FARM - Earnings call transcript Q1 2022

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Operator

Thank you for standing by, and welcome to the Farmer Bros. Company Q1 Fiscal 2022 Earning Conference Call. At this time, all participants are in a listen-only mode. After speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s conference call is being recorded. to conference like host, to now Ms. would turn over the your I Milan. Jennifer Ma’am may begin.

Jennifer Milan

good Thank call. afternoon, Farmer and you, Thank everyone. first XXXX Bros. you quarter earnings conference fiscal joining for

X-K and an www.farmerbros.com. Joining are Farmer Relations as Drake, is on Financial the on the after of available also is to Commission’s earnings Earlier replay audio me company’s www.sec.gov. Form Officer. and section available The Bros. company’s company’s be the is its Officer; the available website included be issued release, to Deverl President website. hours of replay Chief the website company conclusion will on today also and of A today, press press this the will the two and release Chief Exchange exhibit Maserang, on Scott audio-only this webcast at Executive Securities website call. available which and approximately Investor the link at The

forward-looking regulations. and the the that various subsequent remarks please date. relied Results company’s begin and Harbor and purposes forward-looking that management this should during of views statements Before note by forward-looking of future any and provisions the upon company’s statements. the as those about federal expectations, constitute call securities all not financial presented prospects plans as as could of under unaudited the made materially laws statements the we for be only represent These call, views company’s today representing from the information is may Safe of differ

press directly now and financial use will those materially call, the today’s in press other that the public in to performance. call I operating will events information Deverl. Deverl, available filings. is GAAP to financial measures, EBITDA non-GAAP results also measures ahead. differ release assessing actual of On turn company’s the release. margin is statements factors and and adjusted included the EBITDA non-GAAP Reconciliation company’s on these please comparable Additional the forward-looking including go certain from could in cause management most measures adjusted company’s also over to

Deverl Maserang

Jen, Thank joining for good us afternoon, today. Thanks you, and everyone.

points of best margin improve of were COVID, volumes experienced XX% Sales XX.X% The levels measures year-over-year and volumes in to in weeks. quarter. the continue into net to led channels up period DSD top gross gross our sales XXXX DFW DSD first of operational year our basis to implemented and production We fiscal previous business have DSD the XXX expansion to we’ve to continued Farmer, fiscal down the of quarter. and in at quarter both and fifth our sales pre-COVID trend compared This XX% with sequential critical favorably, since margin the The XX%. three compares and of first the recent in sequentially corresponding facility. consecutive to recover. represented XX% around trends during the Starting to sales in total improvement for continue structural expansion of volume, core changes quarter line. quarter and onset the our with down points those year-over-year basis XXX last as down

opportunity we fact still the the gradually market come these demonstrating Despite model challenges have that of gross we’re pandemic, challenges, other business under and leverage full the pre-COVID margin, pleased such variant effects numbers sequential very labor our and the shortage, Delta elevated headwinds to the reduced are the and prices conditions it’s that improve. yet DSD operating significantly clear compared behaviors. our improvements coffee to cost, line materializing presented freight We’re as normalization with top as volumes considering and levels, inflationary improvements consumer and by in especially lingering executed the the of the

Our is just despite reduced we’re under. the continued gross operating below margin now XX%, volumes

to how volumes grow beyond and start business recover fully that. to eager even see once we’re our responds, the So

Our historical low pre-COVID range hovered in to the mid-XXs.

We’re progressing than elevated recovery, to margin labor gross materialize that’s expenses, freight and slower seeing our due primarily although operating our improvements also cost. the within

to bulk the continuing new elevated control The of we’ve over our remains the most internal and ocean to communicating turnaround efforts focus consistent With and in levels, against on been recover, to initiatives freight our cost, to endorsing and executing mitigate much year. passed through, both margin input higher gross that and been our trucking which and climate, manufacturing volumes internally the shortages, to impactful rightsizing and processes. expenses past allied shipping as us With such freight green the sequential rising procedures, it’s see coffee our continuing headwinds behind cost that the In sales restructuring the are to improvements expenses proactively incredible prices, our headwinds. volumes the our any of implement speaks prioritizing operating it’s on optimization labor soon are increased and on date. largely to how said, is of to victory. able relies All and those today’s products, too wages impacting declare continued we’ve costs costs, see cost business complete and goods that increasing going

