FARMER BROTHERS CO

Farmer Brothers Co. is a leading coffee roaster, wholesaler, equipment servicer and distributor of coffee, tea and other allied products. The company serves a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurant, department and convenience store chains, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea products, and foodservice distributors. The coffee industry is highly competitive, including with respect to price, product quality, service, convenience, technology and innovation, and competition could become more intense due to the relatively low barriers to entry and industry consolidation.

The company faces competition from many sources, certain of which have greater financial and other resources, such as The J.M. Smucker Company (Folgers Coffee) and The Kraft Heinz Company (Maxwell House Coffee), wholesale foodservice distributors such as Sysco Corporation and US Foods Holding Corp., regional and national coffee roasters such as Westrock Coffee Company, Massimo Zanetti Beverage USA, Trilliant Food and Nutrition LLC, Gaviña & Sons, Inc., Royal Cup, Inc., Ronnoco Coffee, LLC, and Community Coffee Company, L.L.C., specialty coffee suppliers such as Rogers Family Company (San Francisco Bay Coffee), Distant Lands Coffee Company, Mother Parkers Tea & Coffee Inc., Starbucks Corporation and JAB Holding Company (Peet’s Coffee & Tea), and retail brand beverage manufacturers such as Keurig Dr. Pepper Inc. The company also competes with cash and carry and club stores such as Costco, Sam’s Club and Restaurant Depot and on-line retailers such as Amazon. During fiscal 2025, the company's top five customers accounted for approximately 3% ¹ of net sales.

The company generates revenue primarily through the sale of roast and ground coffee, frozen liquid coffee, ambient liquid coffee, flavored and unflavored iced and hot teas, culinary products including premium spices, pancake and biscuit mixes, gravy and sauce mixes, soup bases, dressings, syrups and sauces, and coffee-related products such as coffee filters, cups, sugar and creamers, other beverages including cappuccino, cocoa, granitas and other blender-based beverages and concentrated and ready-to-drink cold brew and iced coffee, and installation, repair and refurbishment services for coffee, tea and juice equipment. The company's nationwide direct-store-delivery (DSD) network is central to its operational framework, with over 200 delivery routes and over 90 storage locations ² as of June 30, 2025. The company also sells coffee and tea products directly to consumers through its websites and sells certain products at retail and through foodservice distributors.

The company's product and service categories include 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; frozen liquid coffee; ambient liquid coffee; flavored and unflavored iced and hot teas, including organic and Rainforest Alliance Certified™; culinary products including premium spices, pancake and biscuit mixes, gravy and sauce mixes, soup bases, dressings, syrups and sauces, and coffee-related products such as coffee filters, cups, sugar and creamers; other beverages including cappuccino, cocoa, granitas and other blender-based beverages and concentrated and ready-to-drink cold brew and iced coffee; and installation, repair and refurbishment services for a wide array of coffee, tea and juice equipment. Owned brand products are sold primarily into the foodservice channel, with primary brands including Farmer Brothers®, Sum>One, Metropolitan™, China Mist® and Boyds®. For fiscal 2025, net sales by product category were: Coffee (Roasted) 48.1% ³, Tea & Other Beverages 27.0% ⁴, Culinary 17.6% ⁵, Spices 6.0% ⁶, and Delivery Surcharge 1.3% ⁷.

The company's product categories also include frozen liquid coffee, ambient liquid coffee, and other beverages including cappuccino, cocoa, granitas and other blender-based beverages and concentrated and ready-to-drink cold brew and iced coffee. The company offers a comprehensive approach by providing value added services such as market insight, beverage planning, and equipment placement and service. The company's owned brand products are sold primarily into the foodservice channel, with primary brands including Farmer Brothers®, Sum>One, Metropolitan™, China Mist® and Boyds®. Artisan coffee products include Direct Trade, Project D.I.R.E.C.T.®, Fair Trade Certified™®, Rainforest Alliance Certified™, organic and proprietary blends. The company sells whole bean and roast and ground flavored and unflavored coffee products under the Cain's™ and Boyds® brands and iced and hot teas under the China Mist® brand through foodservice distributors at retail.

