Company Overview and History

Farmer Brothers Co., a leading coffee roaster, wholesaler, and distributor, has demonstrated resilience and strategic positioning amidst the volatile market conditions impacting the coffee industry. With a history spanning over a century, the company has leveraged its expertise and diversified product portfolio to navigate the challenges of the past few years.

Established in 1912 and incorporated in California in 1923, Farmer Brothers has a rich heritage in the coffee industry. The company reincorporated in Delaware in 2004 and operates from its principal office in Fort Worth, Texas. Farmer Brothers serves a wide variety of customers, ranging from small independent restaurants and foodservice operators to large institutional buyers, including restaurants, department and convenience store retailers, hotels, casinos, healthcare facilities, and gourmet coffee houses.

Throughout its history, Farmer Brothers has faced various challenges, including navigating the Great Depression and World War II, which impacted its operations and customer base. In the following decades, the company adapted to changing consumer preferences and trends in the coffee and tea industry. A significant milestone for Farmer Brothers was its expansion into new product categories beyond just coffee, such as tea, culinary products, and other beverages. This diversification helped the company weather fluctuations in the coffee market and meet the evolving needs of its customer base.

Farmer Brothers has also made strategic acquisitions over the years to expand its geographic reach and product portfolio, although it has had to navigate challenges associated with integrating these acquired businesses into its operations. The company's evolution from a small coffee roaster to a diversified provider of coffee, tea, and allied products has demonstrated its resilience and adaptability throughout its over 100-year history.

Product Offerings

Farmer Brothers operates in one business segment and offers a diverse portfolio of products across several key categories:

1. Coffee Products: As the company's core offering, coffee comprises a robust line of roast and ground coffee, including organic, Direct Trade, Project D.I.R.E.C.T., Fair Trade Certified, and other sustainably-produced offerings. Coffee products accounted for 46.6% of net sales in the six months ended December 31, 2024.

2. Tea and Other Beverages: The company provides a variety of tea products, including iced and hot teas, some of which are organic and Rainforest Alliance Certified. Other beverages include cappuccino, cocoa, granitas, and concentrated and ready-to-drink cold brew and iced coffee. This category represented 28.0% of net sales in the first half of fiscal 2025.

3. Culinary Products: Farmer Brothers offers premium spices, pancake and biscuit mixes, gravy and sauce mixes, soup bases, dressings, syrups, and sauces. These products made up 18.0% of net sales in the six months ended December 31, 2024.

4. Spices: The company's spice offerings accounted for 6.0% of total net sales in the first half of fiscal 2025.

5. Delivery Surcharge: Farmer Brothers also generates revenue from delivery surcharges, which contributed 1.4% to net sales in the six-month period.

Additionally, the company offers coffee-related products like filters, cups, sugar, and creamers.

Financials

Farmer Brothers' financial performance in recent years has demonstrated its ability to navigate industry challenges. In the fiscal year ended June 30, 2024, the company reported total revenue of $341.09 million, a slight increase from the prior year's $339.96 million. However, the company's net income during this period was a loss of $3.88 million, compared to a loss of $79.18 million in the previous fiscal year. The annual operating cash flow for fiscal 2024 was -$14.15 million, and the annual free cash flow was -$27.99 million.

In the most recent quarter (Q2 2025), Farmer Brothers reported net sales of $90.02 million, a 0.6% increase from the prior year period. This growth was primarily driven by higher pricing, as the company experienced a 12.0% increase in average unit price, which offset a 10.0% decline in unit sales volumes. Net income for the quarter was $0.21 million, down from $2.70 million in Q2 2024. Quarterly operating cash flow was $2.60 million, and quarterly free cash flow was $0.50 million.

Gross profit for Q2 2025 increased to $38.84 million, up from $36.11 million a year earlier, and the gross margin expanded to 43.1% from 40.4%. This margin improvement was largely attributable to the favorable pricing environment.

Operating expenses increased to $37.82 million, or 42.0% of net sales, in Q2 2025, compared to $31.66 million, or 35.4% of net sales, in the prior year quarter. The increase was primarily due to a $7.67 million net loss on disposal of assets, compared to a $6.14 million gain in the year-ago period.

Liquidity

The company's liquidity position has improved, with $5.5 million in unrestricted cash and cash equivalents and $0.2 million in restricted cash as of December 31, 2024. Farmer Brothers had $23.3 million in outstanding borrowings under its credit facility, with $23.7 million of additional borrowing capacity available.

