Diamond Reports Financial Results for First Quarter of Fiscal 2013

Diamond Reports Financial Results for First Quarter of Fiscal 2013

  *Net sales in the fiscal 2013 first quarter were $258.5 million, a decrease
    of 10.1% from the prior year.
  *Gross margin was 22.7 percent in the fiscal 2013 first quarter, compared
    to 21.3 percent in the first quarter of fiscal 2012.
  *GAAP net loss in the fiscal 2013 first quarter was $10.7 million, compared
    to net income of $10.8 million in the first quarter of fiscal 2012.
  *Adjusted EBITDA in the first quarter fiscal 2013 was $31.0 million,
    compared to $29.8 million in the first quarter fiscal 2012.

SAN FRANCISCO, Dec. 17, 2012 (GLOBE NEWSWIRE) -- Diamond Foods, Inc.
(Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2013
first quarter.

In the first quarter of fiscal 2013, Diamond's GAAP net loss was $10.7 million
and GAAP diluted net loss per share was $0.49. Diamond incurred selling,
general and administrative ("SG&A") charges of $11.8 million primarily for
audit committee investigation, restatement-related expenses, consulting fees,
retention, and severance. The Company also incurred a $7.5 million charge
related to a change in the fair value of the Oaktree warrant liability.
Excluding these charges, Diamond's non-GAAP net income declined 68.0 percent
from the first quarter of fiscal 2012 to $5.2 million, and non-GAAP diluted
earnings per share declined 66.2 percent from the first quarter of fiscal 2012
to $0.24.

"Our first quarter results reflect some progress against our new brand
strategies, but we continue to face headwinds with respect to walnut supply
and a highly leveraged balance sheet," said Diamond's Chief Executive Officer
Brian J. Driscoll. "Reduced promotional spending on our snack brands and a
shift in the timing of advertising spending to later in the year were the
largest contributors to improvement in our margins in the first quarter."

                               Financial Review

Net sales during the quarter decreased by 10.1 percent to $258.5 million
compared to the same quarter of the prior year. Total retail net sales
declined 4.1 percent to $244.8 million and snack net sales declined 2.0
percent year over year to $154.1 million in the quarter, driven by declines in
Emerald and to a lesser extent, Kettle, offset by an increase in Pop Secret
sales. Non-retail net sales totaled $13.7 million for the quarter compared to
$32.2 million in the first quarter of fiscal 2012. The decrease in non-retail
sales was mainly due to a lower supply of walnuts.

Gross profit as a percentage of net sales was 22.7 percent for the first
quarter of fiscal 2013 as compared to 21.3 percent for the same quarter in the
prior year. Gross profit as a percentage of net sales in the 2013 first
quarter reflects improvement in net price realization and a focus on reducing
lower performing SKUs.

SG&A expense was $38.2 million during the first quarter of 2013, compared to
$29.5 million in the same quarter in the prior year. Included in the first
quarter are $11.8 million of certain SG&A expenses related primarily to audit
committee investigation, restatement related expenses, consulting fees,
retention, and severance. Excluding these expenses, non-GAAP adjusted SG&A was
$26.4 million or 10.2 percent of net sales as compared to 9.5 percent in the
prior year period.

Advertising expense was $9.0 million during the first quarter of fiscal 2013,
compared to $12.7 million in the same quarter in the prior year. The reduction
in advertising expenses was due to a shift in timing of advertising program
spending from the first quarter into the remaining quarters of the fiscal
year. 

The Company recognized a $7.5 million loss on the Oaktree warrant in the
quarter, primarily due to an increase in the Company's stock price at October
31, 2012 as compared to July 31, 2012.

Net interest expense was $13.9 million in the first quarter of fiscal 2013
compared to $5.8 million in the same quarter in the prior year.The increase
was primarily due to the interest rate increase on the Secured Credit
Agreement and the new Oaktree debt.

On a non-GAAP basis, the Company recorded a tax expense of $3.0 million in the
first quarter of fiscal 2013, based on pre-tax non-GAAP income of $8.2
million. The non-GAAP tax expense reflects a federal and state blended rate
applied to the non-GAAP pre-tax income for the quarter. On a GAAP basis, the
effective tax rate was negative 6.1% for the first quarter of fiscal 2013.

Capital expenditures were $2.9 million for the first quarter of fiscal
2013.

Adjusted EBITDA was $31.0 million in the first quarter of fiscal 2013 compared
to $29.8 million in the same quarter in the prior year.Please refer to the
'Reconciliation of US GAAP net income (loss) to Adjusted
EBITDA' table for a reconciliation of non-GAAP information.

As of October 31, 2012, on a GAAP basis, net debt outstanding was $596.9
million.

Cash and availability on Diamond's bank revolving line of credit on December
14, 2012 was approximately $95 million.

