NEW YORK ( TheStreet) - Following its brutal September quarter, in which Diamond Foods (DMND - Get Report) not only missed earnings but offered a gloomier-than-expected outlook, shares of the beleaguered snack food giant fell 17%. This is even though management had surprised the Street with a 9-cents-per-share profit that easily beat consensus estimates that called for a 3-cent loss.
As is often the case for companies with a history of disappointing the Street, investors looked beyond the earnings beat and immediately focused on the next quarter. Unfortunately, though, management had nothing good to say.
The company, whose products include PopSecret popcorn, Kettle chips and Emerald snack nuts, said of the December quarter that it expected "significant sales and contribution headwinds." Management had cited its nuts business, which it planned to relaunch after an accounting scandal last year regarding improper payments to walnut growers.
But on a relative basis, I never believed that Diamond's "matter of fact" speaking or its outlook was any different from the cautiousness projected by other packaged food companies like ConAgra (CAG). Essentially, management was being punished not only for its poor history of execution, but also for its propensity for self-inflicted wounds due to poor internal controls. So, suffice it to say, Diamond had a laundry list of deficits to repair.Fast-forward three months later, it looks as if the company's recent changes aimed at cleaning up its operations, including installing a new chief financial officer, has begun to pay off -- albeit slightly. Last week shares climbed 7%. This is even though revenue dropped 9% year over year. But in an environment that has been ravaged by weak prices and poor volumes, not much was expected. Plus, as noted, investors were already bracing for the worst following the guidance management had issued in the September quarter. Non-GAAP earnings were at 18 cents per share, when excluding legal charges associated to the accounting scandal mentioned above. All told, the company suffered a net loss in the quarter of more than $42 million, or $1.92 per share. Even so, that, too was not a surprise. Back in August Diamond agreed to pay $96 million in cash and stock to settle the accounting scandal. Not to mention, the company had reported a $36 million write-down from the Kettle-brand assets and other items. However, unlike the September quarter, management spoke more optimistically about the future and the company's turnaround plans. CEO Brian Driscoll said, "Looking ahead, we expect to benefit from the improved foundation of our business, and remain confident that we are on track to achieve earnings improvement in fiscal 2014." These certainly are much more confident descriptions about the company's business and the newfound belief that management now has in its own abilities to execute. While there will always be doubt until the company fully regains the Street's trust, it's nonetheless encouraging that gross margins continue to trend in the right direction as the company continue to trim costs. I believe it will be these sorts of efficiency improvements that will ultimately get this company back on a path to long-term profitability. That said, I continue to wonder about the extent to which management will go to grow the bottom line. Today, expectations aren't high. But at some point, the Street will demand revenue improvements. And absent marketing and promotional efforts that will certainly come at a cost, there will be questions about Diamond's ability to compete effectively with other snack heavyweights, like Mondelez (MDLZ), Lance (LNCE) and PepsiCo (PEP). In the meantime, I certainly wouldn't discount Diamond as a takeout candidate, given the rate at which this sector continues to consolidate. I'm not saying it's going to happen. But management certainly seems committed to getting the attractive aspects of this company, which are its rich nut brands, to grow. For now, though -- the stock has climbed 7% since the announcement -- the Street seems pleased with the company's "less bad" results. It's not a glowing endorsement. But it does buy management more time to get Diamond "out of this rough." At the time of publication, the author held no position in any of the stocks mentioned. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.