TORRANCE, Calif. – Farmer Bros. Co. announced on Thursday a plan (“Corporate Relocation Plan”) to close its Torrance, California facility and relocate these operations to a new state-of-the-art manufacturing, distribution and corporate headquarters facility.
This move is designed to make the Company more competitive and better positioned to capitalize on growth opportunities.
The Company expects this plan will result in annualized savings in the range of $12 to $15 million beginning in the latter half of fiscal 2016. The Company also reported financial results for the second quarter ended December 31, 2014.
Corporate Relocation Plan:
“Today we are unveiling a logical extension of the strategies that have guided the Company’s recent turnaround, enabling us to better compete and grow,” said Mike Keown, President and CEO.
“As we execute on our long-term strategic plans, we will relocate our Company headquarters to a state-of-the-art facility in a location central to our nation-wide customer base, and provide incremental manufacturing capacity to support future growth.
Our plan will introduce new efficiencies, automation and quality-control processes improving our ability to win in an extremely competitive market.”
The relocation will be from Torrance, California to either Dallas/Fort Worth, Texas or Oklahoma City, Oklahoma pending the outcome of state and local government incentive negotiations and final site selection.
The Torrance facility is expected to be closed down in phases commencing in the summer of 2015. Construction of the new facility and relocation are expected to be completed by the end of the summer of 2016.
Subject to the finalization of certain estimates, the Company estimates that it will incur approximately $25 million in cash costs in connection with the exit of the Torrance facility, as further described in Item 2.05 of the Company’s Form 8-K filed today.
The Company expects to incur certain other non-cash asset impairment costs and potential curtailment charges the amount of which the Company has not yet estimated.
The Company expects to recognize approximately 40% of the aggregate cash costs in fiscal 2015, including $1.0 million incurred in the first half of fiscal 2015, with the remainder expected to be recognized in fiscal 2016 and the first quarter of fiscal 2017.
The Company also expects to incur approximately $35 million to $40 million in new facility costs with an additional $20 million to $25 million in anticipated capital expenditures for machinery and equipment, furniture and fixtures, and related expenditures.
The capital expenditures associated with the new facility are expected to be partially offset by the net proceeds from the planned sale of the Company’s Torrance facility.
The Company believes that the current land value of the Torrance facility, based strictly on comparable sales data and the size of the parcel (and without any changes or improvements to the parcel or facility), is estimated to be between $28 million and $35 million.
Approximately 350 positions are expected to be impacted as a result of the Torrance facility closure. “These were difficult decisions and the actions will affect many valued and long-term employees. We appreciate everyone’s support in helping Farmer Brothers get to this next stage, and we are committed to ensuring a smooth transition for employees,” added Mr. Keown.
“As we begin to implement the relocation of our Torrance facility and during this transition period, we remain steadfast in our commitment to ensuring continued and uninterrupted service to our thousands of customers nationwide,” said Mr. Keown. “We are excited at the tremendous opportunities ahead as we prepare Farmer Brothers for the next hundred years.”
Second Quarter Fiscal 2015 Highlights:
- Net sales increased 1.2% to $144.8 million in the second quarter;
- Gross profit decreased $(1.3) million to $53.1 million in the second quarter;
- Income from operations was $3.5 million in the second quarter compared to $5.7 million; and
- Net income was $2.9 million, or $0.18 per diluted common share, compared to $4.7 million, or $0.29 per diluted common share.
(All comparisons above are to the second quarter of fiscal 2014.)
Second Quarter Fiscal 2015 Results:
Net sales for the second quarter of fiscal 2015 increased $1.7 million, or 1.2%, to $144.8 million from $143.1 million in the second quarter of the prior fiscal year primarily due to increases in sales of our coffee, tea and other beverage products.
Gross profit in the second quarter of fiscal 2015 decreased $(1.3) million, or (2.3)%, to $53.1 million as compared to $54.4 million in the second quarter of fiscal 2014, primarily due to a 43% increase in the average cost of green coffee purchased, partially offset by the increase in net sales.
Gross margin decreased 130 basis points to 36.7% in the fiscal quarter ended December 31, 2014 from 38.0% in the comparable period in the prior fiscal year, primarily due to the higher average cost of green coffee purchased.
Treasurer and CFO, Mark Nelson said, “In the second quarter, volume growth did not meet our expectations which, coupled with an increase in our coffee commodity input costs, put pressure on our realized gross margin.” Mr. Nelson continued, “We believe our continuing focus on optimizing our supply chain and back office functions will help improve profitability and make the Company more competitive for the future.”
Operating expenses in the second quarter of fiscal 2015 increased $0.9 million, or 1.9%, to $49.6 million from $48.7 million in the second quarter of the prior fiscal year primarily due to expenses incurred in relation to the Corporate Relocation Plan.
Income from operations in the second quarter of fiscal 2015 was $3.5 million compared to $5.7 million in the second quarter of the prior fiscal year.
Total other expense in the second quarter of fiscal 2015 and 2014 was $0.4 million and $0.5 million, respectively.
Income tax expense in the second quarter of fiscal 2015 was $0.3 million compared to $0.4 million in the second quarter of the prior fiscal year.
As a result, net income in the second quarter of fiscal 2015 was $2.9 million, or $0.18 per diluted common share, compared to $4.7 million, or $0.29 per diluted common share, in the second quarter of the prior fiscal year.
Investor Conference Call
Michael H. Keown, President and Chief Executive Officer, and Mark J. Nelson, Treasurer and Chief Financial Officer, will host an investor conference call today, February 5, 2015, at 5:00 p.m. Eastern time (2:00 p.m. Pacific time) to review the Company’s results for the second quarter ended December 31, 2014 and to discuss the announcement regarding the Corporate Relocation Plan.
The call will be open to all interested investors through a live audio web broadcast via the Internet at— http://edge.media-server.com/m/p/4wbc6ku5 —and at the Company’s website www.farmerbros.com under “Investor Relations.” The call also will be available to investors and analysts by dialing (844) 423-9890. The passcode/ID is 73011472 within the U.S. and Canada.
The audio-only webcast will be archived for approximately 30 days on the Investor Relations section of the Farmer Bros. Co. website, and will be available approximately four hours after the end of the live webcast.
