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Will Farmer Brothers Report Stable Results Like Last Quarter?

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Fourth-quarter performance recap

Farmer Brothers (FARM) recorded net sales for 4Q15 that increased by $2.4 million, or 1.8%, to $132.6 million. The company recorded $130.2 million in 4Q14. Operating expenses in 4Q15 rose $7.5 million, or 17.3%, to $50.6 million. They comprised 38.2% of net sales, compared to 33.1% of net sales in the prior year’s corresponding period. Comparatively, net gains from sales of assets hit $3.8 million in the fourth quarter of fiscal 2014. The company reported a net loss of $2.2 million, or -$0.13 per common share, in 4Q15. It reported net income of $3.1 million, or $0.19 per diluted common share, in the prior year’s corresponding period.

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In the fourth quarter of fiscal 2015, FARM’s selling expenses decreased $2.8 million, and its general and administrative expenses increased $0.6 million compared to the prior year’s corresponding period. Loss from operations in the fourth quarter of fiscal 2015 was -$1.4 million, compared to income from operations of $2.3 million in the prior year’s corresponding period. Total other expenses in the fourth quarter of fiscal 2015 were -$0.6 million compared to total other income of $0.6 million in fiscal 2014.

Factors responsible for last quarter’s performance

The increase in net sales was primarily due to an increase in the average unit price of the company’s roast and ground coffee products. The company’s strategy of passing on higher green coffee purchase costs to customers under commodity-based pricing arrangements mainly drove the increase in sales. A restructuring and other transitions expense of $5.9 million related to the corporate relocation plan in the fourth quarter of fiscal 2015 factored into the increase in operating expense.

Net losses on coffee-related derivative instruments of $0.3 million in the fourth quarter of 2015 contributed to the other expenses. The company recorded net gains on coffee-related derivative instruments of $0.1 million in the prior year’s corresponding period.

Peers’ performance

Farmer Brothers’ peers in the industry are Hormel Foods (HRL), Campbell Soup (CPB), and Sysco Corporation (SYY) in the food and wholesale business. These companies recorded net margins of 6.7%, 4.0%, and 0.59% in their last reported quarter, respectively. The VanEck Vectors Retail ETF (RTH) and the Power Shares High Yield Equity Divide (PEY) invest 3.0% and 1.5% of their respective portfolios in SYY.

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