Diamond Foods reports fiscal Q4 net loss of US$147.1M, compared with year-ago loss of US$32.9M, as company settles securities lawsuit, absorbs other charges; revenue falls 11% to US$199.8M

Nevin Barich

SAN FRANCISCO , October 1, 2013 (press release) – Diamond Foods, Inc. (Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2013 fourth quarter and year ended July 31, 2013.

Fourth Quarter Fiscal 2013 Highlights

Net sales decreased 10.8% to $199.8 million

Snacks sales increased 3.3% to $117.1 million and Nuts sales decreased 25.2% to $82.7 million

Gross margin was 26.6% compared to 18.9%

Net loss was $147.1 million and non-GAAP net income was $2.3 million*

Adjusted EBITDA increased 12.5% to $24.6 million

Fiscal 2013 Highlights

Net sales decreased 12.0% to $864.0 million

Snacks sales increased 3.0% to $438.0 million and Nuts sales decreased 23.4% to $426.1 million

Gross margin was 23.8% compared to 18.3%

Net loss was $163.2 million and non-GAAP net income was $9.7 million*

Adjusted EBITDA increased 28.2% to $101.7 million

(All comparisons above are to the fourth quarter and fiscal year 2012/* non-GAAP financial measures are reconciled in the table below)

"Our cost savings and net price realization strategies helped us generate improved results for the fourth quarter and fiscal year," said Brian Driscoll, President and CEO. "We remain intently focused on these productivity initiatives to help support our future brand innovation and to address potential commodity headwinds in fiscal 2014. In addition, we believe the proposed settlement of the securities class action lawsuit is an important first step in our ability to normalize our capital structure."

Fourth Quarter Fiscal 2013

Net sales decreased 10.8% to $199.8 million compared to $224.0 million in the prior year period and gross profit as a percent of net sales was 26.6% compared to 18.9% last year.

Net loss was $147.1 million, a loss of $6.71 per share on a fully diluted basis. During the quarter, Diamond incurred $96.1 million in expenses related to the settlement of the securities class action lawsuit, a $36.0 million non-cash impairment to Kettle U.S. other intangible assets, a $20.6 million charge related to a change in the fair value of the Oaktree warrant liability and $6.6 million for consulting and legal expenses. Excluding these charges, non-GAAP net income for the fourth quarter was $2.3 million and non-GAAP fully diluted earnings per share was $0.09. Adjusted EBITDA was $24.6 million compared to $21.8 million in the prior year period, an increase of 12.5%. EBITDA is a non-GAAP financial measure. Please refer to the tables in this press release for a reconciliation of all non-GAAP financial measures.

Fiscal 2013

Net sales decreased 12.0% to $864.0 million compared to $981.4 million in the prior fiscal year and gross profit as a percent of net sales was 23.8% compared to 18.3% last year.

Net loss was $163.2 million and fully diluted loss per share was $7.48. During the fiscal year, Diamond incurred $96.1 million in expenses to settle the securities class action lawsuit and $35.4 million of adjustments to SG&A expenses primarily including restatement and related legal costs. The Company also incurred $37.6 million in non-cash impairment charges and an $11.3 million charge as a result of the change in the fair value of the Oaktree warrant liability. Excluding these charges, non-GAAP net income was $9.7 million and non-GAAP fully diluted earnings per share was $0.40. Adjusted EBITDA was $101.7 million compared to $79.4 million in the prior fiscal year, an increase of 28.2%.

As of July 31, 2013, net debt outstanding was $585.1 million, including the Oaktree debt at its carrying value. Cash and availability on Diamond's bank revolving line of credit on July 31, 2013 was approximately $74.5 million.

In fiscal 2013, the Company remediated the material weaknesses first identified in Form 10-K/A filed on November 14, 2012. The Company currently has outstanding material weaknesses as to complex and non-routine transactions and IT system access rights for journal entries. Additional information regarding the Company's internal controls will be provided in its Annual Report on Form 10-K for fiscal 2013.

Segment Review

The Company has two reportable segments: Snacks and Nuts. The Snacks segment includes products sold under the Kettle U.S., Kettle U.K. and Pop Secret brands. The Nuts segment includes products sold under the Diamond of California and Emerald brands.

Snacks Segment: Net sales during the fourth quarter increased 3.3% to $117.1 million compared to prior year period. Gross profit during the fourth quarter was $42.3 million, 36.1% of net sales, compared to $36.6 million, 32.3% of net sales, in the prior year period.

Net sales for fiscal 2013 increased 3.0% to $438.0 million compared to the prior fiscal year. Gross profit for fiscal 2013 was $152.1 million, 34.7% of net sales, compared to $128.1 million, 30.1% of net sales, for the prior fiscal year.

Nuts Segment: Net sales during the fourth quarter decreased 25.2% to $82.7 million compared to the prior year period. Gross profit during the fourth quarter was $10.7 million, 13.0% of net sales, compared to $5.7 million, 5.1% of net sales, in the prior year period.

Net sales for fiscal 2013 decreased 23.4% to $426.1 million compared to the prior fiscal year. Gross profit for fiscal 2013 was $53.4 million, 12.5% of net sales, compared to $51.6 million, 9.3% of net sales, for the prior fiscal year.

Outlook

In the first quarter, the Company expects to face significant sales and contribution headwinds including costs associated with the Emerald re-launch and lower walnut supply. Despite expected increases in tree nut costs, fiscal 2014 is expected to be a year of earnings improvement as additional benefits from the execution of the multi-year turnaround strategy are realized.

Conference Call

The Company will host a conference call with members of the executive management team to discuss these results with additional comments and details. The conference call is scheduled to begin today at 4:30 p.m. ET. To participate on the live call listeners in North America may dial (888) 455-2263 and international listeners may dial (719) 325-2464.

In addition, the call will be broadcast live over the Internet hosted at the "Investor Relations" section of the Company's website at http://www.diamondfoods.com and will be archived online through October 14, 2013. A telephonic playback will be available from 7:30 p.m. ET, September 30, 2013, through October 14, 2013. North America listeners may dial (877) 870-5176 and international listeners may dial (858) 384-5517; the passcode is 9269722.

About Diamond Foods

Diamond Foods is an innovative packaged food company focused on building and energizing brands including Kettle® Chips, Emerald® snack nuts, Pop Secret® popcorn, and Diamond of California® nuts. Diamond's products are distributed in a wide range of stores where snacks and culinary nuts are sold. For more information, visit the Company's corporate web site: www.diamondfoods.com.

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