ALICO, INC. 10-Q Summary: Quarter Ended March 31, 2010
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010, and the six-month period ended March 31, 2010. ALICO, Inc. is a Florida-based agricultural and real estate company with operations in citrus, sugarcane, cattle, vegetables, land leasing, and real estate development. The company is an accelerated filer with 7,375,151 shares of common stock outstanding as of May 3, 2010.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2010 | Six Months Ended Mar 31, 2010 |
|---|---|---|
| Operating Revenue | $31.7 million | $45.8 million |
| Gross Profit | $3.9 million | $4.1 million |
| Profit from Operations | $2.3 million | $1.2 million |
| Net Income (Loss) | $1.4 million | ($20,000) |
| Diluted EPS | $0.18 | ($0.00) |
| Cash and Equivalents | $10.0 million (Mar 31, 2010) | N/A |
| Total Debt | $71.8 million (Mar 31, 2010) | N/A |
| Working Capital | $34.6 million | N/A |
| Current Ratio | 3.98:1 | N/A |
Note: All figures in millions unless otherwise noted. Six-month net loss was minimal at $20,000.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenue decreased 5% year-over-year for the quarter and 15% for the six-month period, primarily driven by reduced agricultural revenues in sugarcane, cattle, and vegetables.
- Profitability Improvement: Despite lower revenue, gross profit increased significantly (270% for the quarter) due to improved margins in citrus and sugarcane operations and reduced general and administrative expenses.
- Net Income Comparison: Net income for the quarter ($1.4M) was lower than the prior year ($2.1M) primarily because the prior year included a $7.0 million non-recurring settlement payment from a vendor.
- Debt Reduction: Total notes payable decreased from $78.9 million (Sept 30, 2009) to $71.8 million (Mar 31, 2010), resulting in lower interest expense.
- Dividend Suspension: The Board temporarily suspended dividends, which were previously $0.14 per share in the prior year quarter, pending improved operating results.
Outlook, Risks, and Management Commentary
- Management Changes: Steven M. Smith resigned as President and CEO in February 2010. JD Alexander was elected as the new President and CEO. Director Evelyn D'An resigned, replaced by Ramon A. Rodriguez on the Audit Committee.
- Agricultural Outlook:
- Citrus: Revenues and profits increased due to higher prices following freezes that impacted Florida production.
- Sugarcane: Production is expected to be approximately 40% of fiscal 2009 levels due to replanting cycles; full recovery expected in fiscal 2011.
- Vegetables: Suffered substantial losses due to a cold air mass in January 2010 causing crop damage.
- Cattle: Revenue decline is attributed to timing; majority of calf sales expected in the next two quarters.
- Real Estate: Market conditions in Florida remain depressed, making the timing and value of sales unpredictable. A foreclosure proceeding is ongoing regarding a defaulted mortgage note from a prior real estate sale.
- Liquidity: Management believes internally generated funds and a $52.3 million available revolving line of credit are sufficient to meet working capital requirements.
- Legal Proceedings: A shareholder derivative suit filed in 2008 alleging breaches of fiduciary duty by directors is being pursued by the plaintiff. A Special Committee of Independent Directors recommended dismissal, and a motion to dismiss has been filed.
Investor Verification Checklist
- Dividend Policy: Confirm the status of the dividend suspension and criteria for reinstatement.
- Sugarcane Recovery: Verify the timeline and capital requirements for the replanting program expected to boost production in fiscal 2011.
- Real Estate Foreclosure: Monitor the status of the foreclosure on the defaulted $52.2 million note receivable and potential impact on asset valuation.
- Legal Resolution: Track the outcome of the motion to dismiss the shareholder derivative lawsuit.
- Weather Impact: Assess the long-term impact of the January 2010 freeze on vegetable crop yields and future revenue projections.