ORTHLAKE, Texas, Feb. 07, 2017 (GLOBE NEWSWIRE) -- Farmer Bros. Co. (NASDAQ:FARM) (the "Company") today reported financial results for the second quarter ended December 31, 2016.
Second Quarter Fiscal 2017 Highlights:
- Volume of green coffee pounds processed and sold increased 5.7% in the second quarter of fiscal 2017 as compared to the second quarter of fiscal 2016.
- Gross profit increased 4.1% to $55.1 million in the second quarter of fiscal 2017 from $52.9 million in the second quarter of fiscal 2016, and gross margin increased to 39.6% in the second quarter of fiscal 2017 from 37.2% in the second quarter of fiscal 2016.
- Income from operations was $35.9 million in the second quarter of fiscal 2017, including a net gain of $37.4 million from the sale of the Torrance facility, as compared to $5.4 million in the second quarter of fiscal 2016, including a net gain of $5.1 million from the sale of spice assets.
- Net income was $20.1 million, or $1.20 per diluted common share, in the second quarter of fiscal 2017, as compared to $5.6 million, or $0.34 per diluted common share, in the second quarter of fiscal 2016.
- Adjusted EBITDA was $10.3 million in the second quarter of fiscal 2017 as compared to $12.8 million in the second quarter of fiscal 2016, and Adjusted EBITDA Margin was 7.4% in the second quarter of fiscal 2017 as compared to 9.0% in the second quarter of fiscal 2016.
(The foregoing non-GAAP financial measures are reconciled to their corresponding GAAP measures at the end of this press release).
“Our second quarter was pivotal for Farmer Brothers as we moved forward in the transformation of our Company and achieved solid financial performance and strong operational execution,” said President and CEO, Michael Keown. “We delivered our fourth consecutive quarter of at least mid-single digit volume growth and generated robust gross profit and margin improvement. In addition, we brought on board new key customers and continued to take advantage of a promising pipeline of opportunities.
“We are also very proud to finalize our relocation to Northlake and to initiate the startup of our distribution center with plans to roast coffee in this facility by the end of the third quarter,” continued Keown. “Furthermore, with the successful acquisition of China Mist earlier this fiscal year, we plan to continue pursuing acquisition targets that complement or enhance our offerings to our existing or new customer bases. We are excited to have just added West Coast Coffee’s roasting and distribution business to further bolster our presence in the Northwest. We believe their experienced management team and their strong customer base will be a great strategic fit with our current operations. Finally, we believe our results today, combined with our strong leadership, enable us to remain committed to our previously announced economic projections of $18 million to $20 million in annualized cost savings from our corporate relocation and continue building a track record of delivering long-term value and growth for all our stakeholders.”
Second Quarter Fiscal 2017 Results
Net sales in the second quarter of fiscal 2017 were $139.0 million, a decrease of $3.3 million, or 2.3%, from $142.3 million in the second quarter of fiscal 2016, primarily due to the divestiture of the Company’s institutional spice assets in December 2015 and a decrease in net sales from coffee (frozen), partially offset by an increase in net sales of tea products from the addition of net sales from China Mist, which was acquired on October 11, 2016.
During the second quarter of fiscal 2017, volume of green coffee processed and sold increased 5.7% as compared to the second quarter of fiscal 2016. Roast and ground coffee products which accounted for 62% of total net sales, increased 5.7% in unit sales, offset by a 77.6% decrease in unit sales of spice products due to the divestiture of the Company’s spice assets, which accounted for 4% of net sales, while the decrease in average unit price was primarily due to the lower average unit price of roast and ground coffee products primarily driven by the pass-through of lower green coffee commodity purchase costs to customers.
Gross profit in the second quarter of fiscal 2017 increased $2.2 million, or 4.1%, to $55.1 million from $52.9 million in the second quarter of fiscal 2016. Gross margin increased 240 basis points to 39.6% in the second quarter of fiscal 2017 from 37.2% in the second quarter of fiscal 2016. The increase in gross profit was primarily due to lower conversion costs and lower hedged cost of green coffee partially offset by the decrease in net sales. Gross profit in the second quarter of fiscal 2017 included the expected beneficial effect of the liquidation of LIFO inventory quantities in the amount of $0.8 million, primarily from an anticipated reduction in spice product inventories.
