Farmer Bros Co

NASDAQ:FARM

Q2-2026 Earnings Call

[Operator]

Good afternoon, and welcome to the Farmer Bros. Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. Today, the company filed its Form 10-Q and issued its second quarter results press release, which are available on the Investor Relations section of Farmer Brothers website at farmerbros.com. The release is also included as an exhibit on the company's Form 10-Q and is available on its website and the Securities and Exchange Commission's website at sec.gov.

A replay of this audio-only webcast will also be available on the company's website approximately 2 hours after the conclusion of this call. Before we begin the call, please note all financial information presented is unaudited and various remarks made by management during this call about the company's future expectations, plans and prospects may constitute forward-looking statements for purposes of the safe harbor provisions under the federal securities laws and regulations.

These forward-looking statements represent the company's views as of today and should not be relied upon as representing the company's views as of any subsequent date. Results could differ materially from those forward-looking statements. Additional information on factors which could cause actual results and other events to differ materially from those forward-looking statements is available in the company's release and public filings. On today's call, management will also reference certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin in assessing the company's operating performance. Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is also included in the company's release and SEC filings. I will now turn the call over to Farmer Brothers President and Chief Executive Officer, John Moore. Mr. Moore, please go ahead.

[John Moore, executive]

Good afternoon, everyone, and thank you for joining us. This quarter, as anticipated, was a more challenging one for Farmer Brothers as we saw pressure across our results due to higher cost inventory flowing through our COGS and continued micro and macroeconomic pressures. Despite these challenges, we continue to see year-over-year improvement in our selling and general and administrative costs, and our gross margin remained above 35%, where we anticipate it will stay for the remainder of the fiscal 2026.

Although we maintained solid gross margins and effectively managed our cost structure in a difficult operating environment, our adjusted EBITDA for the quarter was only slightly positive at approximately $0.5 million. We also saw modest year-over-year decreases in our total coffee pounds and net sales. Coffee pounds decreased just under 3%, while net sales were down 1% to $88.9 million for the quarter compared to the prior year period. The industry also continues to see pressure in terms of downstream consumer behavior. According to a January conference Board report, U.S. consumer confidence funk to its lowest level since May of 2014.

Likewise, a January statement from surveys of consumers reported that consumers continue to feel pressure on their purchasing power with national sentiment more than 20% lower than it was a year ago. Despite these challenges, Farmer Bros. remains committed to driving top line revenue growth and addressing customer and coffee pound degradation. We must continue to unlock the full power and potential of our DSD network as we look to drive product penetration with existing customers while also adding new accounts. Furthermore, we will look to leverage our core coffee capability as we grow our white label customer portfolio and better utilize our world-class SQF and Silver LEED certified Portland roasting facility. We're also encouraged by recent reductions in tariff rates in several countries where we source coffee and by the recent declines in both the Arabica and Robusta commodity markets. If these trends continue, we expect to start seeing some improvement in gross margins beginning in the fourth quarter of fiscal 2026 with further benefits in fiscal 2027.

Finally, we continue to evaluate all avenues to maximize shareholder value. In July of last year, we announced the formation of a strategic committee, which remains actively engaged in assessing potential opportunities. We will provide additional information regarding those efforts when appropriate. With that, I'll turn it over to Vance to discuss our financial results in more detail. Vance?

[Vance Fisher, executive]

Thanks, John, and good afternoon, everyone. As we communicated last quarter, and as John stated, during the second quarter, we started to more fully realize the impact of green coffee inflation on our cost of goods sold. As such, adjusted EBITDA for the quarter was $484,000 compared to $5.9 million in the prior year period.

From a top line perspective, net sales during the quarter were down 1% to $88.9 million compared to $90 million during the prior year period. As we stated on last quarter's call, due to the rise in green coffee costs and our decision to hold on further pricing actions, we expected a decline in gross margins throughout the year. During the quarter, gross margin was 36.3%, a 680 basis point decline compared to the prior year period. Overall, year-to-date gross margin was in line with our expectation at 38%. We do expect gross margins to remain pressured and average in the high 30s for the fiscal year. But as John mentioned earlier, we do anticipate some relief starting in the fourth quarter due to recent declines in the green coffee market.

Overall operating costs for the quarter decreased $1.4 million to $36.4 million or 40.9% of net sales compared to $37.8 million or 42% of net sales in the prior year period. This included a $100,000 decrease in selling expenses and a $700,000 decrease in G&A expenses, primarily due to reduced personnel-related costs. We recorded a net loss of $4.9 million in the second quarter compared to $200,000 of net income in the second quarter of fiscal '25. As of December 31, 2025, we had $4.2 million of unrestricted cash and cash equivalents and $24.6 million available under our revolving credit facility. With that, I'll turn it back over to John. John?

[John Moore, executive]

Thanks, Vance. In summary, we did see expected pressure on our overall results during the quarter, but we remain confident we are on the right path. We will continue to focus on controlling what we can control as we work to grow our top line as well as overall coffee pounds and customer counts in the back half of fiscal 2026 and beyond. With that, I'd like to thank our teams for their continued commitment and execution and to thank each of you for joining us on the call today.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.