SAN FRANCISCO, Dec. 5, 2013 (GLOBE NEWSWIRE) -- Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2014 first quarter ended October 31, 2013.
First Quarter Fiscal 2014 Highlights
- Net sales decreased 9.2% to $234.7 million
- Snacks sales increased 1.2% to $112.6 million and Nuts sales decreased 17.1% to $122.1 million
- Gross margin was 24.7% compared to 22.7%
- Net loss was $42.2 million and non-GAAP net income was $5.0 million
- Adjusted EBITDA decreased 6.1% to $29.1 million
(All comparisons above are to the first quarter fiscal year 2013. Non-GAAP financial measures are reconciled in the tables below)
"Our first quarter financial results were in line with our expectations and reflect the headwinds we anticipated from lower walnut supply and Emerald re-launch costs," said Brian Driscoll, President and CEO. "We continue to focus on gross margin improvement strategies as well as investing in brand building and innovation as we seek to achieve long-term sustainable growth. Looking ahead, we expect to benefit from the improved foundation of our business, and remain confident that we are on track to achieve earnings improvement in fiscal 2014."
First Quarter Fiscal 2014
Net sales decreased 9.2% to $234.7 million compared to $258.5 million in the prior year period and gross profit as a percent of net sales was 24.7% compared to 22.7% last year.
Net loss was $42.2 million, or a loss of $1.92 per share on a fully diluted basis. During the quarter, Diamond incurred $23.5 million in expenses for the mark to market adjustments related to shares issuable in connection with the settlement of the securities class action lawsuit, a $5.0 million expense associated with the Company's estimated future impact from a potential resolution of the Securities and Exchange Commission investigation and a $17.0 million charge related to a change in the fair value of the Oaktree warrant liability. Excluding these charges, non-GAAP net income for the first quarter was $5.0 million and non-GAAP fully diluted earnings per share was $0.18. Adjusted EBITDA was $29.1 million compared to $31.0 million in the prior year period. 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 October 31, 2013, net debt outstanding was $583.0 million, including the Oaktree debt at its carrying value. Cash and availability on Diamond's bank revolving line of credit on October 31, 2013 was approximately $85.3 million.
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 first quarter increased 1.2% to $112.6 million compared to prior year period. Gross profit during the first quarter was $39.4 million, 35.0% of net sales, compared to $38.3 million, 34.4% of net sales, in the prior year period.
Nuts Segment: Net sales during the first quarter decreased 17.1% to $122.1 million compared to the prior year period. Gross profit during the first quarter was $18.5 million, 15.2% of net sales, compared to $20.3 million, 13.8% of net sales, in the prior year period.
Outlook
The Company expects year-over-year improvement in fiscal 2014 Adjusted EBITDA as it continues to benefit from the execution of its multi-year turnaround strategy.
Conference Call
The Company will host a conference call with members of the executive management team to discuss these results with additional comments and details. The conference call is scheduled to begin today at 4:30 p.m. ET. To participate on the live call listeners in North America may dial (888) 401-4669 and international listeners may dial (719) 457-1035.
In addition, the call will be broadcast live over the Internet hosted at the "Investor Relations" section of the Company's website at http://www.diamondfoods.com and will be archived online through December 19, 2013. A telephonic playback will be available from 7:30 p.m. ET, December 5, 2013, through December 19, 2013. North America listeners may dial (877) 870-5176 and international listeners may dial (858) 384-5517; the passcode is 6123819.
About Diamond Foods
Diamond Foods is an innovative packaged food company focused on building and energizing brands including Kettle® Chips, Emerald® snack nuts, Pop Secret® popcorn, and Diamond of California® nuts. Diamond's products are distributed in a wide range of stores where snacks and culinary nuts are sold. For more information, visit the Company's corporate web site: http://www.diamondfoods.com.
