Diamond Foods continues recovery process

by Keith Nunes
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The roll-out of ready-to-eat popcorn disappointed executives during the quarter.

SAN FRANCISCO — Diamond Foods issued a relatively positive earnings report for the first quarter of fiscal 2015. Yet “execution errors” in the roll-out of the company’s ready-to-eat popcorn line combined with the loss of a private label contract in the United Kingdom continues to hinder the company’s turnaround efforts.

Diamond Foods’ net income in the quarter ended Oct. 31 totaled $7,694,000, equal to 25c per share on the common stock, an improvement when compared with the same period of the previous year when the company reported a loss of $42,153,000.

Sales for the quarter rose to $246,621,000, up 5% from the previous year’s first quarter.

Snack segment sales rose 3.6% to $116. 6 million and Nut segment sales rose 6.5% to $130 million. Snack sales were lower during the quarter due to the impact of promotional timing related to the company’s Pop Secret brand and competitive challenges currently being faced in the U.K., said Brian Driscoll, president and chief executive officer.

“Pop Secret continued to gain market share, picking up a full share point in the most recent Nielsen 12-week scanning period ending Nov. 22, despite an increasingly intense competitive environment in the category,” Mr. Driscoll said during a conference call with financial analysts on Dec. 8. “Kettle U.S. Nielsen scan retail sales increased 8.2% in the latest 12-week Nielsen period, with our core fried chip line up 11.6%. Importantly, our non-promoted dollar volume grew 10%. In addition, our small bag initiative continues to gain traction, growing over 20% versus last year.”

But Mr. Driscoll admitted errors in the introduction of Diamond’s ready-to-eat line of popcorn hindered results.

“The ready-to-eat popcorn launch has not gone as well as we had hoped or expected,” he said. “We still have high hopes. It’s still early. There was some key execution errors, I’d say primarily driven by my insistence to move it to the market quickly. I think we missed some execution pieces that we shouldn’t have. The good news is, we have a patient retailer base that in most cases sees the same promise as we see, and I believe that some of the changes we’re making in the re-launch are going to play well in the marketplace.”

Emerald's 100-calorie pack platform continues to capitalize on the growing consumer demand for convenient protein and nutrient-dense snacks.

In Diamond’s Nut business, Mr. Driscoll said the company was able to increase its year-over-year walnut pound receipts and that provided evidence the company’s past supply challenges are fading.

“This strengthening foundation is important support to the significant innovation we’re planning within the baking aisle and beyond,” he said. “As with our other brands, the Diamond brand is well recognized by consumers and we plan to capitalize on this strength by entering new categories in order to enable us to deliver additional sales and margin expansion.”

Overall Nielsen scan retail sales showed Diamond’s Emerald brand to be  down 1.9% during the quarter, but Mr. Driscoll said the company continues to be encouraged by the performance of its 100-calorie pack platform, which grew 24.5% in the latest 12-week scan period and now represents over 40% of Emerald’s Nielsen measured sales.

“This platform enables us to continue capitalizing on the growing consumer demand for convenient protein and nutrient dense snacks and provides us a more profitable mix for Emerald,” Mr. Driscoll said. “Next month, we will begin to transition our canister line into standup re-sealable bags with a simple and transparent ingredient panel. We are focused on expanding our Emerald snack nut offerings to a number of innovative products, including a line that brings nuts and other ingredients together. We are excited about the potential for this brand and believe we are taking the necessary steps designed to drive long-term top-line growth with a stronger margin profile.”

In the wake of its first-quarter results, Diamond Foods reaffirmed its guidance for the year of earnings in the range of $115 million to $123 million, equal to 90c to $1.10 per share.
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