uploads///Diamond Foods Declining Growth in Sales

What Affected Diamond Foods’ Declining Sales?

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Dec. 4 2015, Updated 9:06 a.m. ET

Sales fell in fiscal 4Q15

Diamond Foods (DMND) reported a fall in sales in fiscal 4Q15 of 7.9% compared to the same quarter in the prior fiscal year. It also reported net sales of $201.8 million. Various factors were responsible for the decline in sales. Among them was the company’s decision to exit certain high volume, low margin nut SKUs (stock-keeping units) that reduced net sales by $15.2 million.

The company operates in two segments:

  • the Snack segment, composed of Kettle and Pop Secret brands
  • the Nut segment, composed of Emerald and Diamond of California brands

There was also a $3.9 million effect of foreign exchange rate changes, primarily related to sales of snacks in the United Kingdom and Canada, along with the UK competitive market pressure that the company experienced. All this led to the fall in sales.

The growth in sales has been following a declining trend. For fiscal 4Q15, the company showed a year-over-year growth of -7.9% in sales. There wasn’t much change in the net sales reported for fiscal 2015, as they equaled $864.2 million compared to fiscal 2014 net sales of $865.2 million.

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Segment contributions to sales

The Snack segment of Diamond Foods contributed the most to total net sales for the fiscal 4Q15. The segment recorded revenue of $129.8 million, a fall of 0.2% compared to fiscal 4Q14. However, Kettle delivered strong growth in North America, showing improved net price realization, as well as increased volume and market share growth.

In the earnings call, the company’s management mentioned that the Pop Secret brand performed well despite aggressive competition. With increased distribution, the brand gained market share and maintained its premium price positioning, largely balanced by lower UK sales versus last year. The nut segment delivered net sales of $72 million, a fall of 19% versus fiscal 4Q14.

Management’s view of fiscal 4Q15 performance

In a press release, the management of Diamond Foods mentioned that they were happy with their fourth quarter earnings performance, fueled by strong gross margin improvement. They also expressed optimism about the continued growth of Kettle in North America, the early signs of success in the Emerald transition to stand-up bags, and Pop Secret’s market share gains. They felt that their strategic decision to exit low margin nut SKUs had a negative impact on net sales. They also mentioned that net sales were adversely affected by the foreign exchange. However, looking ahead at fiscal 2016, they believe they have a solid foundation for future growth across their portfolio.

Peer performance

Diamond Foods’ main competitors include J.M. Smucker (SJM), Bunge (BG), and Flowers Foods (FLO). They recorded net revenue of $2078 million, $10.8 billion, and $885 million, respectively, in their last reported quarters. The Consumer Staples Select Sector SPDR Fund (XLP) invests 0.76% in J.M. Smucker, and the PowerShares S&P 500 Low Volatility Portfolio (SPLV) invests 1.1% of its portfolio in the same company.

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