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Category: Stock Market and Farmer Brothers
Date: 11 November 2019 Stock Price: $16.29 We take a look at the 1st quarter earnings release of their 2020 fiscal year of Farmer Brothers, the manufacturer, wholesaler and distributor of high quality coffee.
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About Farmer Brothers
Farmer Bros. Co. is a leading manufacturer, wholesaler and distributor of a variety of high quality coffee products and a distributor of tea and culinary products to food service establishments and retailers nationwide. Our customers include restaurants, hotels, casinos, offices, quick service restaurants ("QSR's"), convenience stores, healthcare facilities and other foodservice providers, as well as private brand retailers in the QSR, grocery, drugstore, restaurant, convenience store, and independent coffee house channels.
Our mission is to "sell great coffee, tea and culinary products and provide superior service—one customer at a time." We reach our customers in two ways: through our nationwide Direct-Store-Delivery ("DSD") network of approximately 470 delivery routes, 111 branch warehouses and five distribution centers, and by using the distribution channels of our national retail and institutional customers.
To meet our customers' needs we carry approximately 2,700 products (excluding private label) including roasted coffee, liquid coffee, coffee related products such as coffee filters, sugar and creamers, assorted teas, cappuccino, cocoa, spices, gelatins and puddings, soup, salad dressings, pancake and biscuit mixes, and jellies and preserves. Approximately 50% of our total sales is from roasted coffee products.
We purchase, roast and package coffee at our Portland, Oregon; and Houston, Texas plants. We distribute to our branches nationwide from the Torrance, Houston and Portland plants, and from our distribution centers in Oklahoma, Illinois and New Jersey.
We differentiate ourselves in the marketplace through our customer service model. We offer value added services including beverage equipment service, menu solutions, wherein we recommend products, how these products are prepared in the kitchen and presented on the menu, and hassle-free inventory and product procurement management to our foodservice customers. These services are conducted primarily in person through Regional Sales Representatives, or RSR’s, who develop personal relationships with chefs, restaurant owners and food buyers at their drop off locations. We also provide comprehensive coffee programs, including private brand development, green coffee procurement, category management, and supply chain management to our national retail customers.
We manufacture and distribute products under our own brands, as well as under private labels on behalf of certain customers. Our branded products are sold primarily into the foodservice channel, and are comprised of both national and regional brands. National foodservice brands include Farmer Brothers®, The Artisan Collection by Farmer Brothers™, Superior®, Metropolitan™ and Island Medley Iced Tea®. Regional foodservice and retail brands include Cain's®, Ireland® and McGarvey®.
Below Farmer Brothers view on the world of Coffee.
Our mission is to "sell great coffee, tea and culinary products and provide superior service—one customer at a time." We reach our customers in two ways: through our nationwide Direct-Store-Delivery ("DSD") network of approximately 470 delivery routes, 111 branch warehouses and five distribution centers, and by using the distribution channels of our national retail and institutional customers.
To meet our customers' needs we carry approximately 2,700 products (excluding private label) including roasted coffee, liquid coffee, coffee related products such as coffee filters, sugar and creamers, assorted teas, cappuccino, cocoa, spices, gelatins and puddings, soup, salad dressings, pancake and biscuit mixes, and jellies and preserves. Approximately 50% of our total sales is from roasted coffee products.
We purchase, roast and package coffee at our Portland, Oregon; and Houston, Texas plants. We distribute to our branches nationwide from the Torrance, Houston and Portland plants, and from our distribution centers in Oklahoma, Illinois and New Jersey.
We differentiate ourselves in the marketplace through our customer service model. We offer value added services including beverage equipment service, menu solutions, wherein we recommend products, how these products are prepared in the kitchen and presented on the menu, and hassle-free inventory and product procurement management to our foodservice customers. These services are conducted primarily in person through Regional Sales Representatives, or RSR’s, who develop personal relationships with chefs, restaurant owners and food buyers at their drop off locations. We also provide comprehensive coffee programs, including private brand development, green coffee procurement, category management, and supply chain management to our national retail customers.
We manufacture and distribute products under our own brands, as well as under private labels on behalf of certain customers. Our branded products are sold primarily into the foodservice channel, and are comprised of both national and regional brands. National foodservice brands include Farmer Brothers®, The Artisan Collection by Farmer Brothers™, Superior®, Metropolitan™ and Island Medley Iced Tea®. Regional foodservice and retail brands include Cain's®, Ireland® and McGarvey®.
Below Farmer Brothers view on the world of Coffee.
