Farmer Bros. Co. Reports Second Quarter Fiscal 2019 Financial Results

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NORTHLAKE, Texas, Feb. 11, 2019 (GLOBE NEWSWIRE) -- Farmer Bros. Co. (NASDAQ: FARM) (the "Company") today reported financial results for its second fiscal quarter ended December 31, 2018.

(*Adjusted EBITDA, a non-GAAP financial measure, is reconciled to its corresponding GAAP measure at the end of this press release.)

“As we pass the halfway mark in fiscal 2019, while sales were softer than anticipated during the quarter, our team has continued to make progress in executing our strategy and implementing initiatives to strengthen our platform,” said Mike Keown, President and CEO. “Our results in the second quarter reflect the realization of the synergies from the Boyd’s acquisition and we are pleased to have improved Adjusted EBITDA by 18%, while also remaining on track to achieve our targeted range for the fiscal year of $49 million to $52 million. We are making headway in optimizing our DSD routes and consolidating branches, while also continuing to enhance our street sales teams. Our team continues to focus on adding new customers as well as increasing business with existing customers. Looking forward, we remain optimistic about Farmer Brothers’ long-term growth opportunities and we believe that we have the right foundation in place to deliver value for our shareholders.”

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, 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 and six months ended December 31, 2018 that required retrospective application.

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 2019 were $159.8 million, a decrease of $7.6 million, or 4.5%, over the prior year period. The decline was driven primarily by lower volume in our direct ship business, the impact of lower coffee prices for our cost plus customers, a reduction in industrial soup base revenues associated with the Boyd business acquisition which we stopped selling in the first quarter of the current fiscal year, and a decline in revenues sold through our DSD network.

Gross profit in the second quarter of fiscal 2019 was $53.2 million, a decrease of $3.0 million, or 5.4% over the prior year period and gross margin decreased to 33.3% from 33.6%. The decrease in gross profit in the second quarter of fiscal 2019 was primarily due to higher coffee brewing equipment costs associated with increased installation activity during the period, higher freight costs and higher production costs, offset by higher product margins which were driven by lower coffee prices and increased product pricing within our DSD network.

Operating expenses in the second quarter of fiscal 2019 decreased $3.5 million, or 6.3%, to $52.7 million, or 33.0% of net sales, from $56.3 million, or 33.6% of net sales, in the prior year period. The decrease in operating expenses during the period was primarily due to a $2.5 million decrease in selling expenses and a $2.2 million decrease in general and administrative expenses.

The decrease in selling expenses was associated with headcount reductions and other efficiencies from DSD route optimization and the decrease in general and administrative expenses was associated with synergies achieved though the Boyd business acquisition and conclusion of the transition services and co-manufacturing agreements with Boyd Coffee at the beginning of October 2018, offset by higher acquisition and integration costs and bad debt expense. Net gains from sales of assets in the second quarter of fiscal 2019 included $0.1 million in earnout from the sale of spice assets and net losses of $0.9 million from sales of other assets, primarily associated with the Boyd Coffee plant decommissioning, as compared to $0.4 million in earnout from the sale of spice assets and net losses of $0.1 million from sales of other assets in the prior year period.

As a result of the foregoing factors, income from operations in the second quarter of fiscal 2019 was $0.5 million, as compared to income from operations of $10,000 in the prior year period.

Interest expense in the second quarter of fiscal 2019 increased $0.8 million to $3.3 from $2.5 million over the prior year period principally due to higher borrowings primarily related to the Boyd business acquisition and the write-off of deferred financing costs associated with refinancing our prior revolving credit facility in November 2018.

We recorded a pension settlement charge in in the second quarter of fiscal 2019 of $10.9 million due to the termination of the Farmer Bros. Co. Pension Plan for Salaried Employees effective December 1, 2018. By terminating the Farmer Bros. Plan, we reduced our overall pension projected benefit obligation by approximately $24.4 million. The $10.9 million settlement charge is non-cash as a result of the pension plan termination we expect to realize lower Pension Benefit Guaranty Corporation expenses in the future of approximately $0.3 million to $0.4 million per year.

Other, net in the second quarter of fiscal 2019 decreased by $1.3 million from $1.0 million in the quarter compared to $2.2 million in the prior year period primarily due to increased mark-to-market losses on coffee-related derivative instruments not designated as accounting hedges in the quarter of $0.9 million compared to $0.2 million in the prior year period. 

Income tax benefit was $2.7 million in the second quarter of fiscal 2019 as compared to income tax expense of $16.8 million in the prior year period. The higher tax expense of $16.8 million in the prior year quarter was impacted by the Tax Cuts and Jobs Act of 2017 that resulted in a reduction in our estimated effective tax rate and a recalculation of our deferred tax assets. 

As a result of the foregoing factors, net loss was $(10.1) million in the second quarter of fiscal 2019 as compared to net loss of $(17.1) million in the prior year period. Net loss available to common stockholders was $(10.2) million, or $(0.60) per common share available to common stockholders-diluted, in the second quarter of fiscal 2019, compared to net loss available to common stockholders of $(17.2) million, or $(1.03) per common share available to common stockholders-diluted, in the prior year period.

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 $12.4 million in the second quarter of fiscal 2019, as compared to $10.5 million in the prior year period, and Adjusted EBITDA Margin was 7.8% in the second quarter of fiscal 2019, as compared to 6.3% in the prior year period.