Note Regarding Forward-looking Statements
This press release includes forward-looking statements, including statements about commodity headwinds, gross margin improvement strategies, investment in brand building and innovation, prospects for long-term and sustainable growth, improvements in the foundation of the business and projections as to earnings improvement in fiscal 2014. These forward-looking statements are based on our assumptions, expectations and projections about future events only as of the date of this press release, and we make such forward-looking statements pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Many of our forward-looking statements include discussions of trends and anticipated developments under the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the periodic reports that we file with the SEC. We use the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "seek," "may" and other similar expressions to identify forward-looking statements that discuss our future expectations, contain projections of our results of operations or financial condition or state other "forward-looking" information. You also should carefully consider other cautionary statements elsewhere in this press release and in other documents we file from time to time with the SEC. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release. Actual results may differ materially from what we currently expect because of many risks and uncertainties, such as: unexpected difficulties in implementing our business strategies; changes in consumer preferences for snack and nut products; risks relating to our leverage, including the cost of our debt and its effect on our ability to respond to changes in our business, markets and industry; potential difficulties raising additional capital, and the possibly dilutive impact of such capital; risks relating to litigation and regulatory proceedings; including uncertainty about the magnitude of our potential liability associated with the SEC investigation; uncertainties relating to relations with growers; availability and cost of walnuts and other raw materials; increasing competition and possible loss of key customers; and general economic and capital markets conditions.
| Financial Summary | ||
| Summarized Statement of Operations: | ||
| Three Months Ended October 31, | ||
| 2013 | 2012 | |
| Net sales | $ 234,668 | $ 258,462 |
| Cost of sales | 176,735 | 199,916 |
| Gross profit | 57,933 | 58,546 |
| Operating expenses: | ||
| Selling, general and administrative | 56,556 | 38,181 |
| Advertising | 10,658 | 9,045 |
| (Gain) loss on warrant liability | 16,976 | 7,516 |
| Total operating expenses | 84,190 | 54,742 |
| Income (loss) from operations | (26,257) | 3,804 |
| Interest expense, net | 14,848 | 13,912 |
| Loss before income taxes | (41,105) | (10,108) |
| Income taxes (benefit) | 1,048 | 621 |
| Net loss | $ (42,153) | $ (10,729) |
| -- | ||
| Loss per share: | ||
| Basic | $ (1.92) | $ (0.49) |
| Diluted | $ (1.92) | $ (0.49) |
| Shares used to compute earnings (loss) per share: | ||
| Basic | 21,954 | 21,753 |
| Diluted | 21,954 | 21,753 |
| Segment Information: | |||
|
Three Months Ended October 31, |
% Change from |
||
| 2013 | 2012 | 2012 to 2013 | |
| Net sales | |||
| Snacks | $112,589 | $ 111,243 | 1% |
| Nuts | 122,079 | 147,219 | -17% |
| Total | $234,668 | $ 258,462 | -9% |
| Gross profit | |||
| Snacks | $ 39,424 | $ 38,287 | 3% |
| Nuts | 18,509 | 20,259 | -9% |
| Total | $ 57,933 | $ 58,546 | -1% |
| Summarized Balance Sheet Data: | ||
| Three Months Ended | ||
| October 31, | ||
| 2013 | 2012 | |
| ASSETS | ||
| Total current assets | 362,178 | 376,011 |
| Restricted cash | -- | 6,389 |
| Property, plant and equipment, net | 128,490 | 143,752 |
| Deferred income taxes | -- | 147 |
| Goodwill | 405,809 | 407,196 |
| Other intangible assets, net | 392,181 | 438,458 |
| Other long-term assets | 18,560 | 23,780 |
| Total assets | $1,307,218 | $1,395,733 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Total current liabilities | 451,563 | 307,473 |