Financial overview of Farmer Brothers' 1st quarter 2020 earnings report
The numbers we are interested in (for the quarter):
- Net sales $138.600 million (down from $147.440 million from the same quarter of the previous year)
- Cost of sales: $97.959 million (down from $99.205 million for the same quarter of the previous year)
- Net income: $4.654 million (up from a loss of -$2.986 million for the same quarter of the previous year)
- Diluted earnings per share: $0.26 (up from -$0.18 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 17.518 million (up from 16.886 million for the same quarter of the previous year)
- Cash and cash equivalents: $7.425 million
- Cash and cash equivalents per share: $0.43
- Cash and cash equivalents makes up 2.6% of Farmer Brothers' market capital
- Cash and cash equivalents makes up 1.68% of Farmer Brothers' total assets
- Accounts receivable: $57.465 million
- Accounts receivable makes up 13.1% of Farmer Brothers' total assets
- Inventories: $91.730 million
- Inventories makes up 20.9% of Farmer Brothers' total assets
- Total shareholders' equity of Farmer Brothers: $169.569 million
- Shareholders' equity per share: $9.67
- So Farmer Brothers is trading at 168 times the stockholders equity per share which is outside the expected range of between 2 and 4 times that most firms tend to trade at
Farmer Brothers' management commentary on their 1st quarter 2020 results and guidance
NORTHLAKE, Texas, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Farmer Bros. Co. (NASDAQ: FARM) (the "Company") today reported financial results for its first fiscal quarter ended September 30, 2019.
“After my first weeks as CEO, I remain excited about joining Farmer Brothers at this critical moment in the Company’s history,” said Deverl Maserang, President and CEO. “I recognize and understand the challenges and the opportunities we face, and I believe we have the assets, the platform, as well as a talented and dedicated employee base to return the Company to growth and profitability.”
Mr. Maserang continued, “Under the leadership of Chris Mottern, solid progress was made towards identifying key priorities aimed at improving and evolving our business for the future. As CEO, I have refined these and am committed to focusing on: optimizing our supply chain, elevating our execution, enhancing our service capability, differentiating our product portfolio through innovation, and engaging our talent. I look forward to working with all our employees to execute with purpose and urgency on our strategic initiatives in order to best position Farmer Brothers to deliver enhanced value for our stakeholders.”
First Quarter Fiscal 2020 Highlights:
“After my first weeks as CEO, I remain excited about joining Farmer Brothers at this critical moment in the Company’s history,” said Deverl Maserang, President and CEO. “I recognize and understand the challenges and the opportunities we face, and I believe we have the assets, the platform, as well as a talented and dedicated employee base to return the Company to growth and profitability.”
Mr. Maserang continued, “Under the leadership of Chris Mottern, solid progress was made towards identifying key priorities aimed at improving and evolving our business for the future. As CEO, I have refined these and am committed to focusing on: optimizing our supply chain, elevating our execution, enhancing our service capability, differentiating our product portfolio through innovation, and engaging our talent. I look forward to working with all our employees to execute with purpose and urgency on our strategic initiatives in order to best position Farmer Brothers to deliver enhanced value for our stakeholders.”
First Quarter Fiscal 2020 Highlights:
- Volume of green coffee processed and sold increased by 0.5 million to 26.0 million pounds, a 2.0% increase over the prior year period;
- Green coffee pounds processed and sold through our DSD network were 8.3 million, or 32.0% of total green coffee pounds processed and sold
- Direct ship customers represented 17.4 million, or 67.0%, 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 $138.6 million, a decrease of $8.8 million, or 6.0%, from the prior year period;
- Gross margin decreased to 29.3% from 32.7% in the prior year period, while operating expenses as percentage of sales improved to 24.3% from 34.1% in the prior year period;
- Net income was $4.7 million compared to net loss of $3.0 million in the prior year period; and
- Adjusted EBITDA was $4.0 million compared to $11.0 million in the prior year period.
Farmer Brothers (NASDAQ: FARM) stock price history
The image below, obtained from Google shows the stock price history of Farmer Brothers over the last 5 years. And it's not been a particularly good time for stockholders of Farmer Brothers. 5 years ago Farmer Brothers was trading at $28.80 and its currently trading at $16.29. That's a loss of -43.5% suffered by Farmer Brother stockholders over the last 5 years.
The stock of Farmer Brothers is trading at closer to its 52 week low of $10.26 than it is to it's 52 week high of $26.25 which to us is a clear indication that the short term sentiment and momentum of Farmer Brother's stock is mostly negative.
The stock of Farmer Brothers is trading at closer to its 52 week low of $10.26 than it is to it's 52 week high of $26.25 which to us is a clear indication that the short term sentiment and momentum of Farmer Brother's stock is mostly negative.
