Farmer Bros. Gross Margin Up 45% in Q4

Key Points

• Gross margin rose to 44.9% in Q4 FY2025, up 6.1 percentage points from the same period in fiscal 2024.

• Adjusted EBITDA improved to $5.8 million in Q4 FY2025, turning positive year over year.

• Net sales growth remained sluggish, with revenue up just 1% from the prior year period.

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Farmer Bros. (NASDAQ:FARM), a major U.S. provider of coffee, tea, and culinary products to foodservice and retail customers, released its fourth quarter earnings results for fiscal 2025 on September 11, 2025. The main headline from the release was a sharp improvement in gross margin and operating profit, alongside minimal sales growth and continued net losses. The quarter demonstrated operational gains, but left questions about underlying demand and the speed of the company's turnaround.

Business Overview and Recent Focus

Farmer Bros. operates a direct-store-delivery network that supplies coffee, tea, and other culinary products to small restaurants, regional foodservice operators, and large institutional buyers across the United States. Products range from roast and ground coffee, frozen liquid coffee, and teas, to cold brew and ready-to-drink beverages.

In recent years, the company has prioritized operational efficiency, product portfolio rationalization, and cost reduction. Strategies include cutting redundant product lines, upgrading technology, and restructuring branches. Key factors for success remain margin management, customer retention, and the ability to adapt its product mix to evolving consumer preferences.

Operational and Financial Performance in the Quarter

Gross margin reached 44.9%, up from 38.8% a year earlier. For the full year, gross margin expanded significantly, improving by 4.2 percentage points to 43.5%. Management attributed these gains to completion of SKU (stock keeping unit) rationalization, further cost reductions, and streamlining of both overhead and distribution operations. General and administrative costs were also lower compared to fiscal 2024.

The quarter marked a turnaround in operating profit metrics. Adjusted EBITDA—which excludes items like depreciation, one-time restructuring, and certain non-cash charges—rose to $5.8 million from a negative $1.6 million a year ago (non-GAAP). The full-year improvement in this metric was substantial, with adjusted EBITDA rising by $14.3 million. Management connected this turnaround directly to improved margins (gross margin of 42.1% in Q3 FY2025) and tightly managed operating costs. Net cash provided by operating activities increased year over year.

Sales performance, by contrast, remained flat. Net sales rose by $745,000 to $85.1 million, reflecting a year-over-year increase of 1%. Full-year net sales grew by only 0.3%. Notably, management has consistently called out revenue growth and increased product volume as key to long-term success, but this was not realized in the period. In Q3 FY2025, Farmer Bros. reported ongoing declines in pounds of coffee sold and customer count, and no new update on these figures was provided this time. That lack of growth and limited transparency raises questions about market demand and customer retention.

Pension-related and other one-time items affected the bottom line. Net loss for Q4 FY2025 was $4.7 million. The company absorbed a $7.7 million pension settlement charge and $3.3 million in net losses from asset sales in FY2025. This contrasts with the previous year's one-time gain of $16.9 million from asset disposals. Farmer Bros. remains unprofitable on a net basis. The company also paid down borrowings on its revolving credit facility and increased cash on the balance sheet by period end.

Strategic Initiatives and Product Developments

As part of its operational reset, Farmer Bros. completed its company-wide SKU rationalization, removing redundant coffee products, cutting complexity, and improving procurement and inventory management. The company also finalized its “brand pyramid”, a tiered product strategy designed to position it more effectively in both value and specialty segments.

The period saw the launch of Sum>One Coffee Roasters, a specialty coffee brand. This move aligned with management’s stated intent to offer more differentiated products and appeal to shifting tastes. However, the company did not disclose data on customer adoption or sales performance for this or other new offerings.

Leadership shifts included the addition of a new vice president of sales, Brian Miller, and the promotion of Travis Young to vice president of field operations. Technology infrastructure upgrades were implemented to enhance digital marketing, customer service, behavior tracking, and inventory management.

Branch network optimization, including sales of company-owned branches and route adjustments, continued as Farmer Bros. sought to better match distribution with current demand.

Looking Forward: Guidance and Areas to Watch

Management did not offer formal quantitative guidance for the upcoming quarter or fiscal 2026. The company stated only that it expects “challenging market conditions to continue throughout fiscal 2026,” according to John Moore.

In the absence of clear sales or profit targets, investors should watch for meaningful movement on top-line growth, coffee volumes, and the pace of customer wins or retention. With cost controls and restructuring efforts largely complete, future improvement in results will require evidence of demand recovery or successful sales execution.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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