Why Diamond Foods (DMND) Stock Is Falling Today

NEW YORK (TheStreet) -- Diamond Foods (DMND) was losing -11.1% to $29.61 Friday after missing analysts' expectations for earnings and revenue in the fiscal third quarter.

For the fiscal third quarter Diamond Foods reported earnings of 11 cents a share, missing the Capital IQ Consensus Estimate of 17 cents a share by 6 cents. Revenue grew 3.2% from the year-ago quarter to $190.9 million. Analysts expected revenue of $193.18 million for the quarter.

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TheStreet Ratings team rates DIAMOND FOODS INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate DIAMOND FOODS INC (DMND) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Food Products industry. The net income has significantly decreased by 248.5% when compared to the same quarter one year ago, falling from $10.14 million to -$15.06 million.
  • The debt-to-equity ratio is very high at 4.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.21, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Food Products industry and the overall market, DIAMOND FOODS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for DIAMOND FOODS INC is currently lower than what is desirable, coming in at 28.96%. Regardless of DMND's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, DMND's net profit margin of -6.82% significantly underperformed when compared to the industry average.
  • Net operating cash flow has declined marginally to $48.93 million or 5.00% when compared to the same quarter last year. Despite a decrease in cash flow DIAMOND FOODS INC is still fairing well by exceeding its industry average cash flow growth rate of -27.01%.
  • You can view the full analysis from the report here: DMND Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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