DIAMOND FOODS INC NASDAQ:DMND Upgraded
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Transcript of DIAMOND FOODS INC NASDAQ:DMND Upgraded
DIAMOND FOODS INC
DMND: NASDAQ
Date: 14/02/2011
Symbol: DMND
Exchange: NASDAQ
Industry: Processed & Packaged
Goods
Sector: Consumer Goods
Recommendation:
Target Price: $80.00USD
Current Price: 51.51USD
Summary
• Diamond achieved a 23 percent increase in
retail sales and a 41 percent increase in
operating income during 2010.
• Diamond’s earnings in 2010 expanded 52
percent, resulting in EPS of $1.91 per share.
• EPS grew 32 percent for the year despite the
issuance of approximately 30 percent more
shares in an equity offering used to finance the
Kettle acquisition.
• Retail products comprised 84 percent of total
sales in 2010, up from 49 percent in 2005.
Fundamental Data
Market Cap ($M): 1.13B
Avg.Vol (10Day): 114,511
52 Week High/Low: 55.97-34.27
P/E ratio (TTM): 41.47
P/B ratio: 2.85
Dividend yield (%): 0.40
ROA (%): 4.44
ROE (%): 8.73
Profit Margin (%): 3.39
Operating Margin (%): 8.78
Snapshot
SUMMARY INTRA-DAY INTERACTIVE CHART
Change 0.200 (0.390%)
Bid N.A.
Ask N.A.
Open 51.190
High 51.753
Low 51.020
Volume N.A.
52-Week Range 55.97 - 34.27
1-Yr Return 34.881%
Earnings
EARNINGS FUNDAMENTALS
Earnings Past 12 Months 1.780 Shares (Millions) 21.975
Quarter Est. EPS (01/11) 0.89 Market Cap (Millions) 1,131.908
Quarter Est. EPS (04/11) 0.48 Float (Millions) 21.195
Year Est. EPS (07/11) 2.51 Return on Equity 9.475
Price/Earnings (Trailing) 28.938 Short Interest 5,386,870.000
Relative P/E 1.825 Last Dividend Reported 0.045 Regular Cash
Earnings Growth Rate 30.900 Dividend Yield (ttm) 0.350
Estimated P/E 20.500 Relative Dividend Yield 0.196
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Company Profile
San Francisco-based Diamond Foods is a high-growth innovative packaged food company focused on building,
acquiring and energizing brands including, Kettle Chips, Emerald snack nuts, Pop Secret popcorn, and Diamond of
California snack and culinary nuts. The Company's strategy is to build brands from the ground up as well as identify
opportunities in under-developed brands and then add value by making a relevant connection to the contemporary
consumer. Diamond's products are distributed globally in stores where snacks and culinary nuts are sold.
Founded in 1912 with a strong heritage in the walnut market under the Diamond of California brand, Diamond Foods
completed its initial public offering in July, 2005. The Company has approximately 1,700 year-round employees and
its stock trades on the NASDAQ Global Select Market under the symbol DMND.
Diamond Foods has five premium product lines:
• Potato Chips, sold under the Kettle Brand label in the United States and Kettle Chips brand in the
United Kingdom, are made with delicious blends of all natural seasonings and cooked in small batches in pure, healthy
oils. There are over 28 flavors of all natural chips, which are recognized for their hearty crunch and golden color. The
product line also includes "better-for-you" Kettle Brand Baked Potato Chips, the only baked potato chip made from
real, whole slices of potatoes, which are available in five delicious flavors. Kettle products are sold in natural
supermarkets, traditional grocery stores, club stores, mass merchandisers, food service, convenience stores and
impulse channels.
•
•
• Snack nuts are sold under the Emerald brand delivering choice, convenience and excitement as consumers increasingly reach for healthier snack options. The Emerald lineup includes trail mix and other snack items
as well as roasted, glazed and flavored snack nut products featuring unique flavors and innovative, resealable "on-the-
go" containers. The product line includes 100 Calorie pack sizes for consumers seeking portion control in their diets.
Emerald brand snack nuts are sold in grocery store snack aisles and produce departments, convenience stores, mass
merchandisers, drugstores and other locations where snacks are sold
• Popcorn, in both natural kernels and various flavors of microwave popcorn, is sold under the Pop Secret brand. The product line incorporates high quality details, such as Homestyle microwave popcorn with its larger
salt granules and Jumbo Pop kernels which pop larger than conventional kernel popcorn. These innovations provide a
tastier and better snacking experience. The product line also includes "better-for-you" items such as 94% Fat Free and
100 Calorie snack size options. Pop Secret is sold in grocery stores, convenience stores, drugstores, and other locations
where snacks are sold.
