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Press Release Source: Farmer Bros. Co.

Farmer Bros. Reports Fourth Quarter Per Share Loss of $0.27
Tuesday September 13, 5:40 pm ET

TORRANCE, Calif.--(BUSINESS WIRE)--Sept. 13, 2005--Farmer Bros. Co. (Nasdaq:FARM) today reported a net loss for its fourth fiscal quarter ended June 30, 2005 of $3.7 million or $0.27 per share, compared with net income of $2.0 million or $0.15 per share in the same quarter last year. For the fiscal year, the Company reported a net loss of $5.4 million or $0.40 per share, compared with last year's net income of $12.7 million or $0.81 per share.

Higher prices for green coffee continued to affect the Company's operating results. The Company's average cost of green coffee was 74% higher in fiscal 2005 than in 2004. In response, the Company raised its prices to customers, pushing net sales in the fourth quarter to $50.2 million, up from $47.3 million in last year's fourth quarter. For fiscal 2005, the Company reported net sales of $198.4 million compared with $193.6 million for fiscal 2004.

The Company reported quarterly gross profit of $26.6 million versus $29.4 million for last year's fourth quarter. This reflects the rise in green coffee costs in fiscal 2005 and the lag in passing the price increases to the Company's customers. It also reflects the effects of the Company's GAAP accounting of its inventory costs using LIFO method, which results in higher costs during periods of rising commodity prices. The costs of goods sold increased 16% in fiscal 2005, leading to a decline in gross profit to $115.5 million compared with $122.2 million in the prior fiscal year.

The Company reported a loss from operations of $6.1 million in the fourth fiscal quarter of 2005, versus a loss from operations of $1.2 million in the same quarter last year, and an operating loss for the fiscal year of $6.6 million, compared with operating income in fiscal 2004 of $3.8 million.

The fiscal year results reflected a 3% increase in selling, general and administrative costs, primarily resulting from higher depreciation expenses for the Company's ongoing information technology project, as well as higher costs for the Company's Employee Stock Ownership Program (ESOP) and employee medical benefits. The Company also reported, as "Other, net (expense) income," a net realized expense of $10.9 million on green coffee futures and options used by the Company to hedge against a decline in commodity prices.

At the end of the fiscal year, the Company had cash, cash equivalents and investments of $180.9 million, compared with $198.7 million on June 30, 2004.

"I share our shareholders' and employees' disappointment with our results during this challenging year," said Guenter Berger, Chairman, President and Chief Executive Officer. "We are working hard to improve all aspects of our operations, and focusing particular attention on our efforts to improve our sales.

"We are especially optimistic about the potential of our chain sales group. That effort, along with our new products in development and the improving vitality of our traditionally upbeat sales organization, reinforces our confidence in our long term prospects," added Mr. Berger. "During the past year we have faced the challenges presented by the coffee market, the implementation of our information technology project, and the death of Roy E. Farmer. We launched most of these initiatives under his leadership and now they are being extended by our management team and the 1,100 employee-owners of Farmer Brothers."

Mr. Berger said the initiatives to restore sales growth include:

  • Creating a new sales team to focus on the Company's larger customer relationships, primarily chain restaurants. The team includes sales professionals who have been drawn from the ranks of the Company's route sales organization, and it is charged with maintaining existing relationships as well as soliciting new relationships among larger customers, including chain restaurants whose deliveries and inventory management and product demands must be coordinated across many of the Company's regional routes.
  • Setting an aggressive trade show schedule and redesigning key merchandising and point-of-sale materials.
  • Launching new products that meet the needs of new and existing customers. These include cultural drinks such as horchata, fruit smoothies, an expanded line of teas, liquid coffee and new seasonal products such as Pumpkin Pie Cappuccino.

In addition, Mr. Berger said the Company, in its final year of the information technology project, has budgeted $4 million for fiscal 2006 to complete the overhaul of its computer systems. The Company has completed the upgrades to its finance and manufacturing systems, and is preparing to launch its sales system, which is expected to give management rapid access to more detailed information on product profitability and demand.

Farmer Bros. Co. is an institutional coffee roaster that sells a variety of coffee and allied products to the food service industry. The Company's signature trucks and vans bearing the "Consistently Good" logo are seen throughout Farmer Brothers' 28-state service area. Farmer Brothers has paid a dividend for 51 consecutive years, increased the dividend in each of the last seven consecutive years, and its stock price has grown on a split-adjusted basis from $1.80 a share in 1980.

Forward-Looking Statements

Certain statements contained in this press release regarding the risks, circumstances and financial trends that may affect our future operating results, financial position and cash flows may be forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations, assumptions, estimates and observations about our business and are subject to risks and uncertainties. As a result, actual results could materially differ from the forward-looking statements contained herein. These forward-looking statements can be identified by the use of words like "expects," "plans," "believes," "intends," "will," "assumes" and other words of similar meaning. These and other similar words can be identified by the fact that they do not relate solely to historical or current facts. While we believe our assumptions are reasonable, we caution that it is impossible to predict the impact of such factors which could cause actual results to differ materially from predicted results. We intend these forward-looking statements to speak only at the time of this press release and do not undertake to update or revise these projections as more information becomes available. For these statements, we claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.

(Dollars in thousands, except share and per share data)

                                           Years ended June 30,
                                       2005        2004        2003

Net sales                            $198,420    $193,589    $201,558
Cost of goods sold                     82,964      71,405      70,662
Gross profit                         $115,456     122,184    $130,896

Selling expense                        92,112      92,029      88,658
General and administrative
 expenses                              29,927      26,392      18,350
Operating expenses                   $122,039    $118,421    $107,008
(Loss) income from operations         ($6,583)     $3,763     $23,888

Other income (expense):
   Dividend income                      3,420       3,396       3,246
   Interest income                      2,721       2,518       3,974
   Other, net (expense) income        (10,887)      6,305       6,463
     Total other (expense) income     ($4,746)    $12,219     $13,683

(Loss) income before taxes            (11,329)     15,982      37,571

Income tax (benefit) expense           (5,902)      3,295      13,942

Net (loss) income                     ($5,427)    $12,687     $23,629

Net (loss) income per common share     ($0.40)      $0.81       $1.30

Weighted average shares
 outstanding                       13,653,420  15,576,450  18,145,910

(In thousands except per share data; all per share disclosures
have been split adjusted.)

                                  September December   March    June
                                     30        31       31       30
                                    2004      2004     2005     2005

Net sales                          $46,708  $51,220  $50,271  $50,221
Gross profit                       $29,239  $30,298  $29,343  $26,576
Income from operations              $1,002     $699  ($2,167) ($6,117)
Net income (loss)                   $1,497  ($4,068)    $856  ($3,712)
Net income per common shares         $0.11   ($0.30)   $0.06   ($0.27)

                                  September December   March    June
                                     30        31       31       30
                                    2003      2003     2004     2004

Net sales                          $45,665  $51,511  $49,069  $47,345
Gross profit                       $29,632  $32,573  $30,581  $29,398
Income from operations              $1,057   $3,124     $743  ($1,161)
Net income                          $2,511   $2,565   $5,603   $2,008
Net income per common shares         $0.14    $0.15    $0.42    $0.15


     Abernathy MacGregor Group
     Jim Lucas/Whitney Hays, 213-630-6550

Source: Farmer Bros. Co.


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