Farmer Bros. reports fiscal Q2 net earnings of US$4.7M, compared to year-ago loss of US$7.2M, as net sales rise 4.8% to US$142.1M

TORRANCE, California , February 11, 2014 (press release) – Farmer Bros. Co. (FARM), today reported financial results for the three and six months ended December 31, 2013.

Second Quarter Fiscal 2014 Highlights:

-- Net sales increased 4.8% to $142.1 million in the second quarter;

-- Gross profit increased 10.1% to $55.4 million in the second quarter;

-- Income from operations was $5.7 million in the second quarter compared to $0.5 million; and

-- Net income was $4.7 million, or $0.29 per diluted common share, compared to net loss of $(7.2) million, or $(0.46) per diluted common share.

(All comparisons above are to the second quarter of fiscal 2013)

"Overall, it was a very solid quarter in our key season," stated CEO, Michael Keown. "Volume was strong and we continued to hold the line on costs." Mr. Keown continued, "it is important to note that there were several events outside the norm that helped the quarter including a large storm-related insurance recovery."

Fiscal Three Month Results:

Net sales in the second quarter of fiscal 2014 increased $6.4 million, or 4.8%, to $142.1 million from $135.7 million in the second quarter of the prior fiscal year. The increase in net sales was primarily due to increases in sales of coffee and tea products.

Gross profit in the second quarter of fiscal 2014 increased $5.0 million, or 10.1%, to $55.4 million, as compared to $50.4 million during the second quarter of the prior fiscal year, primarily due to the increase in net sales. Gross profit in the second quarter of the prior fiscal year included the expected beneficial effect of the liquidation of LIFO inventory quantities in the amount of $0.5 million. Gross margin increased 190 basis points to 39.0% in the second quarter of fiscal 2014 from 37.1% in the second quarter of the prior fiscal year, primarily due to a 29% lower average cost of green coffee purchased. The increases in gross profit and gross margin in the second quarter of fiscal 2014 were partially offset by $3.7 million in coffee hedging costs related to the hedged transactions that affected earnings in this period.

Operating expenses in the second quarter of fiscal 2014 decreased $0.1 million, or 0.2%, to $49.7 million, or 35.0% of net sales, from $49.8 million, or 36.7% of net sales, in the second quarter of the prior fiscal year. Operating expenses decreased primarily due to the absence of startup costs for national customers, the absence of sales training expenses and storm-related expenses, and insurance recovery of storm-related losses, partially offset by the increase in accruals for anticipated employee bonus payments and additional accruals for incurred but not reported self-insurance claims.

Income from operations in the second quarter of fiscal 2014 was $5.7 million compared to $0.5 million in the second quarter of the prior fiscal year.

Total other expense in the second quarter of fiscal 2014 was $0.6 million compared to $7.7 million in the second quarter of the prior fiscal year. The decrease in total other expense in the second quarter of fiscal 2014 was primarily due to the implementation of procedures following the guidelines of ASC 815, "Derivatives and Hedging," beginning in April 2013 which enabled the Company to account for certain coffee-related derivative instruments as accounting hedges. As a result, beginning in April 2013, gains and losses from derivative instruments designated as accounting hedges are deferred in accumulated other comprehensive income and recognized in cost of goods sold in the period or periods when the hedged transaction affects earnings. Gains and losses from derivative instruments not designated as accounting hedges are immediately recognized in "Other, net." Total other expense in the second quarter of fiscal 2014 included $0.3 million in net losses on coffee-related derivatives as compared to $7.9 million in the comparable period of the prior fiscal year.

Income tax expense in the second quarter of fiscal 2014 was $0.4 million compared to income tax benefit of $(32,000) in the second quarter of the prior fiscal year.

Net income in the second quarter of fiscal 2014 was $4.7 million, or $0.29 per diluted common share, compared to net loss of $(7.2) million, or $(0.46) per diluted common share, in the second quarter of the prior fiscal year.

