FARMER BROTHERS CO (FARM)·Q3 2025 Earnings Summary

Executive Summary

• Q3 FY25 net sales declined to $82.054M (vs. $85.358M YoY; $90.021M in Q2), while gross margin remained robust at 42.1% (down sequentially from 43.1% on rising coffee input costs); Adjusted EBITDA was $1.736M, the third straight quarter of positive adjusted EBITDA .
• Results missed S&P Global consensus: revenue $82.054M vs $88.993M est and Primary EPS -$0.115 vs -$0.105 est; Street likely re-calibrates near-term revenue/EPS for volume pressure while monitoring margin resilience above 40% (management’s stated target) *.
• Mix/price discipline and cost actions offset traffic/unit headwinds; coffee pounds fell 9.4% YoY amid weak consumer confidence and elevated Arabica/Robusta prices .
• Management expects to maintain >40% gross margin despite sequential pressure, sees no immediate tariff impact to FY25 COGS, and completed brand/SKU rationalization with launch of Sum>One specialty brand—potential catalysts for narrative improvement as macro normalizes .

What Went Well and What Went Wrong

• What Went Well

  • “Third straight quarter of positive adjusted EBITDA” and gross margin >42% despite macro/commodity headwinds; Adjusted EBITDA of $1.736M and gross margin 42.1% highlight operating discipline .
  • Cost structure progress: when adjusted for asset sale noise, operating expenses declined YoY (-$1.9M), reflecting rightsizing and efficiency gains (management commentary) .
  • Strategic milestones: completion of brand pyramid and SKU rationalization with the launch of Sum>One specialty brand; management emphasizes tiered go-to-market and cross-sell opportunity to deepen wallet share .

• What Went Wrong

  • Revenue softness: net sales fell to $82.054M (YoY -3.9%; QoQ -8.8%); management cited declines in coffee pounds (-9.4% YoY) and customer count amid weak consumer confidence and elevated coffee markets .
  • Sequential gross margin contraction vs. Q2 (42.1% vs. 43.1%) as rising coffee prices flowed through COGS; management expects continued pressure but to remain above 40% target .
  • GAAP net loss of $4.976M, including a $2.4M loss on asset disposals; prior-year quarter included a $2.9M gain, creating a difficult comparison .

Financial Results

Quarterly performance vs. the prior two quarters (oldest → newest):

Actuals vs. S&P Global consensus (Q3 FY25):

• Values retrieved from S&P Global

KPIs and balance sheet (Q3 FY25):

YoY benchmarks (Q3 FY24 for reference):

• Net sales: $85.358M (Q3 FY24) vs. $82.054M (Q3 FY25) .
• Gross margin: 40.1% (Q3 FY24) vs. 42.1% (Q3 FY25) .
• Adjusted EBITDA: $0.271M (Q3 FY24) vs. $1.736M (Q3 FY25) .

Non-GAAP reconciliation context (Q3 FY25):

• Adjusted EBITDA adds back $0.518M of stock comp, $1.613M losses on asset disposals, $0.8M loss related to sale of business, and $0.101M severance, among other items .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We realized our third straight quarter of positive adjusted EBITDA, maintained gross margins above 42% and saw continued improvement in our cost structure” — John Moore, CEO .
• “Gross margin in the third quarter was 42.1%… As expected, gross margins did contract slightly compared to the second quarter… we feel… positioned to stay above [the] target… over 40%” — Vance Fisher, CFO .
• “Total coffee pounds were down 9.4% compared to the third quarter of [FY] 2024” — John Moore .
• “We do not anticipate any immediate tariff impacts to our COGS in the current fiscal year” — John Moore .
• Sum>One specialty brand launch completes brand pyramid/SKU rationalization, enabling tiered go-to-market and customer mobility across value tiers .

Q&A Highlights

• Gross margin durability: CFO reiterated confidence in maintaining >40% GM despite rising coffee costs; sequential contraction expected near term .
• Cost/efficiency runway: Management signaled further optimization but pivoting focus toward growth via customer acquisition and deeper product penetration .
• Allied products cross-sell: CEO emphasized “tremendous opportunity” to sell deeper into existing accounts (land-and-expand) with supportive org mobilization .
• Sales/DSD structure: Enhancements to separate growth vs. retention roles; new VP Field Operations to unlock DSD value and route density .
• Timing of cost actions: Actions taken in early Q4 poised to benefit Q4 and set FY26 baseline .

Estimates Context

• Q3 FY25 results vs. S&P Global consensus: Revenue $82.054M vs $88.993M est; Primary EPS $(0.115) vs $(0.105) est — both misses as revenue softness and volume declines outweighed cost actions *.
• Street implications: Expect recalibration of near-term revenue/EPS for volume pressure and continued focus on margin trajectory (>40% target reiterated) and cash flow improvements (positive operating cash flow for third straight quarter) .

• Values retrieved from S&P Global

Key Takeaways for Investors

• Margin defense credible: Despite commodity headwinds, management aims to maintain >40% GM; Q3 delivered 42.1% amid rising coffee costs .
• Volumes remain the swing factor: Coffee pounds down 9.4% YoY; macro softness and competitive landscape weigh on top line .
• Cost discipline intact: Adjusted EBITDA positive for the third straight quarter; Opex trending better when normalized for asset sale noise; further benefits expected from early Q4 actions .
• Strategic repositioning complete: Brand pyramid/SKU rationalization finished with Sum>One launch; supports national specialty offering and tiered value proposition .
• Cross-sell and route density are near-term growth levers: Management focused on selling deeper into existing customers and targeted customer acquisition to optimize DSD routes .
• Liquidity adequate near term: $4.1M cash, $23.3M revolver borrowings, and $22.1M availability; continued attention on working capital and capex efficiency .
• Watch list: trajectory of coffee prices, consumer spending, tariff developments (no FY25 COGS impact expected), and sequential gross margin path as key stock narrative drivers .