Diamond Foods Reports First Quarter Fiscal Year 2014 Financial Results

Diamond Foods Reports First Quarter Fiscal Year 2014 Financial Results

SAN FRANCISCO, Dec. 5, 2013 (GLOBE NEWSWIRE) -- Diamond Foods, Inc.
(Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2014
first quarter ended October 31, 2013.

First Quarter Fiscal 2014 Highlights

  oNet sales decreased 9.2% to $234.7 million
  oSnacks sales increased 1.2% to $112.6 million and Nuts sales decreased
    17.1% to $122.1 million
  oGross margin was 24.7% compared to 22.7%
  oNet loss was $42.2 million and non-GAAP net income was $5.0 million
  oAdjusted EBITDA decreased 6.1% to $29.1 million

(All comparisons above are to the first quarter fiscal year 2013. Non-GAAP
financial measures are reconciled in the tables below)

"Our first quarter financial results were in line with our expectations and
reflect the headwinds we anticipated from lower walnut supply and Emerald
re-launch costs," said Brian Driscoll, President and CEO. "We continue to
focus on gross margin improvement strategies as well as investing in brand
building and innovation as we seek to achieve long-term sustainable growth.
Looking ahead, we expect to benefit from the improved foundation of our
business, and remain confident that we are on track to achieve earnings
improvement in fiscal 2014."

First Quarter Fiscal 2014

Net sales decreased 9.2% to $234.7 million compared to $258.5 million in the
prior year period and gross profit as a percent of net sales was 24.7%
compared to 22.7% last year.

Net loss was $42.2 million, or a loss of $1.92 per share on a fully diluted
basis. During the quarter, Diamond incurred $23.5 million in expenses for the
mark to market adjustments related to shares issuable in connection with the
settlement of the securities class action lawsuit, a $5.0 million expense
associated with the Company's estimated future impact from a potential
resolution of the Securities and Exchange Commission investigation and a $17.0
million charge related to a change in the fair value of the Oaktree warrant
liability. Excluding these charges, non-GAAP net income for the first quarter
was $5.0 million and non-GAAP fully diluted earnings per share was $0.18.
Adjusted EBITDA was $29.1 million compared to $31.0 million in the prior year
period. Adjusted EBITDA is a non-GAAP financial measure. Please refer to the
tables in this press release for a reconciliation of all non-GAAP financial
measures.

As of October 31, 2013, net debt outstanding was $583.0 million, including the
Oaktree debt at its carrying value. Cash and availability on Diamond's bank
revolving line of credit on October 31, 2013 was approximately $85.3 million.

Segment Review

The Company has two reportable segments: 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.

Snacks Segment: Net sales during the first quarter increased 1.2% to $112.6
million compared to prior year period. Gross profit during the first quarter
was $39.4 million, 35.0% of net sales, compared to $38.3 million, 34.4% of net
sales, in the prior year period.

Nuts Segment: Net sales during the first quarter decreased 17.1% to $122.1
million compared to the prior year period. Gross profit during the first
quarter was $18.5 million, 15.2% of net sales, compared to $20.3 million,
13.8% of net sales, in the prior year period.

Outlook

The Company expects year-over-year improvement in fiscal 2014 Adjusted EBITDA
as it continues to benefit from the execution of its multi-year turnaround
strategy.

Conference Call

The Company will host a conference call with members of the executive
management team to discuss these results with additional comments and details.
The conference call is scheduled to begin today at 4:30 p.m. ET. To
participate on the live call listeners in North America may dial (888)
401-4669 and international listeners may dial (719) 457-1035.

In addition, the call will be broadcast live over the Internet hosted at the
"Investor Relations" section of the Company's website at
http://www.diamondfoods.comand will be archived online through December 19,
2013. A telephonic playback will be available from 7:30 p.m. ET, December 5,
2013, through December 19, 2013. North America listeners may dial (877)
870-5176 and international listeners may dial (858) 384-5517; the passcode is
6123819.

About Diamond Foods

Diamond Foods is 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. Diamond's products are distributed
in a wide range of stores where snacks and culinary nuts are sold. For more
information, visit the Company's corporate web site:
http://www.diamondfoods.com.

Note Regarding Forward-looking Statements

This press release includes forward-looking statements, including statements
about commodity headwinds, gross margin improvement strategies, investment in
brand building and innovation, prospects for long-term and sustainable growth,
improvements in the foundation of the business and projections as to earnings
improvement in fiscal 2014. 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. Many of our forward-looking statements include discussions
of trends and anticipated developments under 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. 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. You also should carefully consider other cautionary statements
elsewhere in this press release and in other documents we file from time to
time with the SEC. We do not undertake any obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of this press release. Actual results may differ materially from what
we currently expect because of many risks and uncertainties, such as:
unexpected difficulties in implementing our business strategies; changes in
consumer preferences for snack and nut products; risks relating to our
leverage, including the cost of our debt and its effect on our ability to
respond to changes in our business, markets and industry; potential
difficulties raising additional capital, and the possibly dilutive impact of
such capital; risks relating to litigation and regulatory proceedings;
including uncertainty about the magnitude of our potential liability
associated with the SEC investigation; 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.