Brand Performance

In the most recent 12-week Nielsen tracking period, which ended November 24,
2012, retail sales results reflect Diamond's recent changes in brand strategy
direction.For both Emerald and Kettle brands, Diamond has reduced trade
promotion spend to improve net price realization and leverage brand equity
rather than use discounting as a means to drive sales.While Emerald snack
nuts and Kettle Brand potato chips experienced retail sales declines and lost
share as a result of planned reductions in promotional spending, non-promoted
sales for both brands outpaced non-promoted category growth.Emerald Breakfast
on the go! and Pop Secret outgrew their respective categories and gained
share. Diamond of California culinary sales declined primarily due to volume
declines following price increases, which resulted in lost share in the
category.Diamond's U.S. Nielsen retail scanner performance along with
category data for the 12-week period ended November 24, 2012 (U.S. Expanded
All Outlets Combined) compared to the similar prior year period was as
follows:


                     Brand YoY   Category YoY  Market Share  Diamond
                                                                Non-Promoted
                     Change      Change         Change         YOY Change
Emerald snack nuts    -16.7%      +5.5%          -150 basis     +29.8%
                                                 points
Emerald Breakfast on  +21.9%      +1.1%          +20 basis      N/A
the go!                                          points
Pop Secret            +8.7%       -1.3%          +210 basis     +18.1%
                                                 points
Kettle U.S.           -11.5%      +3.9%          -40basis      +7.6%
                                                 points
Diamond of California -7.4%       +5.8%          -350 basis     -3.5%
                                                 points

Source: Nielsen Expanded All Outlets Combined sales for 12-week period ended
November 24, 2012.All comparisons in this table are to the same measured
period in the prior year.

                               Conference Call

Diamond will host an investor conference call and webcast on December 17,
2012, at 2:00 p.m. Pacific Standard Time, to discuss these results and the
fiscal year 2012 annual results.

To participate in the call via telephone dial (888) 500-6955 from the
U.S./Canada or (719) 325-2347 elsewhere and enter the participant pass code of
817-624. To listen to the call over the internet, visit the company's website
at http://www.diamondfoods.comand select "Investor Relations."

Archived audio replays of the call will be available on the company's website
and via telephone. The latter will begin approximately two hours after the
call's conclusion and remain available through 6:00 p.m. Pacific Time December
24, 2012. It can be accessed by dialing (888) 203-1112 from the U.S./Canada or
(719) 457-0820 elsewhere. Both phone numbers require the participant pass code
928-0014.

To receive email notification of future press releases from Diamond Foods,
please visit http://investor.diamondfoods.com and select "email alerts."

Financial Summary
                                                               
Net Sales by Product Line:                                      
                                                               
                                            Three months ended
                                            October 31,
(in thousands)                               2012        2011     % Prior Year
Snack                                        $154,057    $157,122 (2.0%)
Culinary/Domestic In-shell                   90,723      98,112   (7.5%)
                                            
Total retail                                244,780     255,234  (4.1%)
International non-retail                     8,067       21,444   (62.4%)
N. American Ingredient/Food Service and      5,615       10,715   (47.6%)
Other
Total non-retail                            13,682      32,159   (57.5%)
Total                                        $258,462    $287,393 (10.1%)
                                                               
Summarized Statement of Operations:                             
                                                               
                                            Three months ended   
                                            October 31,          
(in thousands, except per share amounts)     2012        2011     
Net sales                                   $258,462    $287,393 
Cost of sales                               199,916     226,086  
Gross profit                                 58,546      61,307   
Operating expenses:                                             
Selling, general and administrative          38,181      29,455   
Advertising                                  9,045       12,716   
Acquisition and integration related expenses --          17,214   
Loss on warrant liability                    7,516       --       
Total operating expenses                     54,742      59,385   
Income from operations                      3,804       1,922    
Interest expense, net                        13,912      5,761    
Loss before income taxes                    (10,108)    (3,839)  
Income taxes(benefit)                       621         (14,640) 
Net income (loss)                           $(10,729) $10,801  
Earnings (loss) per share (EPS):                                
Basic                                        $(0.49)   $0.49    
Diluted                                      $(0.49)   $0.47    
Shares used to compute EPS:                                     
Basic                                        21,753      21,668   
Diluted                                      21,753      22,567   
                                                               
Summarized Balance Sheet Data:                                  
                                                               
                                            October 31,         
(in thousands)                               2012        2011     
Cash and cash equivalents                    $9,852      $4,474   
Trade receivables, net                       113,540     141,760  
Inventories                                  231,979     254,860  
Current assets                               376,011     463,161  
Property plant and equipment, net           143,752     146,417  
Other intangible assets, net                 438,458     446,267  
Goodwill                                     407,196     406,850  
Current liabilities                          307,473     372,072  
Total debt                                   613,113     576,778  
Stockholders' equity                         322,143     425,321  


