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TheStreet Open House

Diamond Foods Is Out of the Rough

Stocks in this article: DMND MDLZ CAG

NEW YORK (TheStreet) -- Since reaching a near-term low of $20.85 last September, Diamond Foods (DMND - Get Report) have been investors' best friend. Shares are up close to 50% over the past six months. Investors now want to know has this company fully emerged out of its rough patch.

Diamond, whose products include PopSecret popcorn, Kettle chips and Emerald snack nuts, had a tough 2013. In August the company had to pay $96 million in cash and stock to settle a securities lawsuit related to an accounting scandal. The company was alleged to have improperly accounted payments to walnut farmers. Later, the company reported a $36 million write-down from the Kettle-brand assets (and other items).

Complicating matters, this decision was made amid a period of weak walnut supply. It didn't make sense. At least that was the popular opinion. The argument was rivals including Mondelez (MDLZ) and ConAgra (CAG) were too far ahead, developing strategic growth initiatives while Diamond resorted to negotiating settlement terms with the Securities and Exchange Commission.

Today, Diamond -- although not flawless -- looks like a new company. Its shares are up over 18% for the year to date as of Friday's close of $30.60. Management has remained positive and has focused on implementing changes aimed at cleaning up Diamond's. This includes installing a new chief financial officer. These moves have begun to pay off.

Although not much was expected in the December quarter, Diamond showed it was cut above. Following Diamond's brutal September quarter, which missed earnings estimates, the company posted 1% revenue increase in its snack business. It was not a dominant performance. But it still beat the consensus estimate.

Management had offered a gloomier-than-expected outlook for the December quarter. This sent the shares tumbling 17%. So on a relative basis, the 1% growth in snacks should be considered a victory.

It seems management has taken control and is doing a much better job in shifting the company's product mix. It was encouraging the modest gain arrived even amid weak sales in Kettle U.S. The good news is  management doesn't expect this weakness to continue. Plus, both Pop Secret and Kettle U.K. continue to drive higher sales.

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