These Three Companies Missed Estimates but See What Hedge Funds Think about Them Before Jumping to Conclusions

Barracuda Networks Inc (NYSE:CUDA), Diamond Foods, Inc. (NASDAQ:DMND), and Landec Corporation (NASDAQ:LNDC) have just reported earnings and the companies’ shares have declined significantly in extended trading. However, hedge funds were quite confident in two of these companies in the second quarter, ignoring just one. Let’s take a closer look at the results of these three companies and see whether hedge funds are betting on their long-term growth.

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Barracuda Networks Inc (NYSE:CUDA)’s shares slumped by over 22% in after-hours trading after the firm narrowly beat expectations in earnings, but missed revenue estimates. According to the cloud storage and security solutions firm, its adjusted net income was $5.63 million, or $0.10 per share for the second quarter of the fiscal 2016, beating the consensus estimate of $0.09 per share. It also reported revenue of $78.37 million, slightly below expectations of $78.7 million.

In its conference call, the company said it expects billings to increase by 10% to 13% for the third and fourth quarters of the 2016 fiscal year, down from its previous forecast of 16% to 18%, as EMEA and Asian sales are expected to be weak. For the current quarter, the firm expects revenues in the range of $79 million to $81 million and earnings per share between $0.07 and $0.08, missing the current consensus estimates of $82.5 million and $0.10 respectively. For the whole fiscal year, EPS guidance was reduced to $0.34 to $0.36 from $0.36 to $0.41, versus estimates of $0.39. Barracuda also announced that it will acquire Intronis, Inc., which has nearly 2,000 managed service providers managing IT needs of over 36,000 customers. Under the terms of the deal, Barracuda will pay $65 million in cash for the transaction.

Among the three stocks we highlight in this discussion, Barracuda Networks Inc (NYSE:CUDA) is the most popular among hedge funds. At the end of June, there were 16 hedge funds long Barracuda, up by nine from the end of March. The value of their holdings, which amassed just 1.50% of all Barracuda’s outstanding stock, went up by a whopping 200% to $32.65 million, despite just a 2.99% increase in the stock’s price. Israel Englander’s Millennium Management owned 199,076 shares of Barracuda Networks by the end of June, which represented a new position in its equity portfolio.

Meanwhile, Diamond Foods, Inc. (NASDAQ:DMND)’s fell by over 4% decline after the markets closed, on the back of mixed results for the last quarter. For its fourth quarter of fiscal 2015, the firm announced adjusted earnings of $7.2 million, or $0.23 per share and net sales of $201.81 million. Earnings were above the consensus estimate of $0.22 per share, while sales, down by 7.9% on the year, were below expectations of $205.4 million. For the full fiscal year of 2015, net sales remained flat at $864.2 million, while adjusted earnings went up by an annual 71.9% to $34.7 million, or $1.10 per share. For fiscal 2016, the company expects annual adjusted EBITDA in the range of $131 million to $136 million and adjusted EPS between $1.21 and $1.32.

Hedge funds were similarly positive on Diamond Foods, Inc. (NASDAQ:DMND) during the second quarter. At the end of the period, there were 17 hedge funds owning stakes worth $230.7 million, equal to 23.40% of the company’s outstanding stock. The value of positions increased by 4.69% on the quarter, amid a 3.65% decline of the stock. Howard Marks’ Oaktree Capital Management held 4.42 million shares of Diamond Foods at the end of the second quarter.

Landec Corporation (NASDAQ:LNDC) shares briefly had reached over 16% in red, before the loss was pared to under 1% in after-hours trading after the firm also reported results, missing on both the top and bottom lines for the first quarter of its fiscal 2016. The company’s adjusted earnings amounted to $2.99 million, or $0.11 per share, up from $2.42 million ($0.09 per share) in the year-ago quarter. Product sales were $135.36 million, up from $133.61 million last year. These were below consensus estimates of $0.13 in earnings per share and revenue of $141.5 million. Landec also reaffirmed its expectation of sales increasing in the range of 7% to 9%, below the growth estimate of 8.5%.

Unlike Barracuda Networks and Diamond Foods, Landec Corporation (NASDAQ:LNDC) was much less popular among hedge funds in the second quarter. The number of investors long Landec was unchanged during the second quarter at eight. The value of their holdings inched down by 0.64% to $79.48 million, representing 20.40% of the company, despite a 3.44% climb of the stock. Nelson Obus’ Wynnefield Capital owned 2.65 million shares of Landec at the end of June.

Disclosure: None