Farmer Bros. Co. Reports First Quarter Net Loss

Farmer Bros. Co. reported a net loss of $7.6 million, or $0.50 per share, for its fiscal first quarter ended Sept. 30, 2011, compared with a net loss of $9.9 million, or $0.66 per share, for its prior year fiscal first quarter. Loss from operations was $4.6 million in the fiscal first quarter ended Sept. 30, 2011 compared to loss from operations of $12.0 million in the fiscal first quarter of the prior year. Adjusted EBITDAE for the first quarter of fiscal 2012 improved $10.2 million to $11.3 million from $1.1 million in the first quarter of the prior fiscal year.

"We are very pleased with the significant improvement in our operating results largely as a result of the efficiencies and expense reductions achieved by our organization," said Interim co-CEO and chief financial officer, Jeffrey Wahba, in a prepared statement. "With some stabilization in the cost of coffee from earlier in the year, we look to continued improvement in our operating results in the quarters ahead."

Net sales for the first quarter of fiscal 2012 increased $12.5 million, or 11 percent, to $121.2 million from $108.7 million in the first quarter of the prior fiscal year, primarily due to the increases in list prices of our coffee, cappuccino, cocoa and selected spice products, offset in part by the effect of a decrease in the number of customers who purchased our products as compared to the same period in the prior fiscal year.

"Strengthening our offerings and supporting our field operations to better serve our customers continue to be a primary focus for our organization. We believe this will continue to differentiate us as a value-added national direct store coffee, tea and culinary partner and will be a key factor in improving net sales and operating income performance in the coming quarters," said interim co-CEO, Patrick Criteser.

Cost of goods sold in the first quarter of fiscal 2012 increased $16.7 million, or 26 percent, to $81.5 million, or 67 percent of sales, from $64.8 million, or 60 percent of sales, in the first quarter of the prior fiscal year, primarily due to higher raw material costs including an 81 percent increase in the average cost of green coffee beans compared to the same period in the prior fiscal year, which has only been partly offset by price increases for finished goods, and changes in the mix of our customers and the products we sell to them.

Gross profit in the three months ended Sept. 30, 2011 decreased $4.2 million, or 10 percent, to $39.7 million, as compared to $43.9 million during the three months ended Sept. 30, 2010. Gross margin decreased to 33 percent in the fiscal quarter ended Sept. 30, 2011 from 40 percent in the comparable period in the prior fiscal year.

Operating expenses in the fiscal quarter ended Sept. 30, 2011 decreased $11.6 million, or 21 percent, to $44.4 million, or 37 percent of sales, from $56.0 million, or 51 percent of sales, in the first quarter of the prior fiscal year primarily due to lower payroll and related expenses resulting from decreased employee headcount. Lower pension expense accrual due to the curtailment of the Farmer Bros. salaried employees pension plan also contributed to the decrease in operating expenses. Additionally due to cost control measures put in place during the prior fiscal year, operating expenses such as travel and entertainment expenses and rent expense decreased in the quarter ended Sept. 30, 2011 compared to the same period in the prior fiscal year.

Total other expense in the fiscal quarter ended Sept. 30, 2011 was $2.6 million as compared to total other income of $2.5 million in the fiscal quarter ended Sept. 30, 2010. Total other expense in the fiscal quarter ended Sept. 30, 2011 included $2.7 million in net unrealized derivatives losses recorded compared to $1.5 million in net unrealized derivatives gains recorded in the comparable period of the prior fiscal year. Higher interest expense of $0.6 million in the three months ended Sept. 30, 2011 as compared to $0.4 million in the three months ended Sept. 30, 2010 also contributed to the increase in total other expense.

Income tax expense in the three months ended Sept. 30, 2011 was $0.3 million compared to $0.4 million in the three months ended September 30, 2010. Income tax expense for the quarter ended Sept. 30, 2011 includes no benefit from the pretax loss because of a $3.1 million increase in the company's valuation allowance related to its deferred tax assets.

 

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