Diamond Foods, Inc. (DMND), PepsiCo, Inc. (PEP): Snack Food Business Poised for Higher Profitability

Competitors

Diamond’s turnaround will be made more difficult by its competition. PepsiCo, Inc. (NYSE:PEP) should be investors’ biggest concern. Its Frito-Lay division is the largest snack food company in the world. Frito-Lay has a 60% share of the North American salty snacks market and a 40% share of the global market. In addition, the company’s vast distribution network — originally built for its beverage segment — is an enormous asset that allows the company to deliver its products quickly and cheaply to retailers across the globe. Diamond will never be able to match PepsiCo, Inc. (NYSE:PEP)’s distribution network.

ConAgra Foods, Inc. (NYSE:CAG) is another competitor that could derail Diamond Foods, Inc. (NASDAQ:DMND)’s turnaround. ConAgra’s brands are well-known and cover a wide array of products. The company competes with Diamond’s Pop Secret popcorn brand as well as some of its snack brands.

But while ConAgra has strong brands, it has a bloated cost structure that makes it difficult to compete on price. Diamond’s streamlined cost structure allows it to be more nimble than its larger competitors.

Bottom Line

While PepsiCo, Inc. (NYSE:PEP) and ConAgra represent significant threats to Diamond’s recovery, the biggest threat to Diamond is itself. The company is the largest nut producer in North America — something that no other competitor can boast. The company needs to continue its efforts to streamline its brands and increase profitability — even if it costs sales growth in the short term. Only when it can finally boast wide and stable margins can it resume sales growth, but by then the stock will have doubled from current prices.

The article Snack Food Business Poised for Higher Profitability originally appeared on Fool.com and is written by Ted Cooper.

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