Executive Summary

Gross margin remained strong at 43.1% (up 270 bps YoY) on net sales of $90.0M, while adjusted EBITDA improved to $5.9M; diluted EPS was $0.01 .
Operating cash flow positive for the second consecutive quarter and first quarter of positive free cash flow in “many years” (CFO $2.6M; FCF $0.5M), reflecting cost discipline and route optimization; management reiterated confidence in sustaining margins ≥40% despite higher-cost inventory headwinds .
Coffee volumes declined 8% YoY on customer attrition and softer consumer traffic; allied products (~50% of sales) helped protect margins in a volatile commodity environment .
Leadership additions (VP of Sales) and completion of SKU rationalization/brand pyramid by Q3 are intended to drive top-line, coffee pounds, and customer counts; specialty-tier brand rollout is underway .
Potential stock catalysts: sustained ≥40% gross margins, continued positive FCF, specialty brand commercialization, and execution on DSD route density; watch for near‑term margin pressure as higher-cost inventory works through COGS and elevated commodity volatility .

What Went Well and What Went Wrong

What Went Well

Gross margins >43% for the second straight quarter; management: “one of our strongest performing quarters in quite some time” .
Adjusted EBITDA improved to $5.9M (+$3.6M YoY; +$4.5M QoQ), supported by price optimization and efficiency initiatives; CFO: positioned to “continue to deliver margins above our 40% target” .
Free cash flow turned positive; CFO: “achieving positive free cash flow for the quarter…$0.5M…an improvement of $7.6M YoY” .

What Went Wrong

Coffee volumes down 8% YoY due to customer attrition, lower consumer spending, and decreased foot traffic; customer count degradation remains a focus area .
Sequential gross margin slightly down as higher-cost inventory begins to flow through COGS; margin pressure expected over coming quarters given rising coffee prices .
Net income softened YoY to $0.21M vs $2.70M in Q2 FY24 primarily due to a $1.5M net loss on asset disposals this quarter vs $6.1M gains last year .

Financial Results

Quarterly Comparison (Sequential: Q4 2024 → Q1 2025 → Q2 2025)

Metric	Q4 2024	Q1 2025	Q2 2025
Net Sales ($USD Millions)	$84.4	$85.1	$90.0
Gross Profit ($USD Millions)	$32.8	$37.3	$38.8
Gross Margin (%)	38.8%	43.9%	43.1%
Net Income ($USD Millions)	$(4.592)	$(5.002)	$0.210
Diluted EPS ($USD)	$(0.22)	$(0.24)	$0.01
EBITDA ($USD Millions)	$(1.040)	$(1.408)	$3.743
Adjusted EBITDA ($USD Millions)	$(1.574)	$1.417	$5.899
Operating Expenses ($USD Millions)	$36.9	$40.1 (47.2% of sales)	$37.8 (42.0% of sales)

Year-over-Year Comparison (Q2 2024 → Q2 2025)

Metric	Q2 2024	Q2 2025
Net Sales ($USD Millions)	$89.5	$90.0
Gross Profit ($USD Millions)	$36.1	$38.8
Gross Margin (%)	40.4%	43.1%
Net Income ($USD Millions)	$2.704	$0.210
Diluted EPS ($USD)	$0.13	$0.01
Adjusted EBITDA ($USD Millions)	$2.311	$5.899

Balance Sheet and Liquidity (as of Dec 31, 2024)

Metric	Value
Cash and Cash Equivalents ($USD Millions)	$5.488
Restricted Cash ($USD Millions)	$0.246
Outstanding Borrowings ($USD Millions)	$23.3
Revolver Availability ($USD Millions)	$23.7
Total Assets ($USD Millions)	$179.1
Total Equity ($USD Millions)	$41.5

KPIs

KPI	Q2 2025
Operating Cash Flow ($USD Millions)	$2.6
Free Cash Flow ($USD Millions)	$0.5
Coffee Volumes YoY	Down 8%
Allied Products Mix	~50% of sales

Note: Non-GAAP Adjusted EBITDA excludes income taxes, interest, D&A, 401(k)/share-based comp, net losses/gains on asset disposals, and severance; loss related to sale of business excluded beginning FY2024 for comparability .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Gross Margin	Near-term FY2025	“40+% target” referenced by management	Expect to “continue to deliver margins above our 40% target” despite higher-cost inventory	Maintained
Revenue	FY2025	No formal guidance provided	No formal guidance provided	Maintained
Operating Expenses	FY2025	Focus on cost structure rightsizing; no numeric guidance	Continued OpEx optimization; no numeric guidance	Maintained
Pricing Actions	FY2025	Proactive pricing taken early FY2025	May take additional price if needed; monitoring volatility	Conditional update
Cash Flow	FY2025	Goal toward positive FCF	Achieved positive FCF in Q2; ongoing focus on sustainable FCF	Improved milestone

