NORTHLAKE, Texas, Nov. 05, 2020 (GLOBE NEWSWIRE) — Farmer Bros. Co. (NASDAQ: FARM) (the “Company”) today reported financial results for its first fiscal quarter ended September 30, 2020.
First Quarter Fiscal 2021 Highlights:
- Volume of green coffee processed and sold decreased by 5.0 million to 20.9 million pounds, a 19.4% decrease compared to the prior year period primarily due to the impact of the COVID-19 pandemic discussed below;
- Green coffee pounds processed and sold through our DSD network were 4.8 million, or 22.8% of total green coffee pounds processed and sold; and
- Direct ship customers represented 16.2 million, or 77.2%, of total green coffee pounds processed and sold
- Net sales were $97.3 million, a decrease of $41.3 million, or 29.8%, from the prior year period;
- Net sales declined at the height of the COVID-19 in April 2020 by approximately between 65% to 70% compared to a decline of approximately 45% of pre COVID-19 weekly sales at the end of the fourth quarter of fiscal 2020, and improved to an approximate decline of 33% from the pre COVID-19 weekly average at the end of the first quarter ended September 30, 2020;
- Gross margin decreased to 23.0% from 29.3% in the prior year period;
- Operating expenses as percentage of sales increased to 34.8% from 24.3% in the prior year period;
- Net loss was $6.3 million compared to net loss of $4.7 million in the prior year period; and
- Adjusted EBITDA was $5.7 million compared to $4.0 million in the prior year period.*
- As of September 30, 2020, total debt outstanding was $69.8 million and cash and cash equivalents was $11.0 million compared to $122.0 million and $60.0 million, respectively, as of June 30, 2020.
(*Adjusted EBITDA, a non-GAAP financial measure, is reconciled to its corresponding GAAP measure at the end of this press release.)
Deverl Maserang, President and CEO said, “I’m proud of our team and the focus we have had on execution this quarter. We are seeing measurable progress on the rollout of the new handheld technology that allows for greater efficiencies in order and inventory management in real time and our team members are excited about this tool. Also, during this quarter, we selected Rialto, California as the location for our new West Coast distribution center, which we expect to begin operating in the third quarter. While we continue to face challenges from the impact of COVID-19, we remain focused on maintaining cost savings and we’re seeing promising trends as our customers’ businesses are showing signs of recovery. As a result, we have been able to bring back some of our team members to support these customers. Due to COVID-19, many challenges remain, but we are cautiously optimistic given these promising developments.”
First Quarter Fiscal 2021 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, 2020 and 2019 (unaudited).
| Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (In thousands, except per share data) | ||||||||
| Income statement data: | ||||||||
| Net sales | $ | 97,270 | $ | 138,600 | ||||
| Gross margin | 23.0 | % | 29.3 | % | ||||
| (Loss) income from operations | $ | (11,443 | ) | $ | 6,892 | |||
| Net (loss) income | $ | (6,270 | ) | $ | 4,654 | |||
| Net (loss) income available to common stockholders per common share-diluted | $ | (0.37 | ) | $ | 0.26 | |||
| Operating data: | ||||||||
| Coffee pounds | 20,933 | 25,958 | ||||||
| EBITDA(1) | $ | 2,906 | $ | 13,440 | ||||
| EBITDA Margin(1) | 3.0 | % | 9.7 | % | ||||
| Adjusted EBITDA(1) | $ | 5,693 | $ | 4,016 | ||||
| Adjusted EBITDA Margin(1) | 5.9 | % | 2.9 | % | ||||
| Other data: | ||||||||
| Capital expenditures related to maintenance | $ | 1,595 | $ | 4,352 | ||||
| Total capital expenditures | $ | 4,366 | $ | 5,276 | ||||
| Depreciation and amortization expense | $ | 7,041 | $ | 7,617 | ||||
(1) 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 first quarter of fiscal 2021 were $97.3 million, a decrease of $41.3 million, or 29.8%, from the prior year period. The decrease in net sales was driven primarily by lower sales of coffee, beverage and allied products sold through our DSD network due to the COVID-19 pandemic. At the beginning of our fiscal first quarter ended September 30, 2020, sales from our DSD customers were down by approximately 45% from pre COVID-19 weekly average sales. However, as of September 30, 2020, due to lifting of some government restrictions and reopening of some of our customers’ businesses, our DSD revenues had improved to an approximate decline of 33% from the pre COVID-19 weekly average sales. The largest DSD revenue declines were from restaurants, hotels and casino channels. Our direct ship sales declined 7.5% compared to the prior year period due to lower coffee volume related to COVID-19, partially offset by the impact of coffee prices for our cost plus customers, improved volume from our retail business, products sold to key grocery stores under their private labels, and third party e-commerce platforms.
