In order to enhance its footprint in the growing vegetable chips category in Europe and the UK, Diamond Foods Inc. (DMND) has acquired 51% stake in Yellow Chips. While other details of the deal were not disclosed, the company plans to finance the transaction using cash on-hand.
Yellow Chips, a manufacturer of first-rate vegetable and organic potato chips, will function as an independent subsidiary of Diamond Foods. The products of this Netherlands-based company are available in Europe under private labels as well as its premium brand, Go Pure. Also, it currently manufactures vegetable chips for Diamond under the Kettle brand.
Apart from benefiting Diamond Foods, this combination is expected to help Yellow Chips create product awareness and enhance its penetration in the UK and European markets by using the former’s scale, marketing expertise, and distribution network.
This acquisition is in line with Diamond Foods objective of gaining its lost market share through expansion of the existing product lines and introduction of new products in the U.S.
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.
This Stockton, CA-based specialty food company has a vertically integrated business model that allows it to instantly react to the changing market trends and exploit new opportunities. The company’s nut roasting facilities and patented glazing technologies enable it to provide shelf-stable glazed nuts to the mass market.
Currently, Diamond Foods has a Zacks Rank #3 (Hold), as 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.
Other Better Ranked Stocks
Better-ranked stocks in the food industry include SUPERVALU Inc. (SVU) and United Natural Foods Inc. (UNFI), sporting a Zacks Rank #1 (Strong Buy), and Freshpet Inc. (FRPT) carrying a Zacks Rank #2 (Buy).
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