Q3 2025 Farmer Bros. Co. Earnings Call
Okay.
Good afternoon, and welcome to the Farmer brothers third quarter.
Fiscal 'twenty 25 earnings conference call.
At this time all participants are in a listen only mode.
As a reminder, this call is being recorded.
Today, the company filed its Form 10-Q and issued its third quarter results press release, which are available on the Investor Relations section of the farmer Brothers' website at farmer Bros. Dot com.
The release is also included as an exhibit on the company's Form 10-Q and is available on its website and the securities and exchange Commission's website.
S E C dot Gov, a replay of this audio only webcast will also be available on the company's website approximately two hours. After the conclusion of this call.
Before we begin the call. Please note that all the financial information presented is audited and various remarks made by management. During this call about the company's future expectations plans and prospects may constitute forward looking statements for the purposes of the safe Harbor.
Provisions under the federal Securities laws and regulations.
These forward looking statements represent the company's views as of today and should not be relied upon as representing the company's views as of any subsequent date.
Results could differ materially from those forward looking statements.
Additional information on factors, which could cause actual results and other events to differ materially from those forward looking statements is available in the company's release and public filings.
including Adjusted EBITDA and Adjusted EBITDA Margin in assessing the company's operating performance.
Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is also included in the company's release and SEC filings.
Speaker Change: I will now turn the conference over to former brothers, President and Chief Executive Officer John Moore. Mr. Moore, please go ahead.
Good afternoon everyone and thank you for joining us.
Speaker Change: I am incredibly proud of our team and their ability to continue to maintain and build on the positive momentum we have achieved over the last several quarters, despite the extremely challenging consumer and industry headwinds.
Speaker Change: As all of you are well aware, both the Arabica and Robusta coffee markets remain historically
Speaker Change: Consumer confidence dropped again in April according to the conference board to the lowest reading in many years, and nervous consumers spend less than less often. These market dynamics coupled with uncertainty regarding the potential impact of tariffs continues to put pressure on the industry as a whole.
Speaker Change: Farmer Brothers has been proactively working to address these challenges by streamlining our operations, increasing internal efficiencies, and reducing our overhead to better manage our overall cost structure.
Speaker Change: As is evident by our recent results, we believe these efforts have had a meaningful and positive impact on the organization and have us well positioned to meet the challenging market environment.
Speaker Change: We must continue to protect our gross margins and the progress we have made to date in spite of the macroeconomic headwinds.
Speaker Change: As such, we recently completed some additional rightsizing of the organization, primarily among our support teams in corporate leadership.
Speaker Change: Included in those changes was the departure of our Chief Operations Officer Tom Bauer.
Speaker Change: We thank Com for his service and all that he has done over the last two years to help us navigate a significant amount of change and build the strong foundation upon which we now stand.
Speaker Change: Our sales team, led by Brian Miller, who joined us earlier this year, and our DSD teams will remain separate as we mentioned on our last call. This will allow each respective team to focus solely on driving top-line revenue and increasing both customer growth and retention.
Speaker Change: Our DSD team will now be led by Vice President of Field Operations Travis Young, who previously served as one of our DSD regional directors.
Speaker Change: Travis has been with Farmer Bros for almost 25 years and has worked in a variety of roles across our operations, sales, and production teams. His experience in the trenches and vast knowledge of the industry, our company, and our customer base make him uniquely positioned to lead our DSD efforts.
Speaker Change: He also provides valuable insight and leadership into our ongoing route and capital optimization efforts, as well as our operational system and process enhancements.
Speaker Change: The official launch of someone coffee roosters this quarter also marked the completion of our brand pyramid and coffee skew rationalization initiatives.
Speaker Change: Over the last year, these projects have allowed us to remove redundancies, optimize our roasting and operational facilities, reduce overhead costs, simplify our go-to-market strategy, and enhance the overall customer experience.
Speaker Change: With clearly defined traditional premium and specialty tiers available across our nationwide DSD Network for the first time in our history, our customers can now engage at the levels in prices which make the most sense for them.
