$100 Million Transaction Poised to Fortify Financial Position

Farmer Brothers Company (NASDAQ: FARM), a renowned roaster and distributor of coffee, tea, and similar products, declared its decision to sell its direct ship business, including its facility in Northlake, Texas, to TreeHouse Foods, Inc. The deal is valued at approximately $100 million, subject to standard purchase price adjustments.

The anticipated income from this transaction will be leveraged to offset existing debt tied to the company’s asset-based lending (ABL) and term loan retirements. This sale will enhance Farmer Brothers’ balance sheet resilience, enabling it to concentrate on improving margins, and escalating strategic growth in the direct store delivery (DSD) and key account sales channels.

Leveraging Direct Store Delivery for Strategic Growth

The Farmer Brothers’ strategy revolves around the company concentrating on its DSD sector, which presents the most profitable and highest growth potential. The move promises to offer greater internal efficiencies, cost savings, and enhanced service to its most valuable customers. “Our shift to a DSD-focused organization will boost internal efficiency, reduce operational costs and yield higher margins,” stated Farmer Brothers CFO, Scott Drake.

Employee Transition and Facility Adjustments

Approximately 180 Farmer Brothers employees will transition to TreeHouse Foods as part of the agreement. TreeHouse Foods will commence operations at the Northlake, Texas facility after the sale, anticipated to close in 60 days, subject to customary closing conditions.

Following the sale, Farmer Brothers will transfer its entire DSD production operations to its roasting and production facility in Portland, Oregon, while maintaining existing relationships with third-party roasters for added capacity. The company’s corporate headquarters will persist in Northlake, Texas.

Farmer Brothers’ DSD Business and Expected Revenue

The DSD segment of Farmer Brothers sells coffee, tea, spices, and breakfast/brunch items through a wholly owned national network with nearly 240 routes, reaching 45,000 delivery points annually. Post-sale, the company anticipates an annual revenue of approximately $350 million, with significantly enhanced product margins.

Future Growth and Financial Stability

The proceeds from the sale will contribute to the company’s financial stability and allow for the exploration of additional growth opportunities. Winston & Strawn LLP will act as Farmer Brothers’ legal advisor for the transaction. The goal is to recapitalize the company, providing it with financial flexibility for further growth, says Scott Drake, CFO of Farmer Brothers.

FARM Market Response

Shares of Farmer Brothers are soaring 75% through early trading on Wednesday, June 7, 2023. Over the past three months, Farmer Brothers has seen average daily volume of 72,490 shares. However, volume of 80.61 million shares or dollar volume of around $272.46 million, has already exchanged hands through early trading. FARM shares have returned -26.68% year-to-date, as of this writing.

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