CHICAGO (Reuters) - Diamond Foods Inc (DMND.O: Quote, Profile, Research, Stock Buzz) is likely to look for acquisitions in the current market, especially as competition from private equity firms has become much less prevalent, the nut seller's chief executive said on Monday.
"We are going to have more of a bent to be inquisitive (about acquisitions) in the future, especially in the current environment," CEO Michael Mendes said at the Reuters Food Summit in Chicago.
"Now that private equity is more on the sideline than they were, say 18-24 months ago, I think it could be an environment that an acquisition that could make us better as a company was available, that is something we'd pursue," said Mendes.
The company makes and sells cooking nuts under the Diamond name and snack nuts under the Emerald brand.
The top acquisition priority is in the snack business, a segment the company is trying to grow scale in, Mendes said.
The company expects to have earnings before interest, taxes, depreciation and amortization of $36 million to $38 million this year. That could help fund an acquisition even in a tight credit market when money for deals is harder to come by, he said.
Yet Diamond, with expected revenue of a little over $500 million for fiscal year 2008, is also of a size that could be attractive to a larger company as a fill-in acquisition.
But Mendes said the company's projected growth means it makes sense to stay independent, at least at what the market currently values it at.
The company plans to grow its gross margin to 20 percent in 2011 from a target of 15 percent this year and operating margin to 10 percent from the 2008 target of 4 percent. That would in turn mean earnings growth, Mendes said.
"If someone were to approach us and try to monetize that earnings stream, that would be a conversation worth having," Mendes said.
PRICES NORMALIZING?
Like most food companies, Diamond has seen commodity costs soar and has passed those prices on to consumers. The company has raised prices three times in the past 12 months, though it has seen sales volume fall in the wake of the increase, as have others in the industry, he said.
But Mendes said he thinks the end of rising nut prices could be here.
"I think that we are at a point where commodity prices will, at worst, stay flat, but they may see some normalization in the next 18 months," Mendes said.
Diamond shares closed down 87 cents, or almost 5 percent, at $17.17 on Monday on Nasdaq. The stock is up about 5 percent in the past year.
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Brad Dorfman, editing by Jeffrey Benkoe and Carol Bishopric)
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