Diamond Reports Second Quarter Fiscal 2013 Financial Results

Diamond Reports Second Quarter Fiscal 2013 Financial Results

  *Consolidated net sales were $220.8 million, down from $262.4 million
  *Snacks segment net sales grew 7.2 percent and Nuts segment net sales
    declined 29.6 percent
  *Gross profit was $50.6 million, up from $41.9 million
  *Gross margin was 22.9 percent, up from 16.0 percent
  *GAAP net income was $10.1 million, compared to a GAAP net loss of $20.2
    million
  *Adjusted EBITDA was $22.9 million, up from $16.6 million

  (All comparisons above are to the second quarter of fiscal 2012)

SAN FRANCISCO, March 11, 2013 (GLOBE NEWSWIRE) -- Diamond Foods, Inc.
(Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2013
second quarter ended January 31, 2013.

In the second quarter of fiscal 2013, Diamond's GAAP net income was $10.1
million and GAAP diluted earnings per share (EPS) was $0.43. GAAP results for
the quarter included $6.7 million of net charges primarily for audit committee
investigation, restatement-related expenses, consulting fees, retention,
severance and accrued contract termination expenses, offset in part by the
clawback of bonuses previously paid to the former CEO and the reversal of
certain previously recorded stock compensation expenses associated with former
executives. GAAP results also included an $18.6 million gain related to a
change in the fair value of the Oaktree warrant liability. Excluding these net
charges and gain, Diamond's non-GAAP net income for the second quarter of
fiscal 2013 was $1.1 million and non-GAAP diluted EPS was $0.05.

"Our second quarter results reflect continued progress against our key
initiatives, which are aimed at driving margin expansion and a more
sustainable topline growth profile over time," said Diamond's Chief Executive
Officer Brian J. Driscoll.

                               Financial Review

During the second quarter of fiscal 2013, the Company changed its operating
and reportable segments. While the Company previously had one operating and
reportable segment, it now aggregates its operating segments into two
reportable segments, which are Snacks and Nuts.The Snacks segment includes
products sold under the Kettle U.S., Kettle U.K. and Pop Secret brands.The
Nuts segment includes products sold under the Diamond of California and
Emerald brands.

Consolidated net sales during the quarter decreased 15.8 percent, to $220.8
million, compared to the same quarter of the prior year, which was consistent
with the Company's plan to reduce reliance on discounting over time and
eliminate underperforming SKUs.Gross profit was $50.6 million, or 22.9
percent of net sales, for the second quarter of fiscal 2013, compared to $41.9
million and 16.0 percent of net sales for the same quarter in the prior year.

Snacks Performance:Snacks net sales increased 7.2 percent, to $105.4 million,
driven by an increase in net price realization on a 2 percent volume
increase. Snacks gross profit was $34.8 million, or 33.0 percent of net
sales, for the second quarter of fiscal 2013, compared to $28.4 million, or
28.9 percent of net sales, for the same quarter in the prior year. Improvement
in Snacks gross profit as a percentage of net sales reflects an increase in
net price realization.

Nuts Performance:Nuts net sales decreased 29.6 percent, to $115.4 million,
driven by a 37.1 percent volume decline.The primary drivers of the decline
relate to lower walnut supply, planned reductions in SKUs and promotional
spending associated with the Emerald brand. Nuts gross profit was $15.7
million, or 13.6 percent of net sales, in the second quarter of fiscal 2013,
compared to $13.5 million, or 8.2 percent of net sales, for the same quarter
in the prior year. Improvement in Nuts gross profit as a percentage of net
sales in the current quarter reflects a focus on increasing price realization,
reducing lower performing SKUs and cost savings initiatives.

SG&A expense decreased to $32.3 million during the second quarter of fiscal
2013, compared to $34.3 million during the same quarter in the prior
year.Included in the second quarter of fiscal 2013 are $6.7 million of
certain SG&A items related primarily to restatement-related expenses,
consulting fees, accrued contract termination expenses, retention and
severance accruals, offset in part by the clawback of bonuses previously paid
to the former CEO and the reversal of certain previously recorded stock
compensation expenses associated with former executives. Included in the
second quarter of fiscal 2012 are $10.7 million of certain SG&A expenses
related primarily to the audit committee investigation and walnut labeling
settlement. 

Advertising expense was $12.3 million, or 5.6 percent of net sales, during the
second quarter of fiscal 2013, compared to $11.6 million, or 4.4 percent of
net sales, in the same quarter in the prior year.This increase in advertising
expense was due to programs related to Pop Secret and the 100^th anniversary
of the Diamond of California culinary nut brand.

The Company recognized an $18.6 million gain on the Oaktree warrant liability
in the quarter, primarily due to a decrease in the Company's stock price on
January 31, 2013, as compared to October 31, 2012.

Net interest expense was $14.2 million in the second quarter of fiscal 2013,
compared to $6.5 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.

The Company's effective tax rate was 2.5 percent for the second quarter of
fiscal 2013. 

