Earnings Labs

Farmer Bros. Co. (FARM)

Q1 2020 Earnings Call· Sun, Nov 10, 2019

$1.25

-0.79%

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Transcript

Operator

Operator

Good afternoon ladies and gentlemen and welcome to the Farmer Bros. First Quarter Fiscal 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this call is being recorded. I would now like to turn the call over to your host Rachel Goldman. Please go ahead.

Rachel Goldman

Analyst

Thank you. Good afternoon everyone. Thank you for joining Farmer Brothers First Quarter Fiscal 2020 Earnings Conference Call. Participating on today's call are: Deverl Maserang, President and CEO; and Scott Lyon interim Principal Financial and Accounting Officer. Earlier today the Company issued its earnings press release which is available on the Investor Relations section of Farmer Brothers' website at www.farmerbros.com. The press release is also included as an exhibit to the Company's Form 8-K available on the Company's website and on the Securities and Exchange Commission's website at www.sec.gov. A replay of this audio-only webcast will be available approximately two hours after the conclusion of this call. A link to the audio replay will also be available on the Company's website. Before we begin the call please note that all of the financial information presented is unaudited and that various remarks made by management during this call about the Company's future expectations plans and prospects may constitute forward-looking statements for purposes of the safe harbor provisions under the Federal Securities Laws and regulations. These forward-looking statements represent the Company's views only as of today and should not be relied upon as representing the Company's views as of any subsequent date. Results could differ materially from those forward-looking statements. Additional information on factors that could cause actual results and other events to differ materially from those forward-looking statements is available in the Company's press release and public filings. On today's call management will also use certain non-GAAP financial measures including adjusted EBITDA and adjusted EBITDA margin in assessing the Company's operating performance. Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is also included in the Company's press release. I'll now turn the call over to Deverl. Deverl please go ahead.

Deverl Maserang

Analyst

Thank you Rachel. Good afternoon everyone and thanks for joining us. It's a privilege to be with you today on my first earnings call as President and CEO of Farmer Brothers. Before we get started, I'd like to thank Chris Mottern for his leadership during his time as Interim CEO and would like to acknowledge all of the great recent work accomplished by the team. During this transition period, the team laid the foundation for the company's turnaround and established a strong framework to return Farmer Brothers to growth and profitability. In my first weeks as CEO, I've worked to pick up where Chris and the team left off and initiate a deep dive into the entire business. I'm honored to join the company at this important juncture. Before I get into some of my initial observations from my first weeks as CEO, I'll speak to my background and why I chose to lead the team here at Farmer Brothers. I'll then cover my main areas of focus and provide a sense of where we're headed. After that I'll hand it over to Scott to get in more detail around the quarter and our financials. So with that let me start off by saying that neither the challenges we face at Farmer Brothers nor the opportunities I see ahead of the company are unknown or unfamiliar to me. In my 32 plus years of experience, I've led multiple company turnarounds. Majority of my career has been focused on global supply chain transformation, creating shared service structures and integrating transportation and distribution groups along with leading various business units. Importantly, I have a deep experience in the food and beverage industry. My experience in direct store delivery, while at PepsiCo and my coffee knowledge acquired by leading Starbucks global supply chain…

Scott Lyon

Analyst

Thanks Deverl. I'm excited to take on the role of interim Principal Financial and Accounting Officer and work closely with the rest of the management team and our Board to build on the company's progress. Now, let me walk through our first quarter results. Beginning with coffee volumes. Green coffee processed and sold in the quarter increased by 500,000 pounds to 26 million pounds, a 2% increase over the prior year period. The mix of coffee volumes processed and sold during the quarter was approximately 8.3 million pounds or 32% of the total volume through our DSD network, while direct ship customers represented approximately 17.4 million pounds of green coffee processed and sold or 67% of total volume. 300,000 pounds or 1% of the total volume was through distributors. The increased coffee volumes reflect new volume from the ramping of our new large global convenient store retailer we began shipping earlier in fiscal 2019 and incremental volume on other direct ship customers. Offset by declining volume within our DSD network and the sale of our office coffee business in July of this year. Turning to the income statement. Net sales for the quarter were $138.6 million, which is a decrease of $8.8 million or 6% from $147.4 million reported in the same period a year ago. The decline in net sales was driven primarily by lower sales of coffee and allied products sold through our DSD network, unfavorable customer mix within our direct sales channel, non-recurring sales of industrial suit based products associated with the Boyd’s acquisition, which we stopped selling last year and impacts the lower coffee prices for our cost-plus customers. Sales through our DSD network were impacted by the sales of our office coffee business, higher customer attrition and lower inventory fill rates associated with the downtime…

Operator

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Kara Anderson with B Riley. Your line is now open.