mind against cost that hard making a ways price execute on rather work remain efforts and our systematic cost new to a basis. mitigate network. we So adjustments our we note, avoidance impacts adjusting optimization finding than to in within continue continue on to those only on focused with mentality On

our significant a not had Rialto big thus has impact freight much leverage Our The distribution impacting on in far. story West and Rialto. success we opened have inflationary if environment center been Coast more business a would had

ways closed is to our at last freight to optimization offset fully operation improving driving distribution key one creep. of cost our operational, products the our One customers, broader closer pieces by down DFW, miles Rialto network we’re and of improvements moving performance the With continual price remains in Portland strategy. and Houston

our starting DFW facility see to pleased fire cylinders. to more we’re DFW, of on Speaking

footprint very at roasting during our improvements the our we mainly fact, capabilities, hold much of in few production production in continued to inventory solutions our we’ve In we the to and X have we manufacturing efforts to over during and finding in our expansion minimal more leveraged month-over-month has It’s Q the throughput record our and great packaging such additional an continue as Further, of packaging, optimized, COVID. now take network with With optimization improvements the of quarter the as ways utilization efficient Superset. to quarters meaningful see our onset capacity seen the see initiatives. by pounds see margin the the fully and driven to starting facility, quarter, since optimize now existing incremental been numbers past investment. are new experienced we’ve of added million because upfront and roasters such

our our efforts also from our footprint, drive Aside in customer expansion. shifting mix, we’re and seeing inventory margin helping

optimizing on call, in for then, SKUs our nearly rationalizing overall. SKU XX%, count product customer reduced and our our last in As began profitability a XXXX. more Since profitable resulting by product portfolio we mentioned we base we successfully our

DSD tiering On to customer look a profitable the of new, amount to mix make We’ve Tier our to ways profitable continue less meaningful progress for more X and X continue accounts initiative. side, repurpose Tier accounts. exited now we on

at to we’re our optimization of deep efforts, light While we’re in the see starting end the the still tunnel.

our Portland. capabilities focused on our We DFW facility and to and and operations remain new continue enhancing footprint to improve regional in add

the touched discussed about of for today past the and Given we’ve we’re all opportunity year, presents improvements particularly the on over DFW excited us.

we will a In across to we Portland now remains Portland, roasting capabilities. us current our across a have new expense signed a and and XX,XXX street and production and turning work and our doing focus begun capabilities our facility, for will expanding add flavoring provide lease our efficiencies We’re pounds facility further million square further to added key the and distribution capabilities. focus storage network. of foot annual profile versus optimization from manufacturing another operational the we’re we which improve there our expect capacity, for

to operating mentioned core within leverage remains coffee In we products we growth quarter Farms on innovative service to partnered forces NuZee sugar XXXX the and channels fiscal and network. with commercializing opportunities pilot partnership our with strategy of fiscal launch High the past, and our Farmer and Califia low beverage we in historical ready-to-drink and As success Bros. a plant-based announced our its SugarRx additional drives year, plant-based products. a services first in our came institutional pillar our to during glycemic Further, with food some up returning with joined new testing new on creamer Brew product.

for forward, move as specialty footprint to our as a we opportunities ourselves leverage solidify ways well to we as look beverage new partnerships other to national continue distributor. and network As and

CBE we’ll operate servicing an arm offering revive inroads to CBE Bros. Lastly, and will in on, referring we servicing From provide all our QX, fiscal or operations, such. customers. In our as both make equipment we and Farmer CBE. now service officially will and our of Revive continue as RDS equipment brewing branded to to coffee to DSD things independent be restoration.

customer marketing our our With over services Scott? to as geographic opportunities the equipment We already to bring call launched provide that, current In addition customers, will provide customers our our ecosystem. in technicians we like enhance technology existing in I’d better Scott. offerings external service equipment revenue servicing our base, additional our restructuring servicing rebranding new to to regions. capabilities official programs we’ve turn beyond and this allow to five to pilot their believe and of

