Farmer Bros. Co. Reports Second Quarter Fiscal 2017 Financial Results
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,
“We are also very proud to finalize our relocation to
Second Quarter Fiscal 2017 Results
Net sales in the second quarter of fiscal 2017 were
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
In the second quarter of fiscal 2017, operating expenses decreased
Income from operations in the second quarter of fiscal 2017 was
Total other expense in the second quarter of fiscal 2017 was
Income tax expense in the second quarter of fiscal 2017 was
Net income was
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
Adjusted EBITDA decreased to
About West Coast Coffee
On
Investor Conference Call
Management will host an investor conference call today,
The audio-only webcast will be archived for approximately 30 days on the Investor Relations section of the Farmer Brothers’ website, and will be available approximately two hours after the end of the live webcast.
About
Founded in 1912,
Headquartered in
Forward-Looking Statements
Certain statements contained in this press release, including the Company’s plans and expectations regarding the corporate relocation plan, 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
FARMER BROS. CO. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
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(In thousands, except share and per share data) | |||||||||||||||
Three Months Ended December 31, | Six Months Ended December 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net sales | $ | 139,025 | $ | 142,307 | $ | 269,513 | $ | 275,752 | |||||||
Cost of goods sold | 83,929 | 89,399 | 163,219 | 172,265 | |||||||||||
Gross profit | 55,096 | 52,908 | 106,294 | 103,487 | |||||||||||
Selling expenses | 39,097 | 37,853 | 77,535 | 74,294 | |||||||||||
General and administrative expenses | 13,793 | 9,509 | 22,729 | 18,974 | |||||||||||
Restructuring and other transition expenses | 3,965 | 5,236 | 6,995 | 10,686 | |||||||||||
Net gain from sale of Torrance facility | (37,449 | ) | — | (37,449 | ) | — | |||||||||
Net gains from sale of spice assets | (334 | ) | (5,106 | ) | (492 | ) | (5,106 | ) | |||||||
Net losses (gains) from sales of other assets | 114 | 55 | (1,439 | ) | (159 | ) | |||||||||
Operating expenses | 19,186 | 47,547 | 67,879 | 98,689 | |||||||||||
Income from operations | 35,910 | 5,361 | 38,415 | 4,798 | |||||||||||
Other (expense) income: | |||||||||||||||
Dividend income | 270 | 259 | 535 | 552 | |||||||||||
Interest income | 159 | 116 | 288 | 220 | |||||||||||
Interest expense | (524 | ) | (109 | ) | (913 | ) | (230 | ) | |||||||
Other, net | (2,323 | ) | 297 | (2,132 | ) | (578 | ) | ||||||||
Total other (expense) income | (2,418 | ) | 563 | (2,222 | ) | (36 | ) | ||||||||
Income before taxes | 33,492 | 5,924 | 36,193 | 4,762 | |||||||||||
Income tax expense | 13,416 | 363 | 14,499 | 275 | |||||||||||
Net income | $ | 20,076 | $ | 5,561 | $ | 21,694 | $ | 4,487 | |||||||
Net income per common share—basic | $ | 1.21 | $ | 0.34 | $ | 1.31 | $ | 0.28 | |||||||
Net income per common share—diluted | $ | 1.20 | $ | 0.34 | $ | 1.30 | $ | 0.27 | |||||||
Weighted average common shares outstanding—basic | 16,584,106 | 16,313,312 | 16,573,545 | 16,291,324 | |||||||||||
Weighted average common shares outstanding—diluted | 16,707,003 | 16,452,499 | 16,695,687 | 16,426,837 |
FARMER BROS. CO. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
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(In thousands, except share and per share data) | |||||||
December 31, 2016 |
June 30, 2016 |
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ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 8,443 | $ | 21,095 | |||
Short-term investments | 26,190 | 25,591 | |||||
Accounts and notes receivable, net | 50,277 | 44,364 | |||||
Inventories | 56,559 | 46,378 | |||||
Income tax receivable | 274 | 247 | |||||
Short-term derivative assets | — | 3,954 | |||||
Prepaid expenses | 4,457 | 4,557 | |||||
Assets held for sale | — | 7,179 | |||||
Total current assets | 146,200 | 153,365 | |||||
Property, plant and equipment, net | 162,592 | 118,416 | |||||
Goodwill | 2,143 | 272 | |||||
Intangible assets, net | 14,696 | 6,219 | |||||
Other assets | 7,390 | 9,933 | |||||
Deferred income taxes | 67,147 | 80,786 | |||||
Total assets | $ | 400,168 | $ | 368,991 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | 50,928 | 23,919 | |||||