GAAP net income was $10.1 million compared to a loss of ($20.2) million in the
same quarter last year. On a non-GAAP basis, net income was $1.1 million
compared to $0.2 million last year.

EPS for the second quarter of fiscal 2013 on a GAAP diluted basis was $0.43
compared to a loss of $0.93 in the prior year.Non-GAAP EPS on a diluted basis
was $0.05 compared to $0.01 in the prior year.

The non-GAAP fully diluted EPS calculation includes 1.4 million and 1.8
million shares related to the Oaktree warrants based on the Treasury stock
method for the second quarter and year-to-date periods, respectively. 

Capital expenditures were $1.6 million for the second quarter of fiscal 2013.

Adjusted EBITDA was $22.9 million, or 10.4 percent of net sales, in the second
quarter of fiscal 2013, compared to $16.6 million, or 6.3 percent of net
sales, in the same quarter in the prior year.Year-to-date adjusted EBITDA
increased $7.6 million, to $54.0 million, compared to prior year.Please refer
to the table in the back of this press release for a reconciliation of GAAP to
non-GAAP information.

As of January 31, 2013, net debt outstanding was $553.8 million, including the
Oaktree debt at its carrying value, as described in Footnote 3 of the Notes to
Consolidated Financial Statements included as a part of Diamond's Quarterly
Report on Form 10-Q. 

Cash and availability on Diamond's bank revolving line of credit on March 8,
2013 was approximately $80 million.

The Company expects to continue its strategy to seek improvements to net price
realization through reductions in discounting and to rationalize Emerald
SKUs.This continued strategic emphasis should result in consolidated net
sales in the second half of fiscal 2013 to be down more on a year-over-year
basis as compared to the first half of the fiscal year. The Company currently
believes that its consolidated margin in the first half of fiscal 2013
represents a reasonable estimate for the remainder of fiscal year 2013,
although it may fluctuate if brand development tactics change and/or walnut or
other commodity costs increase.The Company also expects to continue investing
in advertising across its brands as part of the focus on balancing promotional
spending with consumer oriented activities.

                               Conference Call

Diamond will host an investor conference call and webcast on March 11, 2013,
at 1:30 p.m. Pacific Daylight Time, to discuss results for the second quarter
of fiscal 2013.

To participate in the call via telephone dial (888) 213-3934 from the
U.S./Canada or (913) 312-1447 elsewhere and enter the participant pass code of
742-4396. To listen to the call over the internet, visit the company's website
at http://www.diamondfoods.com and 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 5:00 p.m. Pacific Daylight Time
March 18, 2013. 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 742-4396.

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

                              Financial Summary

Summarized Statement of Operations:

                                     Three months ended    Six months ended
                                     January 31,           January 31,
(in thousands, except per share       2013      2012        2013      2012
amounts)
Net sales                             $ 220,844 $ 262,351   $ 479,306 $549,744
Cost of sales                         170,275   220,429    370,191   446,515
Gross profit                          50,569    41,922      109,115   103,229
Operating expenses:                                                
Selling, general and administrative   32,266    34,304      70,447    63,759
Advertising                           12,294    11,638      21,339    24,354
Acquisition and integration related   --        12,091      --        29,305
expenses
(Gain) on warrant liability           (18,625)  --          (11,109)  --
Total operating expenses              25,935    58,033      80,677    117,418
Income (loss) from operations         24,634    (16,111)    28,438    (14,189)
Interest expense, net                 14,231    6,471      28,143    12,232
Income (loss) before income taxes     10,403    (22,582)    295       (26,421)
Income taxes(benefit)                262       (2,398)     883       (17,038)
Net income (loss)                     $10,141  $(20,184) $(588)   $(9,383)
Earnings (loss) per share (EPS):                                   
Basic                                 $ 0.46   $ (0.93)    $ (0.03)  $ (0.43)
Diluted                               $ 0.43    $ (0.93)    $ (0.03)  $ (0.43)
Shares used to compute EPS:                                        
Basic                                 21,781    21,724      21,703    21,684
Diluted                               23,142    21,724      21,703    21,684

Segment information:

              Three months ended Six months ended
              January 31,        January 31,
(in thousands) 2013      2012     2013      2012
Net sales                                
Snacks         $ 105,421 $98,356  $216,664  $209,258
Nuts           115,423   163,995  262,642   340,486
Total          220,844   262,351  479,306   549,744
Gross profit                             
Snacks         34,836    28,448   73,129    63,445
Nuts           15,733    13,474   35,986    39,784
Total          $50,569  $41,922 $109,115 $103,229

Summarized Balance Sheet Data:

                                 January 31,
(in thousands)                    2013   2012
Cash and cash equivalents         $4,583  $1,333
Trade receivables, net            67,934  93,782
Inventories                       182,143 220,611
Current assets                    276,040 383,697
Property plant and equipment, net 138,073 157,303
Other intangible assets, net      434,401 441,669
Goodwill                          404,791 403,903
Current liabilities               242,228 330,231
Total debt                        558,360 558,449
Stockholders' equity              328,577 402,130