Recent coverage of Farmer Brothers
Below an extract of an article covering Farm Brothers obtained from TheStreet.com
Ruben Inofuentes Appointed Chief Supply Chain Officer Scott Lyon Appointed Interim Principal Financial and Accounting Officer; David Robson Departs as Chief Financial Officer NORTHLAKE, Texas, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Farmer Bros. Co. (NASDAQ:FARM) (the "Company" or "Farmer Brothers") today announced that Ruben Inofuentes has been named Chief Supply Chain Officer, effective November 15. The Company also announced the appointment of Scott Lyon as interim principal financial and accounting officer, effective November 4. David Robson has departed the Company and Farmer Brothers has initiated a search to identify its next Chief Financial Officer. Mr. Inofuentes is an innovative leader with a successful track record of running complex company operations. In his role as Farmer Brothers' Chief Supply Chain Officer, Mr. Inofuentes will be responsible for leading the Company's Manufacturing, Logistics, Procurement, Quality, Engineering and Innovation teams. Most recently, Mr. Inofuentes served as Chief Operations Officer for JR286, a global leader in the sporting goods industry, where he expanded the company's operations, relocated manufacturing, reengineered product supply chain and vendor strategy as well as reduced costs. Prior to JR286, he held various technical and leadership roles at Advocare International, Oracle and United Parcel Service among others. Deverl Maserang, President and Chief Executive Officer of Farmer Brothers said, "One of my key initiatives is to engage the best industry talent to help drive future growth at Farmer Brothers. I am thrilled to have Ruben join the Farmer Brothers team and lead our supply chain operations at this critical juncture as we work to improve inventory management, rebalance our network and consistently achieve our on-time and fill rate goals. Ruben is a proven innovative leader with a successful track record in supply chain transformations and operational excellence and I am confident that we will benefit from his expertise and insights."
Ruben Inofuentes Appointed Chief Supply Chain Officer Scott Lyon Appointed Interim Principal Financial and Accounting Officer; David Robson Departs as Chief Financial Officer NORTHLAKE, Texas, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Farmer Bros. Co. (NASDAQ:FARM) (the "Company" or "Farmer Brothers") today announced that Ruben Inofuentes has been named Chief Supply Chain Officer, effective November 15. The Company also announced the appointment of Scott Lyon as interim principal financial and accounting officer, effective November 4. David Robson has departed the Company and Farmer Brothers has initiated a search to identify its next Chief Financial Officer. Mr. Inofuentes is an innovative leader with a successful track record of running complex company operations. In his role as Farmer Brothers' Chief Supply Chain Officer, Mr. Inofuentes will be responsible for leading the Company's Manufacturing, Logistics, Procurement, Quality, Engineering and Innovation teams. Most recently, Mr. Inofuentes served as Chief Operations Officer for JR286, a global leader in the sporting goods industry, where he expanded the company's operations, relocated manufacturing, reengineered product supply chain and vendor strategy as well as reduced costs. Prior to JR286, he held various technical and leadership roles at Advocare International, Oracle and United Parcel Service among others. Deverl Maserang, President and Chief Executive Officer of Farmer Brothers said, "One of my key initiatives is to engage the best industry talent to help drive future growth at Farmer Brothers. I am thrilled to have Ruben join the Farmer Brothers team and lead our supply chain operations at this critical juncture as we work to improve inventory management, rebalance our network and consistently achieve our on-time and fill rate goals. Ruben is a proven innovative leader with a successful track record in supply chain transformations and operational excellence and I am confident that we will benefit from his expertise and insights."
Farmer Brothers (NASDAQ: FARM) latest stock valuation
So what is the stock of Farmer Brother worth following the release of their latest earnings report? Based on the fact that the group earned a profit we can now use their earnings per share as an input into our valuation models. Based on Farmer Brother's earnings report our valuation model provides a target (full value) price of $16.60 (up strongly from our 4th quarter 2019 earnings report valuation of Farmer Brothers, due largely to the fact that the group is now profitable and not longer loss making). We therefore believe the group is fully valued
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price which in this case is $16.60, thus we believe a good entry point into Farmer Brothers is $14.90 or below. We expect the stock of Farmer Brothers to trade in a broad range around our target (full value) price in coming weeks and months.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price which in this case is $16.60, thus we believe a good entry point into Farmer Brothers is $14.90 or below. We expect the stock of Farmer Brothers to trade in a broad range around our target (full value) price in coming weeks and months.
Next earnings release of Farmer Brothers
It is expected that Farmer Brothers will release their 2nd quarter 2020 earnings report in early February 2020