Will Diamond Foods Ever Recover?

Next Monday, Diamond Foods (NASDAQ: DMND  ) will release its latest quarterly results. But the big question facing investors has greater long-term importance: Will the company be able to bounce back from the problems that led it to miss out on what could have been the biggest transformative event in the company's history?

Diamond Foods has had to deal with plenty of controversy since its potential deal with Procter & Gamble fell through. With the company missing out on its opportunity to buy the Pringles chip line, and triple its overall business, Diamond Foods has, instead, had to deal with accounting problems and other operational challenges that have left shareholders feeling burned. Let's take an early look at what's been happening with Diamond Foods over the past quarter, and what we're likely to see in its quarterly report.

Stats on Diamond Foods

Analyst EPS Estimate

($0.17)

Year-Ago EPS

($0.22)

Revenue Estimate

$175.78 million

Change From Year-Ago Revenue

(15.4%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Diamond Foods pop higher this quarter?
Analysts remain skeptical of Diamond Foods' turnaround attempts, having widened their loss estimates by 70% for the April quarter, and having gone from a full-year fiscal year estimate of $0.22 per share to just break-even predictions. The stock has also been stuck in the doldrums, falling 4% since early March.

Diamond Foods has become a cautionary tale for buy-what-you-know investors. The company's strength in the nut niche of the snack industry is unparalleled and, with offerings like Kettle potato chips and Pop Secret popcorn, Diamond appeared to have the same potential as other major snack companies. But the accounting irregularities that surfaced in late 2011 eventually led to the cancellation of the Pringles deal with P&G, forcing Diamond to retrench, and put its internal affairs in order.

Since then, though, Diamond has had trouble maintaining its core business. In its most recent quarter, sales volume for its nut segment plunged 37% from the year-ago quarter, leading to an almost 30% decline in revenue for the segment. Despite strength from its other snack lines, Diamond shares plunged in March after the report. By contrast, Kellogg (NYSE: K  ) , which ended up winning the deal from P&G, has become the No. 2 snack-foods player in the industry. Pringles has played a huge role in Kellogg's overall growth since the acquisition.

Arguably the best prospects Diamond has looking forward is trying to sell itself to one of the industry's giants. With several smaller companies turning to consolidation as a survival strategy, Diamond has definite value to players seeking to expand their exposure to the nut market.

In Diamond's report, watch to see how the company plans to address issues like marketing and supply chain. If growers lose confidence in Diamond's ability to sustain their relationship, then it could spell even bigger trouble for the company's growth prospects in the future.

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