• Inshell nuts are sold under the Diamond of California brand to individuals who value tradition and fresh,
healthy and aesthetically appealing snack foods. Diamond brand inshell nuts are typically sold in grocery store produce
sections, mass merchandisers and club stores.
• Culinary nuts are sold under the Diamond of Californiabrand offering consumers a convenient recipe-
ready source of nuts to enhance salads, vegetables, pastas, baked goods and other foods. Diamond brand culinary nuts
are sold in grocery store baking and produce aisles and through mass merchandisers and club stores. In addition, the
Company's culinary nuts are sold to high quality food processors, restaurants, bakeries and food service companies and
their suppliers. Institutional customers use standard or customer-specified nut products to add flavor, texture and
nutritional value to their product offerings.
Diamond Foods had a transformational year in 2010. In addition to strong growth and profitability in the core
business, the company acquired and successfully integrated the global operations of Kettle Foods. Diamond once
again generated record earnings while continuing to invest in brands, innovation, operational infrastructure and
people. We are pleased to report on Diamond’s fiscal 2010 results and plans for continuing growth in the future.
Diamond achieved a 23 percent increase in retail sales and a 41 percent increase in operating income during 2010.
Snack sales increased 70 percent to $321 million and made up 47 percent of the company’s total net sales. These
achievements were a direct result of expanded distribution, improved product mix, new products and the addition of
four months of Kettle performance in the fiscal year. Net sales exceeded $680 million, generating profits of $36.8
million. Diamond’s earnings in 2010 expanded 52 percent, resulting in EPS of $1.91 per share.
EPS grew 32 percent for the year despite the issuance of approximately 30 percent more shares in an equity offering
used to finance the Kettle acquisition. Diamond’s margin structure continued to improve as the proportion of sales
represented by higher margin, branded retail products increased. Retail products comprised 84 percent of total sales
in 2010, up from 49 percent in 2005. The shift in sales mix, coupled with cost-efficiency initiatives, has increased
Diamond’s intrinsic earnings power. This is evidenced by a more than tripling of the operating margin since 2007.
Our strategy is to continue to expand operating margin by growing our branded consumer product portfolio, while
maintaining a strict discipline on growth, which will facilitate achievement of greater operating leverage in the future.
Diamond culinary nuts continued its category-leading position, with a market share approximately 10-times larger
than the next largest brand and 16 of the top 25 items in the culinary nut category. The brand has sustained this
position with expanded distribution in grocery and mass merchandise channels, as well as the execution of innovative
promotional support.
Emerald had a strong year and saw the benefit of a full-year of sales from products introduced in 2009, such as
peanuts, 100 calorie packs, and Cinnamon Roast almonds. Approaching the end of the fiscal year, Emerald gained new
distribution for several core items in the mass merchandise and drug channels and initiated the launch of the new
Breakfast on the Go in grocery stores.
Pop Secret performed well in 2010, driven by expanded distribution in grocery and mass merchandise channels, and
new product introductions. We continue to invest in innovation and marketing support and are committed to
continuing to build the Pop Secret brand.
The acquisition of the premium Kettle brand increased our scale and relevance in the snack category. With the initial
integration effort successfully completed, we have begun planning for expanding capacity in the U.S. production
facilities. Kettle’s growth in the U.S. has been driven by item velocity and distribution gains as the brand expanded
into new regions and channels.
Approaching the end of the fiscal year, Kettle gained distribution of single-serve items in the deli sections of the
grocery and mass merchandise channels and launched new, all-natural snacking tortilla chips called Tias! In the
United Kingdom, we launched Kettle Ridge Crisps and expanded the distribution of our multi-pack offering.
All three snack brands outpaced category growth and achieved record market share in U.S. grocery stores during the
fiscal year. Emerald attained market share of 10.6 percent; Pop Secret, the number two national brand, achieved a
27.3 percent share, the highest under Diamond’s ownership; and Kettle achieved 3.5 percent share of the entire potato
chip category and moved into the number two position among premium potato chip competitors. We believe that this
performance demonstrates the ability of our brands to generate sales and profits while using shelf space efficiently for
our retail partners.