Gross profit in the first quarter of fiscal 2021 was $22.4 million, a decrease of $18.2 million, or 44.8% from the prior year period and gross margin decreased to 23.0% from 29.3%. The decrease in gross profit was primarily driven by lower net sales of $41.3 million partially offset by lower cost of goods sold. The decrease in gross margin was impacted by COVID-19 and the unfavorable impact it had on our customer mix and higher production variances, partially offset by lower freight costs and lower coffee brewing equipment costs resulting from the various costs savings initiatives implemented.
Operating expenses in the first quarter of fiscal 2021 were comparable with the prior year period at $33.9 million, from $33.7 million, and as a percentage of net sales increased to 34.8% compared to 24.3% of net sales, in the prior year period. Operating expenses were impacted by a decrease in selling expenses of $10.1 million and a decrease in general and administrative expenses of $3.0 million, offset by the absence of $14.0 million of net gains realized from sales of assets in the prior year period. Net gains from sales of assets in the prior year quarter were primarily associated with the sales of the office coffee assets and one branch property. The decrease in selling expenses was primarily driven by reductions in headcount, lower DSD sales commissions and lower travel expenses. The decrease in general and administrative expenses was associated primarily with reductions in third party costs and reductions in headcount due to the COVID-19 pandemic.
Interest expense in the first quarter of fiscal 2021 increased $0.7 million to $3.2 million as compared to $2.5 million in the prior year period principally due to the write-off of deferred finance cost related to our debt amendment and the amortization of de-designated interest rate swap costs, partially offset by lower pension interest expense.
Other, net in the first quarter of fiscal 2021 increased by $8.4 million to $8.6 million in the quarter compared to $0.2 million in the prior year period. The increase in Other, net was primarily a result of higher amortized gains on our postretirement medical benefit plan due to the curtailment announced in March 2020 and higher mark-to-market net gains on coffee-related derivative instruments not designated as accounting hedges.
Income tax expense was $0.1 million in the first quarter of fiscal 2021 as compared to income tax benefit of $0.1 million in the prior year period. The tax expense and tax benefit in the three months ended September 30, 2020 and 2019 respectively, were primarily driven by change in previously recorded valuation allowance and change in our estimated deferred tax liability.
As a result of the foregoing factors, net loss was $6.3 million in the first quarter of fiscal 2021 as compared to net income of $4.7 million in the prior year period. Net loss available to common stockholders was $6.4 million, or $0.37 per common share, in the first quarter of fiscal 2021, compared to net income available to common stockholders of $4.5 million, or $0.26 per common share, in the prior year period.
Our capital expenditures for the three months ended September 30, 2020 were $4.4 million, representing lower maintenance capital spend of $1.6 million, a 17.2% reduction compared to the prior year period. These spending reductions were driven by several key initiatives put in place, including a focus on refurbished CBE equipment to drive cost savings, and reductions across some capital categories due to additional cost controls implemented during the COVID-19 pandemic.
As of September 30, 2020, the outstanding debt on our revolver was $69.8 million, a decrease of $52.2 million since June 30, 2020. Our cash balance decreased by $49.0 million, from $60.0 million as of June 30, 2020, to $11.0 million as of September 30, 2020. These changes resulted from the $55.2 million of repayments on our revolver completed under the terms of our amended credit facility. The net improvement in our liquidity provides additional financial and working capital flexibility as we prepare for our busiest season.
In July 2020, we amended our existing senior secured revolving credit facility. As of October 28, 2020, our total debt was $69.0 million and we had cash on hand of $8.7 million and $38.9 million of availability on our amended credit facility.
Non-GAAP Financial Measures:
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (“SEC”). See the Non-GAAP Financial Measures section on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures.
Adjusted EBITDA was $5.7 million in the first quarter of fiscal 2021, as compared to Adjusted EBITDA of $4.0 million in the prior year period, and Adjusted EBITDA Margin was 5.9% in the first quarter of fiscal 2020, as compared to Adjusted EBITDA Margin of 2.9% in the prior year period.
About Farmer Bros. Co.
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 convenie