Northlake / TX. (fbc) Farmer Bros. Company reported financial results for its first fiscal quarter ended September 30, 2018.
First Quarter Fiscal 2019 Highlights
- Volume of green coffee processed and sold increased by 2.2 million pounds, reaching 25.4 million pounds, a 9.6 percent increase over the prior year period;
- Gross profit increased USD 2.2 million to USD 48.2 million and gross margin decreased 230 basis points to 32.7 percent over the prior year period;
- Net loss was USD (3.0) million compared to net income of USD 0.8 million in the prior year period; and
- Adjusted Ebitda was USD 11.0 million compared to USD 12.5 million in the prior year period.(*)
(*) Adjusted Ebitda, a non-GAAP financial measure, is reconciled to its corresponding GAAP measure at the end of this statement.
«As we have entered our new fiscal year, our team has continued to take important steps forward in executing our strategy and we generated Adjusted Ebitda for the first quarter ahead of plan,» said Mike Keown, President and CEO. «We have passed the one-year mark since the closing of the Boyd’s acquisition and remain very pleased with the integration of this business. We are gaining traction in our DSD channel sales strategy and taking additional steps to optimize our routes and branches while enhancing our street sales teams. We continue to focus on leveraging the investments we have made in our roasting facilities by adding new customers and increasing business with existing customers. Looking ahead, we remain excited about Farmer Brothers’ long-term growth opportunities.»
First Quarter Fiscal 2019 Results – Selected Financial Data
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, 2018 and 2017 (unaudited). Reported prior periods have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to previously issued financial statements adopted in the fourth quarter of fiscal 2018, and the adoption of new accounting standards in the three months ended September 30, 2018 that required retrospective application.
| (In thousands, except per share data) | 2018-09-30 | 2017-09-30 | ||||||
| Income statement data: | ||||||||
| Net sales | USD | 147,440 | USD | 131,713 | ||||
| Gross margin | 32.7 | % | 35.0 | % | ||||
| (Loss) income from operations | USD | (2,078 | ) | USD | 1,845 | |||
| Net (loss) income | USD | (2,986 | ) | USD | 841 | |||
| Net (loss) income available to common stockholders per common share – diluted | USD | (0.18 | ) | USD | 0.05 | |||
| Operating data: | ||||||||
| Coffee pounds | 25,449 | 23,215 | ||||||
| Ebitda | USD | 4,659 | USD | 9,209 | ||||
| Ebitda Margin | 3.2 | % | 7.0 | % | ||||
| Adjusted Ebitda | USD | 11,020 | USD | 12,455 | ||||
| Adjusted Ebitda Margin | 7.5 | % | 9.5 | % | ||||
| Other data: | ||||||||
| Capital expenditures related to maintenance | USD | 5,462 | USD | 4,510 | ||||
| Total capital expenditures | USD | 7,787 | USD | 7,775 | ||||
| Depreciation and amortization expense | USD | 7,728 | USD | 7,253 | ||||
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Ebitda, Ebitda Margin, Adjusted Ebitda and Adjusted Ebitda Margin are non-GAAP financial measures; a reconciliation of these non-GAAP measures to their corresponding GAAP measures is included at the end of this press release.
Volume of green coffee processed and sold increased 9.6 percent for the quarter to 25.4 million pounds, with volume associated with the Boyd business acquired in October 2017 contributing approximately 3.7 million pounds of this total volume.
In the first quarter of fiscal 2019, green coffee pounds processed and sold through our DSD network were 8.9 million, or 34.9 percent of total green coffee pounds processed and sold, while direct ship customers represented 16.3 million, or 64.1 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 in the first quarter of fiscal 2019 were USD 147.4 million, an increase of USD 15.7 million, or 11.9 percent, over the prior year period. This increase was driven by a USD 12.5 million increase in net sales of roasted coffee products, a USD 2.2 million increase in net sales of culinary products, a USD 1.2 million increase in net sales of tea products, and a USD 0.7 million increase in net sales of frozen liquid coffee, offset by a USD (1.0) million decrease in net sales of other beverages and a USD (0.1) million decrease in net sales of spice products. The addition of the Boyd business contributed USD 20.5 million to net sales, offset by a USD (4.8) million decline in our base business driven largely by lower volume on a few large direct ship customers and the impact of pricing to our cost plus customers.
