Northlake / TX. (fbc) Farmer Bros. Company reported financial results for its second fiscal quarter ended December 31, 2019.
Second Quarter Fiscal 2020 Highlights
- Volume of green coffee processed and sold increased by 2.0 million to 29.4 million pounds, a 7.2 percent increase over the prior year period;
- Green coffee pounds processed and sold through our DSD network were 9.0 million, or 30.6 percent of total green coffee pounds processed and sold
- Direct ship customers represented 19.9 million, or 67.7 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 152.5 million, a decrease of USD 7.3 million, or 4.6 percent, from the prior year period;
- Gross margin decreased to 28.8 percent from 33.3 percent in the prior year period, while operating expenses as percentage of sales improved to 23.0 percent from 33.0 percent in the prior year period;
- Net income was USD 7.8 million compared to net loss of USD 10.1 million in the prior year period; and
Adjusted Ebitda was USD 7.4 million compared to USD 12.4 million in the prior year period.*
«I am proud of the progress we have made against our turnaround strategy and five key initiatives during my first few months as Farmer Brothers’ CEO,» said Deverl Maserang, President and CEO. «While the Company faces challenges that require time and capital to address, I am confident that we are headed in the right direction and are focused on the right initiatives. We have a clearly defined plan and have laid the groundwork for a successful turnaround, and I am optimistic that the initiatives we are executing with urgency will put Farmer Brothers in a position of strength for the long term. I look forward to continuing to work closely with all our team members to drive growth and deliver enhanced value for our stakeholders.»
Second Quarter Fiscal 2020 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 and six months ended December 31, 2019 and 2018 (unaudited).
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Income statement data: | ||||||||||||||||
| Net sales | USD | 152,498 | USD | 159,773 | USD | 291,098 | USD | 307,213 | ||||||||
| Gross margin | 28.8 | % | 33.3 | % | 29.1 | % | 33.0 | % | ||||||||
| Income (loss) from operations | USD | 8,870 | USD | 502 | USD | 15,762 | USD | (1,576 | ) | |||||||
| Net income (loss) | USD | 7,754 | USD | (10,100 | ) | USD | 12,408 | (13,086 | ) | |||||||
| Net income (loss) available to common stockholders per common share—diluted | USD | 0.43 | USD | (0.60 | ) | USD | 0.69 | USD | (0.79 | ) | ||||||
| Operating data: | ||||||||||||||||
| Coffee pounds | 29,360 | 27,398 | 55,318 | 52,845 | ||||||||||||
| Ebitda | USD | 16,852 | USD | (3,188 | ) | USD | 30,292 | USD | 1,470 | |||||||
| Ebitda Margin | 11.1 | % | (2.0 | )% | 10.4 | % | 0.5 | % | ||||||||
| Adjusted Ebitda | USD | 7,448 | USD | 12,443 | USD | 11,464 | USD | 23,410 | ||||||||
| Adjusted Ebitda Margin | 4.9 | % | 7.8 | % | 3.9 | % | 7.6 | % | ||||||||
| Other data: | ||||||||||||||||
| Capital expenditures related to maintenance | USD | 3,107 | USD | 7,105 | USD | 7,459 | USD | 12,567 | ||||||||
| Total capital expenditures | USD | 3,730 | USD | 15,333 | USD | 9,007 | USD | 23,120 | ||||||||
| Depreciation and amortization expense | USD | 7,594 | USD | 7,902 | USD | 15,211 | USD | 15,630 | ||||||||
.
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.
Net sales in the second quarter of fiscal 2020 were USD 152.5 million, a decrease of USD 7.3 million, or 4.6 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, which were impacted by the sale of our office coffee business in July 2019 and net customer attrition. Our direct ship sales were comparable to the prior year period because the increase in direct ship volume was offset by unfavorable customer mix shift and the impact of coffee prices for our cost plus customers.
Gross profit in the second quarter of fiscal 2020 was USD 44.0 million, a decrease of USD 9.3 million, or 17.4 percent from the prior year period and gross margin decreased to 28.8 percent from 33.3 percent. The decrease in gross profit was primarily driven by lower net sales of USD 7.3 million between the periods, unfavorable customer mix and higher write down of slow moving inventories, partially offset by lower freight costs and the impact of coffee prices.
Operating expenses in the second quarter of fiscal 2020 decreased USD 17.6 million, or 33.4 percent, to USD 35.1 million, from USD 52.7 million, and as a percentage of net sales declined to 23.0 percent compared to 33.0 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 Boyds integration expenses, decrease in selling expenses due to efficiencies realized from DSD route optimization, decrease in general and administrative expenses due to reductions in third party costs and lower headcount, partially offset by higher employee incentive costs, proxy contest expenses and one-time severance costs. The three months ended December 31, 2018 includes a one–time credit for employees incentives costs.
Net gains from sales of assets are primarily associated with the Houston, Texas manufacturing facility and four branch properties of USD 7.3 million and USD 4.1 million, respectively.
The pension settlement charge incurred in the three months ended December 31, 2018 of USD 10.9 million was due to the termination of the Farmer Bros. Co. Pension Plan for Salaried Employees effective December 1, 2018.
Interest expense in the second quarter of fiscal 2020 decreased USD 0.5 million to USD 2.9 million as compared to USD 3.3 million in the prior year period principally due to lower pension interest expense and less borrowings on our credit facility, partially offset by a realized loss from the partial unwinding of our interest rate swap notional amount from USD 80.0 million to USD 65.0 million.
Other, net in the second quarter of fiscal 2020 increased by USD 0.7 million to USD 1.7 million in the quarter compared to USD 1.0 million in the prior year period primarily due to mark-to-market net gains on coffee-related derivative instruments not designated as accounting hedges in the three months ended December 31, 2019 compared to same prior year period mark-to-market net losses.
Income tax benefit was USD 0.1 million in the second quarter of fiscal 2020 as compared to income tax benefit of USD 2.7 million in the prior year period. The lower tax benefit is primarily due to the previously recorded valuation allowance and change in our estimated deferred tax liability during the three months ended December 31, 2019 as compared to the prior year period.
As a result of the foregoing factors, net income was USD 7.8 million in the second quarter of fiscal 2020 as compared to net loss of USD 10.1 million in the prior year period. Net income available to common stockholders was USD 7.6 million, or USD 0.43 per common share available to common stockholders-diluted, in the second quarter of fiscal 2020, compared to net loss available to common stockholders of USD 10.2 million, or USD 0.60 per common share available to common stockholders-diluted, in the prior year period.
