Why Diamond Foods Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of snack specialist Diamond Foods sank more than 12% today after its current-quarter outlook disappointed Wall Street.

So what: While Diamond's fourth-quarter results came in ahead of expectations -- adjusted EPS of $0.09 versus the break-even consensus -- a rather downbeat guidance for the current quarter is reigniting concerns over its profitability going forward. Diamond shares had been rallying nicely in 2013 on signs that the company was steadily getting over its 2011 accounting issues, but today's news suggests that management still has a long way to go.

Now what: Management expects the first quarter to be pressured by costs associated with the relaunch of Emerald Nuts, as well as a lower walnut supply. "Despite expected increases in tree nut costs, fiscal 2014 is expected to be a year of earnings improvement as additional benefits from the execution of the multiyear turnaround strategy are realized," the company reassured investors in a statement. Of course, with the stock still up about 90% from its 52-week lows and trading at a 20-plus P/E, I'd wait for an even wider margin of safety before buying into that bull talk.

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The article Why Diamond Foods Shares Dropped originally appeared on Fool.com.

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