After years of prodding by disgruntled shareholders, Farmer Bros. Co. has finally made a move to accelerate its growth with the $22 million purchase of a high-end Portland, Ore. coffee roaster.

The acquisition of Coffee Bean International will give the 95-year-old Torrance coffee roaster and distributor access to the fast-growing specialty coffee market pioneered by Starbucks Corp. and exploited by competitors such as Peet's Coffee & Tea Inc.

The question remains: Is Farmer Bros. too late to the game? Company critics fear they are; the company thinks otherwise.

"The strategy behind the acquisition was to rapidly get Farmer Bros. into the specialty side of coffee," said Rocky Laverty, the company's president and chief operating officer, who was hired less than a year ago. "We're trying to keep up with changing customer tastes."

Farmer Bros. has built a roughly $200 million a year business supplying lower grade coffee to restaurants and institutional clients such as hospitals and hotels, but that segment of the coffee market is stagnant at best as Americans acquire a taste for richer specialty brews.

Indeed, the company's revenues have essentially been flat over the past five years, hitting about $207 million in the fiscal year ending June 30, 2006, barely up from $206 million in the 2002 fiscal year. At the same time, annual profits have fallen to $5 million from $31 million, along with the stock, which is off about a third to around $22 a share.

Meanwhile, companies selling specialty coffee at supermarkets and other retail sites or operating cafes offering the richer brew have seen their revenues explode. Market leader Starbucks reported $7.8 billion in revenue in 2006, up from $3.3 billion in 2002. That growth has helped create a demand at all levels for higher quality coffee.

However, there are fears among some shareholders that Farmer Bros. may have missed the best opportunity for growth in the specialty market, even as Starbucks last year said it has plans to double the number of North American stores and competitors such as Peet's are still adding scores of stores.

"Farmer Bros. missed the entire upswing of Starbucks. The company has not kept up with the industry," said Noble Trenham, an investment banker who has owned shares of Farmer Bros. for 38 years. "They missed the market and now they're trying to catch up."

Expanding distribution

Under the deal, announced April 30, Coffee Bean International will operate as a separate company and will remain headquartered in Portland. Farmer Bros. plans to build a new roasting plant in Portland and will increase the distribution capabilities of Coffee Bean International.


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