On behalf of our employees and board of directors, we would like to thank our customers, suppliers and shareholders
for their ongoing support for our company. We are confident in our strategies for growth and remain committed to a
disciplined rigor in executing against our plans to drive growth and earnings in the future.
Production
Diamond quality begins in the fertile soils of California’s Central Valley and other nut-producing regions. Diamond’s
grower-owners use the very latest, environment-friendly farming practices. Constant attention is paid to the orchards,
from pruning to irrigation to harvest.
Come fall, the nuts are shaken from the trees and swept into bins. Their hulls are removed and the nuts are dried, and
then they make the short journey to the Stockton, California facility. There, each nut is carefully selected, sorted and
cleaned before shelling and packaging.
Production Steps
Nuts go through a series of processes before they’re ready for your favorite recipe or holiday nut bowl. Some steps,
such as cracking, shelling and chopping, are carried out for your convenience. Some are carried out for the sake of
appearance, such as the polishing of pecans. Still others, among them state-of-the-art laser sorting, cold storage and
quality monitoring, ensure that the nuts you buy are orchard fresh year-round and wholesome for your family.
Diamond Facilities
Diamond products are processed and packaged at facilities in Stockton, California; Fishers, Indiana; and Robertsdale,
Alabama. Approximately 50 percent of the California walnut crop passes through the doors of the Stockton plant each
year, the largest and most technologically advanced such plant in the world. Diamond facilities in Alabama and
Indiana process Brazil nuts from the Amazon, along with top-quality in-the-shell walnuts and almonds from
California, hazelnuts from Oregon, and pecans from the southeastern United States. In addition, Diamond has four
seasonal receiving facilities in California: Live Oak, Linden, Modesto and Visalia.
Recent News
On Tuesday February 1, 2011, 2:43 pm EST
SAN FRANCISCO (AP) -- Diamond Foods Inc. is launching a $10 million expansion of its production facility in
Norwich, U.K. to meet increasing demand for its Kettle Chips line.
Diamond, which bought Kettle in 2009, said Tuesday that the brand has grown significantly thanks to a larger line of
products.
The expansion is anticipated to begin in the spring and includes new packaging lines, an increase in multi-packing
capability and enhancements to employee facilities.
The company announced in August that it was investing $8.4 million for an expansion of its Kettle Chips plant in
Salem, Ore., which produces approximately half of the nation's supply of the Kettle brand chip and snack products.
Diamond, based in San Francisco, also makes Emerald nuts, Pop Secret popcorn and other items.
Shares of Diamond rose $1.59, or 3.2 percent, to $51.36 in afternoon trading.
REVENUE
Periods 2009 2010 2011
October 195.526 180.641 252.566
January 150.588 184.169
April 111.01 138.734
July 113.816 176.618
Note: Units in Millions of U.S. Dollars
EARNINGS PER SHARE
Periods 2009 2010 2011
October 0.63859 0.87672 0.6358
January 0.3682 0.55198
April 0.16146 -0.22125
July 0.2503 0.2985
Note: Units in U.S. Dollars
CONSENSUS ESTIMATES ANALYSIS
# of Estimates Mean High Low 1 Year Ago
SALES (in millions)
Quarter Ending Apr-11 11 208.65 218.00 198.80 129.94
Quarter Ending Jul-11 11 202.95 210.00 193.00 136.55
Year Ending Jul-11 12 929.95 942.00 910.40 647.57
Year Ending Jul-12 8 1,010.10 1,037.20 984.40 --
EARNINGS (per share)
