Diamond Foods is IPO of the week
By Renaissance Capital
Last Update: 9:46 AM ET July 20, 2005
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Editor's note: Renaissance Capital runs the IPO Plus Fund (IPOSX: news,
chart, profile) . The fund may have investments in the securities
mentioned in its report. For more information, see the company's Web
site at

GREENWICH, Conn. (MarketWatch) -- With more and more studies showing
the nutritional benefits of nuts and consumers increasingly seeking
healthier diets worldwide, this vertically integrated branded nut
company believes now is the time to go public.

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Underwriters Merrill Lynch, Piper Jaffray and Harris Nesbitt are
expected to price the 5.3 million-share offering at a range of $14 to
$16 on Wednesday evening with trading of the stock to commence on

Diamond Foods (DMND: news, chart, profile) was founded in 1912 as an
agricultural cooperative and today offers walnuts and a wide variety of
other nuts in 60,000 U.S. retail locations and 100 foreign countries
under the Diamond and Emerald of California brand names.

It has the No. 1 brand in the culinary and in-shell nuts segments and
now hopes to become the main competitor to Planters in the fast-growing
$2.6 billion snack nuts market.

To that end, Diamond Foods successfully launched 15 new Emerald-branded
snack nuts products in 2004. Management also entered into co-branding
agreements with Keeblers, Old Colony Baking, Pillsbury and McDonald's
to drive future growth.

Going forward, Diamond Foods hopes to gain share in its markets by
introducing new higher-margin products and enhancing its brands through
increased advertising. At the same time, management expects to improve
its margin profile by focusing on more profitable products and sales
channels, and cost-cutting initiatives at its processing and
distribution facilities.

While the story sounds appetizing, there are risks involved.

For example, nut commodity prices are highly volatile and any crop
disasters could materially impact results.

In addition, more than 25% of total sales are concentrated among four
customer accounts, including retailing powerhouse Wal-Mart, and
products from a single processing plant in California account for 80%
of revenue. Lastly, Diamond Foods is highly dependent on walnuts, which
account for nearly 70% of sales.

Although the traditional nut market is mature and results are highly
dependent on nut commodity prices, Diamond Foods appears to be a
fundamentally solid company given its long operating history, strong
brand recognition and significant growth opportunities, particularly in
the $2.6 billion snack nuts market, which grew nearly 15% in 2004.

With strong institutional money flows into most of its snack food
peers, Diamond Foods should be off to a healthy start.


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