Gross profit in the first quarter of fiscal 2019 increased USD 2.2 million, or 4.7 percent, to USD 48.2 million from USD 46.1 million in the prior year period, and gross margin decreased 230 basis points to 32.7 percent from 35.0 percent in the prior year period. The increase in gross profit was primarily due to the addition of the Boyd business, while the decrease in gross margin was primarily due to a lower gross margin rate on the Boyd business, higher coffee brewing equipment costs associated with increased installation activity during the quarter and higher freight costs.
Operating expenses in the first quarter of fiscal 2019 increased USD 6.1 million, or 13.7 percent, to USD 50.3 million, or 34.1 percent of net sales, from USD 44.2 million, or 33.6 percent of net sales, in the prior year period. The increase in operating expenses during the period was primarily due to a USD 4.5 million increase in selling expenses and a USD 4.3 million increase in restructuring and other transition expenses, including USD 3.4 million in pension withdrawal liability due to the Company’s partial withdrawal from the Western Conference of Teamsters Pension Plan (WCTPP) as a result of employment actions taken by the Company in 2016 in connection with the corporate relocation plan, and USD 1.1 million in DSD restructuring plan expenses. The increase in operating expenses was partially offset by a USD (2.7) million decrease in general and administrative expenses primarily due to a decline in acquisition and integration costs compared to the prior year period of USD 1.4 million. The increase in selling expenses during the first quarter of fiscal 2019 was primarily driven by the addition of the Boyd business which added USD 4.3 million to selling expenses exclusive of related depreciation and amortization expense, and an increase of USD 0.5 million in depreciation and amortization expense.
As a result of the foregoing factors, loss from operations in the first quarter of fiscal 2019 was USD (2.1) million, as compared to income from operations of USD 1.8 million in the prior year period.
Total other expense in the first quarter of fiscal 2019 was USD (2.2) million as compared to USD (0.4) million in the prior year period, primarily due to higher outstanding borrowings on the revolving credit which resulted in higher interest expense, and net losses on coffee-related derivative instruments. In the first quarter of fiscal 2019, net losses on coffee-related derivative instruments were USD (1.1) million compared to net gains of USD 0.1 million in the prior year period. Interest expense in the three months ended September 30, 2018 was USD 2.9 million as compared to USD 2.2 million in the prior year period.
Income tax benefit was USD (1.3) million in the first quarter of fiscal 2019 as compared to income tax expense of USD 0.6 million in the prior year period. The decrease in income tax expense was primarily a result of the change in net (loss) income.
As a result of the foregoing factors, net loss was USD (3.0) million in the first quarter of fiscal 2019 as compared to net income of USD 0.8 million in the prior year period. Net loss available to common stockholders was USD (3.1) million, or USD (0.18) per common share available to common stockholders-diluted, in the first quarter of fiscal 2019, compared to net income available to common stockholders of USD 0.8 million, or USD 0.05 per common share available to common stockholders-diluted, in the prior year period.
Non-GAAP Financial Measures
Ebitda, Ebitda Margin, Adjusted Ebitda and Adjusted Ebitda Margin are non-GAAP financial measures; a reconciliation of these non-GAAP measures to their corresponding GAAP measures is included at the end of this press release.
Adjusted Ebitda was USD 11.0 million in the first quarter of fiscal 2019, as compared to USD 12.5 million in the prior year period, and Adjusted Ebitda Margin was 7.5 percent in the first quarter of fiscal 2019, as compared to 9.5 percent in the prior year period.
