uploads///Farmer Brothers Performance Declined in Q

Farmer Brothers Reports Declining Results in 1Q16

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Nov. 9 2015, Published 9:41 a.m. ET

1Q16 performance highlights

Farmer Brothers (FARM) reported net sales of $133.4 million for the first quarter of fiscal 2016. That was a decline of $2.6 million, or 1.9%, compared to $136 million in the first quarter of the prior fiscal year.

In 1Q16, green coffee processed and sold was ~21.6 million pounds, a decrease of 5.3% versus the first quarter of fiscal 2015. Operating expenses were $51.1 million in the first quarter of fiscal 2016, which was an increase of $5.6 million, or 12.4%, from $45.5 million in the first quarter of the prior fiscal year.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased to $10.7 million in 1Q16, from $10.5 million in 1Q15. Adjusted EBITDA margin increased to 8% from 7.7% in the prior year period.

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Loss from operations in 1Q16 was -$0.6 million compared to income from operations of $2.6 million in 1Q15. Total other expense in 1Q16 was $0.6 million, primarily due to net losses on coffee-related derivative instruments of -$0.7 million. The total other income in the first quarter of fiscal 2015 was $0.1 million, primarily due to $49,000 in net gains on coffee-related derivative instruments in the prior year period.

As a result, net loss for 1Q16 was -$1.1 million, or -$0.07 per common share, compared to net income of $2.5 million, or $0.16 per diluted common share, in the first quarter of the prior fiscal year.

Factors that impacted 1Q16 performance

The decrease in net sales was primarily due to decreases in sales of the company’s coffee, tea, and culinary products resulting from the effects of pricing and product mix changes. Management mentioned in the last earnings call that the company expected sluggishness in net sales and did experience this with several of their larger customers. Management also mentioned that performance wasn’t up to expectations in the direct store delivery group. The company believes this is a short-term phenomenon but expects some of this weakness to persist over the next quarter or two.

The increase in operating expenses was primarily due to $5.5 million in restructuring and other transition expenses incurred in the company’s corporate relocation plan. The company reported a loss from operations due to the relocation plan.

Peer performance

Farmer Brothers’ peers in the food and wholesale industry are Hormel Foods (HRL), Campbell Soup (CPB), and Sysco (SYY). They recorded net margins of 6.7%, 4.0%, and 0.59%, respectively, in their last reported quarter. The VanEck Vectors Retail ETF (RTH) invests 2.9% of its portfolio in SYY. The iShares Russell Micro-Cap ETF (IWC) invests 0.07% of its portfolio in FARM as of November 9.

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