Alico, Inc. Form 10-Q Summary
Business Context and Reporting Period
Alico, Inc. is a Florida agribusiness and land-management company owning approximately 122,000 acres, including approximately 90,000 acres of mineral rights. Its segments are Alico Citrus, Conservation and Environmental Resources, and Other Operations. This unaudited report covers the three months ended December 31, 2017, Alico’s first fiscal quarter of fiscal 2018, compared with the three months ended December 31, 2016.
Financial Performance and Position
| Metric | Three Months Ended December 31, 2017 | Prior Period |
|---|---|---|
| Operating revenue | $17.533 million | $17.445 million |
| Gross profit | $0.582 million | $2.753 million |
| Gross margin | 3.3% | 15.8% |
| Loss from operations | $3.304 million | $1.035 million |
| Net income attributable to common stockholders | $8.746 million | Net loss of $1.735 million |
| Diluted earnings per share | $1.05 | $(0.21) |
| Cash flow from operating activities | $(9.689) million | $(17.437) million |
| Capital expenditures | $3.561 million | $2.357 million |
Revenue increased 0.5%, but gross profit declined 78.9% because Alico Citrus operating expenses rose 15.7%, primarily from harvest timing and Hurricane Irma cleanup and repair costs. The company reported a $3.304 million operating loss, while net income was driven largely by a $12.417 million income-tax benefit, including approximately $11.3 million from remeasurement of deferred tax liabilities following the Tax Cuts and Jobs Act.
Cash and cash equivalents declined to $0.948 million from $3.395 million at September 30, 2017. Working capital increased to $53.991 million, and the current ratio improved to 5.39-to-1. Principal debt and lines of credit totaled $192.481 million at December 31, 2017, including $180.783 million of long-term debt, $4.575 million of current debt, and $7.123 million drawn on revolving credit facilities. Approximately $52.6 million remained available under the working capital line and $25.0 million under the revolving line of credit. The company was in compliance with its financial covenants.
Investing activities generated $1.739 million, primarily from $5.3 million of proceeds from the sale of the Fort Myers office building. Financing activities generated $5.503 million, reflecting net revolving-credit borrowings, term-loan payments, and dividends. The company declared a quarterly dividend of $0.06 per common share.
Material Changes Versus the Prior Comparable Period
- Alico Citrus revenue increased 1.2%, but segment gross profit fell 71.9% to $0.784 million.
- Early and Mid-Season processed boxes harvested increased 18.0%, while pound solids per box decreased 5.5%.
- Fresh-fruit revenue decreased 58.5%, and the fresh-fruit price per box decreased 27.4%.
- Total operating expenses increased $2.259 million, while general and administrative expenses increased 2.6% to $3.886 million.
- Other expense decreased to $0.375 million from $1.981 million, mainly because of an approximately $1.8 million gain on the office-building sale.
- Operating cash use improved by $7.748 million, although the company remained cash-flow negative.
- The company drew a net $7.123 million on revolving credit facilities to fund working capital and investing activities.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Hurricane Irma materially affected the Florida citrus crop. Management maintained its estimate that fiscal 2018 production would decline approximately 40% to 45% versus fiscal 2017, with expected negative effects on revenue and cash flow.
- The USDA’s January 2018 forecast projected Florida’s orange crop at approximately 46.0 million boxes, down from 68.7 million boxes for the prior crop year.
- Management expects fiscal 2018 operating expenses to remain consistent with fiscal 2017 on a per-acre basis, despite lower production.
- The Alico 2.0 Modernization Program targets lower expenses per acre and a reduction in cost to produce a pound solid, but management cautioned that the anticipated savings may not be achieved.
- In January 2018, the company sold its breeding herd for approximately $7.8 million and leased grazing and other ranch rights to a third party. It also sold certain trailers for $0.5 million, receiving $0.125 million initially with the balance payable under a three-year promissory note.
- The company remains exposed to weather, citrus disease, water availability, crop prices, energy and interest rates, labor conditions, financing availability, seasonality, land values, restrictive debt covenants, and the ability to obtain annual funding approvals for its water-conservation contract.
- The company had approximately $10.3 million of outstanding standby letters of credit and approximately $1.072 million of commitments for citrus-tree purchases.
- The company expects seasonality to cause most annual revenue to occur in the second and third fiscal quarters, while working-capital needs are generally higher in the first and fourth quarters.
- Management stated that no material legal proceedings or material changes to previously disclosed risk factors occurred during the quarter. Disclosure controls were deemed effective.
Important Facts for Investors to Verify
- Whether the projected 40% to 45% production decline and related cash-flow impact remain accurate after the full 2017-18 harvest.
- Whether Alico 2.0 achieves its targeted cost reductions while preserving citrus production capacity.
- The sustainability of liquidity given only $0.948 million of cash, negative operating cash flow, and reliance on revolving credit.
- Compliance with debt-service, current-ratio, tangible-net-worth, leverage, and capital-expenditure covenants.
- The timing and proceeds from additional asset sales, including assets classified as held for sale.
- The tax benefit’s non-cash nature and the effect of the new 21% federal corporate tax rate on future earnings and deferred taxes.
- Annual approval and funding of the water-conservation contract, including the potential for up to $12 million of annual operating and maintenance payments.
- Potential effects of citrus disease, weather, water restrictions, commodity prices, and interest-rate changes on future results.