Farmer Bros. Co. (FARM) Bundle
Understanding Farmer Bros. Co. (FARM) Revenue Streams
Understanding Farmer Bros. Co.’s Revenue Streams
Farmer Bros. Co. generates revenue primarily from the sale of coffee, tea, and culinary products. The following table summarizes net sales by product category for the three months ended September 30, 2024, compared to the same period in 2023:
| Product Category | 2024 Net Sales ($000) | 2024 % of Total | 2023 Net Sales ($000) | 2023 % of Total |
|---|---|---|---|---|
| Coffee (Roasted) | 39,232 | 46.1% | 37,892 | 46.3% |
| Tea & Other Beverages | 23,770 | 27.9% | 20,234 | 24.7% |
| Culinary | 15,555 | 18.3% | 16,910 | 20.7% |
| Spices | 5,289 | 6.2% | 5,613 | 6.8% |
| Delivery Surcharge | 1,220 | 1.5% | 1,239 | 1.5% |
| Total Net Sales | 85,066 | 100.0% | 81,888 | 100.0% |
In the three months ended September 30, 2024, net sales increased by $3.2 million, or 3.9%, to $85.1 million from $81.9 million in the same period in 2023. This growth was primarily driven by higher pricing, despite a decrease in unit sales.
The following table illustrates the year-over-year revenue growth rate for the last three fiscal years:
| Fiscal Year | Net Sales ($ million) | Year-over-Year Growth Rate (%) |
|---|---|---|
| 2022 | 300.0 | N/A |
| 2023 | 325.0 | 8.3% |
| 2024 | 340.0 | 4.6% |
For the three months ended September 30, 2024, unit sales decreased by 10.5%, while the average unit price increased by 16.1%, leading to a net sales increase despite lower sales volume. The detailed impact of unit sales and pricing on net sales is shown below:
| Impact on Net Sales ($ million) | Decrease from Unit Sales | Increase from Pricing & Product Mix | Total Change |
|---|---|---|---|
| 3.2 | (9.8) | 13.0 | 3.2 |
The contribution of different business segments to overall revenue reflects a stable reliance on the coffee segment, while the tea and culinary segments show growth. The culinary segment's contribution has decreased from 20.7% in 2023 to 18.3% in 2024, indicating a shift in revenue dynamics.
Overall, the increase in net sales is attributed mainly to pricing strategies rather than volume growth. The company has not introduced any new product categories that significantly impacted sales in 2024.
A Deep Dive into Farmer Bros. Co. (FARM) Profitability
A Deep Dive into Farmer Bros. Co.'s Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was $37.3 million, representing a gross margin of 43.9%. This is an increase from $30.8 million and a margin of 37.6% during the same period in 2023, indicating a 6.3% increase in gross margin year-over-year.
Operating Profit Margin: The loss from operations for the three months ended September 30, 2024, was $(2.8) million, compared to a loss of $(2.1) million in the same period of 2023. This indicates a worsening of the operating margin, reflecting an increase in operating expenses as a percentage of sales.
Net Profit Margin: The net loss for the three months ended September 30, 2024, was $(5.0) million, compared to a net loss of $(1.3) million for the same period in 2023. This results in a net profit margin of (5.9%) for 2024, compared to (1.6%) for 2023, reflecting a significant decline in profitability.
Trends in Profitability Over Time
The following table summarizes key profitability metrics over the past two fiscal years:
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net Sales | $85.1 million | $81.9 million | +3.9% |
| Gross Profit | $37.3 million | $30.8 million | +21.2% |
| Gross Margin | 43.9% | 37.6% | +6.3% |
| Operating Loss | $(2.8) million | $(2.1) million | +35.4% |
| Net Loss | $(5.0) million | $(1.3) million | +282.7% |
Comparison of Profitability Ratios with Industry Averages
The company’s gross margin of 43.9% is above the industry average of approximately 35% for food and beverage companies. However, the net loss margin of (5.9%) is less favorable compared to the industry average of around (2%), indicating operational challenges.
Analysis of Operational Efficiency
Operating expenses increased to $40.1 million, or 47.2% of net sales, compared to 40.1% in the prior year. This increase in operating expenses, coupled with the decline in unit sales by 10.5%, has negatively impacted profitability.
The following table outlines the operational efficiency metrics:
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating Expenses | $40.1 million | $32.9 million |
| Percentage of Net Sales | 47.2% | 40.1% |
| Selling Expenses | $27.2 million | $26.8 million |
| General and Administrative Expenses | $11.3 million | $12.8 million |
Despite an increase in selling expenses, general and administrative expenses saw a decrease, contributing to mixed results in operational efficiency.
Debt vs. Equity: How Farmer Bros. Co. (FARM) Finances Its Growth
Debt vs. Equity: How Farmer Bros. Co. Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, the company reported total outstanding borrowings of $23.3 million under its Revolver Credit Facility. The company also had $4.4 million utilized from its letters of credit sublimit. The total liabilities amounted to $141.1 million.
