Northlake / TX. (fbc) Farmer Bros. Company reported financial results for its fourth quarter and fiscal year ended June 30, 2019.
Fourth Quarter Fiscal 2019 Highlights
- Volume of green coffee processed and sold was flat at 27.4 million pounds compared to the prior year period.
- Green coffee pounds processed and sold through our DSD network were 8.9 million, or 32.4 percent of total green coffee pounds processed and sold
- Direct ship customers represented 18.2 million, or 66.5 percent, of total green coffee pounds processed and sold
- Distributor customers represented 0.3 million pounds, or 1.1 percent, of total green coffee pounds processed and sold
- Net sales were USD 142.1 million, a decrease of USD 7.5 million, or 5.0 percent, from the prior year period;
- Gross margin decreased to 26.6 percent from 35.3 percent in the prior year period, while operating expenses as percentage of sales improved to 31.5 percent from 33.9 percent in the prior year period;
- Net loss was USD 8.8 million compared to net income of USD 0.1 million in the prior year period; and
- Adjusted Ebitda was USD 3.9 million compared to USD 14.0 million in the prior year period.
Fiscal 2019 Highlights
- Volume of green coffee processed and sold increased by 0.7 million pounds, reaching 108.1 million pounds, a 0.6 percent increase over the prior year;
- Green coffee pounds processed and sold through our DSD network were 39.4 million, or 36.4 percent of total green coffee pounds processed and sold
- Direct ship customers represented 67.5 million, or 62.4 percent, of total green coffee pounds processed and sold
- Distributor customers represented 1.2 million pounds, or 1.2 percent, of total green coffee pounds processed and sold
- Net sales were USD 595.9 million, a decrease of USD 10.6 million, or 1.7 percent, from the prior year period;
- Gross margin decreased to 30.1 percent from 34.2 percent in the prior year period, while operating expenses as percentage of sales improved to 32.5 percent from 34.0 percent in the prior year period;
- Net loss was USD 73.6 million compared to net loss of USD 18.3 million in the prior year period; and
- Adjusted Ebitda was USD 31.9 million compared to USD 47.6 million in the prior year period.
«During the fourth quarter and entering fiscal 2020, we took significant steps to address recent issues in the business and put the Company back on a path of improved financial results,» said Chris Mottern, Interim CEO. «With strategic intent and contributions from across the Company, we developed five key priorities that the team is executing against with urgency. These priorities are: effective cash management and debt reduction; customer retention and acquisition; efficiently managing coffee brewing equipment, installation and service; enhancing processes and systems; and reducing our SKU counts, and achieving 100 percent product availability. We entered the new fiscal year in a stronger financial position and have formed a solid foundation on which the Company will be able to stabilize, move forward with momentum and be positioned for long-term success.»
Mottern, continued, «As announced separately today, we have appointed Deverl Maserang as CEO and look forward to him joining the Company later this month. With more than three decades of innovative leadership in turnarounds, supply chain management expertise, along with deep experience in the food and beverage industry, we believe he is the ideal executive to lead Farmer Brothers into its next stage of growth in the future. The Company remains committed to improving execution and new business generation, with the goal to deliver enhanced value to shareholders.»
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 and fiscal years ended June 30, 2019 and 2018 (unaudited). In the fourth quarter, the Company adopted changes in accounting principles converting from the last in, first out inventory method to the first in, first out inventory method and reclassifying and capitalizing certain freight, warehousing and other expenses as inventory costs. These changes were adopted retrospectively and all reported prior periods have been adjusted.
