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NEW YORK (
Diamond Foods(DMND), the maker of Emerald Nuts, Pop Secret and Kettle Chips is facing a delisting by
Nasdaq after failing to report earnings for three straight quarters.
In a statement, Diamond Foods said it won't meet a Monday deadline set by Nasdaq to report nine months' worth of past earnings, but that it will petition to remain traded on the stock exchange after it receives a delisting notice, which is expected later in the day.
Investors should wait to take a nibble on Diamond Foods
Diamond Foods also needs to restate its 2010 and 2011 fiscal year earnings to correct accounting irregularities tied to its walnut supply costs that led to the dismissal of former top executives, iced its acquisition of
Pringles and put it into negotiations with creditors.
"Diamond and its auditors have devoted significant resources and are working diligently to complete the restatement for fiscal years 2011 and 2010 and file our delayed fiscal year 2012 quarterly reports as soon as possible," said Mike Murphy, the San Francisco-based company's chief financial officer in a statement. "We look forward to discussing the progress we have made with Nasdaq and to getting Diamond current in its filings soon."
The company also said it won't hold its annual meeting by July 31, violating another Nasdaq requirement.
In early Monday trading, Diamond Foods shares fell over 4% to $19.21, near 52-week lows amid continued uncertainty into its earnings and Nasdaq listing. Previously, Nasdaq had negotiated stays from a delisting order with Diamond Foods, signaling precedent for the company's continued trading.
Monday's news highlights reason for investors to be weary of Diamond Foods even as shares in the fast growing company remain near one-year lows. Ahead of Diamond Foods Monday statement that it wouldn't file earnings, Thilo Wrede an analyst at Jefferies cautioned investors about the restatement.
"As we currently have no certainty that the company will actually meet the deadline we prefer to stay on the sidelines until we have more clarity regarding DMND's growth and margin picture," wrote Wrede in a June 7 note to clients. While Wrede calculates that Diamond Foods restatement will likely cut at profit margins and lower its 2012 fiscal year earnings per share to 20 cents, he concedes those estimates are based on speculation without actual earnings statements. "We strongly believe that DMND will have to work hard to regain investor trust and additional disclosures would be a major part of this endeavor."
Recently, Diamond Foods has been through a string of negotiations to weather its accounting woes, which killed an acquisition of potato chip maker
Pringles and made creditor forbearance agreements crucial. Most of Diamond Foods bank debt was originally taken out to
acquire Pringles from
Procter & Gamble (PG) for $2.35 billion.
Procter & Gamble pulled its sale of the unit when Diamond Foods disclosed that an internal investigation of its accounting cast the company's earnings in doubt. Pringles was subsequently sold to
Kellogg(K) in February.
With the prospect of restating higher walnut supply costs -- a key for its Emerald Nuts unit -- and weaker than previously reported earnings, Diamond Foods was likely to
violate leverage covenants on those loans, precipating a string of lender forbearance agreements and a search for new capital.
Oaktree Capital(OAK), the world's largest manager of distressed debt, gave Diamond Foods a $225 million loan carrying a 12% interest rate, as the snacks maker sought additional funding that would put it in better standing with existing creditors. Oaktree will also get warrants to buy roughly 4.4 million Diamond Foods shares, or 16.4% of the company's outstanding shares, at a price of $10 a share, in the deal.
As a result of the investment, Diamond Foods lenders, led by
Bank of America(BAC), will lower the company's total bank debt and provide covenant relief until October 2013. However, the terms of the deal signal that debt-specialist Oaktree may be more of a
stalking horse than a "white knight" investor. Meanwhile, the company's financing costs continue to rise.
Previous to Oaktree's investment, Diamond Foods' lenders agreed to a forbearance on its debt after the company suspended its dividend and began to work with financial advisor Dean Bradley Osborne to raise capital and maintain covenants.
In May, Diamond Foods hired Brian Driscoll, a former Hostess Brands and Kraft Foods executive as its new CEO.
Diamond Foods troubles began in February when an audit committee review of its finances found significant accounting inconsistencies for its walnut supplies, forcing the immediate suspension of its CEO Michael Mendes and CFO Steven Neil. The review also cast doubt on the accuracy of two years' worth of earnings statements, and delayed three quarters of earnings filings. The company will now need to renegotiate its listing with Nasdaq and come up with a new deadline to for its long-overdue earnings.
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Written by Antoine Gara in New York