Speaker Change: This, along with our customer service efforts, is something that will continue to set Farmer Bros apart in a marketplace, particularly in the current economic environment.
Speaker Change: With that said, we did continue to see declines in overall coffee volumes and customer account during the quarter.
Speaker Change: Total coffee pounds were down 9.4% compared to the third quarter of 2024. We believe this is driven in part by downstream degradation across the customer base.
Speaker Change: Despite these declines, we continue to deliver improved course margins and adjusted evidences of results. This is primarily a result of our cost management efforts and proactive pricing approach.
Speaker Change: Overall, we are proud of the progress we have made and the results we have been able to deliver despite these unprecedented market conditions.
Speaker Change: We know there is still much to do as we proactively navigate this ever-changing market environment, focus on execution and position farmer brothers for long-term growth. With that, I'll now turn it over to Vance to discuss our financials in more detail. Vance?
Vance: Thanks John , and good afternoon everyone. As John said, Farmer Brothers continues to deliver solid results despite the challenging operating environment. With positive adjustity but a strong growth margin performance and continued improvement in our cost structure.
Vance: Overall, our adjusted EBITDA for the quarter was 1.7 million, an increase of approximately 1.5 million compared to the third quarter of last year.
Vance: Our adjusted EBITDA results were again supported by healthy gross margins. Gross margin in the third quarter was 42.1%, a year-over-year increase of 200 basis points compared to 40.1% in the third quarter of last year.
Vance: As expected, Gross margins did contract slightly compared to the second quarter, which reflects rising coffee prices, working through across the good soil.
Vance: We expect this to continue over the coming quarters, but feel we have appropriately planned for this and will continue to actively manage inventory and pricing to deliver margins above our 40% target despite current market conditions.
Vance: Net sales during the third quarter of fiscal 25 were down on a year-over-year basis to 82.1 million compared to 85.4 million during the prior year period.
Vance: Operating expenses were $38.1 million in the third quarter compared to $34.7 million in the prior year period.
Vance: The 3.4 million increase was primarily driven by a 5.3 million decrease in that gains related to asset disposals, as there were no branch sales in the third quarter of this fiscal year.
Vance: When it just hit for net asset sales, operating expenses decline 1.9 million on a year-over-year basis.
Vance: For the third quarter, Farmer Bros recorded a net loss of 5 million compared to a 700,000 net loss in the third quarter of last year. This quarter's results, however, were included a 2.4 million net loss associated with the disposal of assets, while the prior year period included a 2.9 million gain associated with the disposal of assets.
Vance: Looking at the balance sheet as of March 31, 2025, we had 4.1 million of unrestricted cash and cash equivalents, 200,000 in unrestricted cash, and 23.3 million in outstanding borrowings under our credit facility with 22.1 million of additional borrowing capacity.
Vance: For the third quarter, cash flow from operating activities was 1.3 million, an increase of 3.6 million compared to the same period last year, and marking our third consecutive quarter a positive operating cash flow.
Vance: Green Passflow was negative at 0.7 million for the quarter, a five million improvement over the third quarter of last year, a testament to our progress in driving better operating performance and improved working capital and CAPEX efficiency.
Vance: Looking ahead, we expect market conditions to continue to be challenging. We remain focused on execution and proactively managing the dynamic market conditions we are in and believe we are well positioned to do so.
Vance: We are pleased with the results of our recent quarters and believe they demonstrate the significant progress we've made in our ability to generate long-term value under more normal market conditions.
With that, I'll turn it back over to John . John .
John Moore: Thanks, Vance. To date, this year has been one of tremendous improvement for Farmer Brothers. We are extremely proud of the progress we have made both operationally and financially, particularly in terms of adjusted EBITDA gross margins and improvements in our overall
John Moore: We do, however, know there is still much work to be done. We remain committed to driving growth in our top line coffee volumes and customer base, as we know these are fundamental to our long-term success.
John Moore: With our fully implemented brand pyramid, we now have a tiered go-to-market strategy, which allows our customers to move up and down the value chain to meet their current business needs.
