Diamond Foods Has More Upside in Store

New product introductions and solid growth projections make Diamond Foods an enticing investment.

Apr 28, 2014 at 4:26PM

Shares of processed & packaged goods company Diamond Foods (NASDAQ:DMND) have risen sharply this year. The company has outperformed industry peers such as ConAgra Foods (NYSE:CAG) and Kellogg (NYSE:K) handsomely with a share price gain of more than 20% in 2014. Diamond's recently released second-quarter results have played a key role in its rise this year.

The company seems to have put its troubled past -- which included a failed acquisition and an accounting scandal -- behind it. Now, its moves suggest that things are about to get better, and this makes Diamond a good long-term investment.

Strong progress
Diamond is making good progress in its business, achieving a gross margin of 25.4% in the second quarter which increased from 22.9% in the year-ago period. The company is investing in brand strategies, innovation, and distribution going forward.

The company's business revolves around two segments -- snacks and nuts. Diamond has done exceedingly well in the snacks segment, driven by key initiatives such as manufacturing and supply chain efficiencies, cost savings, and volume-related operating leverage.

Diamond is seeing strong momentum across its snacks brands such as Kettle and Pop Secret. Kettle's retail sales in the U.S. increased 12% in the second quarter, while the core fried-chip product line was up 17.6%. 

The road ahead
Going forward, the company plans to launch four varieties of Kettle ready-to-eat popcorn -- White Cheddar, Sea Salt, Maple Bacon, and Salt & Fresh Ground Pepper. Diamond also plans to launch five varieties of Kettle-branded real-sliced potato chips in the second half of the fiscal year. These launches will definitely enable to Diamond bolster its product portfolio.

Diamond's Kettle brand in the U.K. has also seen steady and sustainable growth of 6% in retail sales. The company had introduced Kettle-branded chips with a tinge of lime and rosemary in the previous quarter within the U.K. The product has received a positive response from customers, and the company plans to strengthen its product line-up in the U.K. further.

Diamond plans to launch Kettle baked potato and baked sweet potato varieties in the second half of the year. These launches will help Diamond increase its household penetration and improve its net price realization as a result of market share gains and strong distribution. 

However, Diamond saw weakness in the nut segment due to higher costs and lower nut supply. The company is tackling these headwinds with a proactive pricing initiative and it is improving the supply chain by focusing on cost reductions. These efforts are already underway, which is why Diamond has noticed a significant improvement in the supply of nuts for its Diamond of California brand. The company has also improved the performance of the Emerald brand by launching a 100-calorie product line that now represents 20% of the brand's revenue.

A better prospect
With these moves, Diamond looks to have put itself in a strong position for further growth. In fact, the company's estimated earnings compound annual growth rate for the next five years is an astounding 31%. This is way better than the expectations for Kellogg, which call for growth of just under 6%, and ConAgra with its expected growth rate of 7%. 

In addition, both Kellogg and ConAgra are seeing some weaknesses in their businesses. Kellogg's cereal business has been under pressure since consumers are looking at healthier food options. This year, Kellogg's pipeline includes products such as Special K Chocolate Almond, the Krave cereal, Bear Naked granola, and new Kashi cereals. In addition, Kellogg is focusing on genetically modified organism, or GMO, free products with its Organic Promise brand. 

ConAgra, on the other hand, is witnessing weakness in its private-label segment. The company has cut its fiscal 2014 forecast twice this year, and now expects earnings of $2.22-$2.25 per share while analysts had expected $2.34 per share. ConAgra's volumes were down 3% in the previous quarter, so it doesn't make much sense to buy a company with a falling top line and expectations of slow earnings growth.

Bottom line
Diamond Foods has done very well this year, and it looks like the trend will continue. The company's focus on introducing new products and improving its supply chain should help it maintain its momentum going forward. Diamond's expected earnings growth rate is also quite impressive, so it could be a good buy for the long run.

Will this stock be your next ten-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with amazing potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303%! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Amal Singh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information