Farmer Brothers Company Reports Operating Results (10-Q)

Farmer Brothers Company (FARM, Financial) filed Quarterly Report for the period ended 2009-09-30.

Farmer Bros. Co. is in the business of roasting, packaging and distributing coffee and allied products to restaurants, hotels, hospitals,convenience stores and fast food outlets. The company's primary raw material is green coffee. Green coffee is purchased through domestic commodity brokers. Coffee is an agricultural commodity, and is subject to fluctuations of both price and supply. Farmer Brothers Company has a market cap of $313.99 million; its shares were traded at around $19.47 with and P/S ratio of 0.92. The dividend yield of Farmer Brothers Company stocks is 2.36%.

Highlight of Business Operations:

All outstanding obligations under the Loan Agreement are collateralized by perfected security interests in our assets, excluding the preferred stock held in investment accounts. The revolving line provides for advances of 85% of eligible accounts receivable and 65% of eligible inventory, as defined. The Loan Agreement has an unused commitment fee of 0.375%. The interest rate varies based upon line usage, borrowing base availability and market conditions. The range is PRIME + 0.25% to PRIME + 0.75% or LIBOR + 2.25% to LIBOR + 2.75%, subject to a minimum for LIBOR based advances of 3.25%. The interest rate was 3.5% at September 30, 2009. Due to the short-term nature of the credit facility and the variable interest rate, fair value of the balance outstanding approximates carrying value.

Our net sales in the first quarter of fiscal 2010 increased $45.6 million, or 69%, to $112.1 million as compared to $66.5 million in the first quarter of fiscal 2009. This increase is primarily due to the addition of $43.7 million in net sales from the DSD Coffee Business and a $2.7 million increase in net sales from CBI. Total combined unit sales for the first quarter of fiscal 2010 increased 62% from the first quarter of fiscal 2009. Unit sales, excluding CBI, for the first quarter of fiscal 2010 increased 70% from the first quarter of fiscal 2009. This increase resulted primarily from the acquisition of the DSD Coffee Business, which has been included in our consolidated financial statements since March 1, 2009.

Gross profit in the first quarter of fiscal 2010 increased $23.3 million, or 75%, to $54.3 million, as compared to $31.0 million in the first quarter of fiscal 2009. Gross margin increased to 48% in the first quarter of fiscal 2010 from 47% in the first quarter of fiscal 2009. Approximately 93% of this increase is from the addition of the DSD Coffee Business and 6% of this increase is from CBI. Additionally, total coffee brewing equipment and service costs in the first quarter of fiscal 2010 was $5.5 million as compared to $2.2 million in the first quarter of fiscal 2009.

In the first quarter of fiscal 2010, operating expenses increased $21.6 million, or 61%, to $56.8 million, or 51% of sales, from $35.2 million, or 53% of sales, in the comparable quarter of fiscal 2009. Operating expenses in the first quarter of fiscal 2010 include $18.3 million in operating expenses associated with the DSD Coffee Business.

Our revolving line of credit with Wachovia Bank is at a variable rate. The interest rate varies based upon line usage, borrowing base availability and market conditions. The range is PRIME + 0.25% to PRIME + 0.75% or LIBOR + 2.25% to LIBOR + 2.75%, subject to a minimum for LIBOR based advances of 3.25%. The balance outstanding as of September 30, 2009 was $8.1 million and the interest rate at September 30, 2009 was 3.5%.

Read the The complete ReportFARM is in the portfolios of Michael Price of MFP Investors LLC.