Despite strong profits, Farmer Bros. gives up on CA

farmer-brothers-logoA highly profitable coffee distribution and production company with deep roots in Los Angeles County and a national clientele is closing its primary Los Angeles facility and preparing to move to Texas or one of several states promising lower taxes, fewer regulations and cheaper land.

Farmer Bros., founded in Los Angeles in 1912, notified Torrance officials on Feb. 5 of its plans in coming months to lay off about 350 workers, in compliance with a state law requiring advance notice of significant workforce cuts. The company’s 49,000-square-foot headquarters is on South Normandie Avenue in Harbor Gateway in southwest Los Angeles, but its corporate mailing address is in nearby Torrance.

Farmer Bros. stock has yo-yoed in NASDAQ trading in recent years, but it is considered a durable, well-positioned survivor in its primary business of providing coffee to national restaurant chains, convenience stores, Las Vegas casinos and corporate break rooms.

In the fiscal year ending June 30, 2014, the company reported net sales of $528 million and gross profits of $196 million.

It got a big boost in 2012 when it added McDonald’s to its client list. But its 2009 moves to buy the Coffee Bean chain and the restaurant-delivery branch of the Sara Lee company proved a drag on Farmer Bros. for years as it struggled to integrate its new resources and streamline operations. Coffee Bean also suffered because of Farmer Bros. slowness to offer specialty and exotic coffees that drive up profit margins at Starbucks, Peet’s Coffee and other competitors.

The company plans to maintain a distribution center in California while building “new state-of-the-art manufacturing, distribution and corporate headquarters facility designed to make the company more competitive and better positioned to capitalize on growth opportunities” in a less expensive state.

The estimated operational savings are $12 million to $15 million a year, according to a Farmer Bros. statement.

The cost of relocation is expected to be mostly covered by the sale of the Normandie Avenue site purchased in 1961 that is now home to corporate headquarters and production facilities. The county’s estimate of the property’s value is $22 million, but a Farmers Bros. spokesman told South Bay reporters that the company believes it can get $28 million to $35 million for the site.

Chris Reed

Chris Reed

Chris Reed is a regular contributor to Cal Watchdog. Reed is an editorial writer for U-T San Diego. Before joining the U-T in July 2005, he was the opinion-page columns editor and wrote the featured weekly Unspin column for The Orange County Register. Reed was on the national board of the Association of Opinion Page Editors from 2003-2005. From 2000 to 2005, Reed made more than 100 appearances as a featured news analyst on Los Angeles-area National Public Radio affiliate KPCC-FM. From 1990 to 1998, Reed was an editor, metro columnist and film critic at the Inland Valley Daily Bulletin in Ontario. Reed has a political science degree from the University of Hawaii (Hilo campus), where he edited the student newspaper, the Vulcan News, his senior year. He is on Twitter: @chrisreed99.

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