Farmer Bros. (US:FARM)2022-02-04 01:38Financial Data and Key Metrics Changes - For the second fiscal quarter, net sales increased by approximately $10 million sequentially and grew nearly $14 million year-over-year, representing a 13% increase compared to the prior year period [6][18] - Gross margin expanded by 50 basis points sequentially to 29.5% and by 440 basis points compared to the prior year period, marking the strongest quarterly gross margin since fiscal Q2 of 2019 [6][19] - Adjusted EBITDA was $4.5 million compared to $8.3 million in the prior-year period, with a year-over-year improvement of $3.4 million when excluding a one-time benefit from the previous year [22] Business Line Data and Key Metrics Changes - DSD sales volumes improved, with average weekly DSD sales down 17% from pre-COVID levels, an improvement from down 40% in the prior year period [8][15] - Direct ship sales were down 6.8% and pounds down 15.6% compared to the prior year, primarily due to the exit of less profitable accounts [16][17] Market Data and Key Metrics Changes - The company experienced strong sales in individual weeks in November and early December before the Omicron variant impacted sales [9] - The average DSD sales volumes showed a sequential improvement from down 25% in the first fiscal quarter to down 17% in the second fiscal quarter [15] Company Strategy and Development Direction - The company is focusing on cost savings opportunities, particularly in procurement and optimizing the flow of goods throughout its network [12] - The rebranding of the coffee brewing equipment business to "Revive" is ongoing, with progress in adding new branded trucks and launching a new website [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the overall health of the business and its market position, despite challenges from the Omicron variant and supply chain issues [9][14] - The company anticipates that benefits from recent price increases will flow through the P&L in the fiscal third and fourth quarters [8] Other Important Information - The company ended the quarter with total outstanding borrowings of $91 million and a cash balance of $3.6 million, down from $10.3 million at the end of the previous fiscal year [26][27] - Capital expenditures for the six months ended December 31, 2021, were $5.9 million, a decline of $3.8 million compared to the prior year period [25] Q&A Session Summary Question: What about new customer additions and expanding average order size within DSD? - Management noted that they are seeing a rebound of new customers and an increase in customer volume, despite ongoing impacts from COVID and labor shortages [28][30] Question: How did the market react to price increases? - Management reported a positive reaction from customers regarding price increases, with customers understanding the need for adjustments due to supply chain challenges [33][34] Question: What are the top opportunities to drive gross margin improvements? - Management highlighted opportunities in consolidating operations in Portland, optimizing logistics networks, and enhancing procurement efforts as key areas for margin improvement [36][38]