John Moore: Rather than looking for a new supplier, Farmer Brothers now offers them a good, better and best option to meet their quality and price requirements, while also providing additional beverage and allied goods and equipment.
John Moore: as well as comprehensive white blood customer service. These elements are a true market differentiator for Farmer Brothers and a tremendous benefit in the current economic climate.
John Moore: Furthermore, with access to 90% of the global coffee market, our new simplified brand pyramid allows our planning and procurement team to fully take advantage of our global sourcing relationships to find the best origin options without sacrificing quality.
John Moore: This creates flexibility for our suppliers and allows us to proactively navigate potential tariff impacts as we continue to work to manage our cost structure. We do not anticipate any immediate tariff impacts to our cogs in the current fiscal year.
John Moore: We remain focused on these elements as well as our initiative to drive product penetration across our existing customer base and add density across our existing DSD routes. Our goal, of course, remains to drive top line and customer growth in the coming quarters.
John Moore: Overall, we remain confident that we are well positioned to realize significant positive gains and create meaningful long-term growth and profitability when more stable market conditions return. I want to thank you all for joining us on the call today. Operator, we will now open it up for questions.
John Moore: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
John Moore: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.
John Moore: The first question comes from Eric Laurier with Craig Hallum Capital Group. Please go ahead.
Great. Thanks for taking my questions. First one for me.
Speaker Change: I just wanted to clarify one of Vance's comments, so obviously there's some macro headwinds of pricing, you do expect some gross margin headwind as a result, but should we still expect a sort of 40% plus?
Speaker Change: In the quarters ahead, I wasn't sure if those headwinds might bring us below that, or if you guys still feel confident, but you kind of have enough leverage to pull to maintain that 40% gross margin.
Speaker Change: Hey, Eric. Good question. Thanks for the question. Yes. You know, we feel like the actions that we've taken today and will continue to take will certainly put us in a position to stay above that target range over 40%. So, it feels pretty good about that over the coming quarters.
Speaker Change: Great to hear. I guess it was a sort of a related question.
How much room do you have to...
Speaker Change: continue reducing operational costs or even costs of goods. I guess this may be overall how much from you have to continue increasing operational efficiency. I mean
Speaker Change: You know, you guys comment on, there's a lot of work still to be done, but frankly, you've made a lot of improvements already. I guess I'm just curious sort of where we are in the overall scheme of improving operational efficiency and reducing costs.
Speaker Change: Hi, Eric. This is John . Thanks for the question. Thanks for joining the call. I think...
Speaker Change: We've done a lot of work over the last year, year and a half.
to optimize the operations, as they've said.
Speaker Change: You know, you never stop looking for opportunities to optimize your business particularly in this environment
Speaker Change: But I do feel as though we've taken a number of measures to position us.
Speaker Change: and even selling deeper into the customers that we have. So I think that's really where opportunity is at the moment. That's management team's focus. That's the focus of the team.
Speaker Change: Yeah, that certainly makes sense to me. The last question from me.
Speaker Change: A bit of a perhaps unusual question, or I know it's not the typical focus, but on the allied products, how much of an ability is there to sort of add additional products or drive this revenue line? I mean, could this be a meaningful growth driver, or is it, you know, kind of...
Speaker Change: Too small of an impact, not worth it right now, while you guys are looking to add more customers, add root density, all that good stuff. I'm just kind of wondering about that.
Speaker Change: Revenue Month. No, thanks for that question, Eric. We see it as a tremendous opportunity. I think, you know, when you've got the customer accounts that we have, you always have your cap expand, it's already been committed, right? So the most...
Speaker Change: The advantageous way to add a media value is to sell deeper and...
Sort of land and expand with your existing customer base.
Speaker Change: And I think that for us we see that as a tremendous opportunity we've launched.
on Michigan specifically around that idea.
and we're seeing, you know, some positive returns already. So,
Speaker Change: So we're excited about that initiative. We have a lot of faith in our Rob Sales Representative team and the operations team to execute on that and I feel as though we've done a pretty good job of supporting that initiative with various other parts of the organization. So let's go.