                                                              
Financial Summary                               
Summarized Statement of Operations:
                                               Three Months Ended October 31,
                                               2013            2012
Net sales                                       $234,668      $258,462
Cost of sales                                   176,735        199,916
Gross profit                                    57,933         58,546
Operating expenses:                                            
Selling, general and administrative             56,556         38,181
Advertising                                     10,658         9,045
(Gain) loss on warrant liability                16,976         7,516
Total operating expenses                        84,190         54,742
Income (loss) from operations                   (26,257)       3,804
Interest expense, net                           14,848         13,912
Loss before income taxes                        (41,105)       (10,108)
Income taxes (benefit)                          1,048          621
Net loss                                        $(42,153)     $(10,729)
                                               --            
Loss per share:                                                
Basic                                           $(1.92)       $(0.49)
Diluted                                         $(1.92)       $(0.49)
Shares used to compute earnings (loss) per                     
share:
Basic                                           21,954         21,753
Diluted                                         21,954         21,753
                                                              

                               
Segment Information:
                               
            Three Months Ended   % Change
             October 31,          from
            2013      2012       2012 to 2013
Net sales                       
Snacks       $112,589 $ 111,243 1%
Nuts         122,079  147,219   -17%
Total        $234,668 $ 258,462 -9%
                               
Gross profit                    
Snacks       $39,424 $38,287  3%
Nuts         18,509   20,259    -9%
Total        $57,933 $58,546  -1%
                               

                                                     
Summarized Balance Sheet Data:
                                                     
                                          Three Months Ended
                                          October 31,
                                          2013        2012
ASSETS                                                
Total current assets                       362,178    376,011
Restricted cash                            --        6,389
Property, plant and equipment, net         128,490    143,752
Deferred income taxes                      --        147
Goodwill                                   405,809    407,196
Other intangible assets, net               392,181    438,458
Other long-term assets                     18,560     23,780
Total assets                               $1,307,218 $1,395,733
                                                     
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Total current liabilities                  451,563    307,473
Long-term obligations                      587,265    607,642
Deferred income taxes                      106,005    128,267
Other liabilities                          22,374     30,208
Total stockholders' equity                 140,011    322,143
Total liabilities and stockholders' equity $1,307,218 $1,395,733
                                                     

                                                                      
Non-Gaap Financial Information                                            
                                                                         
Reconciliation of Income (Loss) Before Income Taxes to Non-GAAP EPS:      
                                                                      
                                   Three Months Ended                    
                                   October 31,                           
                                   2013                    2012         
GAAP income (loss) before income    $(41,105)             $(10,108)   
taxes
(Gain) Loss on warrant liability    16,976                 7,516       
Reduction of liability due to lease --                    (1,319)     
assignment
Retention stock-based compensation  --                    357         
(Gain) Loss on adjustment of fair
value ofshares issuable in         23,496                 --         
securities settlement
Estimated potential liability
associated with theSEC             5,000                  --         
investigation
Shareholder derivative suit gain    (1,600)                --         
Legal Expenses                      1,686                  1,980       
Adjustments to SG&A                 --                    9,804       (1)
Non-GAAP income before income taxes 4,453                  8,230       
GAAP income taxes (benefit)         1,048                  621         
Tax effect of Non-GAAP adjustments  (1,634)                2,391       
Non-GAAP income taxes (benefit)     (586)                  3,012       
Non-GAAP net income (loss)          5,039                  5,218       
                                                                      
Non-GAAP EPS-diluted                                                   
                                                                      
Shares used in computing Non-GAAP   28,460         (2)     22,091      
                                                                      
EPS-diluted                         $0.18                 $0.24      
                                                                      
(1) Related primarily to audit committee investigation, restatement- related
expenses, consulting fees, retention, and severance.
(2) Shares used in computing non-GAAP EPS include the 4,450,000 shares that
will be issued to settle the securities class action lawsuit.
                                                                      

                                                                     
Reconciliation of Net Income (Loss) to Adjusted EBITDA:                 
                                                                     
                                          Three Months Ended           
                                          October 31,                  
                                          2013           2012          
Net income (loss)                          $(42,153)    $(10,729)   
Income taxes (benefit)                     1,048         621          
Income (loss) before income taxes          (41,105)      (10,108)     
Interest expense, net                      14,848        13,912       
Income (loss) from operations              (26,257)      3,804        
Reduction of liability due to lease        --           (1,319)      
assignment
(Gain) Loss on warrant liability           16,976        7,516        
(Gain) Loss on adjustment of fair value of 23,496        --          
shares issuable in securities settlement
Estimated potential liability associated   5,000         --          
with the SEC investigation
Shareholder derivative suit gain           (1,600)       --          
Legal Expenses                             1,686         1,980        
Adjustments to SG&A expenses               --           9,804        (1)
Stock-based compensation expense           1,477         1,250        
Depreciation and amortization              8,335         7,967        
Adjusted EBITDA                            $29,113      $31,002     
                                                                     
(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.

Adjusted EBITDA is used by management as a measure of operating performance.
Adjusted EBITDA is defined as net income before interest expense, income
taxes, stock-based compensation, depreciation, amortization, and other
non-operating expenses, including the aforementioned expenses related to the
proposed settlement of the private securities class action case, potential
resolution of SEC investigation, Oaktree warrant liability gains/losses, SG&A
expenses primarily related to audit committee investigation, and restatement
and related expenses. 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 financial 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 other amounts 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 Diamond's 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.

CONTACT: Investors:
         ICR
         Katie Turner
         415-230-7952
        
         Media:
         ICR
         Anton Nicholas/Jessica Liddell
         415-445-7431

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