May 09, 2005 04:48 PM US Eastern Timezone

 

The increase in green coffee prices continued to affect the Company's operating results in the quarter. Green coffee prices, as reported by the CSCE of the New York Board of Trade, increased more than 50% between September 30, 2004 and March 31, 2005, with much of that increase occurring during the Company's third fiscal quarter. The Company's price hikes for roast coffee, however, lag this rise in green coffee costs.

Net sales increased to $50.3 million, compared with $49.1 million in the third fiscal quarter of last year, primarily as a result of higher sales prices of roast coffee reflecting higher green coffee costs and a modest increase in the sales of non-coffee products. As a group, non-coffee products continue to represent about half of the Company's net sales.

The Company reported a loss from operations of $2.2 million in the third fiscal quarter of 2005, versus income from operations of $743,000 in the same quarter last year. In addition to the effects of the rising green coffee prices, this loss from operations also reflected a 6 percent increase in selling, general and administrative costs, primarily resulting from higher expenditures for information systems, fuel and oil, and the Employee Stock Ownership Program (ESOP).

In addition, the Company reported an expense of $3.0 million, recorded as "Other, net (expense) income." This primarily results from the decrease in the value of the green coffee futures and options used by the Company to hedge against a decline in commodity prices. This loss in the third quarter of fiscal 2005 compares with net income of $4.9 million in the same quarter last year. These futures contracts and options lose value as green coffee prices rise and gain value as prices fall. The Company said dividend income and interest income were essentially unchanged from the prior year.

The Company recognized a tax benefit of $4.5 million in the third quarter of fiscal 2005 that added approximately $0.32 per share to net income in the third quarter and $0.44 per share for the nine months ended March 31, 2005. This benefit resulted from a reduction in the Company's tax reserve during the third fiscal quarter following a favorable determination from a California tax audit, as well as an income tax benefit relating to the loss in fiscal 2005.

At the end of the third quarter, the Company had cash, cash equivalents and investments of $187.5 million, compared with $198.7 million on June 30, 2004.

"Our results followed trends that also have been reported by our largest competitors: profits declined due to higher green coffee prices not entirely offset by price increases. Nonetheless, we continue to focus on ways to restore our growth, including efforts to energize our sales team and to harness our new information systems," said Interim Chief Executive Officer Guenter Berger. "We increased roast coffee prices again in the third quarter in line with the market, and we expect those higher prices to be reflected in our fourth quarter operating results."

Farmer Bros. Co. is an institutional coffee roaster that sells a variety of coffee and allied products to the food service industry. The Company's signature trucks and vans bearing the "Consistently Good" logo are seen throughout Farmer Brothers' 28-state service area. Farmer Brothers has paid a dividend for 51 consecutive years, increased the dividend in each of the last seven consecutive years, and its stock price has grown on a split-adjusted basis from $1.80 a share in 1980.

                          For the three months    For the nine months
                            ended March 31,         ended March 31,
                            2005        2004        2005        2004

Net sales                 $50,271     $49,069    $148,199    $146,245
Cost of goods sold         20,928      18,488      59,319      53,459
Gross profit              $29,343     $30,581     $88,880     $92,786

Selling expense           $23,943     $22,735     $68,492     $68,019
General and
 administrative expense     7,567       7,103      20,854      19,843
Operating expenses        $31,510     $29,838     $89,346     $87,862
(Loss) income from
 operations               $(2,167)       $743       $(466)     $4,924

Other expense and
 income:
   Dividend income           $850        $844      $2,584      $2,527
   Interest income            738         935       1,799       2,156
   Other, net
    (expense) income       (3,019)      4,980     (11,241)      6,149
                          $(1,431)     $6,759     $(6,858)    $10,832
(Loss) income before
 taxes                    $(3,598)     $7,502     $(7,324)    $15,756
Income taxes (benefit)     (4,454)      1,899      (5,609)      5,077
Net income (loss)            $856      $5,603     $(1,715)    $10,679

Net income (loss) per
 common share               $0.06       $0.42      ($0.13)      $0.66
Weighted average
 shares outstanding    13,687,840  13,457,300  13,621,390  16,266,410

Forward-Looking Statements

Certain statements contained in this press release regarding the risks, circumstances and financial trends that may affect our future operating results, financial position and cash flows are not based on historical fact and are forward-looking statements within the meaning of federal securities laws and regulations. These statements are based on management's current expectations, assumptions, estimates and observations of future events and include any statements that do not directly relate to any historical or current fact. These forward-looking statements can be identified by the use of words like "expects," "will," and other words of similar meaning. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those set forth in forward-looking statements. We intend these forward-looking statements to speak only at the time of this press release and do not undertake to update or revise these statements as more information becomes available except as required under federal securities laws and the rules and regulations of the SEC. Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, fluctuations in availability and cost of green coffee, competition, organizational changes, the impact of a weaker economy, business conditions in the coffee industry and food industry in general, the Company's continued success in retaining and attracting new customers, variances from budgeted sales mix and growth rates, and weather and special or unusual events, as well as other risks described from time to time in the Company's filings with the SEC.