* Removes profit of $39.5 mln in 2011, $17 mln in 2010
* Adjusted 9-mth earnings 53 cents/shr vs year-ago $1.54
* Aiming to cut costs, streamline portfolio, reduce
* Shares down nearly 20 percent in after-hours trade
By Martinne Geller
Nov 14 Diamond Foods Inc on Wednesday
restated financial results for fiscal years 2010 and 2011,
erasing $56.5 million in profit, and reported sharply lower
earnings for the first three quarters of 2012, after an
accounting scandal hurt its ability to do business.
Diamond shares fell nearly 20 percent in after-hours trading
following the long-awaited report, even after it laid out a
turnaround plan that includes cutting costs and streamlining its
portfolio to focus on higher-priced offerings.
Diamond, which sells Emerald Nuts, Kettle Chips and Pop
Secret popcorn, reported adjusted earnings of 53 cents per share
for the nine months ended April 30, down from $1.54 in the
Analysts were expecting earnings of 50 cents per share just
for the third quarter, according to Thomson Reuters I/B/E/S. The
adjusted figures exclude items such as acquisition and
integration-related costs and expenses related to the
restatement and investigation.
"Clearly the results for the first three quarters of 2012
demonstrate that Diamond faced challenges," said Brian Driscoll,
Diamond's chief executive officer.
Diamond launched an internal probe after questions surfaced
late last year about its accounting for payments to walnut
growers. The probe found that it had accounted for certain
payments in the wrong fiscal periods and that restatements were
Diamond had missed its restatement deadline and has been
fighting for months to stay listed on the Nasdaq after its
shares tumbled more than 80 percent in the wake of the
accounting scandal, which claimed the jobs of top executives and
ruined its plan to buy Pringles potato chips.
That purchase, for more than $2 billion, would have made
Diamond the world's second-biggest snack food maker, behind
Critics have said Diamond executives could have shifted the
payments to artificially reduce costs and elevate profits and
thus boost its stock price, especially at a time it was trying
to buy Pringles using some of its stock.
Diamond said on Wednesday that its audit committee found
insufficient evidence to conclude that executives had
intentionally engaged in improper accounting.
Following reports of questionable payments, many California
walnut farmers stopped selling their crops to Diamond. That drop
in supply contributed to a 36.2 percent decrease in non-retail
sales for Diamond's first three quarters of 2012. Net sales were
$757.4 million for the period.
Earlier this year, Oaktree Capital Management invested in
Diamond with $225 million of newly issued debt and warrants to
buy 4.4 million shares of its stock. A feature was included
whereby if Diamond secured a specified minimum supply of walnuts
and met certain profitability targets, the warrants would be
canceled and Oaktree would have been able to exchange $75
million of the debt for convertible preferred shares.
Diamond said on Wednesday that it did not meet the threshold
required to trigger the Oaktree redemption feature. Regarding
liquidity, Diamond said that after the Oaktree investment it had
$70 million in cash and in its bank revolver at the end of July.
That had reached $75 million as of Tuesday, it said.
For fiscal 2012, which ended over the summer, Diamond said
it expects net sales of $975 million to $980 million with
adjusted operating earnings of $78 million to $81 million.
Driscoll said it was too early to give a forecast for the
future, saying the company was in the middle of a strategy
change with a large number of initiatives under way.
"As I gain visibility into the progress of this change, we
will be evaluating the appropriate time to provide guidance," he
Diamond's restatement erased $39.5 million of income before
taxes in 2011, reducing total earnings to $29.7 million. It
erased $17 million of income in 2010, bringing the restated
figure to $23.2 million.
The company said it plans to turn around its business by
cutting costs, improving its operating efficiency and driving
sales more with brand-building rather than promotions, which
hurt profit margins. In the Emerald business, the company plans
to streamline its portfolio to focus on higher-priced offerings
such as flavored nut mixes and 100-calorie packs.
Diamond shares fell to $16.06 in after-hours trade from
their close at $19.50.