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 30, 2024, is calculated as follows:
- Total Liabilities: $141.1 million
- Total Stockholders' Equity: $40.9 million
- Debt-to-Equity Ratio: 3.45
This ratio indicates a higher reliance on debt compared to equity when financing its operations, especially in comparison to the industry average of approximately 1.5.
Recent Debt Issuances and Credit Ratings
The company has not issued any new long-term debt recently, maintaining its existing Revolver Credit Facility, which matures on April 26, 2027. The average interest rate on this facility is 7.06%. The company has remained compliant with all financial covenants under this credit facility.
Balancing Debt Financing and Equity Funding
As of September 30, 2024, the company had total stockholders' equity of $40.9 million, which reflects an accumulated deficit of $(35.4 million). The company balances its funding through cash flows from operations and its credit facility, indicating a strategic approach to managing financial resources in a challenging market environment.
| Financial Metric | Amount |
|---|---|
| Total Liabilities | $141.1 million |
| Total Stockholders' Equity | $40.9 million |
| Debt-to-Equity Ratio | 3.45 |
| Outstanding Borrowings on Revolver | $23.3 million |
| Letters of Credit Utilized | $4.4 million |
| Average Interest Rate on Revolver | 7.06% |
| Accumulated Deficit | $(35.4 million) |
Assessing Farmer Bros. Co. (FARM) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio, a measure of a company's ability to cover its short-term liabilities with its short-term assets, was approximately 1.32 as of September 30, 2024. This indicates a healthy liquidity position, as current assets of $102.7 million exceeded current liabilities of $77.9 million . The quick ratio, which excludes inventory from current assets, was about 0.63, calculated as follows:
| Current Assets | Current Liabilities | Inventory | Quick Assets | Quick Ratio |
|---|---|---|---|---|
| $102,673,000 | $77,926,000 | $57,615,000 | $45,058,000 | 0.63 |
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, was approximately $24.7 million as of September 30, 2024. This demonstrates a slight increase from the previous quarter, indicating improved operational efficiency and liquidity management .
Cash Flow Statements Overview
The consolidated statements of cash flows for the three months ended September 30, 2024, showed the following trends:
| Cash Flow Category | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Cash Provided by Operating Activities | $2,493 | $(7,137) |
| Net Cash Used in Investing Activities | $(3,304) | $5,747 |
| Net Cash Used in Financing Activities | $(56) | $184 |
| Net Decrease in Cash and Cash Equivalents | $(867) | $(1,206) |
These figures indicate a significant turnaround in operational cash flow, with a net cash inflow from operating activities compared to a cash outflow in the same quarter of the previous year .
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had $3.3 million in unrestricted cash and equivalents and $1.9 million in restricted cash . Additionally, there was $27.1 million available under the revolving credit facility, which provides a buffer against liquidity challenges . However, the quick ratio below 1.0 indicates potential short-term liquidity concerns, as the company may struggle to cover current liabilities without liquidating inventory.
The company has also committed to purchasing green coffee inventory totaling $35.2 million under fixed-price contracts, which could impact future liquidity if not managed properly .
Conclusion
In summary, while the liquidity ratios indicate a generally favorable position, the quick ratio and current liabilities management will require close monitoring to ensure ongoing financial health.
Is Farmer Bros. Co. (FARM) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of the company, key metrics such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios are essential.
- P/E Ratio: The most recent P/E ratio is approximately −15.2, based on a net loss of $5,002,000 for the quarter ended September 30, 2024, with a market price per share around $3.66.
- P/B Ratio: The price-to-book ratio is calculated at 0.98, with total stockholders' equity standing at $40,926,000 and common shares outstanding at 21,268,223.
- EV/EBITDA Ratio: The enterprise value-to-EBITDA ratio is approximately −14.2, factoring in the latest EBITDA of −$1,408,000.
Stock Price Trends
Over the past 12 months, the stock has exhibited volatility:
- 12 months ago, the stock price was around $4.50.
- Over the last year, the stock has fluctuated between a low of $2.15 and a high of $5.00.
- Current stock price as of September 30, 2024, is $3.66.
Dividend Yield and Payout Ratios
The company has not declared any dividends in the recent period, resulting in a dividend yield of 0%.
Analyst Consensus
Analyst consensus indicates a cautious outlook:
- Current ratings suggest Hold from several analysts due to recent performance issues and net losses.
- Price targets from analysts range from $2.50 to $4.50, indicating potential upside but with risks.
Summary Table of Key Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | −15.2 |
| P/B Ratio | 0.98 |
| EV/EBITDA Ratio | −14.2 |
| Stock Price (Current) | $3.66 |
| 12-Month High | $5.00 |
| 12-Month Low | $2.15 |
| Dividend Yield | 0% |
| Analyst Consensus | Hold |
Key Risks Facing Farmer Bros. Co. (FARM)
Key Risks Facing Farmer Bros. Co.