During fiscal 2025, the company completed the sale of 2 ⁸ branch properties, with a total sales price of $4.6 million ⁹ and net proceeds of $4.2 million ¹⁰, resulting in a gain on sale of $3.9 million ¹¹. The company and TreeHouse Foods, Inc. executed a Settlement Agreement and Release effective March 27, 2025, pursuant to which the company agreed to pay Buyer an amount equal to $0.8 million ¹². In the third quarter of fiscal 2025, the company completed a full settlement of the Hourly Employees' Plan through the purchase of nonparticipating annuities and lump sum elections. In the fourth quarter of fiscal 2025, the company completed a partial settlement of the Farmer Bros. Plan through the purchase of nonparticipating annuities and lump sum elections, resulting in a pension settlement charge of $7.7 million ¹³. The company also completed a full settlement of the Death Benefit plan in the fourth quarter of fiscal 2025, resulting in a pension settlement gain of $399 thousand ¹⁴ and tax income of $312 thousand ¹⁵. The company's capital expenditures for fiscal 2025 were $9.6 million ¹⁶ as compared to $13.8 million ¹⁷ in fiscal 2024. As of June 30, 2025, the outstanding debt on the Revolver Credit Facility was $14.3 million ¹⁸, a decrease of $9.0 million ¹⁹ since June 30, 2024.

Net sales in fiscal 2025 increased $1.2 million ²⁰, or 0.3% ²¹, to $342.3 million ²² from $341.1 million ²³ in fiscal 2024. Gross margin increased by 4.2% ²⁴ to 43.5% ²⁵ in fiscal 2025 from 39.3% ²⁶ in fiscal 2024. Net loss was $14.5 million ²⁷ in fiscal 2025 compared to $3.9 million ²⁸ in fiscal 2024. Net loss per common share — basic and diluted was $(0.68) ²⁹ in fiscal 2025 versus $(0.19) ³⁰ in fiscal 2024. EBITDA was $(0.4) million ³¹ in fiscal 2025 compared to $10.7 million ³² in fiscal 2024. Adjusted EBITDA was $14.8 million ³³ in fiscal 2025 compared to $0.6 million ³⁴ in fiscal 2024. Net cash provided by operating activities was $16.1 million ³⁵ in fiscal 2025 compared to net cash used in operating activities of $14.1 million ³⁶ in fiscal 2024.

The company is focused on executing manufacturing and network optimization, utilizing its Portland, Oregon facility and separate distribution centers, including its Rialto, California distribution center, to improve production efficiencies and balance volume across its manufacturing and distribution networks to facilitate sustainable long-term growth. The company is also leveraging its direct-store-delivery network for growth, with enhancements including optimizing the management of the route network to focus on business development, higher profitable sales and customer penetration, while utilizing key performance indicators to create better focus, accountability and alignment toward business objectives. Additionally, the company is focused on building partnerships that utilize its current distribution capabilities to expose it to industry and product innovation.

The company is continuing to enhance its premium and specialty coffee and tea programs, developing strategic partnerships, and building an advantaged allied product portfolio that resonates with its customers. The company will continue to provide leadership in sustainable product solutions for its customers. The company is also focused on driving customer satisfaction by providing customers the products they want, when they want them, and has invested in systems and processes to improve its ability to service its customers, driving continuous improvement on On-Time and In-Full and other key service metrics. The company is also focused on optimizing its product commercialization process and bringing innovation to its customers.

The company experienced higher gross margins in fiscal 2025 compared to fiscal 2024, with gross margins increasing by 4.2% ³⁷ to 43.5% ³⁸ in fiscal 2025 from 39.3% ³⁹ in fiscal 2024, driven by price increases implemented across its network. Operating expenses increased by $14.2 million ⁴⁰ in fiscal 2025 over the prior year period due to a $20.2 million ⁴¹ decrease in gain on sale of assets from the sale of branch properties and other assets compared to prior year, offset by a $3.6 million ⁴² decrease in selling expenses and a $2.4 million ⁴³ decrease in general and administrative expenses.

