Coffee Holding reports Q2 EPS 11c vs. ‘slight loss’ last year

Reports Q2 revenue $23.3M vs. $19M last year. “We are pleased to report another quarter of strong results to our shareholders” said Andrew Gordon, CEO. “We grew sales by 22% while maintaining last quarter’s 19% gross margin on our revenues, in spite of our losing money on our largest wholesale supermarket customer during the quarter, due to a prior contractual obligation at lower green coffee market pricing. In addition, our revenues growth was achieved with lower selling, general and administrative expenses, indicating that future revenues growth may be achieved more efficiently to improve our bottom line results. Although the quarter proved challenging, I believe we navigated the situation well to produce a positive outcome for our shareholders. Early February saw Arabica prices trade up 12 consecutive days to lifetime highs, up over $1.00/lb. or 25% in a little over three weeks. This rapid, unprecedented move in green coffee prices forced us to initiate another round of price increases for our private label and branded coffee products. Unfortunately, price increases to these customers typically have a delayed effect and thus our gross margins and profitability on these accounts were negatively affected for several weeks during the quarter. However, all increases are now in effect and our results moving forward should reflect this fact. Following February’s dramatic market move, the announcement of potential tariffs on imports of coffee spooked the market in early April; sending coffee prices sharply lower, as macro and future demand concerns weighed on market sentiment. We were opportunistic during the selloff, extending inventory positions ahead of the potentially negative effects of tariffs; providing us with additional inventory coverage at lower “tariff free” market price levels. Because of this, we believe these tariffs, along with the rebound in the green coffee market, will give us a slight tailwind to start the third quarter, as many of our competitors have been forced to increase prices to mo”st customers, thus giving us a competitive advantage for the immediate future. This is extremely important as our sales of our Cafe Caribe and Cafe Supremo continue to remain strong in the highly competitive Latin espresso coffee space. The results from our recent acquisition, Empire Coffee Company, were also encouraging as we cut our loss from the first quarter in half and increased our sales by quarter’s end to the level which Empire was at prior to their descent on tough times. We believe that this business, Second Empire, will be accretive to earnings by the end of our next quarter, confirming the anticipated turnaround in operations in a much shorter time frame than we had hoped for when we originally assessed the acquisition opportunity.