Diamond Foods, Inc. 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 (Generally Accepted Accounting Principles) 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."
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.
Kettle grew at twice the rate of the category and was up 5 percent. In the U.K., Kettle outpaced category growth in the most recent 12-week period, growing 11 percent versus category growth of 7 percent.
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.
On April 5, 2011, Diamond announced the merger of P&G's Pringles business into Diamond in a Reverse Morris Trust transaction which is expected to close by the end of 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.
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 (SGA) expense 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 percent 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 earnings before interest, taxes, depreciation and amortization (EBITDA) grew 94 percent to $115.8 million year to date.