Scott Drake

material channels throughout the our achieved consecutive Deverl. each business. meaningful past channels our well. Sales fiscal both in the quarters. In five in sales recover, direct as continue in of first DSD Of quarter, DSD ship both to saw continued improved note, improvements progress in and we improvements Thanks, margins sequential and we and our

quarters, channels, a you had degree. health sales and and been care, impacted demand DSD past hotels lesser from over while restaurants, communicated the to the we’ve expected, as casino few As largest declines from were to C-stores

volumes Deverl our subsided, the variant the we in our in As the enter and fiscal have onset Delta weeks volumes of mentioned, pandemic experienced quarter first sales our since to of recent as best favorably DSD has trend busiest and year. DSD continued we time

DSD for pricing to to opportunities to and proactively in equipment and our our volume. look business technology, continue We closely continuing personnel rightsize while investments monitor our our against

are they We to hurdles be seem and as are closely face. labor continued currently for we most the COVID to that growth trends but hopeful watching significant recovery,

business. our direct to now ship Turning

first businesses. direct private our and by customers the e-commerce impacted of on third-party was label associated basis. the fiscal channel, from in put including pressure X.X% the pandemic, quarter direct pandemic down past, fallout on our some our of ship supply less retail Unfortunately, our ended customers’ brands mentioned in downward the sales with As the types that ship platforms. a given We complexities chain we’ve year-over-year the and business businesses,

profitable also accounts and less we are our declines tangible our results As continue our decision but largely to the optimized most accounted newly now has both in year-over-year which and line tougher for direct new fiscal sales the the news direct years, such, several we good significant to created profitability behind XXXX volumes, worth businesses. ship by wins be business us. The throughout refined top improvement. exits right the DSD base and It’s strategy and that rising these as continues already customer including exited year-over-year for comps customer offset drive that as the our noting ship produce of is challenging are comparisons, look partially it’s XXXX to

base. likely Looking ship customer volumes we direct our will core swings large any experience optimized be within from our ahead,

coffee representing sales from primarily processed we or Net in improved the net increase continued million year period. due DSD fiscal volumes. volume business increased prior of as the $XXX sales million, and recovery to sold our Our and within from were about QX XX.X% green benefited an product allied more $XX

QX to gross continued increase gross at $XX period. At period. the expand was compared our million, the prior fiscal profit from Our same in year $X in XX% and XXXX the an representing quarter was end time, million year ago of XX% to margin

from which Deverl our volumes we past operating was two our of sequentially margin years we’re in QX pre-COVID matched in reduced quarters. under, As mentioned, gross FYXXXX. five still Despite the ago, the improved essentially margin each of has XX.X% gross

to the and place structural continue to improvements in positively that growth primarily We’re the to some managing see put pleased offset all and of Net efficiencies cost sales impact drove the pressures our we’ve margins increase gross profit. mitigate in help through. we’re and

which costs. of over this was driven business gross volume DSD throughout our mainly expansion to While the the year improvements, At year, all in aged margin by scrap we’ve operating, our past continued and implemented production time within facility business, still developments had higher last continued Houston or addition the was so. our

As of our improved prior We write-downs to $X.X of of expansion closure this during period. result, loss to posted a loss in net in million a QX million fiscal inventory also margin $X.X associated the of net quarter. plant XXXX compared the with a year XXXX the contributed

included Our wanted year to first $X.X was million to adjusted changes available our our materials. gains to EBITDA fiscal each in of post-retirement XXXX. plan $X.X to quickly I everyone year release the The was $X.X million, calculation in period. the that our in adjusted medical of QX EBITDA the our QX fiscal full details earnings of amortized as quarter related sunsetted and million of EBITDA prior are compared adjusted December that as prior part of XX, remind

by prior period. X.X% $X.X was resulting from of the impacted XXXX. figure, for first plan March EBITDA to fiscal of the in gains was million the curtailment post-retirement medical amortized higher This adjusted year in Our quarter the again, compared X.X% prior the year of margin

to expenses. Turning

fiscal Our million, in X% the year operating a slight of QX representing expenses $XX period. were about from prior reduction

