Diamond Foods, Inc. (NASDAQ: DMND) is adding insult to injury this morning. The company was never known for its great dividend, but the company is suspending its dividend in an order to conserve capital. Now there may be an effort to even raise capital after its accounting SNAFU and management firing (and one manager suicide) from its accounting issues over payments made to walnut growers. There is the ongoing Department of Justice situation, but new management has since come in after the firing of its heads.
The current report is that the firm may sell a minority stake to raise capital. Whether that is common stock or preferred stock is not yet known but the troubled company has hired Dean Bradley Osborne Partners in an effort to explore capital alternatives to strengthen its balance sheet.
After tapping its credit line to pay debt, the company announced that it would pay its lenders a 25 basis point forbearance fee and that access to the revolving credit facility would increase as well.
Cutting even a 0.7% dividend yield is no good thing. Unfortunately, when companies run into issues with creditors they are often obligated by credit pacts to cease paying dividends. That appears to be the case today.
The news is bad on the surface, but maybe it is good news in the end. Imagine if a private equity player actually saw real value here. With a crimp on its spending, perhaps that would finally start to mark a bottom. Just remember that a bottom in a situation like this company has faced rarely comes all at once in a rapid instant.
Diamond Foods shares are down 6% at $24.09 against a 52-week trading range of $21.41 to $96.13.
JON C. OGG