Diamond Foods, Inc.
DMND today reported financial results for the first three
quarters of its fiscal 2012 and filed with the SEC its restated consolidated financial statements for the
fiscal years 2010 and 2011, and interim periods ended January 31, 2010, April
30, 2010, July 31, 2010, October 31, 2010, January 31, 2011, April 30, 2011
and July 31, 2011. The restatement resulted in reductions in income before
taxes of $39.5 million in fiscal 2011 and $17.0 million in fiscal 2010 from
amounts previously reported.
Q1 – Q3 Fiscal Year 2012 Financial Review
* For the three quarters ended April 30, 2012, net sales were $757.4
million, up 3.5 percent over the prior year restated period. The increase
was primarily due to an 11.0 percent increase in culinary/retail in-shell
sales and a 10.0 percent increase in snack sales, offset by a 36.2 percent
decrease in total non-retail sales. The decline in non-retail sales was
primarily due to a significant drop in walnut crop deliveries to Diamond
in the fall of 2011.
* Gross profit as a percentage of net sales was 18.1 percent in the first
three quarters of fiscal 2012, down from 22.9 percent in the prior year
restated period. The greatest impact on gross margin was a substantial
decline in walnut crop deliveries to Diamond and an increase in average
walnut cost per pound of over 50 percent. Rising prices of other
commodities and higher operating costs primarily due to excess plant
capacity also contributed to the downward pressure on gross margin.
* Selling, general and administrative expense (SG&A) was $97.0 million in
the first three quarters of fiscal 2012, a 35.6 percent increase compared
to $71.6 million in the prior year restated period. The increase in SG&A
expense was primarily related to the audit committee investigation,
restatement and related expenses. When adjusted for certain costs
associated with the audit committee investigation, restatement, and
related matters, SG&A was $76.0 million compared to $71.6 million in the
prior year restated period. The increase was due primarily to an increase
in selling related expenses.
* Advertising expense was $31.6 million in the first three quarters of
fiscal 2012 compared to $34.4 million in the prior year restated period, a
decline of 8.2 percent. The decrease in advertising expenses was primarily
due to the cancellation of programs during the third quarter of fiscal
2012 in an effort to reduce costs.
* Acquisition and integration expenses were $40.6 million in the first three
quarters of fiscal 2102 primarily related to the terminated Pringles
acquisition, compared to $7.5 million in the prior year restated period
primarily related to Kettle integration.
* Interest expense was $19.9 million in the three quarters of fiscal 2012
compared to $18.1 million in the prior year restated period, an increase
of 9.9% due primarily to the forbearance fee of 0.25% paid to our lenders.
* Income tax expense was $1.7 million in the first three quarters of fiscal
2012, compared to $12.3 million in the prior year restated period. The tax
benefits of the company's pre-tax loss of $51.7 million for the first
three quarters of fiscal 2012 were offset by a $27.6 million charge to
establish a valuation allowance against deferred tax assets. The valuation
allowance charge was a result of recent net operating losses. Diamond also
recognized a $5.6 million benefit in taxes in the first quarter of fiscal
2012 due to a favorable ruling with the U.K. tax authorities. Reversal of
the valuation allowance in future periods is dependent on future taxable
income and would result in income tax benefit in those periods.
* The net loss for the first three quarters of fiscal 2012 was $53.4 million
compared to net income of $23.7 million in the prior year restated period.
The decrease was due primarily to the decline in gross profit, the
significant increase in expenses related to the audit committee
investigation, restatement, and Pringles integration planning, and the tax
charge related to the valuation allowance against net deferred tax assets.
* Non-GAAP income before income taxes for the first three quarters of fiscal
2012, which excludes acquisition and integration, audit committee
investigation, restatement, legal and other related expenses, was $11.0
million compared to $43.6 million in the prior year restated period. The
decrease was due primarily to the decline in gross profit. Please refer to
the non-GAAP information table that follows.
* GAAP EPS on a fully diluted basis for the first three quarters of fiscal
2012 was ($2.46) compared to $1.05 in the prior year restated period.
* Non-GAAP EPS on a fully diluted basis for the first three quarters of
fiscal 2012 was $0.53 compared to a restated non-GAAP EPS of $1.54 in the
prior year restated period. Please refer to the non-GAAP information table
that follows.
* Capital expenditures were $40.6 million in the first three quarters of
fiscal 2012, compared to $15.2 million in the prior year restated period.
The increase was primarily due to the Kettle plant expansions in Beloit,
Wisconsin and Norwich, England and for automation of Emerald's 'Breakfast
on the Go' product line.
* Adjusted EBITDA for the first three quarters of fiscal 2012 declined to
$58.9 million from $89.6 million in the prior year primarily due to lower
gross profit. Please refer to the reconciliation of net income to adjusted
EBIDTA that follows.
* As of July 31, 2012, cash and availability on Diamond's bank revolving
line of credit was in excess of $70 million.
Full-year fiscal 2012 financial results have not yet been finalized, but the
following are estimates for full year results:
* Net sales: $975 to $980 million
* Snack sales: $600 to $605 million
* Culinary sales: $290 to $295 million
* Gross margin: 18.0% to 18.5%
* Adjusted EBITDA: $78 to $81 million
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