Alico, Inc. Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2022, compared with the same periods in 2021. The filing is for fiscal 2022 second quarter, although the request metadata references 2021 Q2. Alico is a Florida agribusiness and land-management company with approximately 75,000 acres of land and approximately 90,000 acres of mineral rights. Its two segments are Alico Citrus and Land Management and Other Operations.
Financial Performance and Position
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $49.6 million, down 11.3% | $65.0 million, down 6.7% |
| Gross profit | $4.0 million, down 60.9% | $5.8 million, down 62.8% |
| Income from operations | $1.5 million, down 80.7% | $0.7 million, down 93.4% |
| Net income attributable to Alico common stockholders | $20.7 million | $30.8 million |
| Diluted earnings per share | $2.74 | $4.08 |
| Cash dividends declared per share | $0.50 | $1.00 |
Gross margin was approximately 8.1% for the quarter and 8.9% year to date, compared with approximately 18.3% and 22.4% in the prior-year periods. Operating margin was approximately 2.9% for the quarter and 1.1% year to date, compared with approximately 13.5% and 15.0%, respectively. Net income was substantially increased by non-operating real-estate gains rather than by operating performance.
- Alico Citrus revenue declined 11.3% in the quarter and 6.5% year to date. Citrus gross profit declined 63.7% and 66.2%, respectively.
- Processed boxes harvested declined 14.5% in the quarter and 11.0% year to date. Pound solids produced declined 20.5% and 17.6%, respectively.
- Higher citrus pricing partly offset lower production: price per pound solids increased approximately 10% to 12% for the principal citrus varieties.
- Land Management and Other Operations revenue declined 9.9% in the quarter and 19.2% year to date, primarily because ranch sales reduced acreage subject to grazing and hunting leases.
Cash Flow, Debt and Liquidity
- Cash provided by operating activities was $8.8 million for the six months ended March 31, 2022, down from $25.6 million in the prior-year period.
- Investing activities provided $26.0 million, compared with $24.6 million used in the prior-year period. The change was driven primarily by $36.7 million of net proceeds from real-estate and asset sales.
- Financing activities used $9.5 million, including $7.5 million of dividends and $2.1 million of term-loan principal payments.
- Cash, cash equivalents and restricted cash increased to $26.2 million from $0.9 million at September 30, 2021. Restricted cash included $2.7 million held for a like-kind exchange.
- Working capital was $46.1 million, compared with $32.6 million at September 30, 2021; the current ratio improved to 2.88:1 from 2.46:1.
- Term-loan principal was $124.2 million at March 31, 2022, including $4.3 million due within one year. Net long-term debt, after deferred financing costs and excluding the current portion, was $119.0 million.
- Revolving credit facilities had no outstanding borrowings. Availability was approximately $69.7 million under the working-capital line and $25.0 million under the revolving line, subject to applicable conditions and approximately $0.3 million of letters of credit.
- The Company reported compliance with its debt covenants as of March 31, 2022. On April 29, 2022, it prepaid approximately $15.6 million on a variable-rate term loan, fully satisfying that loan.
Material Changes Versus the Prior Comparable Period
- Revenue and operating profit declined sharply because of lower citrus volumes, lower pound solids per box, and reduced grove-management activity.
- The January 2022 freeze materially reduced Valencia yields. Management stated that it does not expect long-term measurable damage to the citrus trees.
- Net income increased primarily because the Company recognized $35.0 million of real-estate, property and equipment gains in the six-month period, versus $3.3 million in the prior-year period. The gains included approximately $26.6 million from the March 15, 2022 sale of approximately 6,286 ranch acres.
- The Company recognized a tax benefit associated with selling 1,638 acres to the State of Florida below market value. The benefit was approximately $4.9 million net of a valuation allowance; excluding it, the six-month tax provision would have been approximately $8.2 million.
- Hurricane Irma relief proceeds recognized as a reduction of operating expenses were $1.1 million year to date, compared with $4.3 million in the prior-year period. Approximately $1.1 million of estimated reimbursement remained at March 31, 2022, with receipt anticipated in fiscal 2023.
- The annual dividend rate had increased to $2.00 per share from $0.72 per share, contributing to higher dividend payments.
Outlook, Commentary and Risks
The filing provides no formal earnings or revenue guidance. Management expects the Company’s Valencia crop to decline approximately 12% to 15% year over year, compared with the USDA’s projected 33.9% decline for the broader Florida Valencia crop. Management attributes the expected relative performance to grove-management efficiencies and precautionary measures taken after the freeze.
- Results are highly seasonal, with the second and third fiscal quarters historically producing most annual revenue. Quarterly results are therefore not necessarily indicative of full-year performance.
- Key operating risks include weather and freeze events, citrus greening and other diseases, pests, water availability, crop yields, citrus prices, labor and supply-chain disruptions, inflation, energy costs and customer pricing formulas.
- The Company’s debt includes variable-rate instruments tied to LIBOR. It expects the LIBOR transition to occur during fiscal 2023 and is working with lenders on alternative reference rates; the ultimate impact remains uncertain.
- Management reported no material adverse impact from COVID-19 to date and no material changes to previously disclosed risk factors.
- Outstanding commitments for citrus-tree purchases were approximately $6.6 million at March 31, 2022. The Company reported no material pending legal proceedings.
- After the reporting date, the Company extended the CEO’s employment through September 30, 2024 and awarded 5,000 restricted shares under a new bonus agreement.
Important Facts for Investors to Verify
- Separate recurring citrus operating performance from the $35.0 million of year-to-date real-estate gains and the related tax benefit.
- Assess the effect of the January freeze, disease-related fruit drop, lower pound solids per box and the projected Valencia volume decline on full-year cash generation.
- Confirm the timing and economic terms of the April 29, 2022 $15.6 million debt prepayment and its effect on liquidity and interest expense.
- Review LIBOR replacement provisions, variable-rate exposure, debt maturities, collateral and covenant headroom.
- Evaluate whether the increased dividend rate is sustainable given seasonal working-capital needs, capital expenditures, tree-purchase commitments and potential land or grove acquisitions.
- Monitor remaining Hurricane Irma relief receipts, deferred tax assets and the ability to realize the charitable-contribution tax deduction before expiration.