Stockton, CA-based specialty food company, Diamond Foods Inc. (DMND), has a vertically integrated business model that allows it to instantly react to the changing market trends and exploit new opportunities. Moreover, the company’s nut roasting facilities and patented glazing technologies enables it to provide shelf-stable glazed nut to the mass market.
Currently, Diamond Foods is focused on gaining its lost market share through expansion of the existing product lines and introduction of new products in the United States. Management’s strategic plan is to provide higher-margin branded products at premium price points. Further, in order to boost sales, management is striving to broaden its distribution network, expand retail channels, especially in the club and mass merchandiser areas, and increase sales within the existing channels.
At the same time, we are encouraged by the company’s ongoing cost containment efforts and its focus on improving operational efficiencies through various initiatives. We believe that the company’s turnaround strategies, such as improving price realization, lowering underperforming SKUs and reducing dependency on discount, have placed it on the path to success, as evident from improved margins and earnings results for first-quarter fiscal 2015.
The company’s adjusted earnings for the quarter jumped 33.3% to $0.28 per share, mainly benefiting from strong market share gains. Moreover, adjusted earnings surpassed the Zacks Consensus Estimate of $0.24 per share.
Further, it seems that the strategies have helped the company to stabilize its falling revenues as apparent from the 5.1% top-line growth registered in the first quarter of fiscal 2015. Moreover, we expect its brands to exhibit more sustained growth in the future, driven by product innovation and differentiation as well as an improved cost structure.
However, we cannot ignore the near-term headwinds such as challenges related to procurement of walnut supplies and mending ties with growers. The company’s highly leveraged balance sheet also makes us skeptical about its future performance.
Consequently, Diamond Foods currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the food industry include SUPERVALU Inc. (SVU), Pinnacle Foods Inc. (PF) and Sysco Corporation (SYY). While SUPERVALU has a Zacks Rank #1 (Strong Buy), Pinnacle Foods and Sysco carry a Zacks Rank #2 (Buy).
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