                       Non-GAAP Financial Information

Reconciliation of income (loss) before income taxes to non-GAAP EPS:
                                                    
                          Three months ended         Six months ended
                          January 31,                January 31,
(in thousands, except per  2013         2012         2013        2012
share amounts)
GAAP income (loss) before  $10,403      $(22,582)     $295        $(26,421)
income taxes
                                                              
(Gain) on warrant          (18,625)     --            (11,109)    --
liability
Reduction of liability due --           --            (1,319)     --
to lease assignment
Adjustment to remove costs
associated with            --           12,091        --          29,305
acquisitions and
integrations
Adjustment to exclude      6,653        10,710        18,794      12,726
certain SG&A expenses (1)
Non-GAAP income before     (1,569)      219          6,661       15,610
income taxes
GAAP income taxes          262          (2,398)      883         (17,038)
(benefit)
Tax effect of Non-GAAP     (2,973)      2,384         (513)       16,070
adjustments
Non-GAAP income taxes      (2,711)      (14)         370         (968)
(benefit)
Non-GAAP net income        $1,142       $233         $6,291      $16,578
Non-GAAP EPS-diluted       $0.05        $0.01        $0.26       $0.75
Shares used in computing   23,523      22,056       23,882      22,044
Non-GAAP EPS-diluted

(1)Fiscal 2013 SG&A expenses related primarily to audit committee
investigation, restatement-related expenses, legal investigation expenses,
consulting fees, accrued contract termination expenses, retention and
severance accruals, offset by the clawback of bonuses paid to former CEO and
the reversal of certain previously recorded stock compensation expenses
associated with former executives. 


Reconciliation of GAAP net income (loss) to Adjusted EBITDA:
                                                     
                         Three months ended           Six months ended
                         January 31,                  January 31,
(in thousands)           2013        2012         2013      2012
Net income (loss)         $10,141       $(20,184)      $(588)      $(9,383)
Income taxes (benefit)    262           (2,398)        883         (17,038)
Income (loss) before      10,403        (22,582)       295         (26,421)
income taxes
Interest expense, net     14,231        6,471          28,143      12,232
Income from operations    24,634        (16,111)      28,438      (14,189)
                                                               
Costs associated with
acquisitions and          --            12,091         --          29,305
integrations 
Reduction of liability    --            --             (1,319)     --
due to lease assignment
(Gain) on warrant         (18,625)      --             (11,109)    --
liability
Certain SG&A expenses (1) 8,896         10,710         20,680      12,726
Stock-based compensation  (128)         2,949         1,122       4,851
expense (2)
Depreciation and          8,171         6,916          16,138      13,659
amortization
Adjusted EBITDA           $22,948       $16,555        $53,950     $46,352

(1)Fiscal 2013 SG&A expenses related primarily to audit committee
investigation, restatement-related expenses, legal investigation expenses,
consulting fees, accrued contract termination expenses, retention and
severance accruals, offset by the clawback of bonuses paid to former CEO. For
Non-GAAP EPS calculations, certain SG&A expenses also includes retention
related stock-based compensation and the reversal of certain previously
recorded stock compensation expenses associated with former executives.
(2)Stock-based compensation for the three and six months ended January 31,
2013, included a $2.5 million reversal of certain previously recorded stock
compensation expenses associated with former executives.

                 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 second quarter of fiscal 2013, $18.6 million due to a gain on
    Oaktree warrant liability, $6.7 million due to SG&A expenses related
    primarily to restatement-related expenses, consulting fees, accrued
    contract termination expenses, retention and severance accruals, offset by
    the clawback of stock compensation and bonuses paid to the former CEO and
    the reversal of certain previously recorded stock compensation expenses
    associated with former executives. 
  *In the second quarter of fiscal 2012, $12.1 million in costs were incurred
    due to the proposed acquisition of Pringles, $10.7 million due to SG&A
    expenses related primarily to the audit committee investigation and walnut
    labeling settlement, and $2.9 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 SG&A and
    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 progress in key initiatives, margin expansion and top line or
revenue growth, improvements in net price realization, SKU rationalization,
projections for net sales and gross profit as a percentage of net sales and
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. 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: risks relating to our leverage and its effect on our
ability to respond to changes in our business, markets and industry; potential
increases in the cost of our debt; uncertainty about our ability to raise
additional capital and the possible dilutive impact of raising such capital;
risks relating to litigation and regulatory proceedings; uncertainties
relating to 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® nut varieties, Pop Secret®
popcorn, and Diamond of California® nuts. The Company's products are
distributed in a wide range of stores where snacks and 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
         Lucy Neugart/Stacy Roughan
         (415) 618-8750 or (310) 201-2040
         lneugart@sardverb.com
         sroughan@sardverb.com

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