| Long-term obligations | 587,265 | 607,642 |
| Deferred income taxes | 106,005 | 128,267 |
| Other liabilities | 22,374 | 30,208 |
| Total stockholders' equity | 140,011 | 322,143 |
| Total liabilities and stockholders' equity | $1,307,218 | $1,395,733 |
| Non-Gaap Financial Information | ||||
| Reconciliation of Income (Loss) Before Income Taxes to Non-GAAP EPS: | ||||
| Three Months Ended | ||||
| October 31, | ||||
| 2013 | 2012 | |||
| GAAP income (loss) before income taxes | $ (41,105) | $(10,108) | ||
| (Gain) Loss on warrant liability | 16,976 | 7,516 | ||
| Reduction of liability due to lease assignment | -- | (1,319) | ||
| Retention stock-based compensation | -- | 357 | ||
| (Gain) Loss on adjustment of fair value of shares issuable in securities settlement | 23,496 | -- | ||
| Estimated potential liability associated with the SEC investigation | 5,000 | -- | ||
| Shareholder derivative suit gain | (1,600) | -- | ||
| Legal Expenses | 1,686 | 1,980 | ||
| Adjustments to SG&A | -- | 9,804 | (1) | |
| Non-GAAP income before income taxes | 4,453 | 8,230 | ||
| GAAP income taxes (benefit) | 1,048 | 621 | ||
| Tax effect of Non-GAAP adjustments | (1,634) | 2,391 | ||
| Non-GAAP income taxes (benefit) | (586) | 3,012 | ||
| Non-GAAP net income (loss) | 5,039 | 5,218 | ||
| Non-GAAP EPS-diluted | ||||
| Shares used in computing Non-GAAP | 28,460 | (2) | 22,091 | |
| EPS-diluted | $ 0.18 | $ 0.24 | ||
| (1) Related primarily to audit committee investigation, restatement- related expenses, consulting fees, retention, and severance. | ||||
| (2) Shares used in computing non-GAAP EPS include the 4,450,000 shares that will be issued to settle the securities class action lawsuit. | ||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA: | |||
| Three Months Ended | |||
| October 31, | |||
| 2013 | 2012 | ||
| Net income (loss) | $ (42,153) | $ (10,729) | |
| Income taxes (benefit) | 1,048 | 621 | |
| Income (loss) before income taxes | (41,105) | (10,108) | |
| Interest expense, net | 14,848 | 13,912 | |
| Income (loss) from operations | (26,257) | 3,804 | |
| Reduction of liability due to lease assignment | -- | (1,319) | |
| (Gain) Loss on warrant liability | 16,976 | 7,516 | |
| (Gain) Loss on adjustment of fair value of shares issuable in securities settlement | 23,496 | -- | |
| Estimated potential liability associated with the SEC investigation | 5,000 | -- | |
| Shareholder derivative suit gain | (1,600) | -- | |
| Legal Expenses | 1,686 | 1,980 | |
| Adjustments to SG&A expenses | -- | 9,804 | (1) |
| Stock-based compensation expense | 1,477 | 1,250 | |
| Depreciation and amortization | 8,335 | 7,967 | |
| Adjusted EBITDA | $ 29,113 | $ 31,002 | |
| (1) Related primarily to audit committee investigation, restatement- related expenses, consulting fees, retention, and severance. | |||
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 do not include 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.
Adjusted EBITDA is used by management as a measure of operating performance. Adjusted EBITDA is defined as net income before interest expense, income taxes, stock-based compensation, depreciation, amortization, and other non-operating expenses, including the aforementioned expenses related to the proposed settlement of the private securities class action case, potential resolution of SEC investigation, Oaktree warrant liability gains/losses, SG&A expenses primarily related to audit committee investigation, and restatement and related expenses. We believe that Adjusted EBITDA is useful as an indicator of ongoing operating performance. As a result, some management reports feature Adjusted EBITDA, in conjunction with traditional GAAP measures, as part of our overall assessment of company performance.
Diamond's management uses non-GAAP financial 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 and other amounts 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 Diamond's 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.