Farmer Bros. Co. Reports Fiscal First Quarter 2023 Financial Results

By: Alexis Rubinstein, Managing Editor - Coffee Network

Mon, 07 Nov 2022, 14:37

Alexis Rubinstein

Managing Editor

CoffeeNetwork (New York) - Farmer Bros. Co. (NASDAQ: FARM) reported financial results for its first fiscal quarter ended September 30, 2022.

First Quarter Fiscal 2023 Highlights:

Net sales were $121.4 million, an increase of $13.0 million, or 12.0%, from the prior year period
Gross margin in the period was 22% compared to 29% in the prior year period,
Net loss was $7.4 million compared to a net loss of $2.4 million in the prior year period
Adjusted EBITDA loss of $4.9 million compared to adjusted EBITDA income of $3.5 million in the prior year period
As of September 30, 2022, total debt outstanding was $114.0 million and cash and equivalents were $7.6 million

Deverl Maserang, Chief Executive Officer, commented, “Sales momentum continued in our fiscal first quarter, with revenue up 12% year-over-year despite a worsening economic backdrop,” said Deverl Maserang, Chief Executive Officer. “Profitability levels reflect an unusual combination of pricing-related, seasonal and inflationary pressures on our sales and gross margins, a number of which are short-term in nature and beginning to reverse in the current second fiscal quarter, with substantial margin recovery already underway.”

“As we navigate the current headwinds, we continue to make good progress on our growth strategy, including delivering new customer wins and renewals, executing on our alternative beverage platform with key new partnerships and building momentum with our espresso programs at Revive. While we are mindful of the highly uncertain macroeconomic environment and are managing spending and our balance sheet carefully, our streamlined operating platform combined with multiple growth opportunities in a normalizing post-COVID business environment position Farmer to rebuild performance momentum looking ahead.”

Net sales in the first quarter of fiscal 2023 were $121.4 million, an increase of $13.0 million, or 12%, from the prior year period. The increase in net sales primarily reflects increased customer pricing on both our DSD and Direct Ship network, partially offset by lower volume compared to prior year.

Gross profit decreased to $26.6 million for the three months ended September 30, 2022, compared to $31.5 million for the three months ended September 30, 2021. Gross margin decreased to 21.9% for the three months ended September 30, 2022 from 29.0% for the three months ended September 30, 2021. The decrease in gross profit was primarily due to higher product costs and an increase in underlying commodities pricing compared to the same period in the prior fiscal year.

In the three months ended September 30, 2022, operating expenses decreased $2.3 million to $30.9 million, or 26% of net sales, from $33.2 million, or 31% of net sales in the prior year period. This decrease was due to a $1.6 million increase in selling expenses, a $1.3 million decrease in general and administrative expenses, offset by $2.6 million increase in net gains from the sales of assets due to the sale of branch properties during the three months ended September 30, 2022. The increase in selling expenses during the three months ended September 30, 2022 was primarily due to an increase in payroll related costs and facility related costs. The decrease in general and administrative expenses during the three months ended September 30, 2022 was primarily due to a $1.9 million gain as a result of the settlement related to the Boyd’s acquisition which included the cancellation of preferred shares and settlement of liabilities, partially offset by an increase in contract services.

Interest expense in the first quarter of fiscal 2023 increased $1.6 million to $4.6 million from $3.0 million in the prior year period. The increase in interest expense was principally due to the term loan refinancing which was executed during the three months ended September 30, 2022 .

Other, net in the three months ended September 30, 2022 decreased by $0.8 million to income of $1.6 million compared to income of $2.4 million in the prior year period. The decrease was primarily a result of lower mark-to-market net gains on coffee-related derivative instruments not designated as accounting hedges.

Tax expense in the three months ended September 30, 2022 was $43.0 thousand compared to $62.0 thousand in the three months ended September 30, 2021.

As a result of the foregoing factors, net loss was $7.4 million in the first quarter of fiscal 2023 as compared to a net loss of $2.4 million in the prior year period.

Our capital expenditures for the three months ended September 30, 2022 were $3.0 million, an increase of $0.4 million compared to the prior year period. This was primarily due to higher CBE related capital spend compared to the prior year period.

As of September 30, 2022, the outstanding principal on our Revolver and Term Loan Credit Facilities was $114.0 million, an increase of $5.4 million from June 30, 2022. Our cash balance decreased by $2.2 million, from $9.8 million as of June 30, 2022, to $7.6 million as of September 30, 2022. The net reduction in our liquidity during the quarter was due to the continued impact of higher product and operating costs. These uses of cash were partially offset by cash proceeds from the sale of branch properties during the three months ended September 30, 2022.

Adjusted EBITDA loss was $4.9 million in the first quarter of fiscal 2023, as compared to income of $3.5 million in the prior year period, and Adjusted EBITDA Margin was (4.0)% in the first quarter of fiscal 2023, as compared to 3.2% in the prior year period.

Alexis Rubinstein

Coffee

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