| (In thousands, except per share data) | Q4/2019 | Q4/2018 | FY-2019 | FY-2018 | ||||||||||||
| Income statement data | ||||||||||||||||
| Net sales | USD | 142,050 | USD | 149,538 | USD | 595,942 | USD | 606,544 | ||||||||
| Gross margin | 26.6 | % | 35.3 | % | 30.1 | % | 34.2 | % | ||||||||
| (Loss) income from operations | USD | (7,024 | ) | USD | 1,984 | USD | (14,702 | ) | USD | 1,053 | ||||||
| Net (loss) income | USD | (8,760 | ) | USD | 133 | USD | (73,595 | ) | USD | (18,280 | ) | |||||
| Net income (loss) available to common stockholders per common share-diluted | USD | (0.52 | ) | USD | — | USD | (4.36 | ) | USD | (1.11 | ) | |||||
| . | ||||||||||||||||
| Operating data | ||||||||||||||||
| Coffee pounds | 27,379 | 27,396 | 108,098 | 107,429 | ||||||||||||
| Ebitda | USD | 1,508 | USD | 10,015 | USD | 3,617 | USD | 32,673 | ||||||||
| Ebitda Margin | 1.1 | % | 6.7 | % | 0.6 | % | 5.4 | % | ||||||||
| Adjusted Ebitda | USD | 3,937 | USD | 13,975 | USD | 31,882 | USD | 47,562 | ||||||||
| Adjusted Ebitda Margin | 2.8 | % | 9.3 | % | 5.3 | % | 7.8 | % | ||||||||
| . | ||||||||||||||||
| Other data | ||||||||||||||||
| Capital expenditures related to maintenance | USD | 4,087 | USD | 4,409 | USD | 21,088 | USD | 21,782 | ||||||||
| Total capital expenditures | USD | 4,366 | USD | 9,554 | USD | 34,759 | USD | 37,020 | ||||||||
| Depreciation and amortization expense | USD | 7,835 | USD | 7,737 | USD | 31,065 | USD | 30,464 | ||||||||
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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.
Net sales in the fourth quarter of fiscal 2019 were USD 142.1 million, a decrease of USD 7.5 million, or 5.0 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, offset by slightly positive growth within our direct sales channel, net of the impact of lower coffee prices for our cost plus customers. Net sales for our direct ship channel continued to improve as we ramped volume of our new large global convenience store retailer and trends improved from one of our largest customers. Sales through our DSD network was impacted by higher customer attrition related to the Boyd Business integration, route optimization and lower inventory fill rates associated with downtime at our Houston plant.
Gross profit in the fourth quarter of fiscal 2019 was USD 37.7 million, a decrease of USD 15.0 million, or 28.5 percent from the prior year period and gross margin decreased to 26.6 percent from 35.3 percent. The decrease in gross profit was primarily driven by lower net sales of USD 7.5 million between the periods and higher cost of goods sold. The higher cost of goods sold is attributed to higher mark downs on slow moving inventory, higher manufacturing costs driven by downtime associated with certain aging production infrastructure, higher coffee brewing equipment and labor costs, and unfavorable shift in customer mix. Margin impact was partially offset by lower green coffee prices.
Operating expenses in the fourth quarter of fiscal 2019 decreased USD 6.0 million, or 11.8 percent, to USD 44.7 million, from USD 50.7 million, and as a percentage of net sales declined to 31.5 percent compared to 33.9 percent of net sales, in the prior year period. The decrease in operating expenses was primarily due to synergies achieved through the Boyd Business acquisition, headcount reductions and other efficiencies from DSD route optimization, lower acquisition and integration costs, and a reduction in bonus expense.
As a result of the foregoing factors, loss from operations in the fourth quarter of fiscal 2019 was USD 7.0 million, as compared to income from operations of USD 2.0 million in the prior year period.
Interest expense in the fourth quarter of fiscal 2019 increased USD 0.3 million to USD 2.8 million as compared to USD 2.5 million in the prior year period principally due to higher outstanding borrowings on our revolving credit facility primarily related to the Boyd Business acquisition.
Other, net in the fourth quarter of fiscal 2019 increased by USD 0.2 million to USD 2.1 million in the quarter compared to USD 1.9 million in the prior year period primarily due to decreased mark-to-market losses on coffee-related derivative instruments not designated as accounting hedges.
Income tax expense was USD 1.0 million in the fourth quarter of fiscal 2019 as compared to USD 1.3 million in the prior year period. The lower tax expense of USD 0.3 million in the current year quarter is primarily due to losses from operations in the fourth quarter of fiscal 2019 as compared to income from operations for the same period in 2018.
