Market Commentary: Standard Investment Chartered
(May 24, 2004)
Standard Investment Chartered, Inc., a securities firm recognized for its expertise in thinly traded companies, has granted its permission for Forum use of the firm's May 24, 2004 "Market Commentary" report on thinly traded securities, which includes a section on Farmer Bros. Co. The Commentary addresses questions presented to the board about the company's recently reported performance, and refers to Standard Investment's 2003 equity valuation analysis of Farmer Bros.
The text of the section on Farmer Bros. is copied below, and the complete Commentary can be downloaded from the following link:
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Standard Investment Chartered, Inc.: Thinly Trade Issues Market Commentary (May 24, 2004) (85 KB, in PDF format)
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STANDARD INVESTMENT CHARTERED, INC. Member . NASD. SPIC
STOCKS IN THE NEWS:
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Farmer Brothers Company (FARM: $25.73):
Disappointing Sales: The company reported earnings for the third quarter ended March 31, 2004 of $5.6 million or $0.42 per share. This compares with earnings of $6.3 million for the same period last year, or $0.35 per share on a split-adjusted basis. The trend in revenues was essentially flat at $49.0 million in the third quarter of 2004 compared with $49.2 million last year.
Regarding the slight decline in revenue to $49.0 million in the current quarter compared with $49.2 million in the comparable 2003 quarter, management states again that "the sales trend continues to reflect general economic conditions." There is no explanation of what economic conditions they refer to, how those conditions effect Farmer Bros., and why those conditions do not affect other coffee companies or food distributors. Following is what was reported by the three companies, for comparison purposes, showing the date of the quarterly report and the change in sales and income from the previous year's comparable quarter:
Share Price Decline: Farmers May 13th report of quarterly results raised serious concerns among Farmer Bros. Shareholders. The news triggered an immediate 20% drop in the stock’s market price, sending the shares down to a new 12 month low. The report suggests that the company’s coffee business is shrinking rather than growing, and that management is either unable or unwilling to present a recovery strategy.
Shareholder Dissatisfaction: In a letter addressed to Farmer’s directors, Gary Lutin, conductor of the Forum for Shareholders of Farmer Brothers Co., raises several critical issues that need to be addressed by Management. These include, but are not limited to declining sales, shrinking service area, deferral of strategic initiatives and lack of full disclosure concerning the risks associated with investments in hedging and derivatives transactions. The complete text of the letter is available on the internet and can be found at www.shareholderforum.com/farm.
Farmer Brothers disappointing operating results and failing stock price lend more credence to the argument that public shareholder’s interest would be best served by selling the company through a “going private” transaction. For further analysis of Farmer Brothers operations, valuations and investment rationale please see the Standard Investment Chartered research report published May 22, 2003.
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