Farmer Bros.: Reports Q2 Fiscal 2018 Financial Results

Northlake / TX. (fbc) Farmer Bros. Company reported financial results for its second fiscal quarter ended December 31, 2017.

Second Quarter Fiscal 2018 Highlights

  • Volume of green coffee processed and sold increased by 4.6 million pounds, reaching 29.1 million pounds, an 18.7 percent increase over the prior year period;
  • Gross profit increased USD 10.4 million to USD 65.5 million and gross margin decreased 50 basis points to 39.1 percent over the prior year period;
  • Net loss was USD 18.8 million compared to net income of USD 20.1 million in the prior year period;
  • Adjusted Ebitda was USD 12.9 million compared to USD 11.2 million in the prior year period;*
  • SQF certification of new Northlake, Texas facility remains on track to be completed in the third quarter of fiscal 2018, with annual run-rate production levels of six million pounds expected by end of the fiscal year;
  • Completed acquisition of substantially all of the assets of Boyd Coffee Company and began executing integration plan; and
  • Deployed Smart Touch selling platform to over half of our routes, with complete deployment expected by the end of fiscal 2018.

Mike Keown, President and CEO stated, «We are pleased to have completed our acquisition of the Boyd business in October, which helped drive our volume and net sales in the second quarter. In addition to continuing to win new national accounts and modernizing our DSD channel-based sales strategy, we have significantly strengthened our platform for growth through our acquisitions of Boyd, West Coast Coffee and China Mist. We are expanding our distribution network, adding to our customer base and exploring new product categories, all of which help to position us for increasing production volumes through our existing roasting facilities. Looking forward, we remain confident in the Company’s growth potential and competitive position in the marketplace».

Second Quarter Fiscal 2018 Results

Non-GAAP net (loss) income, Non-GAAP net (loss) income per diluted common share, 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 18.7 percent for the quarter, with volume associated with the Boyd business acquired in October 2017 contributing approximately 16.5 percent of this total volume.

In the second quarter of fiscal 2018, green coffee pounds processed and sold through our DSD network were 9.9. million, or 34.0 percent, of total green coffee pounds processed and sold, while Direct Ship customers represented 18.7 million pounds, or 64.3 percent, of total green coffee pounds processed and sold. Distributor customers represented 0.5 million pounds, or 1.7 percent, of total green coffee pounds processed and sold.

Net sales were USD 167.4 million in the second quarter of fiscal 2018, an increase of 20.4 percent, or USD 28.4 million, over the prior year period. This increase compared to the prior year period was driven primarily by a USD 17.6 million increase in net sales of roast and ground coffee products, a USD 5.5 million increase in net sales of other beverages, a USD 3.7 million increase in net sales of culinary products, and a USD 0.8 million increase in net sales of frozen liquid coffee. These changes were primarily due to the addition of the Boyd business, which contributed USD 26.3 million to net sales, as well as the benefit of higher prices to our cost plus customers due to higher hedged cost of green coffee in the second quarter of fiscal 2018 compared to the prior year period.

Gross profit in the second quarter of fiscal 2018 increased USD 10.4 million, or 18.9 percent, to USD 65.5 million from USD 55.1 million, and gross margin decreased 50 basis points to 39.1 percent from 39.6 percent in the prior year period. The increase in gross profit was primarily due to the addition of the Boyd business. The decrease in gross margin was primarily due to the addition of the Boyd business carrying a slightly lower gross margin, higher manufacturing costs associated with the production operations in the our new Northlake, Texas facility, and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the three months ended December 31, 2017, as compared to the same period in the prior fiscal year.

Operating expenses in the second quarter of fiscal 2018 increased USD 43.9 million, or 228.8 percent, to USD 63.1 million, or 37.7 percent of net sales, from USD 19.2 million, or 13.8 percent of net sales, in the prior year period. The increase in operating expenses during the period was primarily due to the effect of the recognition of USD 37.4 million in net gain from the sale of the Torrance facility in the three months ended December 31, 2016, as well as a USD 10.2 million increase in selling expenses and a USD 0.1 million increase in general and administrative expenses. The increase in operating expenses was partially offset by a USD 3.8 million decrease in restructuring and other transition expenses associated with the corporate relocation plan compared to the prior year period. The increases in selling expenses and general and administrative expenses during the second quarter of fiscal 2018 were primarily driven by the addition of the Boyd business and West Coast Coffee which added approximately USD 9.4 million to operating expenses exclusive of their related depreciation and amortization, acquisition and integration costs of USD 1.0 million, and an increase of USD 1.7 million in depreciation and amortization expense, partially offset by the absence of USD 3.7 million in non-recurring 2016 proxy contest expenses incurred in the three months ended December 31, 2016.

As a result of the foregoing factors, income from operations in the second quarter of fiscal 2018 was USD 2.4 million, as compared to USD 35.9 million in the prior year period.

Total other expense in the second quarter of fiscal 2018 was USD 0.3 million, as compared to USD 2.4 million in the prior year period, a decrease of USD 2.1 million, primarily due to the liquidation of substantially all of our preferred stock portfolio in the fourth quarter of fiscal 2017 to fund expenditures associated with our new facility, and lower mark-to-market losses on coffee-related derivative instruments, offset by higher interest expense due to an increase in borrowings under our revolving credit facility. In the second quarter of fiscal 2018, net losses on coffee-related derivative instruments were USD 0.2 million compared to net losses of USD 1.2 million in the same period of the prior year.

Income tax expense was USD 20.9 million in the second quarter of fiscal 2018 as compared to USD 13.4 million in the prior year period.  The increase in income tax expense was primarily a result of incremental tax expense related to the reduction in net deferred tax balances to reflect the reduction in our estimated annual effective tax rate as a result of the Tax Cuts and Jobs Act of 2017 effective December 22, 2017.

As a result of the foregoing factors, net loss was USD 18.8 million, or USD 1.13 per common share available to common stockholders, in the second quarter of fiscal 2018, as compared to net income of USD 20.1 million, or USD 1.20 per diluted common share available to common stockholders, in the prior year period.

bakenet:eu