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024)	Previous Mentions (Q1 2025)	Current Period (Q2 2025)	Trend
Gross Margin Target	Margin expansion; expect further improvement	43.9% GM; proactive pricing; margin gains	43.1% GM; expect ≥40% despite higher-cost inventory	Stable ≥40% with near-term pressure
Commodity Volatility/Pricing	Addressing elevated commodity markets	Proactive pricing; not linear quarterly results	Arabica/Robusta at record highs; reserve right to take price	Heightened volatility; pricing flexibility
DSD Route Optimization	Network optimization and HQ/DC moves	Density and utilization focus	Continued route optimization and customer penetration	Ongoing execution
SKU Rationalization/Brand Pyramid	Transition largely on schedule; specialty launch planned	Boyd’s national refresh; specialty brand coming	Specialty-tier rolled out to select customers; full rollout by Q3	Completing in Q3
Customer Counts/Volumes	Retention improved vs FY2023; volumes not yet where desired	Stabilizing retention, growth via product penetration	Volumes down 8% YoY; attrition persists; focus on counts/pounds	Mixed; headwinds persist
E-commerce/B2B Portal	Tech upgrades to support service/inventory	—	B2B web ordering to launch in Q4; DTC refresh complete	New capability impending
Strategic Partnerships	—	—	Eurest specialty program; bespoke roasting/manufacturing capability	Expanding opportunities

Management Commentary

CEO: “The second quarter was one of our strongest performing quarters in quite some time…gross margins above 43% for the second straight quarter” .
CFO: “We believe our proactive pricing actions and inventory management have us positioned to continue to deliver margins above our 40% target over the coming quarters” .
CEO on volumes: “We…continue to experience pressure related to customer counts and overall coffee volumes…overall coffee volumes were down 8% YoY” .
CFO on cash flow: “6 consecutive quarters of improved cash flow from operations…we…achiev[ed] positive free cash flow for the quarter…$0.5M” .
CEO on commodity volatility: Arabica “about $411 before closing at $403.95”; Robusta at all-time high; sourcing changes increase nimbleness .

Q&A Highlights

Sales organization and route optimization: Leadership split (VP Sales vs VP Field Ops) to focus on business development vs operations; management sees “early to mid-innings” with significant street-level opportunity and product penetration focus .
Specialty brand rollout: Initial phase optimizes sourcing/manufacturing; longer term a top-line driver; consolidation of SKUs (finished goods ~50%+ reduction; overall raw/finished >55% consolidation) .
Eurest partnership: Specialty brands specific to partnership; highlights Farmer Brothers’ bespoke roasting/manufacturing capabilities for eco-friendly, high-quality blends .
E-commerce/B2B: Corporate brand/site refresh completed; B2B web ordering launches in Q4 to expand product penetration and enable loyalty/promo programming .
Pricing and margins: Proactive pricing early FY2025; will “hold off” on additional price where possible but reserve right if needed to protect margins amidst extreme market volatility .

Estimates Context

Wall Street consensus estimates (S&P Global) for Q2 FY2025 EPS and revenue were unavailable due to SPGI request limit; comparisons vs consensus cannot be provided at this time. Values would be retrieved from S&P Global when available.*
Implication: Without consensus, we cannot label beats/misses; near-term estimate revisions may reflect sustained ≥40% margin messaging, positive FCF, and sequential revenue improvement, offset by volume pressure and commodity-driven margin headwinds .

Key Takeaways for Investors

Margin durability: Two consecutive quarters >43% GM; management targets ≥40% despite higher-cost inventory—monitor margins as elevated commodity costs roll through COGS .
Cash discipline: Positive operating cash flow and FCF inflection signal improving quality of earnings; watch for sustainability across Q3/Q4 .
Top-line initiatives: Completion of SKU rationalization/brand pyramid and specialty rollouts by Q3, plus B2B ordering in Q4, are catalysts to drive coffee pounds and customer counts .
Mix resiliency: Allied products (~50% of sales) help protect route profitability and margins in volatile markets—expect continued emphasis on cross-sell .
Volumes/customer counts: Coffee volumes down 8% YoY; execution on route density and product penetration is critical to offset attrition and drive scale .
Pricing flexibility: Proactive pricing already taken; management may take further price if necessary to preserve margins amid record-high Arabica/Robusta—assess elasticity and retention risk .
Watch asset disposal noise: YoY net income impacted by swing from gains in FY24 to losses in FY25; focus on adjusted EBITDA and margin trajectory for core trend .

Citations:

*Values retrieved from S&P Global would normally be used for consensus comparisons; they were unavailable due to request limits at the time of this analysis.

FARMER BROTHERS CO (FARM)·Q2 2025 Earnings Summary