Accrued payroll expenses | 17,559 | 24,540 | |||||
Short-term borrowings under revolving credit facility | 18,532 | 109 | |||||
Short-term obligations under capital leases | 1,214 | 1,323 | |||||
Short-term derivative liabilities | 437 | — | |||||
Other current liabilities | 7,348 | 6,946 | |||||
Total current liabilities | 96,018 | 56,837 | |||||
Accrued pension liabilities | 67,408 | 68,047 | |||||
Accrued postretirement benefits. | 20,361 | 20,808 | |||||
Accrued workers’ compensation liabilities | 10,248 | 11,459 | |||||
Other long-term liabilities-capital leases | 449 | 1,036 | |||||
Other long-term liabilities | 100 | 28,210 | |||||
Total liabilities | $ | 194,584 | $ | 186,397 | |||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $1.00 par value, 500,000 shares authorized and none issued | — | — | |||||
Common stock, $1.00 par value, 25,000,000 shares authorized; 16,826,377 and 16,781,561 shares issued and outstanding at December 31, 2016 and June 30, 2016, respectively |
16,826 | 16,782 | |||||
Additional paid-in capital | 39,406 | 39,096 | |||||
Retained earnings | 218,476 | 196,782 | |||||
Unearned ESOP shares | (4,289 | ) | (6,434 | ) | |||
Accumulated other comprehensive loss | (64,835 | ) | (63,632 | ) | |||
Total stockholders’ equity | $ | 205,584 | $ | 182,594 | |||
Total liabilities and stockholders’ equity | $ | 400,168 | $ | 368,991 |
Non-GAAP Financial Measures
In addition to net 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:
“Non-GAAP net income” is defined as net income excluding the impact of:
- restructuring and other transition expenses;
- net gains and losses from sales of assets;
- non-cash income tax benefit, including the release of valuation allowance on deferred tax assets;
- non-recurring proxy contest-related expenses; and
- non-cash interest expense accrued on the Torrance Facility sale-leaseback financing obligation;
and including the impact of:
- income taxes on non-GAAP adjustments.
“Non-GAAP net income per diluted common share” is defined as Non-GAAP net income divided by the weighted-average number of common shares outstanding, inclusive of the dilutive effect of common equivalent shares outstanding during the period.
“Adjusted EBITDA” is defined as net income excluding the impact of:
- income taxes;
- interest expense;
- depreciation and amortization expense;
- ESOP and share-based compensation expense;
- non-cash impairment losses;
- non-cash pension withdrawal expense;
- other similar non-cash expenses;
- restructuring and other transition expenses;
- net gains and losses from sales of assets; and
- non-recurring 2016 proxy contest-related expenses.
“Adjusted EBITDA Margin” is defined as Adjusted EBITDA expressed as a percentage of net sales.
Restructuring and other transition expenses are expenses that are directly attributable to the corporate relocation plan, consisting primarily of employee retention and separation benefits, facility-related costs and other related costs such as travel, legal, consulting and other professional services.
In the first quarter of fiscal 2017, we modified the calculation of Non-GAAP net income and Non-GAAP net income per diluted common share (i) to exclude non-recurring expenses for legal and other professional services incurred in connection with the 2016 proxy contest that were in excess of the level of expenses normally incurred for an annual meeting of stockholders ("2016 proxy contest-related expenses") and non-cash interest expense accrued on the Torrance facility sale-leaseback financing obligation which has been included in the computation of the gain on sale upon conclusion of the leaseback arrangement, and (ii) to include income tax expense on the non-GAAP adjustments based on the Company’s marginal tax rate of 39.0%. There was no similar adjustment for non-cash income tax expense in the comparable period of the prior fiscal year due to the valuation allowance recorded against the Company’s deferred tax assets. We also modified Adjusted EBITDA and Adjusted EBITDA Margin to exclude 2016 proxy contest-related expenses. These modifications to our non-GAAP financial measures were made because such expenses are not reflective of our ongoing operating results and adjusting for them will help investors with comparability of our results. The historical presentation of the non-GAAP measures was not affected by these modifications.
