The stock of coffee manufacturer and distributor Farmer Bros. Co. hit a 13-year low last week as the tight coffee market is expected to drive up the price of the aromatic bean.
The Torrance company, which buys coffee beans from brokers around the world, and roasts, grinds, packages and distributes the coffee nationwide, continues to face the challenge of rising coffee prices. Farmer Bros. closed at $13.51 on Jan. 20, the lowest it has traded since August 1997. The stock was one of the biggest losers last week on the LABJ Stock Index of local companies; it’s down 24 percent for the year.
“If they can’t pass the increases in the price of beans on to their customers, then they have to eat it and then that will reduce their profits or increase their losses,” said Al Ehrbar, president of New York investment advisory firm EVA Advisers LLC.
Farmer Bros. declined to comment.
The company raised the price of some of its products last year, according to a transcript from a December stockholders meeting. Jeffrey Wahba, Farmer Bros. chief financial officer, told stockholders “macroeconomic factors” were impacting the company’s business, including coffee prices.
“Like our competitors, we attempt to pass along these raw material increases to our customers,” Wahba said. “But when they are increasing as rapidly as they have been in this last year, this can’t be done.”
Coffee futures closed at $2.32 a pound Jan. 20 on the futures market in New York, a slight drop from a Dec. 21 intraday high of $2.35 – the highest for such a contract since June 1997.
The price pressure comes after Farmer Bros., founded as a family-owned company in 1912, made significant acquisitions. The company bought the direct-delivery retail business of Sara Lee for $45 million in 2009. It purchased Portland, Ore., coffee roaster Coffee Bean International for $22 million two years earlier in 2007.
Farmer Bros. is now focused on meeting a growing demand for specialty coffee flavors with the completion of a coffee research and development lab. It’s also been expanding its client portfolio, inking deals with Wyndham Resorts and Hotels and hamburger chain In-N-Out, which is expected to start serving the company’s brew this month.
Some investors aren’t sure Farmer Bros. management can prevent the shedding of red ink in the future, said Gary Lutin, a New York investment banker who formerly ran an online forum for shareholders urging major changes at the company.
“Although the forum is no longer actively addressing Farmer Bros.,” he said, “we continue to get investor inquiries and comments about reliance on current management to operate a competitive coffee business.”
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