NORTHLAKE, Texas, U.S. — Farmer Bros. Co. has reported financial results for its third fiscal quarter ended March 31, 2020. The Company also provided an update on its response to the COVID-19 pandemic.
Third Quarter Fiscal 2020 Highlights:
- Volume of green coffee processed and sold decreased by 2.2 million to 25.7 million pounds, a 7.9% decrease over the prior year period partially due to the impact of COVID-19 pandemic discussed below;
- Green coffee pounds processed and sold through our DSD network were 8.4 million, or 32.5% of total green coffee pounds processed and sold
- Direct ship customers represented 17.1 million, or 66.4%, of total green coffee pounds processed and sold
- Distributor customers represented 0.3 million pounds, or 1.0%, of total green coffee pounds processed and sold
- Net sales were $129.1 million, a decrease of $17.5 million, or 12.0%, from the prior year period;
- Gross margin increased to 29.4% from 27.2% in the prior year period;
- Operating expenses as percentage of sales, inclusive of a $42.0 million intangible asset impairment charge increased to 64.4% from 31.4% in the prior year period;
- Net loss was $39.8 million compared to net loss of $51.7 million in the prior year period; and
- Adjusted EBITDA was $6.6 million compared to $4.5 million in the prior year period.*
(*Adjusted EBITDA, a non-GAAP financial measure, is reconciled to its corresponding GAAP measure at the end of this press release.)
“Farmer Bros. has moved rapidly to address unprecedented challenges associated with the COVID-19 pandemic and I am proud of the way we have adapted our operations to new ways of working,” said Deverl Maserang, President and CEO. “Our response to the COVID-19 crisis has been focused on three priorities including: protecting the health and safety of our employees and customers; preserving liquidity and supporting the long-term sustainability of our business; and pivoting our business to accelerate many of our strategies including our e-commerce initiatives, expanding our roastery direct services, and enhancing pop-up and additional retail sales opportunities. I am encouraged by the significant progress we saw through January, February and early March across both DSD and Direct Ship. Prior to the COVID-19 pandemic, we were on track to exceed our expectations and deliver adjusted EBITDA in excess of prior quarters, demonstrating that our strategies are working. We continue to believe our turnaround strategy provides the foundation we need to position Farmer Brothers to support our customers through this crisis and beyond.”
Farmer Bros, COVID-19 Business Update
The COVID-19 pandemic and the related shelter-in-place orders, as well as changes in recent consumer behavior, have had an adverse impact on certain of the Company’s DSD customers, particularly restaurants, hotels, casinos and coffeehouses. Many of these customers have been forced to close or curtail operations, and are purchasing at reduced volumes if at all. As a result, in the last two weeks of March and into April, sales from the Company’s DSD customers declined between 65% to 70% from the pre COVID-19 pandemic average sales. The Company is unable to predict the rate at which these customers will resume operations and purchases as shelter-in-place restrictions are lifted. We do not expect to see a meaningful improvement in the operating results until federal, state and local government authorities ease travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns.
Farmer Brothers continues to take the appropriate steps to enhance its operational and financial flexibility and ensure its long-term sustainability. To date, the Company has taken the following actions in response to the COVID-19 pandemic:
- Temporarily decreased compensation to executive leadership, members of the Board of Directors, and corporate team members and all exempt employees (except route sales representatives);
- Reduced headcount and furloughed employees;
- Reduced spending, including, among other items:
- Instituting a moratorium on all travel;
- Reducing plant production costs at two of the company’s plants;
- Reducing capital expenditures;
- Implementing cost controls throughout the coffee brewing equipment program service network; and
- Reducing DSD supply chain network costs.
- Commenced negotiations with landlords on rent, operating expenses and leases;
- Drew down $42.0 million in April 2020 on its $125.0 million revolving credit facility to increase the Company’s cash position and preserve financial flexibility; and
- Prepared to apply for appropriate relief under the Main Street Lending program of the CARES Act as we obtain additional guidance.
“We expect these actions will improve our cost structure to mitigate the impact of the COVID-19 pandemic on our operating results and liquidity, however there are no assurances at this time. As a result, we are exploring several different opportunities and access to various capital resources to provide additional near-term liquidity.
At this time it is not possible to predict the duration and scope of the COVID-19 pandemic or its short and longer-term impact on the demand for our products and services.”