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.
Non-GAAP net income, Non-GAAP net income per diluted common share, 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.
Set forth below is a reconciliation of reported net income to Non-GAAP net income and reported net income per common share—diluted to Non-GAAP net income per diluted common share (unaudited):
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||||
(In thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||||
Net income, as reported | $ | 20,076 | $ | 5,561 | $ | 21,694 | $ | 4,487 | ||||||||||
Restructuring and other transition expenses | 3,965 | 5,236 | 6,995 | 10,686 | ||||||||||||||
Net gain from sale of Torrance facility | (37,449 | ) | — | (37,449 | ) | — | ||||||||||||
Net gains from sale of spice assets | (334 | ) | (5,106 | ) | (492 | ) | (5,106 | ) | ||||||||||
Net losses (gains) from sales of other assets | 114 | 55 | (1,439 | ) | (159 | ) | ||||||||||||
Non-recurring proxy contest-related expenses | 3,719 | — | 4,990 | — | ||||||||||||||
Interest expense on sale-leaseback financing obligation | 371 | — | 681 | — | ||||||||||||||
Income tax expense on non-GAAP adjustments | 11,549 | — | 10,418 | — | ||||||||||||||
Non-GAAP net income | $ | 2,011 | $ | 5,746 | $ | 5,398 | $ | 9,908 | ||||||||||
Net income per common share—diluted, as reported | $ | 1.20 | $ | 0.34 | $ | 1.30 | $ | 0.27 | ||||||||||
Impact of restructuring and other transition expenses | $ | 0.24 | $ | 0.32 | $ | 0.42 | $ | 0.65 | ||||||||||
Impact of net gain from sale of Torrance facility | $ | (2.24 | ) | $ | — | $ | (2.24 | ) | $ | — | ||||||||
Impact of net gains from sale of spice assets | $ | (0.02 | ) | $ | (0.31 | ) | $ | (0.03 | ) | $ | (0.31 | ) | ||||||
Impact of net losses (gains) from sales of other assets | $ | 0.01 | $ | — | $ | (0.09 | ) | $ | (0.01 | ) | ||||||||
Impact of non-recurring proxy contest-related expenses | $ | 0.22 | $ | — | $ | 0.30 | $ | — | ||||||||||
Impact of interest expense on sale-leaseback financing obligation | $ | 0.02 | $ | — | $ | 0.04 | $ | — | ||||||||||
Impact of income tax expense on non-GAAP adjustments | $ | 0.69 | $ | — | $ | 0.62 | $ | — | ||||||||||
Non-GAAP net income per diluted common share | $ | 0.12 | $ | 0.35 | $ | 0.32 | $ | 0.60 |
Set forth below is a reconciliation of reported net income to Adjusted EBITDA (unaudited):
Three Months Ended December 31, | Six Months Ended December 31, | ||||||||||||||||
(In thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||||
Net income, as reported | $ | 20,076 | $ | 5,561 | $ | 21,694 | $ | 4,487 | |||||||||
Income tax expense | 13,416 | 363 | 14,499 | 275 | |||||||||||||
Interest expense | 524 | 109 | 913 | 230 | |||||||||||||
Depreciation and amortization expense | 5,075 | 5,192 | 10,086 | 10,487 | |||||||||||||
ESOP and share-based compensation expense | 1,152 | 1,422 | 2,094 | 2,651 | |||||||||||||
Restructuring and other transition expenses | 3,965 | 5,236 | 6,995 | 10,686 | |||||||||||||
Net gain from sale of Torrance facility | (37,449 | ) | — | (37,449 | ) | — | |||||||||||
Net gains from sale of spice assets | (334 | ) | (5,106 | ) | (492 | ) | (5,106 | ) | |||||||||
Net losses (gains) from sales of other assets | 114 | 55 | (1,439 | ) | (159 | ) | |||||||||||
Non-recurring proxy contest-related expenses | 3,719 | — | 4,990 | — | |||||||||||||
Adjusted EBITDA | $ | 10,258 | $ | 12,832 | $ | 21,891 | $ | 23,551 | |||||||||
Adjusted EBITDA Margin | 7.4 | % | 9.0 | % | 8.1 | % | 8.5 | % |
Investor Contact:Laurie Little The Piacente Group, Inc. 212-481-2050 farmerbros@tpg-ir.com