In the second quarter of fiscal 2017, operating expenses decreased $28.3 million, or 59.6%, to $19.2 million, or 13.8% of net sales, from $47.5 million, or 33.4% of net sales, in the second quarter of fiscal 2016, primarily due to the recognition of $37.4 million in net gain on sale of the Torrance facility and lower restructuring and other transition expenses associated with the corporate relocation plan, offset by a $4.3 million increase in general and administrative expenses and a $1.2 million increase in selling expenses. General and administrative expenses increased $4.3 million in the second quarter of fiscal 2017 as compared to the same period in the prior fiscal year primarily due to non-recurring proxy contest-related expenses. During the second quarter of fiscal 2017, $3.7 million, or $0.22 per diluted common share, in expenses were incurred from the 2016 proxy contest, including non-recurring legal fees, financial advisory fees, proxy solicitor fees, mailing and printing cost of proxy solicitation materials and other costs that were in excess of the level of expenses normally incurred for an annual meeting of stockholders.
Income from operations in the second quarter of fiscal 2017 was $35.9 million as compared to $5.4 million in the second quarter of fiscal 2016, primarily due to the net gain from the sale of the Torrance facility, lower restructuring and other transition expenses associated with the corporate relocation plan and higher gross profit, partially offset by higher selling expenses and general and administrative expenses and lower net gains from the sale of spice assets.
Total other expense in the second quarter of fiscal 2017 was $2.4 million compared to total other income of $0.6 million during the comparable period in the prior fiscal year, primarily due to net losses on derivative instruments and investments of $2.5 million and higher interest expense resulting primarily from non-recurring, non-cash interest expense from the sale-leaseback arrangement of the Torrance facility, as compared to net gains on derivative instruments and investments of $0.3 million in the second quarter of fiscal 2016. The net losses and net gains on derivative instruments and investments in the second quarter of fiscal 2017 and 2016, respectively, were due to mark-to-market net losses and net gains on coffee-related derivative instruments not designated as accounting hedges and a decrease in value of the Company’s investment portfolio. Net losses on coffee-related derivative instruments in the second quarter of fiscal 2017 were $1.2 million compared to net gains of $32,000 in the comparable period of the prior fiscal year.
Income tax expense in the second quarter of fiscal 2017 was $13.4 million as compared to $0.4 million in the second quarter of fiscal 2016. In the fourth quarter of fiscal 2016, the Company released the majority of its valuation allowance recorded against its deferred tax assets.
Net income was $20.1 million, or $1.20 per diluted common share, in the second quarter of fiscal 2017 as compared to $5.6 million, or $0.34 per diluted common share, in the second quarter of fiscal 2016.
Non-GAAP Financial Measures
Non-GAAP net income, Non-GAAP net income per diluted common share, 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.
Non-GAAP net income in the second quarter of fiscal 2017 was $2.0 million, or $0.12 per diluted common share, as compared to $5.7 million, or $0.35 per diluted common share in the second quarter of fiscal 2016. Non-GAAP net income in the second quarter of fiscal 2017 excluded the impact of $37.4 million in net gains from the sale of the Torrance facility, or $2.24 per diluted common share, non-cash income tax expense on non-GAAP adjustments of $11.5 million, or $0.69 per diluted common share, calculated based on the Company's marginal tax rate of 39.0%, restructuring and other transition expenses of $4.0 million, or $0.24 per diluted common share, and non-recurring proxy contest-related expenses of $3.7 million, or $0.22 per diluted common share.
Adjusted EBITDA decreased to $10.3 million in the second quarter of fiscal 2017, from $12.8 million in the second quarter of fiscal 2016, and Adjusted EBITDA Margin decreased to 7.4% in the second quarter of fiscal 2017, from 9.0% in the second quarter of fiscal 2016.
About West Coast Coffee
On February 7, 2017, the Company completed the acquisition of substantially all of the assets and certain specified liabilities of West Coast Coffee Company, Inc., a manufacturer and distributor of coffee and allied products, for an aggregate purchase price of up to $14.5 million, with $13.5 million paid in cash at closing and $1.0 million to be paid as earnout if certain sales levels are reached in designated subsequent periods.
