Why Diamond Foods Shares Plunged

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 company Diamond Foods (NASDAQ: DMND  ) sank 10% today after posting disappointing fourth-quarter results.

So what: Diamond's adjusted EPS and revenue managed to top estimates, but a whopping GAAP loss of $32.9 million -- versus a profit of $2.8 million in the year-ago period -- reinforces concerns over the impact of its incorrect accounting last year. In addition to the worrisome probe-related costs, gross margin for the quarter fell 190 basis points to 18.9%, forcing analysts to lower their valuation estimates yet again.

Now what: According to management, the recent results aren't a good indicator of its long-term prospects. "The 2012 financial results do not reflect our recent change in strategic direction with a focus on sustainable growth of our brands based on innovation and differentiation, improving our cost structure and rebuilding our walnut supply," said CEO Brian Driscoll. Of course, as my Foolish colleague Sean Williams noted this morning, rebuilding that supply and, more importantly, repairing its corporate reputation won't exactly be easy, so I'd stay away from the stock until some concrete progress is made.

Interested in more info on Diamond? Add it to your watchlist.


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