Diamond Foods Reports Fourth Quarter and Fiscal Year 2015 Financial Results

Diamond Foods, Inc. (NASDAQ:DMND) today reported financial results for its fourth quarter and fiscal year ended July 31, 2015.
 Brian J. Driscoll, President and CEO:
 

"We are encouraged by our fourth quarter earnings performance, which was fueled by strong gross margin improvement. We are also pleased with the continued growth of Kettle in North America, Pop Secret market share gains, and the early signs of success in the Emerald transition to stand up bags."

"Our strategic decision to exit low margin nut SKUs negatively impacted net sales, which were also adversely affected by foreign exchange. Looking ahead, we continue to believe we have a solid foundation for future growth across our portfolio."

Fourth Quarter Fiscal 2015

Net sales for the quarter were $201.8 million, down 7.9% compared to the same quarter of the prior fiscal year. The prior year fourth quarter included $15.2 million of high volume, low margin nut SKUs that were exited. The impact of foreign exchange rate changes versus prior year, primarily related to sales of snacks in the UK and Canada, was $3.9 million. Gross profit for the fourth quarter was $54.5 million, or 27.0% of net sales, compared to 22.5% for the same quarter in the prior fiscal year.

GAAP net income for the quarter was $7.9 million. GAAP diluted EPS was $0.25 in the fourth quarter of fiscal 2015 compared to a loss of $(0.06) in the fourth quarter of fiscal 2014. Excluding certain items described below, non-GAAP net income for the quarter was $7.2 million and non-GAAP diluted EPS was $0.23, compared to $0.19 in the fourth quarter of fiscal 2014. Adjusted EBITDA was $29.3 million in the fourth quarter of fiscal 2015, compared to $23.9 million in the prior fiscal year period. The effective tax rate was 4.2% for the quarter, but due to a shift in the mix of pre-tax non-GAAP income between the US and the UK, the fourth quarter non-GAAP effective tax rate was 34.4% compared to (10.5)% in the same quarter of the prior fiscal year. Please refer to the table at the end of this press release for a reconciliation of GAAP to non-GAAP information.

Fiscal Year 2015

Net sales for fiscal 2015 were essentially flat at $864.2 million, compared to $865.2 million in fiscal 2014. Volume declines in Nuts, primarily due to exiting high-volume, low-margin SKUs, as well as a decrease in Kettle UK's net price realization, the adverse impact of foreign exchange rates in the UK and Canada, and costs related to the Emerald transition from canisters to stand up bags were largely offset by a price increase in the Nuts segment and Kettle US and higher volumes throughout the Snacks portfolio. Gross profit as a percent of net sales was 26.4% compared to 24.1% in fiscal 2014.

GAAP net income was $33.0 million, or $1.04 per share on a fully diluted basis. Excluding certain items described below, non-GAAP net income for fiscal 2015 was $34.7 million and non-GAAP fully diluted earnings per share was $1.10. Adjusted EBITDA was $123.8 million, compared to $105.1 million last fiscal year. Please refer to the table at the end of this press release for a reconciliation of GAAP to non-GAAP information.

As of July 31, 2015, net debt outstanding was $629.6 million and the net availability under the ABL Revolver was $103.0 million.

Segment Review

Snacks Segment: Net sales for the quarter were $129.8 million, down 0.2% compared to the prior fiscal year period. Gross profit for the fourth quarter was $47.3 million, or 36.4% of net sales, compared to $44.9 million, or 34.5% of net sales for the same quarter in the prior fiscal year. Gross profit as a percent of net sales increased due primarily to favorable ingredient costs, increased volume and higher net price realization in Kettle, North America, partially offset by lower net price realization in Kettle in the UK.

Net sales for fiscal 2015 were $480.7 million, up 1.5% compared to the fiscal 2014. Gross profit for fiscal 2015 was $172.8 million, 36.0% of net sales, compared to $168.6 million, or 35.6% of net sales in the prior fiscal year period.

Nuts Segment: Net sales for the quarter were $72.0 million, down 19.0% compared to the prior fiscal year period. Gross profit was $7.2 million, or 10.0% of net sales, in the fourth quarter of fiscal 2015, compared to $4.4 million, or 4.9% of net sales for the same quarter in the prior fiscal year. Gross profit as a percent of net sales increased primarily due to improved net price realization and lower walnut costs, partially offset by higher other tree nut costs.

Net sales for fiscal 2015 were $383.4 million, down 2.1% compared to the prior fiscal year period. Gross profit for fiscal 2015 was $55.2 million, or 14.4% of net sales, compared to $39.7 million, or 10.1% of net sales, in the prior fiscal year period.

Outlook (Note Regarding Forward Looking Statements)

The Company provided fiscal 2016 annual adjusted EBITDA guidance of $131 million to $136 million and non-GAAP diluted EPS guidance of $1.21 to $1.32. The Company's outlook includes the following expectations: input cost inflation of 1% to 2%, productivity improvements of 2% to 3%, exchange rates of $1.55 per £1.00, $0.75 per C$1.00 for fiscal 2016, a non-GAAP effective tax rate of between 30% to 32%, stock-based compensation of $10.5 million and 32 million fully diluted shares outstanding at fiscal year end. The Company also expects cash tax payments of approximately $1 million reflecting the current $348 million tax net operating loss (NOL).

Fiscal 2016 adjusted EBITDA, a non-GAAP financial measure, excludes items such as interest expense, income taxes, depreciation, amortization, stock based compensation as well as certain legal expenses and litigation settlements, acquisition-related costs, asset impairments and certain other actual and projected costs.