Diamond Foods, Inc. (Nasdaq:DMND) today reported strong financial results for its third quarter of fiscal 2011 and raised guidance for fiscal year 2011.
For the three months ended April 30, 2011 non-GAAP diluted earnings per share (EPS) was $0.52 and non-GAAP net income was $11.8 million, 91 percent above the prior year's comparable net income. On a GAAP basis, EPS was $0.34 compared to $(0.22) for the prior year's comparable period. This year's GAAP EPS included costs associated with the announced merger with Pringles and integration costs associated with the Kettle acquisition, while last year's GAAP EPS included costs associated with the Kettle acquisition.
"Our business performed well during the quarter, including double digit organic growth in our snack portfolio,"said Michael J. Mendes, Chairman, President and CEO. "Based on our strong overall performance and effective integration of Kettle, we have increased our financial guidance for the year. We're off to a strong start in planning for the integration of Pringles, and are encouraged by the prospects for the new combined entity."
Corporate Highlights
- In U.S. measured channels, Emerald snack nuts grew 7 percent outpacing the category by a factor of three times. Total Emerald retail sales grew 21 percent when including the successful extension into the Convenient Breakfast category. Pop Secret grew 7 percent and outpaced the microwave popcorn category growth rate by 870 basis points (Nielsen U.S. FDMx twelve weeks ended May 14, 2011) Kettle grew at twice the rate of the category and was up 5 percent (Nielsen U.S. Grocery, 52 weeks ended May 14, 2011 (note: 52 week data used due to numerous package format changes in the category in the previous 12-16 weeks)
- In the U.K., Kettle outpaced category growth in the most recent twelve week period growing 11 percent versus category growth of 7 percent (Nielsen EPOS Total Market)
- Emerald's new Breakfast on the go! continued to gain distribution in the period. The brand scanned in 69 percent of the ACV in U.S. grocery and sales velocity has increased in successive four week periods (Nielsen U.S. Grocery four weeks ended May 14, 2011).
- On April 5, 2011, Diamond announced the merger of P&G's Pringles business into Diamond in a Reverse Morris Trust transaction with an expected close by the end this calendar year.
- Adjusted EBITDA grew 139 percent to $32.4 million.
- A quarterly dividend of $0.045 per share was paid on May 3, 2011 to shareholders of record as of April 22, 2011.
Financial Results
Net sales during the quarter grew 61 percent to $223 million, driven by significant growth in snack revenue and international non-retail sales. Snack revenue growth of 72 percent is attributed to two additional months of Kettle in the results this year and double digit organic growth across the snack portfolio. Non-retail sales for the quarter grew as a result of increased supply that was primarily shipped to international markets. Fiscal year-to-date net sales grew 46 percent to $733.1 million.
For the quarter, gross profit as a percentage of net sales was 26.7 percent compared to the prior year quarter's 22.4 percent, primarily as a result of sales mix and productivity improvements. For the first nine months of the fiscal year, gross profit as a percentage of net sales was 26.5 percent, 320 basis points above the prior year comparable period's 23.3 percent. The beneficial effect of higher margin sales mix, greater scale in snacks and manufacturing efficiency initiatives outweighed the impact from the increase in non-retail sales, some commodity price pressure and increased slotting and promotion for Breakfast on the go!
Selling, general and administrative expense (SG&A) was $24.2 million during the quarter, and SG&A as a percentage of net sales was 10.8 percent. Fiscal year-to-date SG&A was $71.3 million, or 9.7 percent of net sales.
Advertising expense was $11.9 million during the quarter, up 57% over the prior year comparable period, driven by multi-media support for the successful Breakfast on the go! launch in grocery retailers. Advertising expense for fiscal year-to-date was $34.4 million, 32 percent above the prior year's level of $26 million.
Adjusted EBITDA grew 94 percent to $115.8 million year to date.
As of April 30, 2011, net debt outstanding was $549.4 million and net leverage ratio was 3.9.
Financial Outlook
For the fourth quarter of fiscal 2011, we expect non-GAAP EPS of between $0.40 to $0.44 and net sales of between $210 million to $220 million.
This fourth quarter guidance implies that for the full fiscal year, we now expect net sales of between $943 million to $953 million compared to $925 million to $950 million previously and non-GAAP EPS of $2.48 to $2.52 compared to $2.45 to $2.51 previously. This increased EPS guidance represents growth in net income of 52 percent to 55 percent over full fiscal 2010 results. This full year guidance reflects:
-- Snack sales of $545 million to $560 million; -- Gross margin growth of 200 to 300 basis points over 2010; -- Advertising investment of $43 million to $44 million; -- Operating income as a percent of net sales of 11 percent to 12 percent, excluding acquisition and integration costs; -- Adjusted EBITDA of $142 million to $145 million; -- An effective tax rate of 33 percent.
For fiscal 2012, guidance is unchanged since it was first provided on April 5, 2011. For Diamond on a standalone basis, we anticipate non-GAAP EPS of $2.85 to $2.98, an increase of 14 percent to 19 percent over the midpoint of the updated guidance range for 2011. Combined EPS results for Diamond plus Pringles, assuming the transaction closes by the end of this calendar year, are expected to be $3.00 to $3.10 per share, excluding costs associated with the transaction and integration.