As a result of the foregoing factors, net loss was USD 8.8 million in the fourth quarter of fiscal 2019 as compared to net income of USD 0.1 million in the prior year period. Net loss available to common stockholders was USD 8.9 million, or USD 0.52 per common share available to common stockholders-diluted, in the fourth quarter of fiscal 2019, compared to break even net income available to common stockholders in the prior year period.
Non-GAAP Financial Measures
Ebitda, Ebitda Margin, Adjusted Ebitda and Adjusted Ebitda Margin are non-GAAP financial measures. In fiscal 2019, for purposes of calculating Ebitda and Ebitda Margin and Adjusted Ebitda and Adjusted Ebitda Margin, we have excluded the impact of interest expense resulting from the adoption of ASU 2017-07, a non-cash pretax pension settlement charge resulting from the amendment and termination of the Farmer Bros. Pension Plan for Salaried Employees (the “Farmer Bros Plan”) effective December 1, 2018 and severance costs because we believe that these items are not reflective of our ongoing operating results and we believe that excluding these items will help investors compare our results across periods.
Adjusted Ebitda was USD 3.9 million in the fourth quarter of fiscal 2019, as compared to USD 14.0 million in the prior year period, and Adjusted Ebitda Margin was 2.8 percent in the fourth quarter of fiscal 2019, as compared to 9.3 percent in the prior year period.
About Farmer Bros. Company
Founded in 1912, Farmer Bros. Company is a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products. The Company’s product lines include organic, Direct Trade and sustainably-produced coffee. With a robust line of coffee, hot and iced teas, cappuccino mixes, spices, and baking/biscuit mixes, the Company delivers extensive beverage planning services and culinary products to its U.S. based customers. The Company serves a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurant, department and convenience store chains, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand coffee and consumer branded coffee and tea products, and foodservice distributors. Headquartered in Northlake, Texas, Farmer Bros. Company generated net sales of over USD 595.9 million in fiscal 2019 and has approximately 1,521 employees nationwide.
Farmer Brothers Appoints President and Chief Executive Officer
Farmer Bros. Company also announced the appointment of Deverl Maserang as President, Chief Executive Officer, and a member of the Company’s Board of Directors (the «Board»), effective September 13, 2019. Maserang succeeds Chris Mottern, who has served as interim Chief Executive Officer since May 2019. Mottern will work closely with Maserang to ensure a smooth transition of responsibilities and will remain a member of the Board.
Maserang brings to Farmer Brothers more than 30 years of leadership in turnarounds and global supply-chain transformations, along with deep experience in the food and beverage industry. He most recently served as President and CEO of Earthbound Farm Organic, where he led the company to deliver record operational execution metrics and reestablished the brand with a dynamic innovation pipeline while launching over 100 products. Prior to that, Maserang held multiple senior positions at food and beverage companies including Starbucks, Chiquita Brands and Pepsi Bottling Group.
«On behalf of the Board, I am pleased to welcome Deverl to Farmer Brothers at this important time for our company and industry,” said Randy Clark, Chairman of the Board. «Deverl is a highly accomplished executive with a proven track record of success in business turnarounds and operational excellence, especially in the food and beverage industry. I am confident that under his leadership and with the recent momentum of change at all levels of the Company that we are well positioned to make even greater operational improvements across our organization.»
«I am honored to join Farmer Brothers at a time of great opportunity for the Company,» said Maserang. «I am confident that Farmer Brothers has the right capabilities and a strong platform to be a competitive player in the market. I look forward to working closely with the Board and the rest of the Company’s management team to continue providing our valued customers the best products and services while we focus on delivering improved results and enhancing shareholder value.»
«It has been a privilege to serve as the Company’s Interim CEO and work with Farmer Brothers’ team of talented employees,» said Chris Mottern, Interim CEO. «I look forward to working with Deverl in my capacity as a member of the Board as the Company continues to build on its foundation for future growth and success.»