Non-GAAP Financial Information
                                                             
Reconciliation of income (loss) before income taxes to non-GAAP EPS:
                                             Three months ended
                                             October 31,
(in thousands, except per share amounts)      2012             2011
GAAP income (loss) before income taxes       $ (10,108)      $ (3,839)
Loss on warrant liability                     7,516            --
Retention stock-based compensation           357              --
Reduction of liability due to lease           (1,319)          --
assignment
Adjustment to remove costs associated with    --              17,214
acquisitions and integrations
Adjustment to exclude certain SG&A costs (1)  11,784          2,016
                                                             
Non-GAAP income before income taxes          8,230            15,391
GAAP income taxes (benefit)                  621              (14,640)
Tax effect of Non-GAAP adjustments            2,391            13,686
Non-GAAP income taxes (benefit)              3,012            (954)
Non-GAAP net income                          $5,218           $16,345
Non-GAAP EPS-diluted                          $0.24            $0.71
Shares used in computing Non-GAAP             22,091           22,932
EPS-diluted
                                                             
(1) Related primarily to audit committee investigation, restatement- related
expenses, consulting fees, retention, and severance.
                                                             
Reconciliation of US GAAP net income (loss) to Adjusted EBITDA:
                                                             
                                             Three months ended
                                             October 31,
(in thousands)                              2012             2011
                                                             
Net income (loss)                             $ (10,729)      $10,801
Income taxes (benefit)                       621              (14,640)
Loss before income taxes                      (10,108)         (3,839)
Interest expense, net                         13,912           5,761
Income from operations (EBIT)                 3,804            1,922
                                                             
Costs associated with acquisitions and        --               17,214
integrations
Reduction of liability due to lease           (1,319)          --
assignment
Loss on warrant liability                     7,516            --
Certain selling, general and administrative   11,784           2,016
costs (1)
Stock-based compensation expense             1,250            1,902
Depreciation and amortization                 7,967            6,743
Adjusted EBITDA                               $31,002          $29,797
                                                             
(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.Diamond's non-GAAP financial measures
include adjustments for the following items:

  *In the first quarter of fiscal 2013, $7.5 million due to a loss on Oaktree
    warrant liability, $11.8 million due to SG&A expenses related primarily to
    audit committee investigation, restatement-related expenses, consulting
    fees, retention, and severance, and $1.3 million in stock-based
    compensation, of which, $0.4 million is retention stock-based
    compensation. 
    
  *In the first quarter of fiscal 2012, $17.2 million in costs were incurred
    due to the proposed acquisition of Pringles, $2.0 million due to SG&A
    expenses related primarily to the audit committee investigation and walnut
    labeling settlement, and $1.9 million in stock-based compensation.
    
  *Adjusted EBITDA is used by management as a measure of operating
    performance.Adjusted EBITDA is defined as net income before interest
    expense, income taxes, equity compensation, depreciation, amortization,
    and other non-operating expenses, including the aforementioned acquisition
    and integration costs.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 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 gains 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 the 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.

                  Note regarding forward-looking statements

This press release includes forward-looking statements, including statements
about our financial filings, progress in brand strategies, projected
advertising spending, improvements in net price realization, and impact of
walnut supply and debt on our results, recent change in strategic focus, as
well as suggestions about future financial and operating performance and
results that may be implicit in summaries of recent results.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. 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.We do not undertake any obligation to update forward-looking statements
to reflect events or circumstances occurring after the date of this press
release.Many of our forward-looking statements are subject to trends and
potential developments discussed in 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.Actual results may
differ materially from what we currently expect because of many risks and
uncertainties, such as: uncertainty about the ability to file future periodic
reports on a timely basis, and any resulting delisting of Diamond's common
stock on the Nasdaq Stock Market; risks relating to our leverage and its
effect on our ability to respond to changes in our business, markets and
industry; increase in the cost of our debt; ability to raise additional
capital and possible dilutive impact of raising such capital; risks relating
to litigation and regulatory proceedings; 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.

                                About Diamond

Diamond Foodsis 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. The Company's products are
distributed in a wide range of stores where snacks and culinary nuts are
sold.

Corporate Web Site: www.diamondfoods.com

The Diamond Foods, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=6112

CONTACT: Investors:
         Diamond Foods
         Linda Segre
         SVP, Corporate Strategy
         (415) 230-7952
         lsegre@diamondfoods.com
        
         Media:
         Sard Verbinnen & Co for Diamond Foods
         Paul Kranhold/Lucy Neugart
         (415) 618-8750
         pkranhold@sardverb.com
         lneugart@sardverb.com

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