Speaker Change: It's mobilized, the marketing team, it's mobilized sales support functions, it's mobilized field operations team, and we're seeing some good positive results.
Speaker Change: Alright, great to hear. I appreciate the color. Thank you for taking my questions.
Speaker Change: The next question is from Jerry Sweeney with Roth Capital. Please go ahead.
Good afternoon, John Vance, thanks for taking my call.
Hey, Jerry. Thanks for calling in.
Um.
Wanted to touch on new...
Speaker Change: the splitting or dividing of operations back in the previous quarter.
Speaker Change: Business Development, Field Operations, and I think this sort of goes along with some of the commentary around Query, so Field Operations, quite of optimization.
Speaker Change: running routes and then business development and that feels though it was a wreath and move just want to see how that was going.
Speaker Change: and how does that sort of play into some growth opportunities or at least strategy into developing some more growth opportunities.
Speaker Change: Sure. I think Brian Miller is still relatively fresh in the organization, but he's hit the ground running, and it's already making some...
Speaker Change: Pretty significant tribes. We're very pleased with the results there. There's been a bit of a cultural shift and shift and structure in the business development team and that's out of the business.
Speaker Change: I think he would characterize that as sort of creating centers of excellence that are not as much beholden to geography as they may have been in the past.
Speaker Change: and really more role in the function specific, where you're able to put your aces in your places.
Speaker Change: and have people that are pretty dedicated to their function really, really thrive in Excel.
Speaker Change: So those changes have already been made and implemented and now our focus is really on having a cleaner differentiation between those and that side that maintain the business and retain the customer base that we have, maintain those relationships and if anything strengthen those relationships.
Speaker Change: And then there's the pure customer acquisition activity, which is more sort of the classic hunter-gatherer differentiation, right? And there, too, we're seeing some early progress, some early results, so we're pleased with how that's going, but there's a ton of work to be done.
Speaker Change: and then I would say with Travis Young taking on the reigns of the field operations team, we both share a belief that our Brauxhaels representatives.
Speaker Change: Can really unlock a tremendous amount of value for the organization. I mean, if you look at the head count alone and that side of the operation, we have exponentially more people. [inaudible]
Speaker Change: Pound in the pavement every day, selling into the customer base that we have, where we have an ability to expand within that customer base what we're selling and how we're selling it.
Speaker Change: which makes us stick here with that customer base at the addition of each skew.
Speaker Change: But in addition to that, there is a little bit of latent capability there that we can have to do some business development work and some customer acquisition work.
Speaker Change: and not every single day is packed from beginning to end with deliveries.
Speaker Change: And we feel as though that team could add a tremendous amount of value by getting out and doing a little bit more business acquisition activity. So we're really looking to drive that over the quarters ahead and think that it could add quite a bit of value for the organization. [inaudible]
Got it. What's the biggest challenge right now to...
expanding growth. I mean, I- [inaudible]
I'm assuming that...
Speaker Change: It's probably the macroeconomic backdrop, a little uncertainty, et cetera, but I'm just curious as to...
How you guys feel it?
You know, we are we are still refining our value proposition and go to market strategy so
Speaker Change: I think as we continue to do that and we continue to enable our business acquisition team through better tools, better technology. I think we're going to start seeing that we're able to invest in that growth and then we'll start to see the results of the good looking form.
and then...
Corporate actions that took place.
Speaker Change: Did we see those? Did they benefit this quarter at all? Or should they sort of... well...
Will they benefit the next quarter with the-
being cognizant that they're also headwinds.
that are sort of the...
Purple Lighting Out There This
I want to see what
Speaker Change: and I took exactly when I took place and how they sort of filter into...
Results.
Vance: Yeah, Jerry, this is Vance, those actions were taken in early Q4.
Vance: So that you'll see the flow through in Q4 and really position is better going into fiscal 26 and set a baseline going into F-26.
Speaker Change: Got it. Great. Okay. That's it for me. I'll jump back and queue. Thanks.
Speaker Change: This concludes our question and answer session, and it also concludes our conference.