As driven to cost-saving XX% was a predominantly sales increase improvement operating of mostly match due in fiscal reduced more expense as base and expenses implemented continue cash as primarily paying increase the and and actions $X.X to in was salaries COVID-XX fiscal cumulative million two million from sales a during sales, net increase year. in increase selling $X.X by increase equates percentage of XXXX approximately general to in recover. due was versus net in employees expenses, by to return QX both in expenses. we last of the our million volumes back due the to payroll-related roughly $X.X was of gains a which that QX The of in bring specifically, SG&A XX% the full net XXX(k) compared sales to The expenses expense quarterly SG&A More branches, administrative the were in suspension, primarily a this our pandemic. higher offset

As to being associated the global Deverl challenges the felt mentioned, and immune we country. not are chain supply throughout the pressures

we However, and DSD the prices hedged coffee year. for to our within channel upcoming remain hedged our leverage pricing in fully partially on continue near-term and the power calendar

roughly quarter $XXX,XXX some to the equipment these our to continue was will year systematic as confident spending of and cost compared spending throughout and brewing remain period, $X prior associated were fiscal to we improvements period. volumes roughly for capital offset year capital DSD partially year also improved. decrease million investment QX in with about year. which we’ve implemented the the spending the capital current of XXXX million all investments, Total higher roughly continue We that, lower fiscal This pressures. primarily Note $X.X compared decreased resulted completed spending during that was a efficiencies compared in this by prior of to The the to business coffee make adjustments structural customers in $X.X of investment the mitigate million, the maintenance last at the prioritize and period. of representing prior of purchase time strategic year, made capital several

investments XXXX, prices the expect sales mitigate including savings the offering, around restoration service equipment recover. throughout to brewing made increased initiatives drive revived the we our fiscal help as equipment coffee further and of some now and DSD cost We

of borrowings million of end our decrease June $XX QX, sheet. representing were a since million, slight the to now our XXXX. $X balance Turning At total XX, outstanding about

incentive million ramped quarter. by primarily to was in roughly in balance two the levels on on cash our cash peak proceeds $X The inventory the compared as plan. an payouts QX our were by XXXX These during fiscal cash of sale employee $X.X offset Our properties we balance season decreased and the million from prior to ending of million $XX branch partially of our ahead up quarter. used

at to was operator And fiscal debt, the to $XX net end. balances, of you. compared we call fiscal and million to cash amount the on cash I’ll Thank which the borrowed now end at gross XXXX $XX loan over define equivalents, answer the Our turn million as year questions. revolver and term less any QX the

Operator

you. from [Operator have Sweeney Roth question of Capital. a We Thank Gerard Instructions]

is Your line open.

Gerard Sweeney

call. and Good Thanks Scott. my Deverl afternoon, for taking

Deverl Maserang

You bet.

Scott Drake

Gerard. Thanks,

Gerard Sweeney

you maybe Delta of had through sort was curious, how an could quarter. if impact much Deverl, describe I of the

I’m good better its makes sense? been think, without can off qualitatively trying created raised Delta figure quantitatively. if do now we or So it’s could Delta, I head don’t out, it started I if XQ then, then know and XX% that And I feels much to think, you pretty headwinds, it down like and and just that some dissipating.

Deverl Maserang

you our as and we’re better then the is report, to come gave see yes, you Well, it the in end. impact go quarter. continued towards back current through continuing – quarter improvements progressively as remarks to prepared week-to-week got answer we to into had saw XX% It the an the And you the upfront, the the to quarter. as us

mitigations our supply any other to freight. that ocean specifics customers with we all our we’re manage of things and to on two, to while the changed. to drop, guidance prior we COVID the cost can the behaviors improved, Christmas you. our that chain, were give ability we and we July specific COVID to behaviors in and recovery down the freight on from for it same and play where initial then the One, into number, the transportation and the we’re maybe said; can he continue things. because saw avoidance Thanksgiving, we that ebb X that Delta, we provide three it two initiatives is as recently, so you What the as Scott put flow. having tell to don’t most And manage seeing through we turn XX% the all And I’ll

