Diamond Foods' Fiscal 1Q16: Falling Sales and Flat Earnings
Gross margin rose
Diamond Foods’ gross profit for the first quarter of fiscal 2016 was $61 million, or 27.1% of net sales, compared to 24.1% for fiscal 1Q15. The key driver that led to the improvement in gross margin was the net price realization in Diamond of California, Emerald, and Kettle brands in the United States. In addition, favorable walnut costs that were partially balanced by lower net price realization in international walnuts, the Kettle UK and Pop Secret brands, as well as higher other tree nut costs and an unfavorable impact of foreign exchange rates also lent a hand to the rise in gross margin.
Segment contributions to gross margin
The snack segment reported $42.3 million, or 36.5% of sales, a slight fall in gross profit compared to fiscal 1Q15. This fall was mainly due to lower Kettle UK and Pop Secret net price realization, as well as an adverse foreign exchange rate impact, partially offset by strong Kettle US performance. The gross profit for the nut segment was $18.6 million or 17% of sales in comparison to $16.4 million gross profit and 12.6% gross margin in fiscal 1Q15.
Higher net price realization for both the Diamond of California and Emerald brands and lower walnut costs, partially balanced by higher other tree nut costs, drove the rise in gross margin in this segment.
Other key results of fiscal 1Q16
The company generated adjusted EBITDA of $30.4 million in fiscal 1Q16, down by 1% compared to $30.7 million in the prior fiscal year period. As mentioned in the press release, adjusted EBITDA excludes income associated with the equity investment. The net debt outstanding as of October 31 was $637.3 million. This is five times the last 12-month adjusted EBITDA.
Competitors
The company’s competitors in the industry include Campbell Soup (CPB), ConAgra Foods (CAG), and Mead Johnson (MJN). They reported gross margins of 37.9%, 25.1%, and 64.5%, respectively, for their last reported quarters. The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) and the First Trust Capital Strength ETF (FTCS) respectively invest 2.8% and 2.1% of their portfolios in the MJN stock as of December 10.
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