Coffee Holding Co., Inc. (NASDAQ:JVA) is an integrated wholesale coffee roaster and dealer in the United States, offering a diverse portfolio of coffee products across the spectrum of consumer tastes and preferences. The company's operations span the sale of wholesale specialty green coffee, the roasting and packaging of private label and proprietary branded coffee, as well as the sale of tabletop coffee roasting equipment.

Business Overview

Coffee Holding Co. operates in three primary product lines: Wholesale Green Coffee, Private Label Coffee, and Branded Coffee. The Wholesale Green Coffee segment involves the sale of unroasted raw coffee beans imported from around the world to large and small roasters and coffee shop operators. The Private Label Coffee segment encompasses the roasting, blending, and packaging of coffee under the specifications and names of others, including major supermarkets. The Branded Coffee segment covers the roasting and blending of coffee to the company's own specifications, which are then packaged and sold under Coffee Holding's eight proprietary and licensed brand names.

The company's customer base is primarily located throughout the United States, with limited sales in Canada and certain Asian countries. Customers include supermarkets, wholesalers, and individually-owned and multi-unit retailers. Coffee Holding's unprocessed green coffee is sold primarily to specialty gourmet roasters and coffee shop operators in the U.S., with some international sales in Australia, Canada, England, and China.

Financials

For the fiscal year ended October 31, 2023, Coffee Holding reported annual net income of -$835,576 on revenue of $68,173,404. The company generated annual operating cash flow of $652,083 and annual free cash flow of -$205,677.

In the most recent quarter ended April 30, 2024, the company reported net sales of $18,995,913, up 24% from $15,320,703 in the prior year quarter. Gross profit for the quarter amounted to $3,703,980, or 19.5% of net sales, compared to $2,832,181, or 18.5% of net sales, in the year-ago quarter. The company recorded a net loss of $21,841, or $0.00 per share, for the quarter, compared to a net loss of $359,840, or $0.06 per share, in the prior year period.

For the six months ended April 30, 2024, Coffee Holding reported net sales of $38,536,315, up 15% from $33,646,818 in the same period of the prior year. Gross profit for the six-month period was $7,184,279, or 18.6% of net sales, compared to $5,152,485, or 15.3% of net sales, in the prior year six-month period. The company generated net income of $329,183, or $0.06 per share, for the six months ended April 30, 2024, compared to a net loss of $891,943, or $0.16 per share, in the year-ago six-month period.

The increase in net sales for both the quarter and six-month period was primarily driven by higher sales to new private label customers. Gross profit margins improved due to better cost management and pricing adjustments.

Liquidity

As of April 30, 2024, Coffee Holding had working capital of $18,723,150, representing a $122,888 increase from the $18,600,262 in working capital as of October 31, 2023. The company's cash and cash equivalents balance stood at $2,427,689 as of April 30, 2024, down from $2,733,977 as of October 31, 2023.

The company's line of credit will become due on June 30, 2024, and Coffee Holding is currently seeking to renew the financing arrangement prior to its maturity date. The line of credit agreement requires the company to maintain compliance with certain financial covenants, which it was not in compliance with as of October 31, 2023. However, Coffee Holding has since received a waiver from the lender on May 24, 2024 and is now in compliance with all requirements. The current outstanding balance on the line of credit was $3.0 million as of April 30, 2024.

Until the line of credit is renewed, the uncertainty surrounding the company's ability to meet its debt obligations raises substantial doubt about Coffee Holding's ability to continue as a going concern. Management is actively engaged in discussions with the lender to extend the term of the credit facility.

Risks and Challenges

Coffee Holding's business is subject to several risks and challenges, including its dependency on the volatile coffee commodity market, the effectiveness of its hedging strategy, the success of its joint ventures, and its ability to comply with the restrictive covenants in its credit facility. The company also faces competition from other coffee manufacturers and alternative beverage options, as well as potential supply chain disruptions and fluctuations in the supply and price of green coffee beans.

Outlook

The company has not provided any formal guidance or outlook for the upcoming fiscal year. However, management has indicated that it is focused on expanding its presence in new geographic regions, improving the effectiveness of its hedging strategy, and strengthening its relationships with existing customers while attracting new ones.

Conclusion

Coffee Holding Co., Inc. is navigating a challenging operating environment marked by volatility in the coffee commodity market and uncertainty surrounding its credit facility. The company's diversified product portfolio, spanning wholesale green coffee, private label, and branded coffee, has helped it weather these headwinds to some degree. However, the company's ability to continue as a going concern is contingent upon its successful renewal of the line of credit prior to its June 2024 maturity. Investors should closely monitor Coffee Holding's progress in this regard, as well as the company's efforts to enhance its operational efficiency and expand its customer base.