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Diamond Foods - What The Press Releases Says In Addition To Does Non Say...

Diamond Foods is a short-battle-ground stock. Anyone who looks at Herb Greenberg's twitter feed tin displace run into that. Herb loves battlegrounds.

Today the companionship made a repetitive press unloose that has me reading betwixt the lines. Here is the guts of the release:


[The company] today announced that the Audit Committee of its Board of Directors has substantially completed its investigation of the Company's accounting for sure as shooting crop payments to walnut growers. The Audit Committee has concluded that the Company's financial statements for the financial years 2010 as well as 2011 volition need to hold upwards restated. Over the course of study of the terminal 3 months, the Audit Committee has carefully reviewed the accounting handling of sure as shooting payments to walnut growers.  The Audit Committee has concluded that a "continuity" payment made to growers inwards August 2010 of to a greater extent than or less $20 1 one 1000 thousand as well as a "momentum" payment made to growers inwards September 2011 of to a greater extent than or less $60 1 one 1000 thousand were non accounted for inwards the right periods, as well as  the Audit Committee identified cloth weaknesses inwards the Company's internal command over financial reporting. 
The Board of Directors is taking a give away of corrective actions including the engagement of a novel Chief Executive Officer as well as Chief Financial Officer.  Effective immediately, the Board has appointed Director Rick Wolford to serve equally Acting President as well as Chief Executive Officer as well as Michael Murphy, of Alix Partners, LLP, to serve equally Acting Chief Financial Officer. The Company is commencing searches for permanent replacements for the CEO as well as CFO positions.  The Board has too appointed Robert J. Zollars, who previously served equally Lead Independent Director, to the set of Chairman of the Board. Michael J. Mendes as well as Steven M. Neil convey been placed on administrative locomote out from the Company.
I convey read the whole release - but at that spot is no additional information.

I know relatively petty almost this companionship - indeed I did non bother looking because the brusk was crowded as well as the production (Kettle chips and walnuts) seemed OK. But this unloose had me puzzled.

The offence equally described - moving $20 1 one 1000 thousand of expense from 1 yr to some other inwards 1 yr as well as $60 1 one 1000 thousand inwards some other yr seems relatively minor. But the sacking of the CEO as well as CFO as well as the engagement of Alix Partners seemed less minor.

Still timing offences (and they acknowledge timing offences) must hold upwards measured relative to earnings.

The terminal 10K (since amended as well as at nowadays withdrawn) shows nicely growing income inwards excess of $50 million.



$26 1 one 1000 thousand inwards internet income as well as almost $50 1 one 1000 thousand inwards the adjacent year. If you lot were to add together $20 1 one 1000 thousand of expense to 2010 as well as $40 1 one 1000 thousand (the internet amount moved) to 2011 as well as tax-effect those amounts the profits drib from a internet $26 1 one 1000 thousand to $14 1 one 1000 thousand for 2010 as well as $50 1 one 1000 thousand to $22 1 one 1000 thousand for 2011.

That is pretty nasty. But non terminal. Still at that spot are 21 1 one 1000 thousand shares outstanding as well as at the after-market cost ($21 downwards 42 percent) that is still 20 times earnings.

It does non hold back similar a salivating purchase at twenty times. Not close.

And the loss of the CEO as well as CFO does matter. There is seldom exclusively 1 cockroach.

The thing that gets me though is the engagement of the novel CFO. Michael Murphy is from Alix Partners as well as his CV makes it real clear that he specializes inwards restructuring debt. Alix practice a lot of bankruptcy function (though that is non the exclusively thing they do).

The terminal residue sail (also since withdrawn) is amusing.




It shows cash of simply over $3 million, some brusk term debt as well as long term obligations of nearly one-half a billion dollars. And - given the restatement - nosotros tin displace estimate this thing exclusively earns simply over $20 1 one 1000 thousand a yr - as well as fifty-fifty that presumes the absence of farther cockroaches.

I shorted some inwards the after-market. Don't practice that oft - but am quite pleased amongst myself.



John

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