Kara Anderson

Analyst

Hi. Good afternoon.

Deverl Maserang

Analyst

Good afternoon.

Kara Anderson

Analyst

I'm sorry, if I missed it, but given the changes in leadership. Just wondering if you could provide actually an update on the directional outlook for fiscal year 2020?

Deverl Maserang

Analyst

Kara, thanks for the question. What I'd say in regards to guidance at this point it's still the early days. We're in the midst of this turnaround and currently focused on the five strategic initiatives that I had outlined in the prepared remarks. And at this point we're not going to be guidance at this time and we look forward to sharing ongoing progress with you as the quarters unfold.

Kara Anderson

Analyst

Okay. And then I had to try, on the DSD business. Just wondering if you're seeing any change in the pace of customer attrition?

Deverl Maserang

Analyst

From a perspective of DSD here is what I would say as we look at DSD and as I said earlier, it's the early days of beginning out and about and looking at the operation, we're clearly focused on execution. And forecasting on time in full and customer attrition is incredibly important and optimizing our network and get under distribution network balance in what we need to be is important and then focusing on innovation which is obviously going to help us from a DSD perspective. So winning new business and seeing improvement in churn in select markets we're experiencing. And I would tell you in our national sales meeting, we work with -- markets across the country. I was really encouraged by the fact that our best and most improve it really was built around the fact that they own those branches. And when they feel like they own those branches, they are delivering results and we're not seeing the churn in the attrition in those branches. And that's what we're going to continue to focus and Mike Walsh and his leadership in the field will be out and working on that and continue to make those visits across the country. I've been to several I can tell you we're going to continue to work on that incredibly hard and continue to win back business.

Kara Anderson

Analyst

Kind of on the same point I guess in your prepared remarks, you talked about re-routing sales reps as part of the supply chain optimization priority. Can you elaborate on that a little bit more for me?

Deverl Maserang

Analyst

To make sure I understood. Could you just state that first part of the question in regards to my earlier remarks prepared?

Kara Anderson

Analyst

In your prepared remarks, you talked about re-routing sales reps. I think is kind of what you said in terms of I guess a priority within the supply chain optimization efforts. Just wondering if you could elaborate on that. I guess as you're talking about only in the branches and just curious like what you mean by that comment?

Deverl Maserang

Analyst

Yes, I think you're referring to route optimization in the prepared remarks were really talking about optimization across the distribution network in terms of branches and DCs and optimizing those relative to our overall network footprint. We have gone through a re-routing exercise We've done that. That's a part of the day-to-day business that we do on an ongoing basis in that particular area of the business. So as opportunities persist, we'll continue to route optimize within the branch structure, but we don't have an active initiative. At this point, we've actually can -- we've done that work. And then as an ongoing basis, we continue to do that as we see change in routes. But we need to add a route or reduce a route.

Kara Anderson

Analyst

Thank you. That does clarify it for me. And then just wondering if you can elaborate some on what's happening with the unfavorable mix and direct ship. And second to that whether that is expected to be a drag for a couple more quarters?

Deverl Maserang

Analyst

Yeah. And in regards to direct shift in specifically currently doing a deep dive into that business segment. We see growth opportunities with mid and small size customers as we talked in the prior quarter and we'll continue to pursue those large national accounts. And as I've said, we're focused on balancing revenue and margin with an eye toward improving EBITDA.

Kara Anderson

Analyst

Okay. And then I guess last question for me. Last quarter it was talked about some headcount reductions and $7 million in savings. I think directly related to that just how much of that contributed to the quarter and if you recognizing that at this point if you could comment on that? Thanks.

Scott Lyon

Analyst

Yeah. Hey, Kara this is Scott. Yeah. We did realized some savings this quarter. If you look at our OpEx expenses and I think you should really focus on our current expenses this quarter and the last couple of quarters that we've seen to develop our current run rates that we're experiencing right now.

Kara Anderson

Analyst

Great thank you.

Operator

Operator

Thank you. [Operator Instructions] And I'm showing no further questions at this time. I will now turn the call back over to CEO, Deverl Maserang for closing remarks.

Deverl Maserang

Analyst

Thanks, Andrew. While it's still early in the days and time as CEO. I've already seen great potential in Farmer Brothers and probably going to accomplish together. I'm focused on leading this company become more profitable be more forward thinking, be an industry leader and have a clear vision of what needs to be done to get there. And I look forward to continuing my conference review of the Company and sharing our ongoing progress in the future quarters. I'd also look forward to meeting each of you and members of the investment community in person as well which we have many of those planned. And thank you for joining us today and for your continued interest and support in Farmer Brothers. Thank you.

Operator

Operator

Ladies and gentlemen this concludes today's conference call. Thank you for participating and you may now disconnect.