Right off the bat, I think it's important to note that Farmer Brothers (FARM)
is riskier than average. There was an accounting restatement, the
founding family has significant involvement in the firm (and not always
for the best), and the company's financials do not impress whether you
look at EPS, free cash flow, or book value. Fellow Seeking Alpha
contributor Richard Pearson did a very thorough job of covering many of
the problems of Farmer Brothers back in January ("Trouble Is Brewing At Farmer Brothers Coffee"), and though I don't agree with every point he made, I'd still suggest investors read it carefully as background material.
I
am not as bearish as Mr. Pearson, but I would hardly call myself a
strong bull on these shares. Reducing SKUs, improving inventory
management, and more closely monitoring individual route/customer
profitability should help margins. Unfortunately, a large part of this
business is basically a low-margin distribution operation with few
obvious competitive advantages over companies like Sysco (SYY)
and with a heavy reliance upon small independent foodservice operators.
Excluding the company's pension and workers comp liabilities, or
offsetting them with its real estate value, the shares could trade to
the mid-$20's, but this is one of those situations where I have to
wonder if the hassles and risks are worth the potential rewards.
Continue here:
Can Turnaround Efforts Put Farmer Brothers' Problems In The Past?
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