Quarter Ending Apr-11 12 0.49 0.55 0.45 0.35
Quarter Ending Jul-11 12 0.49 0.53 0.45 0.40
Year Ending Jul-11 12 2.51 2.55 2.47 2.21
Year Ending Jul-12 8 2.96 3.10 2.88 --
LT Growth Rate (%) 5 14.00 20.00 10.00 16.50
Sales and Earnings Figures in U.S. Dollars (USD)
VALUATION RATIOS
Company Industry Sector S&P 500
P/E Ratio (TTM) 40.72 20.60 16.47 18.26
P/E High - Last 5 Yrs. 32.77 7,110.92 1,788.41 85.27
P/E Low - Last 5 Yrs. 19.87 15.37 14.67 12.41
Beta 0.47 0.60 0.58 1.31
Price to Sales (TTM) 1.51 1.15 1.64 2.26
Price to Book (MRQ) 2.86 0.96 1.36 2.83
Price to Tangible Book (MRQ) -- 0.84 9.71 4.85
Price to Cash Flow (TTM) 23.84 11.03 10.00 8.10
Price to Free Cash Flow (TTM) -- 10.71 9.77 36.07
% Owned Institutions -- -- -- --
DIVIDENDS
Company Industry Sector S&P 500
Dividend Yield 0.35 1.80 1.88 1.55
Dividend Yield - 5 Year Avg. 0.58 1.44 1.26 2.27
Dividend 5 Year Growth Rate -- 8.36 8.99 -5.73
Payout Ratio(TTM) 14.80 24.44 9,277.16 33.67
GROWTH RATES
Company Industry Sector S&P 500
Sales (MRQ) vs Qtr. 1 Yr. Ago 39.82 131.44 36.12 10.49
Sales (TTM) vs TTM 1 Yr. Ago 35.25 11.43 7.07 11.59
Sales - 5 Yr. Growth Rate 8.02 9.51 11.24 7.57
EPS (MRQ) vs Qtr. 1 Yr. Ago -27.48 16.54 12.17 65.04
EPS (TTM) vs TTM 1 Yr. Ago -23.57 -- -- --
EPS - 5 Yr. Growth Rate -34.99 6.50 7.33 4.91
Capital Spending - 5 Yr. Growth Rate 2.34 7.75 8.87 4.39
FINANCIAL STRENGTH
Company Industry Sector S&P 500
Quick Ratio (MRQ) 0.58 0.85 0.70 0.54
Current Ratio (MRQ) 1.34 1.14 0.94 0.83
LT Debt to Equity (MRQ) 130.15 20.61 22.58 107.70
Total Debt to Equity (MRQ) 140.26 33.38 32.61 152.39
Interest Coverage (TTM) 6.94 0.42 0.51 15.78
PROFITABILITY RATIOS
Company Industry Sector S&P 500
Gross Margin (TTM) 23.81 18.84 21.48 30.68
Gross Margin - 5 Yr. Avg. 19.00 31.89 34.85 29.29
EBITD Margin (TTM) 10.11 -- -- --
EBITD - 5 Yr. Avg 6.70 10.60 12.75 18.15
Operating Margin (TTM) 7.19 5.58 6.01 --
Operating Margin - 5 Yr. Avg. 4.91 7.27 9.49 14.93
Pre-Tax Margin (TTM) 4.94 5.52 6.13 14.84
Pre-Tax Margin - 5 Yr. Avg. 4.29 7.56 9.61 14.53
Net Profit Margin (TTM) 3.39 3.86 4.55 10.87
Net Profit Margin - 5 Yr. Avg. 2.89 5.15 6.53 10.77
Effective Tax Rate (TTM) 31.38 15.59 13.77 19.48
Effecitve Tax Rate - 5 Yr. Avg. 32.53 34.60 30.12 24.73
EFFICIENCY
Company Industry Sector S&P 500
Revenue/Employee (TTM) 511,624 7,163,196 6,164,438 331,528
Net Income/Employee (TTM) 17,344 338,896 234,553 45,151
Receivable Turnover (TTM) 7.27 1.67 278.33 8.48
Inventory Turnover (TTM) 3.02 1.54 1.76 5.43
Asset Turnover (TTM) 0.81 0.23 0.27 0.46
MANAGEMENT EFFECTIVENESS
Company Industry Sector S&P 500
Return on Assets (TTM) 2.74 1.23 1.51 5.12
Return on Assets - 5 Yr. Avg. 4.24 6.93 7.40 4.74
Return on Investment (TTM) 3.71 1.81 2.22 6.59
Return on Investment - 5 Yr. Avg. 5.96 15.17 12.58 6.16
Return on Equity (TTM) 8.57 3.15 4.74 14.13
Return on Equity - 5 Yr. Avg. 9.95 20.16 16.42 7.01
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Contact Detail:
Chutinush Taksinapinunt
Business Development Director
Heffernan Capital Management
Email: [email protected]
Chutinush Taksinapinunt holds a Bachelor of Business Administrators degree Majoring in
Finance and Banking. Chutinush Taksinapinunt is an experienced market maker and Portfolio
Manager, having worked with some of Thailand’s largest Securities Company and Financial
Institutions.
Price Estimate by Shayne Heffernan PhD
Shayne Heffernan of Ebeling Heffernan holds a PhD in Economics serves as CEO of Heffernan
Holdings Inc and Co Founder of Ebeling Heffernan www.ebeling-heffernan.com
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