Newly public nut purveyor Diamond Foods (Nasdaq: DMND ) finished up its fourth issuance of earnings news last week, reporting $67.8 million in sales and $0.20 per share in losses for its fiscal third quarter 2006. Year to date, the company has booked a total of $370 million in sales, earning $0.25 per share in profits. With just one quarter left to go, Diamond said that it expects to finish out this fiscal year with $471 million to $478 million in sales, and $0.27 to $0.33 per share in profits.
Diamond CEO Michael Mendes blamed flat year-over-year sales on unspecified "timing factors" in the company's retail product lines, specifically its Culinary and Snack divisions -- and more specifically, its Emerald brand of nuts. As discussed in last week's Foolish Forecast, the Snack division is key to Diamond's future growth, and aside from lower-than-expected sales, the company is making progress here. The company got new Emerald varieties placed with grocers Publix and Albertson's (NYSE: ABS ) , retailer Target (NYSE: TGT ) , and grocery distributor Nash Finch (Nasdaq: NAFC ) during the quarter, and saw overall sales growth of 25% for the brand.
The company is focusing on expanding its 14.1% share of the market for snack nuts. In my opinion, this is the right way to go. Considering that the company has already captured nearly 40% of the culinary and in-shell markets, and that in-shell nuts are by definition intended for snacking, Diamond clearly has the capability to capture more market share in this sphere.
To do that, of course, the firm needs to displace established competitors such as Sanfilippo (Nasdaq: JBSS ) and Kraft (NYSE: KFT ) from the retail shelf space they currently occupy. This is where Diamond's 40% share of the other market segments could come in handy. Stores depend on Diamond to keep their shoppers well-supplied with ingredients for baking walnut chocolate chip cookies and almond pralines. Diamond can use that leverage when asking for shelf space for its Emerald snack lines. Judging from last quarter's new product placements, it's doing so successfully.
Although the nut-friendly Atkins diet fad is dying off, the similarly nutophiliac South Beach diet has been gaining strength in the U.S., raising the possibility that Diamond can both expand market share and benefit from a growing market for its products. That one-two punch could do wonders for the company's income statement.
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Fool contributor
Rich Smith
does not own shares of any company named above.
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