EBITDAE in the second quarter of fiscal 2014 increased to $14.4 million from $10.3 million in the second quarter of the prior fiscal year. EBITDAE is a non-GAAP financial measure; a reconciliation table of reported net income to EBITDAE is included at the end of this press release.

Chief Financial Officer, Mark Nelson said, "We are encouraged by the cash generation in our second fiscal quarter, as represented by the improvement in our EBITDAE measurement. As our EBITDAE margin has approached, and now exceeds 10% of net sales, we remain confident of the improving prospects for the business."

Fiscal Six Month Results:

Net sales in the first half of fiscal 2014 increased $15.8 million, or 6.2%, to $270.7 million from $254.9 million in the first half of the prior fiscal year primarily due to increases in sales of coffee and tea products.

Gross profit in the first half of fiscal 2014 increased $9.9 million, or 10.1%, to $104.9 million, as compared to $95.0 million during the first half of the prior fiscal year, primarily due to the increase in net sales. Gross profit in the first half of the prior fiscal year included the expected beneficial effect of the liquidation of LIFO inventory quantities in the amount of $0.5 million. Gross margin increased 150 basis points to 38.8% in the first half of fiscal 2014 from 37.3% in the first half of the prior fiscal year, primarily due to a 26% lower average cost of green coffee purchased. The increases in gross profit and gross margin in the first half of fiscal 2014 were partially offset by $6.0 million in coffee hedging costs related to the hedged transactions that affected earnings in this period.

Operating expenses in the first half of fiscal 2014 increased $0.5 million, or 0.5%, to $96.3 million, or 35.6% of net sales, from $95.8 million, or 37.6% of net sales, in the first half of the prior fiscal year. While operating expenses decreased primarily due to the absence of startup costs for national customers, the absence of sales training expenses and storm-related expenses, and insurance recovery of storm-related losses, this decrease was offset by the increase in accruals for anticipated employee bonus payments and additional accruals for incurred but not reported self-insurance claims.

Income from operations in the first half of fiscal 2014 was $8.6 million compared to loss from operations of $(0.9) million in the first half of the prior fiscal year.

Total other expense in the first half of fiscal 2014 decreased to $1.4 million from $2.9 million in the first half of the prior fiscal year, primarily due to lower losses from coffee-related derivatives recorded in "Other, net," after the implementation of ASC 815 which enabled the Company to account for certain coffee-related derivative instruments as accounting hedges. Net losses on coffee-related derivatives recorded in "Other, net" in the first half of fiscal 2014 were $1.2 million as compared to $7.2 million in the first half of the prior fiscal year. Total other expense in the first half of the prior fiscal year included $3.2 million in net gains on sales of assets, primarily real estate.

Income tax expense in the first half of fiscal 2014 was $0.7 million compared to $0.4 million in the first half of the prior fiscal year.

Net income in the first half of fiscal 2014 was $6.5 million, or $0.41 per diluted common share, compared to net loss of $(4.2) million, or $(0.27) per diluted common share, in the first half of the prior fiscal year.

EBITDAE in the first half of fiscal 2014 increased to $26.0 million from $18.4 million in the first half of the prior fiscal year. EBITDAE is a non-GAAP financial measure; a reconciliation table of reported net income to EBITDAE is included at the end of this press release.

About Farmer Bros. Co.

Founded in 1912, Farmer Bros. Co. is a manufacturer, wholesaler and distributor of coffee, tea and culinary products. The Company is a direct distributor of coffee to 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. The Company's product lines include roasted coffee, liquid coffee, coffee-related products such as coffee filters, sugar and creamers, assorted iced and hot teas, cappuccino, cocoa, spices, gelatins and puddings, soup bases, dressings, gravy and sauce mixes, pancake and biscuit mixes, and jellies and preserves. The Company's primary brands include Farmer Brothers(R), Artisan Collection by Farmer Brothers(TM), Superior(R), Metropolitan(TM) by Farmer Brothers, Cain's(R) and McGarvey(R). For more information, visit: www.farmerbros.com.

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