Farmer Bros.: Reports Q1 Fiscal 2020 Financial Results

Northlake / TX. (fbc) Farmer Bros. Company reported financial results for its first fiscal quarter ended September 30, 2019.

First Quarter Fiscal 2020 Highlights

• Volume of green coffee processed and sold increased by 0.5 million to 26.0 million pounds, a 2.0 percent increase over the prior year period;
  • Green coffee pounds processed and sold through our DSD network were 8.3 million, or 32.0 percent of total green coffee pounds processed and sold
  • Direct ship customers represented 17.4 million, or 67.0 percent, of total green coffee pounds processed and sold
  • Distributor customers represented 0.3 million pounds, or 1.0 percent, of total green coffee pounds processed and sold
• Net sales were USD 138.6 million, a decrease of USD 8.8 million, or 6.0 percent, from the prior year period;
• Gross margin decreased to 29.3 percent from 32.7 percent in the prior year period, while operating expenses as percentage of sales improved to 24.3 percent from 34.1 percent in the prior year period;
• Net income was USD 4.7 million compared to net loss of USD 3.0 million in the prior year period; and
• Adjusted EBITDA was USD 4.0 million compared to USD 11.0 million in the prior year period.

«After my first weeks as CEO, I remain excited about joining Farmer Brothers at this critical moment in the Company’s history,» said Deverl Maserang, President and CEO. «I recognize and understand the challenges and the opportunities we face, and I believe we have the assets, the platform, as well as a talented and dedicated employee base to return the Company to growth and profitability.»

Maserang continued, «Under the leadership of Chris Mottern, solid progress was made towards identifying key priorities aimed at improving and evolving our business for the future. As CEO, I have refined these and am committed to focusing on: optimizing our supply chain, elevating our execution, enhancing our service capability, differentiating our product portfolio through innovation, and engaging our talent. I look forward to working with all our employees to execute with purpose and urgency on our strategic initiatives in order to best position Farmer Brothers to deliver enhanced value for our stakeholders.»

First Quarter Fiscal 2020 Results

The selected financial data presented below under the captions «Income statement data,» «Operating data» and «Other data» summarizes certain performance measures for the three months ended September 30, 2019 and 2018 (unaudited).

(In thousands, except per share data)		Q3/2019				Q3/2018
Income statement data:
Net sales		USD	138,600			USD	147,440
Gross margin		29.3		%		32.7		%
Income (loss) from operations		USD	6,892			USD	(2,078	)
Net income (loss)		USD	4,654			USD	(2,986	)
Net income (loss) available to common stockholders per common share—diluted		USD	0.26			USD	(0.18	)
.
Operating data:
Coffee pounds		25,958				25,449
EBITDA		USD	13,440			USD	4,658
EBITDA Margin		9.7		%		3.2		%
Adjusted EBITDA		USD	4,016			USD	10,967
Adjusted EBITDA Margin		2.9		%		7.4		%
.
Other data:
Capital expenditures related to maintenance		USD	4,352			USD	5,462
Total capital expenditures		USD	5,276			USD	7,787
Depreciation and amortization expense		USD	7,617			USD	7,728

.
Ebitda, Ebitda Margin, Adjusted Ebitda and Adjusted Ebitda Margin are non-GAAP financial measures.

Net sales in the first quarter of fiscal 2020 were USD 138.6 million, a decrease of USD 8.8 million, or 6.0 percent, from the prior year period. The decrease in net sales was driven primarily by lower sales of coffee and allied products sold through our DSD network, unfavorable customer mix within our direct sales channel, non-recurring sales of industrial soup based products associated with the Boyd’s acquisition which we stopped selling last year and the impact of lower coffee prices for our cost plus customers. Sales through our DSD network was impacted by the sale of our office coffee business in July of this year, higher customer attrition and lower inventory fill rates associated with downtime at our Houston plant.

Gross profit in the first quarter of fiscal 2020 was USD 40.6 million, a decrease of USD 7.6 million, or 15.7 percent from the prior year period and gross margin decreased to 29.3 percent from 32.7 percent. The decrease in gross profit was primarily driven by lower net sales of USD 8.8 million between the periods, unfavorable customer mix, higher production costs associated with certain aging production infrastructure and higher scrap expense, partially offset by lower coffee brewing equipment and labor costs and lower green coffee prices.

Operating expenses in the first quarter of fiscal 2020 decreased USD 16.6 million, or 32.9 percent, to USD 33.7 million, from USD 50.3 million, and as a percentage of net sales declined to 24.3 percent  compared to 34.1 percent of net sales, in the prior year period. The decrease in operating expenses was primarily due to increase in net gains from sales of assets, the absence of restructuring and other transition expenses, the conclusion of Boyd Coffee integration at the beginning of October 2018, headcount reductions and other efficiencies realized from DSD route optimization, partially offset by increased severance costs associated with a reduction in force which occurred during the current quarter.

Net gains from sales of assets are primarily associated with the sales of the office coffee assets and the Seattle office branch property of USD 7.2 million and USD 6.8 million, respectively.

Interest expense in the first quarter of fiscal 2020 decreased USD 0.3 million to USD 2.6 million as compared to USD 2.9 million in the prior year period principally due to lower pension interest expense.

Other, net in the first quarter of fiscal 2020 decreased by USD 0.5 million to USD 0.2 million in the quarter compared to USD 0.7 million in the prior year period primarily due to reduced employee post retirement benefit gains partially offset by lower mark-to-market losses on coffee-related derivative instruments not designated as accounting hedges.

Income tax benefit was USD 0.1 million in the first quarter of fiscal 2020 as compared to income tax benefit of USD 1.3 million in the prior year period. The lower tax benefit is primarily due to the previously recorded valuation allowance and reduction of our estimated deferred tax liability during the three months ended September 30, 2019 as compared to the prior year period.

As a result of the foregoing factors, net income was USD 4.7 million in the first quarter of fiscal 2020 as compared to net loss of USD 3.0 million in the prior year period. Net income available to common stockholders was USD 4.5 million, or USD 0.26 per common share available to common stockholders-diluted, in the first quarter of fiscal 2019, compared to net loss available to common stockholders of USD 3.1 million, or USD 0.18 per common share available to common stockholders-diluted, in the prior year period.