Diamond Foods operates in two segments that are the Snack segment, composed of Kettle and Pop Secret brands and the Nut segment, consisting of Emerald and Diamond of California brands. The snacks segment contributed the most to the total net sales in fiscal 1Q16, reporting $115.8 million sales. This was slightly down by 0.7% compared to fiscal 1Q15. A lower net price realization for Kettle in the United Kingdom and Pop Secret, as well as a $2.6 million of unfavorable foreign exchange effect, contributed to the slight fall. However, improved net price realization for Kettle in the United States, and strong volume growth in Kettle in both the United Kingdom and the United States partially offset the fall in sales.
This segment reported net sales of $109.1 million, down by a greater margin of 16% compared to fiscal 1Q15. The exit of certain high-volume, low-margin SKUs (stock-keeping units) that amounted to $13 million of sales in the first quarter in fiscal 2015 were responsible for a $21 million fall in the nut segment sales in this quarter. The lower net price realization in international walnuts caused the fall in net sales by an additional $6.1 million. The higher net price realization for Emerald and the balance of the Diamond of California brand partially balanced the fall in sales. Both the snack segment and the nut segment have shown falling year-over-year growth since the last three quarters.
The company mentioned in its fiscal 1Q16 press release that it’s on track to complete the proposed merger with Snyder’s-Lance. On October 28, 2015, Diamond Foods (DMND) announced that it had entered into a definitive agreement with Snyder’s-Lance (LNCE). Under this agreement, Snyder’s-Lance would acquire all outstanding shares of Diamond Foods in a cash and stock merger transaction for ~$1.9 billion, including around $640 million of Diamond’s debt consideration. The agreement includes that Diamond’s stockholders will receive around 0.78 of Snyder’s-Lance shares, as well as $12.5 in cash per Diamond Foods share. Diamond’s shareholders will also own ~26% of the combined company shares after the transaction closes. The deal is expected to close in the first quarter of calendar 2016, subject to stockholder and regulatory approvals, and other customary closing conditions. Diamond’s largest shareholder, Oaktree Capital Group (OAK), has already approved the deal.
The PowerShares Dynamic Food and Beverage (PBJ) invests 3.8% in DMND and 3.1% in LNCE stock. It recorded year-to-date returns of 6.5% as of December 10. Diamond’s peers in the industry like Mondelez International (MDLZ) and ConAgra Foods (CAG) are also a part of the portfolio of this ETF, and it invests 5.1% in MDLZ and 2.6% in CAG as of December 10, respectively.