Scott Drake

about, as talked just release that Delta us. it did the yearend we Gerard, variant in and September And so at still strong. definitely Yes, was our we point, pretty impacted

really said only in the recently to case seen was our think, would counts really what that I similar a I Deverl the fall also So add DSD acceleration we’ve away, seen we’ve more variant, Delta thing as the recovery.

it’s definitely So to tied loads. been case the Delta

outbreak Now, days and I that in be we’ve as to you, days see – will some sales we’re best see best continue of week our we seen through. weeks the we best we’ve reported tell of had our since would and to the will COVID that progress continuing continues each of that fact,

work everyone country doing federal, across is hopeful a specifically we’re with the local all and that So and state very our on level.

We’re channels up in full be more all lot seeing breakfast in seeing distribution, totally pockets on still you seen come see we’re remarks, and returned. all-time though back saw of more still that recovery hotels, a haven’t then as haven’t some And they’re we’re where even still then occupancy showing still prepared lag We continues view in our hotel component to seeing a we high. an progressive. and

just where concerts we register level. slower rebounding better the out the put now self-service bars, have taken behind to recovery. starting it now Thus, a a back again. back We’re you are at that can those and see products the sell C-stores the coffee normal from more having into are channels come and into conventions of tea that they’ve and

day. we and channel by across a we bit other, little So and the and the each different reacting channel than region is watch little and that bit nation, every different, every each channel by serve is a that

Gerard Sweeney

it. Got

branches, employees, assets, utilization was question trucks. Next of

up at basis, you If on XX%. profit was gross revenue was XX%, the up the was a revenue, – X%, look but X%, sequential

accelerate the but what with for as to margins. hefty some looking that’s we pretty have I the to had to Is you and portend volumes, point, were margin you as some is front? on getting at high could you a this not we’re you’re look contribution Or contribution So people – know we hard return, I’m And the volumes in pretty bring back start margin. guidance, but – say, to going and that really quarter? running what at

Deverl Maserang

a say I’ll things No, of that. on couple

and We first back. day, well-being to balance are week, we we and we’re bringing our foremost, people it every doing. members, which as have pertains know team First, to every of the maniacal health

We it’s have some pockets of branches. where of the ability outpacing our

So of up lot literally at that we’re weekly will our CHRO, new we drives our Chief have have and look at with who you, process this. and constantly reacting. tell Sales, routes We this Amber, Scott we our I a are pace, DSD picked of – rate because I more frontline we allowed routes and a balance that evaluating much in, we’re run headcount at that plus can annualize those new people working back our PTO our ensuring putting on. trigger market-by-market, where ensure basis how on on of total to And one bringing each their that’s and dollars basis. a on team members take meet routes

to our on we – occurring it we one area. to an the are that’s each members question really much we now, and refurbs making to any repairs what that’s drive more have get burden to is trying and day. installs is and that, that because the recruiting So watch continue for every bringing expect know statistic customer. our an service that, if the team that top our tech know sales role, do we’re the just route servicing put we’re DSD, can as markets. we’re the RSR we the heavily recruiting we sure you representatives most, two and and to will a positions foremost, of much making health said done back balancing ensure you’re and act make so that recruiting and given two, other call sure on what to know that the you’re we’re well-being technicians. But continue and watching we good and for asking, both key And we’re that as is be equipment focus doing these closely, we that of to service the and where And RSRs, we job in not more absolute ability, sure the that right on are and peaks we’re that is we Those first

that go to we’ve the we not structures said will that pre-COVID, have same Street. We the to back

We very that, we that. will continue say to feel about good and

cost be And we’ll with continue, grow to back different so that can the frontline. we new as absolutely our but sales in we a we’ll DSD lay to organization so we as continue

Gerard Sweeney

then pack prepared I pricing a increase lot know There’s price And often remarks, the over of I’m obviously, could it. upon the the could in Got you but you question. you not – on you items. hard how is to power, it how one touched other some of levers, have inflationary sure go or how often.