During the six months ended December 31, 2024, Farmer Brothers generated $5.05 million in cash flow from operating activities, a significant improvement compared to the $10.87 million used in operating activities during the same period in the prior year. The company's free cash flow, defined as cash flow from operating activities less capital expenditures, was $0.5 million for the six-month period, compared to a negative $21.90 million in the prior-year period.

The debt-to-equity ratio was 0.90 as of December 31, 2024. The current ratio was 1.28, and the quick ratio was 0.60 as of the same date.

Recent Performance and Strategic Initiatives

Farmer Brothers has been proactive in addressing the challenges posed by the volatile coffee market. In the second quarter of fiscal 2025, the company reported net sales of $90 million, relatively flat compared to the prior-year period but up 6% sequentially. Gross margin improved to 43.1%, a year-over-year increase of 270 basis points, driven by the company's pricing optimization efforts and actions taken to address rising coffee prices.

The company's focus on operational efficiency has also yielded positive results. Adjusted EBITDA, a non-GAAP metric, was $5.9 million in the second quarter of fiscal 2025, compared to $2.31 million in the same period of the previous year. This represents a year-over-year increase of $3.6 million, underscoring the company's progress in cost optimization and profitability improvements.

To further strengthen its sales and operational capabilities, Farmer Brothers has made strategic leadership changes. In January 2025, the company appointed Brian Miller as its Vice President of Sales, bringing over 25 years of experience leading teams in the consumer product industry. Additionally, Tom Bauer, previously the Vice President and Chief Commercial Officer, has transitioned to the role of Vice President and Chief Field Operations Officer, where he will focus on leading the company's DSD teams, logistics, planning, and procurement operations.

These leadership changes, coupled with the successful implementation of the company's brand pyramid strategy and SKU rationalization initiatives, have positioned Farmer Brothers to capitalize on growth opportunities and enhance operational efficiency. The brand pyramid strategy has enabled the company to align its product offerings across the country, while the SKU rationalization project has resulted in a significant reduction in the total number of SKUs, driving further optimization.

Business Operations and Distribution

Farmer Bros. Co. operates a production facility in Portland, Oregon and distributes its products through a nationwide direct-store-delivery (DSD) network of 239 delivery routes and 100 branch warehouses as of December 31, 2024. This extensive distribution network allows the company to efficiently serve its diverse customer base across the United States.

Industry Trends

According to a report by Mordor Intelligence, the global coffee market size is estimated at $132.13 billion in 2024 and is expected to grow to $166.39 billion by 2029, at a CAGR of 4.72% during the forecast period. This growth trend in the global coffee market presents potential opportunities for Farmer Brothers to expand its market share and revenue.

Outlook and Guidance

Management expects the unprecedented coffee markets to likely put pressure on their results over the coming quarters but remains focused on execution. They believe Farmer Brothers is in a much stronger position to manage these challenges, as demonstrated by their recent results.

The company's core focus is on driving growth in top-line coffee pounds and customer counts while continuing to optimize operations. Farmer Brothers expects to continue realizing benefits from their comprehensive SKU rationalization and brand pyramid projects through the back half of 2025.

Management is confident that when more stable market conditions return, Farmer Brothers will be well-positioned to realize significant positive gains and drive long-term growth and profitability.

Conclusion

Despite the ongoing challenges in the coffee industry, including high commodity prices and volatility, Farmer Brothers remains well-positioned to navigate these headwinds. The company's proactive pricing actions, inventory management, and cost optimization efforts have allowed it to maintain healthy gross margins and improve its overall financial performance.

Looking ahead, Farmer Brothers' focus on growing its customer base, expanding coffee volume, and enhancing operational efficiency will be crucial in driving long-term growth and profitability. The company's diversified product portfolio, including its growing Allied Goods segment, provides additional opportunities to create value for its customers and strengthen its market position.

Farmer Brothers' commitment to sustainability, stewardship, and environmental efforts aligns with the evolving preferences of its customer base, further enhancing the company's competitive edge. As the coffee industry navigates ongoing challenges, Farmer Brothers' strategic positioning, operational improvements, and leadership changes position the company well to capitalize on future growth opportunities in the expanding global coffee market.