Farmer Bros. Reports Net Income Per Share of $0.21 for Second Quarter

Farmer Bros. Co. (Nasdaq:FARM) today reported net income of $2.9 million or $0.21 per share for its second fiscal quarter ended Dec. 31, 2006, compared with net income of $4.1 million or $0.30 per share in the same quarter last year. For the first half of fiscal 2007, the Company reported net income of $3.9 million or $0.28 per share compared with net income of $3 million or $0.22 per share in the first half of fiscal 2006.

“We continued to see steady progress for our long-term efforts to hold down our operating costs as we invest in programs to grow sales,” said Guenter Berger, Chairman and Chief Executive Officer. “Our efforts to promote our brand and re-acquaint our customers with the full scope of our product offerings are showing early signs of success.”

Sales in the quarter increased 1% to $55.4 million compared with the same quarter last year, and increased to $103.7 million for the first half of fiscal 2007. A decline in sales of roast coffee was offset in the second quarter by an increase in the sale of allied products. Cost of goods sold were 41% of revenues in the second quarter of 2007 compared with 40% in last year’s second quarter. Although the Company reported better profit margins on its allied products in the quarter, it also noted that market prices for green coffee during this period were about 10% higher than last year’s market prices.

Selling expenses in the second quarter increased by 4% over the same period last year, primarily reflecting increased costs of coffee brewing equipment related to new sales programs.

The Company reported cash and short-term investments of $183.6 million on Dec. 31, 2006, up from $181.7 million on June 30, 2006. The Company’s cash outlay for its shareholder dividend during the same six-month period of fiscal 2007 was about $3.1 million.

Management updated the progress of its longer-term growth initiatives:

Promotion of our brand: The Company in October began to roll out new packaging, and expects to continue for the rest of fiscal 2007 to be rolling out the packaging and point-of-sale materials, which it designed to enhance brand awareness and product image.

New products: During the second quarter the Company continued to develop and introduce new products. It reported favorable reception for its expanded line of canned coffees, which include Premium, Premium Decaf, 100% Columbian, and Dark-Roast blends. In addition, the new Arabica Rush bagged coffee continues to be favorably received. The new items are helping the sales force to reintroduce the Company’s broader product line to new customers.

Expansion and Cost Control: The Company opened a new branch in Cincinnati and continued to make progress toward opening a branch in Shreveport before the end of fiscal 2007. The Company said it continues to implement changes to its information systems, which are designed to improve the Company’s effectiveness and efficiency and it expects to install a major upgrade of its sales system in the second half of fiscal 2007.

Forward-Looking Statements

Certain statements contained in this report 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 “anticipates,”"feels,”"estimates,”"projects,”"expects,”"plans,”"believes,”"intends,”"will,”"assumes” 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. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Users should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. 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 attracting new customers, variances from budgeted sales mix and growth rates, and weather and special or unusual events, as well as other risks described in this report and other factors described from time to time in the Company’s filings with the SEC.

(Dollars in thousands, except share and per share data)

 

Three months ended

December 31,

 

Six months ended

December 31,

 

2006 

 

2005 

 

2006 

 

2005 

Net sales

$

55,476 

$

54,950 

$

103,740 

$

103,374 

Cost of goods sold

 

22,995 

 

21,796 

 

43,176 

 

41,335 

Gross profit

$

32,481 

$

33,154 

$

60,564 

$

62,039 

Selling expenses

26,131 

25,016 

50,795 

49,085 

General and administrative expenses

 

5,210 

 

4,989 

 

11,366 

 

10,929 

Operating expenses

$

31,341 

$

30,005 

$

62,161 

$

60,014 

Income (loss) from operations

$

1,140 

$

3,149 

$

(1,597)

 

$

2,025 

Other income:

Dividend income

986 

881 

1,942 

1,750 

Interest income

1,457 

965 

2,917 

1,880 

Other, net income (expense)

 

387 

 

292 

 

1,691 

 

(1,423)

Total other income, net

$

2,830 

$

2,138 

$

6,550 

$

2,207 

Income before taxes

3,970 

5,287 

4,953 

4,232 

Income tax expense

 

1,017 

 

1,123 

 

987 

 

1,147 

Net income

$

2,953 

$

4,164 

$

3,966 

$

3,085 

Net income per common share

$

0.21 

$

0.30 

$

0.28 

$

0.22 

Weighted average shares outstanding

14,075,523 

13,875,017 

14,048,023 

13,843,195 

Dividends declared per share

$

0.11 

$

0.105 

$

0.22 

$

0.21