you available detail also levers fuel other even past, think a describe plus more I had bit maybe surcharges this? to items, in that use some the can little these manage in you

Deverl Maserang

couple Now, this to first I Scott, but question. pieces turn pointed of to a It’s a want very and foremost, context. give I’ll

We’re has pressure, that seen what has XX it customers, have this being savings our unprecedented and we had my a numbers team and time cost our see that’s is shifted years that positioned we that to in if but conversation in drive to conversation. I’d I cost the to done supply said, wouldn’t love a haven’t to us avoidance. with

any other inflationary them. gives pressures our so with specifics hard And how item more we’re with in working supply we’re they’re So and valuing that, Scott and single to customers supply. on keep dealing over

Scott Drake

QX weave there. story couple think, it because I’ll been I part the had Thanks, about to that quarter-to-quarter Deverl. points, the One, with Yes. kind on has from last had question Gerry. QX, And we of of you of together sequential your a that quick numbers

our gross really up were leverage. said, entries. And dollar up sales asset nice because As sales in tend a profit X%, XX%, other we OSG&A, or noise then is have to you so of

selling business you those just in if of up the were X%. areas two at G&A look So

more as margin, pressures. a much little things. be my One than So up is couple quite not but to a going inflationary there’s as and was point sales, of

But when July rates to on seeing kind fuel the labor externally, into the we a on cost, pressures. costs, wanted we’re direct pass-throughs all that the either new we’re also are are all call those few freight. so fiscal turned benefits growing started out Obviously, more also internally, that of we’re having the on new and we seeing year. we X, We

our of those XXX(k) match, types cash So well. like as things

bit with a cost that’s of so P&L, them still in P&L. quarter-over-quarter that So rest incremental keep gains line the that contribution and was those sure costs control to still, we’re we’re But the little we in of getting making the bottom. the

key point. was that one So

the other I of research notes, point key way it out. it you would it a think, in called think to your out I and make, and lay I was one great

these instituting new and rapidly I pricing all and cost true, we’re that in it’s can cases. think, how for we surcharges talk is coming in that in process put obviously But power, surcharges I it pricing think you, the in come we’re business. it’s but very in rolling of new have some we may a our but we lag that you you mode, are And a currently where we’re of seeing bit affirm the about as think kind in it costs the those fuel and freight well, some into with come out. business, in actual

kind fully the of the costs impactful but quarter, of of So of or now, – be kind will we’re kind by end the really in really that process impacted are and whereas here continue first. the

a is as bit we as there little a So of we’re but that manage that between can. catch to trying lag up, closely

Gerard Sweeney

Got it.

quarter. great Well, Okay.

see can a for questions. jump so excited in line. volumes lot I taking to think I’ll back, Thanks quarter. do guys my of back are you great people what come as a

Deverl Maserang

it. Appreciate Gerry. Thanks,

Operator

at I’d any the to Deverl Maserang back turn you. further this questions time. no Thank for closing to over call like showing I’m remarks.

Deverl Maserang

our Thank have tuned call you, today. operator, and thanks of to you into who all

as but while having remarks, and we and struggled. quarter-to-quarter supply, at in Many as The relates are another www.reviveservice.com, improvements see, here as I the providing is coming members are I can that announce continued day. to live thanked our we just The execute today, piece have detail progressing website us. newly And be big to our hard and is a with team you more quarters to the revived the of it others note more pleased working and that progress Bros. navigate is customers and want forward them each for service that add expected. in to restoration. the to our keeping Farmer we strategy impact out, for think to lastly, website talked a branded newest look check big note every make we And COVID. This We’re us we have recovery, is it prepared is to about in going to Revive. provides our pleased

in We’ll next your you So talk today. thank you for quarter. the to time

Operator

you. this today’s conference. for does Thank all Ladies gentlemen, Thank conclude and you participating.

You disconnect. a may great day. Have now

Farmer Bros. (FARM) 7 Nov 212022 Q1 Earnings call transcript