Farmer Brothers Co. demonstrated a promising start to fiscal 2024, as revealed in its first-quarter earnings conference call. The company has shifted its focus back to its core competency of direct store delivery (DSD), leading to an increase in revenue, expanded margins, and its adjusted EBITDA nearing breakeven. Despite some costs associated with the transition from the direct ship business and sluggish coffee volumes, the company’s management expressed confidence in the positive trend.

Key takeaways from the call include:

• Farmer Brothers is focusing on what it does best, direct store delivery, after selling off its direct ship business. This shift is part of a larger strategy to streamline the business and reduce costs.
• The company’s first-quarter results showed a year-over-year increase in revenue, expanded margins, and adjusted EBITDA nearing breakeven.
• Despite some costs associated with the transition from the direct ship business and sluggish coffee volumes, the company’s management expressed confidence in the overall positive trend.
• The company is also benefiting from lower coffee costs, which are expected to continue throughout the fiscal year. The cost per pound of coffee during the quarter was down 12% year-over-year and 1.6% from the prior quarter.
• Farmer Brothers is centralizing its roasting and production activities in Portland, Oregon, to reduce conversion costs. It is also working to reduce brand and SKU redundancies to simplify its customer-facing lineup and streamline production and sales operations.
• The company’s AI-driven pricing engine is helping to optimize its pricing strategy, with changes implemented in May and October already helping to drive gross margin improvement.
• New product additions, including SHOTT natural-flavored syrups and Boyd’s ambient liquid coffee, are performing well in their early stages.

Financially, the company reported net sales for the first quarter of $81.9 million, a slight increase from $79.8 million in the first quarter of fiscal 2023. The gross profit margin increased to 37.6% from 33.8% in the same period of the previous year. Operating expenses were $32.9 million, up from $27.8 million in the prior-year period, mainly due to a $3.6 million increase in G&A expenses related to severance costs for executive management transitions.

The company ended the first quarter with $4 million of unrestricted cash and cash equivalents, and had outstanding borrowings under its credit facility of $23.3 million. Looking ahead, the management stated that the company is adequately capitalized to execute on its DSD plans. Farmer Brothers anticipates generating positive free cash flow in early fiscal 2025 and delivering long-term value to shareholders.