Farmer Brothers is reshaping its business as net sales dipped to $82.1 million in Q3 amid higher costs but saw margins grow. The company’s gross profit rose to $34.5 million, with a 42.1% margin, up from 40.1% last year. This improvement comes despite a net loss of $5 million, wider than the $700,000 loss in 2024’s tertiary quarter. Farmer Brothers’ stock has plummeted over 50% year-over-year, trading near its 52-week low as investors weigh ongoing challenges against margin gains.
Farmer Brothers credits the stronger margins to brand differentiation efforts, including a revamped product lineup. It recently launched Sum>One Coffee Roasters, a specialty coffee brand, and streamlined its offerings by cutting underperforming products over the past year. A tiered sales strategy aims to let customers choose between budget and premium options, sharpening its market position.
Farmer Bros. strengthened margins through brand differentiation, launching Sum>One Coffee Roasters, cutting underperforming products, and implementing tiered pricing to target varied customer preferences.
Operational efficiencies have also played a role. Leadership changes, like promoting new field operations managers, and a focus on route density—serving more customers per delivery route—have helped cut costs. Adjusted EBITDA rose $1.5 million year-over-year, showing progress despite a $3.3 million sales decline.
However, operating expenses grew to $38.1 million, partly due to lower gains from asset sales. The company’s restructuring included the departure of its chief operations officer, part of broader moves to simplify operations.
Farmer Brothers is now exploring bigger changes. A committee of independent directors is reviewing options like selling the company or merging with another firm. Financial and legal advisors are assisting the process, which remains open-ended with no deadline.
The review follows major shifts last year, including selling its direct shipping business to focus on roasting and wholesale operations. Analysts note challenges: Q3 revenue of $82.05 million missed estimates by $7.6 million, and its per-share loss of $0.23 was double expectations.
Still, gross margins above 40% signal stability. Investors appear wary, with stock swings likely tied to uncertainty over the strategic review. Meanwhile, recent filings show institutional investor shifts, including PENN CAPITAL MANAGEMENT increasing its stake by 28.6% while ADAGE CAPITAL PARTNERS exited entirely. Company leaders argue recent moves—brand updates, cost cuts, and portfolio tweaks—have set the stage for recovery.
Whether it pivots independently or through a deal, Farmer Brothers faces pressure to turn its margin gains into lasting growth.
