Alico, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2016, compared with the corresponding 2015 periods. The supplied metadata identifies “2015 Q3,” but the filing itself is the fiscal 2016 third-quarter Form 10-Q, filed August 4, 2016.
Business context
Alico is a Florida agribusiness and land-management company owning approximately 121,000 acres, including approximately 90,000 acres of mineral rights. Its segments are Orange Co. citrus operations, Conservation and Environmental Resources, and Other Operations. Results are seasonal, with the second and third fiscal quarters generally producing most annual revenue.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Operating revenue | $46.9 million, down 34.7% | $139.3 million, down 7.6% |
| Gross profit | $13.7 million, down 35.0% | $34.6 million, down 4.0% |
| Income from operations | $10.9 million, down 39.5% | $25.0 million, up 4.2% |
| Net income attributable to Alico common stockholders | $4.7 million, down 49.0% | $10.4 million, down 44.1% |
| Basic and diluted EPS | $0.56, versus $1.11 | $1.25, versus $2.34 |
| Cash dividends declared per share | $0.06 | $0.18 |
Approximate gross margin was 29.2% for the quarter and 24.8% year to date, compared with 29.3% and 23.9% in the respective 2015 periods. Operating margin was approximately 23.3% for the quarter and 18.0% year to date, compared with 25.2% and 16.0%. Net margin attributable to common stockholders was approximately 10.0% for the quarter and 7.5% year to date, compared with 12.8% and 12.3%.
Segment and operating trends
- Orange Co. revenue declined 35.5% in the quarter and 7.1% year to date. Total boxes harvested fell 36.5% and 11.9%, respectively, while pound solids produced fell 39.8% and 17.4%. Higher price per pound solid partially offset lower production.
- Orange Co. gross profit declined 37.0% in the quarter and 5.9% year to date. Management attributed lower production to weather, El Niño effects, premature fruit drop, smaller fruit, and citrus greening and other pests.
- Conservation and Environmental Resources revenue increased 196.3% in the quarter and 75.5% year to date, primarily from calf and cull sales, but the segment remained loss-making at the gross-profit level.
- Other Operations revenue declined because of the 2014 sale of sugarcane operations; its gross profit improved as related expenses fell.
Cash flow, liquidity, and debt
- Cash provided by operating activities was $34.2 million for the nine months ended June 30, 2016, compared with $36.3 million in 2015.
- Investing cash outflow was $9.0 million, principally $9.1 million of capital expenditures. The prior-year period included the $265.6 million Orange-Co acquisition and approximately $97.1 million of sugarcane-land sale proceeds.
- Financing cash outflow was $17.7 million, including $8.1 million of term-loan principal payments, $7.5 million of contingent consideration, $3.1 million of share repurchases, and $1.5 million of dividends.
- Cash increased to $13.0 million from $5.5 million at September 30, 2015. Working capital increased to $59.0 million from $46.6 million, and the current ratio improved to 4.68 from 2.93.
- Total term debt was $199.9 million, including $4.5 million due within one year. The company had no outstanding balance on its revolving credit facilities; available capacity was approximately $59.8 million under the $70.0 million working-capital line and $25.0 million under the revolving line, subject to approximately $10.2 million of outstanding letters of credit reducing working-capital-line availability.
- Management stated that cash on hand, operating cash flow, and available credit should provide sufficient liquidity for at least the next twelve months and over the long term. The company was in compliance with its financial covenants at June 30, 2016.
Material changes, outlook, and unusual items
- Year-to-date earnings benefited from lower general and administrative expenses, including the absence of significant 2015 acquisition-related professional fees. This benefit was more than offset below operating income by higher interest expense and the absence of the approximately $13.6 million sugarcane-land gain recognized in 2015.
- Interest expense increased to $7.4 million from $5.7 million year to date, primarily because of debt incurred in connection with the Orange-Co acquisition.
- The company completed the final $3.75 million installment of contingent consideration for the Orange-Co acquisition on June 1, 2016.
- A water-storage contract with the South Florida Water Management District provides for reimbursement of implementation costs of up to $4.0 million and potential annual operating and maintenance payments of $12.0 million for ten years. Permitting was in process, construction had not commenced, and payments are contingent on completion, compliance, and annual governmental funding approvals. Management anticipated payments could begin in fiscal 2017.
- The proposed settlement of shareholder litigation concerning the Silver Nip Citrus acquisition had received preliminary court approval but remained subject to final judicial approval and potential attorneys’ fees and expenses.
- Key risks include citrus greening and other pests, weather and water conditions, volatile citrus prices and production, labor and energy costs, interest rates, debt-service requirements, restrictive covenants, land-use restrictions, agricultural land values, financing availability, seasonality, and concentrated stock ownership.
- The company identified a $1.494 million prior-period income-tax error related to fiscal 2014. It concluded the error was immaterial and recorded the cumulative effect through fiscal 2015 additional paid-in capital and deferred tax liabilities; no amended prior filings were required.
Investor verification points
- Verify the reporting-period discrepancy: the source is a June 30, 2016 Form 10-Q, not a 2015 third-quarter filing.
- Assess whether lower citrus volume, pound solids, and production quality are temporary or reflect continuing effects from citrus greening, weather, and other agricultural conditions.
- Review debt maturities, variable-rate exposure, covenant compliance, and the November 2016 maturity of the working-capital facility.
- Confirm the timing, permits, funding approvals, and economics of the $12.0 million annual water-storage contract.
- Monitor final judicial approval and any fees or obligations arising from the Silver Nip shareholder-litigation settlement.
- Reconcile year-to-date earnings against the prior period after excluding the prior-year sugarcane-sale gain and acquisition-related financing effects.