Let This Diamond Sparkle in Your Portfolio

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California-based Diamond Foods (NAS: DMND) reported its fiscal fourth-quarter and year-end results recently, and its strong performance helped it top Street estimates. Let's take a look at the numbers and see what lies ahead for the company.

Revenues for the year jumped a whopping 42% from last year to $966 million. The enormous increase mostly came from its snack-division sales, which alone grew by 72% from a year ago, in part because of its acquisition of Kettle Foods last year.

Diamond managed to increase its profit margin to 5.2% from 3.9%, despite seeing interest expense more than doubling because of the acquisition. It appears that an increased product portfolio played its part in pushing the margins up.

Acquisition drive
In April, Diamond Foods agreed to buy Pringles from Procter & Gamble (NYS: PG) , for $2.3 billion. The acquisition, which will be completed by the end of the year, will be funded in part by issuing common stock worth $1.5 billion. This will result in substantial dilution of current shareholders' ownership interest in the company, but obviously, they will benefit from the increased revenues of the combined entity.

Diamond will also assume $850 million in debt. This would weigh down the balance sheet somewhat, but with a current interest coverage ratio of 5.8, Diamond should be able to cope. Pringles currently has a presence in more than 140 countries and had sales of about $1.2 billion in 2010. This transaction will boost Diamond's sales to an estimated $2.4 billion and will more than triple the sales of its snacks division, making it the world's second-biggest snack company after PepsiCo's (NYS: PEP) Frito-Lay unit.

Through the acquisition, the company plans to increase its presence in grocery, drug, and convenience stores in the U.S., gaining greater merchandising and distribution power. It will also help Diamond to gain a stronger manufacturing and supply-chain foothold in key growth markets like Latin America and Asia.

The Foolish bottom line
Founded as a cooperative by California walnut growers that was converted to corporate status in 2005, Diamond has come a long way to become one of the biggest packaged-snack manufacturers. The company looks all set to increase its earnings in the coming years through its expansionary moves.

At the time this article was published Fool contributor Navneet Bajaj doesn't own any shares in the companies mentioned above.The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo and Procter & Gamble, as well as creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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