period. This change principally reflects timing of advertising programs. Restructuring and other costs totaled a net credit of $0.2 million and $0.9 million for the three and six months ended January 31, 2007, respectively, and related principally to 1) costs of closing Diamond's Lemont, Illinois facility and consolidation of operations in the Fishers, Indiana facility, 2) reversal of excess contract termination costs and professional fees related to tax credits for prior years and 3) a gain on the sale of the Lemont facility. For the six months ended January 31, 2007, Diamond recorded a gain on curtailment of defined benefit plan of $3.0 million related to Diamond's decision to terminate a defined benefit plan. Upon final plan termination, which is expected in the third quarter, Diamond will record a $6.0 million charge, resulting in a net charge due to plan termination of $3.0 million. Both the $3.0 million gain on plan curtailment and $6.0 million charge on plan termination are one-time items and are substantially all non-cash. Net interest and other expenses for the three and six months ended January 31, 2007 were $0.4 million and $0.7 million compared to $0.3 million and $0.5 million for the prior year comparable periods. As of January 31, 2007, Diamond had approximately $25.0 million in cash and cash equivalents, no short-term bank borrowings, and 15.8 million common shares issued and outstanding. Conference Call Diamond will host a conference call and webcast today, March 8, 2007 at 1:30 p.m. Pacific Time to discuss fiscal second quarter 2007 results and recent corporate developments. The dial-in number for the conference call is 800-240-2134 for domestic participants and 303-205-0033 for international participants. A taped replay of the conference call will be available beginning approximately one hour after the call's conclusion, will remain available through March 15, 2007 at midnight Pacific Time, and can be accessed by dialing 800-405-2236 for domestic callers and 303-590-3000 for international callers, both using passcode 11084415#. To access the live webcast of the call, go to the Diamond Foods website at http://www.diamondfoods.com/ . An archived webcast will also be available at http://www.diamondfoods.com/ . Financial Statements Diamond's financial results for the three and six months ended January 31, 2007 and 2006 were as follows (in thousands, except per share amounts):
Three months ended Six months ended
January 31, January 31,
2007 2006 2007 2006
Net sales $143,622 $124,157 $313,134 $302,217
Cost of sales 123,281 105,587 264,853 258,066
Cost of sales--NRV amount -- -- -- 2,770
Total cost of sales 123,281 105,587 264,853 260,836
Gross margin 20,341 18,570 48,281 41,381
Operating expenses:
Selling, general and
administrative 11,512 8,998 23,045 18,188
Advertising 5,117 4,293 8,354 10,887
Restructuring and
other costs, net (190) -- (854) --
Gain on curtailment of
defined benefit plan -- -- (3,039) --
Total operating expenses 16,439 13,291 27,506 29,075
Income from operations 3,902 5,279 20,775 12,306
Interest expense, net 290 248 571 272
Other (income), expense 112 3 82 216
Income before
income tax expense 3,500 5,028 20,122 11,818
Income tax expense 1,470 1,951 8,451 4,667
Net income $ 2,030 $ 3,077 $ 11,671 $ 7,151
Earnings per share:
Basic $0.13 $0.20 $0.74 $0.46
Diluted $0.13 $0.20 $0.74 $0.46
Shares used to compute
earnings per share:
Basic 15,772 15,587 15,755 15,572
Diluted 15,772 15,587 15,755 15,611
Non-GAAP Financial Information Diamond has provided the following non-GAAP financial information for the three and six months ended January 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 for 2007 excludes restructuring and other costs and a gain on curtailment of a defined benefit plan.
Three months ended Six months ended
January 31, January 31,
2007 2006 2007 2006
(in thousands)
Net sales $143,622 $124,157 $313,134 $302,217
Cost of sales 123,281 105,587 264,853 258,066
Gross margin 20,341 18,570 48,281 44,151
Operating expenses:
Selling, general
and administrative 11,512 8,998 23,045 18,188
Advertising 5,117 4,293 8,354 10,887
Total operating expenses 16,629 13,291 31,399 29,075
Operating income 3,712 5,279 16,882 15,076
Interest expense, net 290 248 571 272
Other expense 112 3 82 216
Income before
income tax expense $ 3,310 $ 5,028 $ 16,229 $ 14,588
Reconciliation of GAAP to non-GAAP financial information (in thousands,
except per share amounts):
Three months ended Six months ended
January 31, January 31,
2007 2006 2007 2006
GAAP income before
income tax expense $ 3,500 $ 5,028 $ 20,122 $ 11,818
Adjustment to remove
one time impact of
accounting for certain
inventories on NRV basis -- -- -- 2,770
Adjustments to remove
restructuring and other
costs and gain on curtailment
of defined benefit plan (190) -- (3,893) --
Non-GAAP income before
income tax expense 3,310 5,028 16,229 14,588
GAAP income tax expense 1,470 1,951 8,451 4,667
Adjustment to reflect
tax effects of Non-GAAP
adjustments (80) -- (1,635) 1,108
Non-GAAP income tax expense 1,390 1,951 6,816 5,775
Non-GAAP net income $ 1,920 $ 3,077 $ 9,413 $ 8,813
Non-GAAP EPS-diluted $ 0.12 $ 0.20 $ 0.60 $ 0.56
Shares used in computing
Non-GAAP EPS-diluted 15,772 15,587 15,755 15,611
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 measures should not be considered as a substitute for financial measures prepared in accordance with GAAP. Diamond's non-GAAP measures do not reflect a comprehensive system of accounting, and differ both from GAAP financial measures and from non-GAAP measures used by other companies. Diamond urges investors to review its reconciliation of non-GAAP measures to GAAP financial measures, and its financial statements to evaluate its business. Diamond believes that its non-GAAP 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 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:
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) We may not realize expected synergies or cost savings from the acquisition of assets from Harmony Foods Corporation. (9) Our international business exposes us to special risks, including trade restrictions, regulatory developments, currency rate fluctuations, and supply disruptions. (10) 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 representatives at 415-896-6820 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, Emerald and Harmony brands.
SOURCE Diamond Foods, Inc. |