Investigation into how Diamond Foods accounts for walnut payments not likely to force it to restate its finances, analyst says

Nevin Barich

LOS ANGELES , December 9, 2011 (Industry Intelligence) – Diamond Foods Inc. shares jumped sharply on Friday after an analyst concluded that an investigation into the way the company accounts for walnut payments will not likely not force it to restate its finances.

THE SPARK: KeyBanc Capital Markets analyst Akshay S. Jagdale wrote on Friday that the firm has spoken with walnut growers and hired an outside consultant to look into the matter. Jagdalel concluded that it is likely that the investigation will show that Diamond "has properly accounted for the various payments it made to its growers and (we) expect the investigation to be wrapped up rather quickly."

THE BIG PICTURE: The San Francisco-based company's audit committee is looking into the accounting for the payments, and it disclosed last month that several securities class-action lawsuits have been filed, and more lawsuits are expected. The matter caused it to delay its planned $1.5 billion acquisition of chip company Pringles from Procter & Gamble Co.

THE ANALYSIS: The issue is how Diamond accounted for certain payments to walnut growers. Diamond's outside expert, Robert Willens, told KeyBanc Capital that the only way he believes Diamond would have to restate its accounting for the payments would be if the company did not follow its contract with growers, which he called "highly unlikely" in Jagdale's note.

SHARE ACTION: Up $14.01, or 53 percent, to close at $40.56. They had set a 52-week low of $26.37 on Wednesday. The shares had fallen 71 percent since Sept. 20, according to Jagdale.

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