Farmer Bros. Co. faces a variety of internal and external risks that can significantly impact its financial health and operational performance. Below is an overview of these risks.
Industry Competition
In the highly competitive coffee and beverage industry, Farmer Bros. Co. must contend with numerous competitors that can influence pricing and market share. The company reported a 10.5% decrease in unit sales during the three months ended September 30, 2024, which can be attributed to competitive pressures and changing consumer preferences .
Regulatory Changes
Changes in food safety regulations and labor laws can affect operational costs and compliance requirements. As of September 30, 2024, the company had incurred $11.971 million in accrued pension liabilities, indicating the financial burden of regulatory compliance .
Market Conditions
Fluctuations in coffee prices and the overall economy can adversely affect profitability. As of September 30, 2024, the company committed to purchase green coffee inventory totaling $35.2 million under fixed-price contracts. Changes in market conditions could impact these commitments.
Operational Risks
Operational inefficiencies can arise from supply chain disruptions or production issues. The company reported net cash used in operating activities of $7.1 million for the three months ended September 30, 2023, highlighting potential operational challenges.
Financial Risks
The company’s financial health is also at risk due to high operating expenses, which increased to $40.1 million in the three months ended September 30, 2024, representing 47.2% of net sales . A net loss of $5.0 million during the same period points to significant financial vulnerabilities .
Strategic Risks
Failure to effectively implement strategic initiatives can limit growth. The company reported a loss from operations of $2.8 million for the three months ended September 30, 2024 . This indicates challenges in executing its business strategy successfully.
Mitigation Strategies
To address these risks, the company has implemented several mitigation strategies, including:
- Enhancing supply chain management to minimize disruptions.
- Investing in technology to improve operational efficiency.
- Monitoring market trends closely to adjust pricing strategies accordingly.
Financial Data Summary
| Financial Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Sales | $85.1 million | $81.9 million | +3.9% |
| Gross Profit | $37.3 million | $30.8 million | +21.2% |
| Net Loss | $(5.0) million | $(1.3) million | (+282.7%) |
| Operating Expenses | $40.1 million | $32.9 million | +22.1% |
| EBITDA | $(1.4) million | $2.5 million | (156.0%) |
Future Growth Prospects for Farmer Bros. Co. (FARM)
Future Growth Prospects for Farmer Bros. Co.
Analysis of Key Growth Drivers
Farmer Bros. Co. has identified several key growth drivers that are expected to enhance its market position and financial performance in the coming years. These include:
- Product Innovations: The company is focusing on enhancing its product offerings, particularly in the tea and other beverages category, which accounted for 27.9% of net sales in Q3 2024, up from 24.7% in Q3 2023.
- Market Expansions: Expansion into new geographic markets is a priority. The company is leveraging its existing distribution channels to penetrate underserved markets.
- Acquisitions: Strategic acquisitions are being considered to enhance product lines and market reach. The company remains open to acquiring smaller brands that align with its business strategy.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2025, Farmer Bros. Co. projects a revenue growth of approximately 5% to 7% driven by increased pricing strategies and market expansion efforts. The earnings estimates reflect a gradual recovery, with an anticipated improvement in EBITDA, moving from a loss of $1.4 million in Q3 2024 to a projected positive EBITDA in the subsequent quarters.
Strategic Initiatives or Partnerships that May Drive Future Growth
Farmer Bros. Co. is actively pursuing strategic partnerships that enhance its supply chain efficiency and product distribution. Notably:
- Collaboration with local suppliers to ensure sustainable sourcing of coffee and tea, which is expected to improve margins.
- Partnerships with technology firms to enhance operational efficiency through better inventory management systems.
Competitive Advantages that Position the Company for Growth
Farmer Bros. Co. possesses several competitive advantages that are crucial for its growth trajectory:
- Brand Recognition: Established brands within the coffee and tea market provide a strong foundation for customer loyalty.
- Operational Efficiency: The company has optimized its supply chain, leading to lower costs and improved gross margins, which increased to 43.9% in Q3 2024 from 37.6% in Q3 2023.
- Diverse Product Portfolio: A wide range of products allows the company to cater to different customer segments and mitigate risks associated with market fluctuations.
| Growth Driver | Current Status | Impact on Revenue |
|---|---|---|
| Product Innovations | Increased focus on tea and beverages | Expected 5-7% growth in FY 2025 |
| Market Expansions | Entering new geographic markets | Potential for significant new revenue streams |
| Acquisitions | Evaluating strategic acquisitions | Enhancing product lines and market share |
In summary, with a robust strategic plan focusing on product innovation, market expansion, and potential acquisitions, alongside its competitive advantages, Farmer Bros. Co. is well-positioned for future growth despite current operational challenges.
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Resources:
- Farmer Bros. Co. (FARM) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Farmer Bros. Co. (FARM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Farmer Bros. Co. (FARM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.