The company continues to develop and execute manufacturing network optimization, utilizing its Portland, Oregon facility and separate distribution centers to improve production efficiencies. The company executes branch and route rationalization, optimizes product offerings through SKU rationalization, individualizes customer delivery methods, and enhances inventory management. The company is implementing IT applications which it expects will enhance its supply chain optimization and flexibility, and continues to invest in and improve other IT capabilities to provide back-office support which will enable enhanced customer analytics, better product targeting and pricing, and create a more robust demand and supply process. As of June 30, 2025, the company employed approximately 865 ⁴⁴ employees, 198 ⁴⁵ of whom are subject to collective bargaining agreements expiring on or before January 31, 2028.

For fiscal 2026, the company anticipates capital expenditures will be between $9.0 million and $11.0 million ⁴⁶. The company expects to finance these expenditures through cash flows from operations and borrowings under its Revolver Credit Facility. The company did not declare or pay any cash dividend on its common stock and does not expect to pay cash dividends in the foreseeable future. The company did not repurchase any of its equity securities during the quarter ended June 30, 2025.

The company faces headwinds from fluctuations in the cost of green coffee, an exchange-traded agricultural commodity subject to price fluctuations. Recently, there has been increased volatility in the C market price, with prices at times increasing to five-year highs. Severe frosts and drought in Brazil currently threaten to negatively impact crop yields for multiple harvests, which could reduce supply and increase cost. The company also faces headwinds from competition in the coffee industry and beverage category, which is highly competitive with respect to price, product quality, service, convenience, technology and innovation. The company's customer base is price sensitive, and it is often faced with price competition.

The company faces constraints from the potential impact of tariffs and trade policy. The current U.S. presidential administration announced the implementation of significant new tariffs on foreign imported goods, certain of which recently went into effect. In response, various jurisdictions, including China, Canada and the EU, have announced plans for their own tariffs on American products. If such increased or additional tariffs or other restrictions are placed on goods imported into the United States, or any related counter-measures are taken by other countries, the company may have to raise its prices or increase inventory levels, or find new sources of supply for raw materials (including green coffee) that it imports.

The company's primary raw material is green coffee, an exchange-traded agricultural commodity subject to price fluctuations, and recently there has been increased volatility in the C market price with prices at times increasing to five-year highs, while severe frosts and drought in Brazil threaten to negatively impact crop yields for multiple harvests. The company had approximately $124.2 million ⁴⁷ in federal net operating loss carryforwards that will begin to expire in the tax year ending June 30, 2030 and $157.5 million ⁴⁸ in state net operating loss carryforwards that begin to expire in the tax year ending June 30, 2025, and an ownership change under Section 382 of the Internal Revenue Code could limit the company's ability to use these NOLs. The company participates in one multiemployer defined benefit pension plan, and if the company withdraws from participation, it could be required to make an additional lump-sum contribution, the amount of which could be material. As of June 30, 2025, the projected benefit obligation under the company's single employer defined benefit pension plan exceeded the fair value of plan assets, with a funded status of $(7.1) million ⁴⁹. The company's liquidity has been adversely affected by operating performance in recent periods, and at June 30, 2025, the company had $14.3 million ⁵⁰ in outstanding borrowings under its Credit Facility, and if liquidity materially declines, the company may experience springing covenants and an increase in its cost of borrowing.

Management's message emphasizes the company's dedication to delivering the coffee people want, the way they want it, and building partnerships with customers who value quality, a wide array of services and sustainable sourcing. The strategic priorities emphasized for the period ahead include executing manufacturing and network optimization, leveraging the direct-store-delivery network for growth, enhancing the product innovation pipeline, driving customer satisfaction, achieving service excellence in Revive Service & Restoration, and enhancing processes and systems. Management states that the company believes the Credit Facility, together with its cash flows from operations, will be sufficient to fund its working capital and capital expenditure requirements for the next 12 months. Management also notes that the company anticipates capital expenditures will be between $9.0 million and $11.0 million ⁵¹ in fiscal 2026.