Farmer Bros. Quarterly Profit Tumbles 39%

A slow economy and higher employee and coffee-processing expenses drained profit at Farmer Bros. Co. in the latest quarter.

Net income at the Torrance-based commercial coffee distributor plunged 39% to $5.9 million, or $3.24 a share, in its fiscal second quarter ended Dec. 31, compared with $9.7 million, or $5.27, in the same period a year earlier.

“The economy continues to be weak, and consumer spending does not seem to have recovered,” Farmer Bros. said in its filing with the Securities and Exchange Commission late Tuesday.

Farmer Bros. revenue in the quarter was flat at $54 million.

The thinly traded stock closed down $2 at $307 in Nasdaq trading Wednesday. Only 2,600 shares traded.

Farmer Bros. has become embroiled in a battle with dissident family members and other shareholders who are frustrated by the tight-lipped management style of Roy F. Farmer, the company’s 86-year-old chairman and chief executive.

Farmer, whose father founded the company 90 years ago, refuses to meet with Wall Street analysts, frequently misses the company’s board meetings and has restricted management’s contact with the investment community.

One source of contention is the company’s cash and securities holdings, which stood at $286.7 million as of Dec. 31, down from $295.8 the previous quarter.

The December figure represents 75.62% of the company’s total assets, according to Gary Lutin, an investment banker and corporate governance activist advising dissident shareholders, who are seeking more disclosure from Farmer Bros. management about the company’s finances and operating strategy.

Farmer’s executive team has said the company needs the large cash position to withstand price fluctuations in the coffee market and to have money available for capital improvements.

For example, Farmer Bros. noted in its SEC report that the cost of green, or unroasted, coffee beans has risen 30% over the last year, in part because of concern about drought conditions in Brazil.

“The market is volatile, and green coffee prices could continue to climb, requiring a substantial additional investment in inventory by the company,” Farmer Bros. said.

Farmer Bros. also reported a $15-million contribution to the employee stock option plan, or ESOP, during the quarter.

The ESOP used the money to purchase shares in the company. The purchase was larger than in previous quarters because there were more shares of the stock available during the period, said John Simmons, the company’s chief financial officer.

“Sometimes there are just not the shares available to purchase,” he said.

Combined with earlier transactions, the ESOP owns nearly 7.5% of the company.

Simmons said the plan gives employees an ownership stake in the company and aligns their interests with those of the shareholders.

But this too has become a source of contention.

Lutin said some shareholders are concerned that Roy Farmer is using the ESOP to maintain control of the company.

Including the shares that he owns or has voting power over, Farmer controls more than 50% of the company’s stock, enough to block changes in the board of directors and to stop efforts to force more disclosure.