Farmer Brothers plunges on earnings miss, margin collapse
Gross margin tumbles 680 basis points as green coffee costs pressure specialty roaster
Farmer Brothers Coffee shares tumbled 3.8% on Thursday after the specialty roaster reported a steep earnings miss and dramatic margin compression in its fiscal second quarter, revealing the impact of surging commodity costs on its foodservice business.
The Texas-based coffee company posted a loss of 22 cents per share, far worse than the 8.5-cent loss analysts had expected. Revenue of $88.9 million fell short of the $90.5 million consensus estimate, with net sales declining 1% year-over-year.
The most alarming metric emerged in gross margins, which collapsed 680 basis points to 36.3% from 43.1% in the prior-year period. This margin erosion triggered a net loss of $4.9 million, a sharp reversal from the $200,000 profit recorded in the same quarter last year. Adjusted EBITDA plunged 91.8% to $484,000, down from $5.9 million a year earlier.
Chief Executive John Moore characterized the quarter as "challenging" during the earnings call, attributing the deterioration primarily to higher-cost inventory working through the company's cost structure and persistent macroeconomic pressures. Elevated green coffee costs emerged as the primary culprit, with Farmer Brothers also delaying some pricing actions to maintain customer relationships.
The margin pressure proved particularly severe given the company's positioning in the foodservice channel, which has faced headwinds from reduced restaurant traffic and shifting consumer patterns. Total coffee pounds sold declined by nearly 3% year-over-year, according to MarketBeat earnings data.
Despite the disappointing results, management offered cautious optimism on the horizon. The company indicated that recent declines in Arabica and Robusta coffee prices, combined with tariff reductions, could provide relief beginning in the fourth quarter of fiscal 2026. Farmer Brothers anticipates gross margins will average in the high 30s for the full fiscal year, with potential improvements materializing later in the period.
"The company expects potential improvement in gross margins beginning in Q4 FY2026 and further benefits into FY2027, contingent on recent declines in Arabica/Robusta coffee prices and tariff reductions," according to the earnings report.
Analysts at Roth Capital maintained a "Buy" rating on the stock but cut their price target to $3 from $3.50, acknowledging near-term headwinds from reduced restaurant traffic and elevated coffee prices. The consensus analyst target price stands at $2.25, according to market data.
Farmer Brothers, which has a market capitalization of approximately $34.6 million, has seen its shares trade within a 52-week range of $1.34 to $3.29. The stock's decline Thursday extended a longer-term struggle, with shares down roughly 50% from their February highs.
The company's challenges unfold against a backdrop of broader trends in the foodservice coffee market, which research projects will grow from $238 billion in 2026 to $327 billion by 2032. However, sector players face mounting pressures from inflation, volatile commodity costs, climate change impacts on cultivation, and labor shortages.
Key competitive trends including premiumization, functional beverages, and technology integration could present opportunities for Farmer Brothers if it can navigate the current cost environment. However, the dramatic margin collapse in the second quarter underscores the vulnerability of smaller players in an increasingly consolidated market dominated by larger competitors with greater pricing power and scale advantages.