Diamond Foods (DMND) Gives Some Back as WSJ Highlights the Mysterious Walnut Grower Payments
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After surging over 50 percent on Friday, shares of Diamond Foods (Nasdaq: DMND) are seeing some pressure early Monday following a Wall Street Journal article that highlighted the questionable payments to walnut growers at the center of the delayed merger with Procter & Gamble's (NYSE: PG) Pringles brand.
Friday's big gains were seen after an analyst at KeyBanc defended the company, saying payments to the growers were properly accounted for and he sees the Pringles merger going through. However, today's Journal article has investors back on the defensive.
To the shock of some walnut growers, Diamond Foods made sizable payments to them in September saying it was an advance on their 2011 crop. In fact, three growers said they informed the company that they didn't intend to deliver their 2011 crops to Diamond, yet were told by the company they could cash the checks anyway as additional payments for their 2010 crops.
Shareholder suits claim Diamond used the payments to shift costs from fiscal year ended July 31 into the current year, padding last year's earnings.
These "momentum payments," as the company calls them, have become the main sticking point delaying the company's takeover of the Pringles.
The growers highlighted in the article said they have never seen momentum payments before, although some had issues over insufficient payments from Diamond for their 2010 crop.
After receiving a momentum check in September, 10-year Diamond grower Mark Royer said he called his Diamond field representative to ask what the mysterious payment represented. Royer assumed the payment was for 2010, because his prior pricing was well below market. The Diamond representative said executives "were not committing" to which crop the payment was for. Royer knew other growers who were depositing their momentum check with no intention of delivering for 2011, so he decided to deposit his check too. Other growers had similar experiences.
The Wall Street Journal article appears to poke holes in the analysis by KeyBanc analyst Akshay Jagdale, who said walnut growers he met with didn't view the momentum payments as unusual and were intended to help cover the 2011 crop.
Shares of Diamond are down 4 percent to $38.86 in pre-open action Monday.
Friday's big gains were seen after an analyst at KeyBanc defended the company, saying payments to the growers were properly accounted for and he sees the Pringles merger going through. However, today's Journal article has investors back on the defensive.
To the shock of some walnut growers, Diamond Foods made sizable payments to them in September saying it was an advance on their 2011 crop. In fact, three growers said they informed the company that they didn't intend to deliver their 2011 crops to Diamond, yet were told by the company they could cash the checks anyway as additional payments for their 2010 crops.
Shareholder suits claim Diamond used the payments to shift costs from fiscal year ended July 31 into the current year, padding last year's earnings.
These "momentum payments," as the company calls them, have become the main sticking point delaying the company's takeover of the Pringles.
The growers highlighted in the article said they have never seen momentum payments before, although some had issues over insufficient payments from Diamond for their 2010 crop.
After receiving a momentum check in September, 10-year Diamond grower Mark Royer said he called his Diamond field representative to ask what the mysterious payment represented. Royer assumed the payment was for 2010, because his prior pricing was well below market. The Diamond representative said executives "were not committing" to which crop the payment was for. Royer knew other growers who were depositing their momentum check with no intention of delivering for 2011, so he decided to deposit his check too. Other growers had similar experiences.
The Wall Street Journal article appears to poke holes in the analysis by KeyBanc analyst Akshay Jagdale, who said walnut growers he met with didn't view the momentum payments as unusual and were intended to help cover the 2011 crop.
Shares of Diamond are down 4 percent to $38.86 in pre-open action Monday.
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