Founded in 1912, Farmer Bros. Co. 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 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. Co. generated net sales of over $600 million in fiscal 2018 and has approximately 1,500 employees nationwide. The Company’s primary brands include Farmer Brothers, Artisan Collection by Farmer Brothers, Superior, Metropolitan, China Mistand Boyds.

Mike Keown, President and CEO, and David Robson, Treasurer and CFO, will host an audio-only investor conference call today, February 11, 2019, at 5:00 p.m. Eastern time (4:00 p.m. Central time) to review the Company’s financial results for the second quarter ended December 31, 2018. The Company’s earnings press release will be available on the Company’s website at  under “Investor Relations.”

The call will be open to all interested investors through a live audio web broadcast via the Internet at  and at the Company’s website  under “Investor Relations.” The call also will be available to investors and analysts by dialing Toll Free: 1-(844) 423-9890 or international: 1-(716) 247-5805. The passcode/ID is 2087027.

The audio-only webcast will be archived for at least 30 days on the Investor Relations section of the Farmer Bros. Co. website, and will be available approximately two hours after the end of the live webcast.

Certain statements contained in this press release are not based on historical fact and are forward-looking statements within the meaning of federal securities laws and regulations. These statements are based on management's current expectations, assumptions, estimates and observations of future events and include any statements that do not directly relate to any historical or current fact. These forward-looking statements can be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,” “intends,” “will,” “could,” “assumes” and other words of similar meaning. Owing to the uncertainties inherent in forward- looking statements, actual results could differ materially from those set forth in forward-looking statements. The Company intends these forward-looking statements to speak only at the time of this press release and does not undertake to update or revise these statements as more information becomes available except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission (“SEC”). Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, the success of our corporate relocation plan, the timing and success of implementation of our direct-store-delivery restructuring plan, our success in consummating acquisitions and integrating acquired businesses, the impact of capital improvement projects, the adequacy and availability of capital resources to fund our existing and planned business operations and our capital expenditure requirements, the relative effectiveness of compensation-based employee incentives in causing improvements in Company performance, the capacity to meet the demands of the Company’s large national account customers, the extent of execution of plans for the growth of Company business and achievement of financial metrics related to those plans, the success of the Company to retain and/or attract qualified employees, the effect of the capital markets as well as other external factors on stockholder value, fluctuations in availability and cost of green coffee, competition, organizational changes, the effectiveness of our hedging strategies in reducing price risk, changes in consumer preferences, our ability to provide sustainability in ways that do not materially impair profitability, changes in the strength of the economy, business conditions in the coffee industry and food industry in general, the Company's continued success in attracting new customers, variances from budgeted sales mix and growth rates, weather and special or unusual events, as well as other risks described in this press release and other factors described from time to time in the Company's filings with the SEC. The results of operations for the three and six months ended December 31, 2018 are not necessarily indicative of the results that may be expected for any future period.

In addition to net (loss) income determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we use the following non-GAAP financial measures in assessing our operating performance:

Restructuring and other transition expenses are expenses that are directly attributable to (i) the corporate relocation plan, consisting primarily of employee retention and separation benefits, pension withdrawal expense, facility-related costs and other related costs such as travel, legal, consulting and other professional services; and (ii) the DSD restructuring plan, consisting primarily of severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and other related costs, including legal, recruiting, consulting, other professional services, and travel.

Beginning in the first quarter of 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 because such interest expense is not reflective of our ongoing operating results. 

In the second quarter of fiscal 2019, we modified the calculation of Adjusted EBITDA and Adjusted EBITDA Margin to exclude a non-cash pretax pension settlement charge resulting from the amendment and termination of the Farmer Bros. Plan effective December 1, 2018. This modification to our non-GAAP financial measures was made because such expenses are not reflective of our ongoing operating results and adjusting for them will help investors with comparability of our results.

We believe these non-GAAP financial measures provide a useful measure of the Company’s operating results, a meaningful comparison with historical results and with the results of other companies, and insight into the Company’s ongoing operating performance. Further, management utilizes these measures, in addition to GAAP measures, when evaluating and comparing the Company’s operating performance against internal financial forecasts and budgets.

We believe that EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and EBITDA Margin because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use these measures internally as benchmarks to compare our performance to that of our competitors.

EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin, as defined by us, may not be comparable to similarly titled measures reported by other companies. We do not intend for non-GAAP financial measures to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.

Prior year periods set forth in the tables below have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to previously issued financial statements, and the adoption of new accounting standards in the three and six months ended December 31, 2018 that required retrospective application.

Set forth below is a reconciliation of reported net loss to EBITDA (unaudited):

____________(1) Excludes interest expense of $1.6 million for each of the three months ended December 31, 2018 and 2017, respectively, and excludes interest expense of $3.3 million in each of the six months ended December 31, 2018 and 2017, resulting from the adoption of ASU 2017-07.

Set forth below is a reconciliation of reported net loss to Adjusted EBITDA (unaudited):

____________(1) Excludes interest expense of $1.6 million in each of the three months ended December 31, 2018 and 2017, and $3.3 million in each of the six months ended December 31, 2018 and 2017, resulting from the adoption of ASU 2017-07.(2) In the six months ended December 31, 2018, includes $3.4 million, including interest, assessed by the WC Pension Trust representing the Company’s share of the WCTPP unfunded benefits due to the Company’s partial withdrawal from the WCTPP as a result of employment actions taken by the Company in 2016 in connection with the corporate relocation plan, net of payments of $0.8 million in the six months ended December 31, 2018.

 

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Globe Newswire: 21:05 GMT Monday 11th February 2019

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