Business Context and Reporting Period
Alico, Inc. is a Florida land management and agribusiness company operating approximately 139,600 acres in Central and Southwest Florida. Its activities include citrus, sugarcane, cattle, citrus supply-chain services, land leasing, real estate planning, and related operations. This Form 10-Q covers the three months ended December 31, 2011, compared with the three months ended December 31, 2010. Results are seasonal and may not be indicative of the full fiscal year.
Key Financial Metrics
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Operating revenue | $26.1 million | $16.6 million | Up 57.5% |
| Gross profit | $5.5 million | $2.5 million | Up 122.3% |
| Income from operations | $3.5 million | $0.5 million | Up $3.0 million |
| Net income (loss) | $1.9 million | $(0.1) million | Improved $2.0 million |
| Diluted EPS | $0.26 | $(0.01) | Improved $0.27 |
| Cash flow from operations | $(0.2) million | $(0.9) million | Improved $0.6 million |
Gross margin was approximately 21.3%, compared with 15.1% in the prior-year quarter. Operating margin was approximately 13.5%, compared with 2.9%. Net margin was approximately 7.4%, compared with negative 0.6%. Corporate general and administrative expense was essentially unchanged at $2.0 million.
- Agricultural revenue increased 59.6% to $25.4 million and represented approximately 97.3% of total operating revenue.
- Citrus Groves revenue increased 60.7% to $8.4 million, with gross profit rising to $3.3 million from $1.7 million.
- Sugarcane revenue increased 63.9% to $6.1 million, while gross profit increased to $1.4 million from $0.4 million.
- Bowen revenue increased 55.9% to $10.5 million; citrus boxes purchased increased 27.3% to 833,000.
- Capital expenditures were $4.4 million, including $2.9 million for sugarcane expansion, $0.4 million for cattle, and $1.1 million for other projects.
Balance Sheet, Debt and Liquidity
| Metric | December 31, 2011 | September 30, 2011 |
|---|---|---|
| Cash and cash equivalents | $0.7 million | $1.3 million |
| Working capital | $21.2 million | $17.4 million |
| Total assets | $186.9 million | $180.0 million |
| Total debt | $61.5 million | $57.2 million |
| Current ratio | 2.69:1 | 2.47:1 |
The company had $40.9 million of remaining availability under its $60.0 million revolving credit facility. Debt consisted primarily of $19.1 million outstanding under the revolving line, a $39.5 million term note, and a $2.9 million mortgage. The company reported compliance with all debt covenants. The revolving line and term note bear floating rates based on LIBOR; the applicable spread was reduced from 250 to 225 basis points effective January 1, 2012.
Cash used in operating activities was $0.2 million. Investing activities used $3.9 million, primarily for capital expenditures. Financing activities provided $3.4 million, including net borrowing activity, partially offset by $0.9 million of dividends. Management stated that cash, available revolving credit, and expected operating cash flow should provide sufficient liquidity for foreseeable working capital and capital expenditure needs.
Material Changes Versus Prior Comparable Period
- Revenue and profitability improved substantially due to an earlier harvest season, increased citrus and sugarcane production, and favorable pricing.
- Citrus harvested increased to 826,000 boxes from 570,000, and citrus prices increased 8.3%.
- Sugarcane harvested increased to approximately 148,000 standard tons from 104,000, while prices increased 12.9%. Producing acreage increased to 9,634 acres from 6,432 acres.
- Interest expense declined 6.9% to $0.5 million despite slightly higher average interest rates, primarily because of lower average debt.
- Investment income from the Magnolia tax-certificate fund was $97,000, compared with a $170,000 investment loss in the prior-year quarter.
- Dividends declared increased to $0.04 per share from none in the prior-year quarter.
- The company did not repurchase treasury shares during the quarter; 272,754 shares remained available for repurchase under the equity incentive plan.
Guidance, Outlook, Risks and Unusual Items
Management expects sugarcane production to continue increasing as additional acreage planted during fiscal 2012 matures, with approximately 13,600 producing acres expected in fiscal 2013. Management also expected to benefit from higher cattle pricing during the remainder of fiscal 2012. No formal consolidated earnings guidance was provided.
- Agricultural results are exposed to seasonality, weather, natural phenomena, crop yields, commodity prices, and market supply conditions.
- The IRS had asserted $31.1 million of additional taxes and penalties for tax years 2005 through 2007. The company reached an agreement in principle in November 2011 estimating taxes and interest of approximately $1.6 million; approximately $0.7 million was paid during the quarter. IRS Appeals waived $15.3 million of federal penalties, while an additional $1.3 million of penalties remained unresolved and subject to final IRS computation.
- The company remains involved in a shareholder derivative action naming Alico as a nominal defendant. The complaint was dismissed without prejudice and amended on December 16, 2011. Management believes the matter will not have a material adverse effect, based on available information.
- Related-party transactions include citrus marketing, supply purchases, and legal-fee reimbursements involving entities and individuals affiliated with Atlantic Blue Group, which owns approximately 51% of Alico.
- Bowen had approximately $1.4 million of remaining citrus purchase commitments, fully covered by sales agreements of approximately the same amount.
- The company stated that there were no material changes to previously disclosed risk factors or market-risk disclosures, and that disclosure controls and procedures were effective.
Investor Verification Checklist
- Verify the final IRS settlement computation, including the unresolved $1.3 million of penalties and any additional interest.
- Assess whether unusually early harvest timing and favorable commodity pricing are repeatable in subsequent quarters.
- Monitor sugarcane acreage expansion, yields, replanting requirements, and related capital spending.
- Review liquidity relative to the company’s $61.5 million debt balance, floating-rate exposure, required amortization, and October 2020 maturities.
- Track the status and potential cost of the amended shareholder derivative action and related-party legal reimbursements.
- Consider the effect of seasonal working-capital needs, low reported cash balances, and the company’s cash-sweep arrangement on financial flexibility.