Will this Food Retailer Live Up to its Name?
Diamond Foods , a packaged foods company, recently released fourth-quarter results that were surprisingly higher than the Street's expectations. Since the company was facing a number of problems for quite some time, investors were not expecting a great quarter.
A look at performance
The retailer's revenue stood at around $200 million, well above the estimates for $192.5 million. Its earnings were $0.09 per share compared to expectations of a $0.03 loss per share .
However, revenue has actually dropped 11% from $224 million last year. The top line was affected by a decrease in sales in the company's nuts segment which was, in turn, affected by lower volumes. Moreover, this is not the first time that the company has posted declining revenue. The quarterly revenue growth of Diamond Foods during the last five years is summarized in the chart below:
Declining revenue and poor performance are also reflected in the company's stock price:
Reasons for this trend
The retailer's performance was hit mainly because of the accounting scandal the company got involved in, which compelled it to restate its earnings for the last two years. This made Diamond Foods lose the Pringles business from Procter & Gamble. This deal was expected to be a key reason for the food company's success, making it the second-largest player in the snacks industry.
Instead, the Pringles business was finally taken over by Kellogg for $2.7 billion. The acquisition helped Kellogg make its snacks segment stronger and become the second-largest player, after PepsiCo, in the industry. Through the acquisition of Pringles, Kellogg gained manufacturing expertise and growth in emerging markets. Kellogg has been witnessing revenue increases as a result of the addition of Pringles to its business.
Strategies to watch
Though Diamond has lost one big opportunity to grow, it has not given up yet. It has been making a number of moves to stage a comeback.
Firstly, the company controlled its costs. Its cost saving techniques for procurement and manufacturing productivity are showing benefits as the gross margin for the quarter expanded 550 basis points compared to last year.
On one hand, Diamond Foods is reducing its costs. On the other hand, it is investing its money in the marketing and distribution of Pop Secrets and Emerald. The retailer is also innovating and launching new products that are expected to deliver benefits in the future. It will be launching new items for its Breakfast on the go! and Canister product lines . Also, the relaunch of Emerald is also expected to drive revenue from the nuts segment higher.
However, the company has not been showing an interest in the fast-growing organic food market. Many food retailers have been trying to scoop out benefits by offering food made of natural and organic ingredients to health-conscious customers.
An apt example here is General Mills , which is reaping the benefits of its Greek yogurt that's prepared with natural ingredients. General Mills expanded its yogurt business through the acquisition of Yoplait and Yoki Alimentos, enabling the retailer to experience solid growth. Its first quarter revenue surged 8% over the prior year, out of which 5% was mainly because of the acquisitions, which attracted health-conscious customers. The addition of Yoki increased sales from Latin America three-fold, and revenue from Canada surged 21%, helped by the acquisition of Yoplait. The food retailer also plans to grow its Yoplait Greek yogurt segment through new versions of the yogurt, which should attract more customers.
Diamond Foods has been trying to keep itself afloat and recover from the problems it has faced recently. Its turnaround plan seems to be in place. However, the company announced that it expects to derive the benefits of its strategies in the latter half of fiscal 2014. By then, it will be clear how the new launches and the company's advertising is taking shape. Until then, it is better to stay on the side lines and see how the company fares in the coming months.
The article Will this Food Retailer Live Up to its Name? originally appeared on Fool.com.Pratik Thacker has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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