Alico, Inc. Form 10-Q Summary
Business Context and Reporting Period
Alico is a Florida agribusiness and land-management company owning approximately 130,400 acres. Its operations include citrus groves, sugarcane and other improved farmland, cattle ranching, conservation, land leasing, and related agricultural supply-chain services. This unaudited report covers the three months ended December 31, 2012, the first quarter of fiscal 2013, compared with the three months ended December 31, 2011.
Financial Performance and Position
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Operating revenue | $21.356 million | $26.047 million | Down 18.0% |
| Gross profit | $3.786 million | $5.514 million | Down 31.4% |
| Gross margin | 17.7% | 21.2% | Down 3.5 percentage points |
| Income from operations | $1.978 million | $3.524 million | Down 43.9% |
| Operating margin | 9.3% | 13.5% | Down 4.2 percentage points |
| Net income | $1.038 million | $1.933 million | Down 46.3% |
| Basic and diluted EPS | $0.14 | $0.26 | Down $0.12 |
| Effective tax rate | 38.0% | 38.9% | Down 0.9 percentage points |
Operating expenses declined 14.5% to $17.570 million, while corporate general and administrative expense declined 9.2% to $1.808 million. Interest expense declined 21.8% to $367,000, primarily due to lower debt and interest rates, partly offset by a $66,000 prepayment penalty.
Segment revenue and gross profit were mixed. Alico Fruit revenue fell 49.7% to $5.289 million and generated a $245,000 gross deficit. Citrus Groves revenue fell 12.1% to $7.393 million, while gross profit fell 52.9% to $1.533 million. Sugarcane revenue increased 28.3% to $7.807 million and gross profit increased 41.6% to $2.050 million.
At December 31, 2012, cash and cash equivalents were $902,000 versus $13.328 million at September 30, 2012; total current assets were $36.583 million, current liabilities were $9.445 million, and working capital was $27.138 million. The current ratio was 3.87 to 1. Total assets were $176.052 million and stockholders’ equity was $127.315 million.
Total debt was $37.500 million, consisting of a term loan; the $60.0 million revolving credit facility was undrawn and available. Debt maturities included $2.0 million due within one year and $27.5 million due beyond five years. The company stated that it was in compliance with all debt covenants.
Cash Flow and Material Changes
- Operating cash flow was negative $2.939 million, compared with negative $237,000 in the prior-year quarter, primarily because of seasonal working-capital needs.
- Investing cash flow was negative $5.382 million, including $7.983 million of capital expenditures and $2.391 million of net proceeds from Lee County property sales.
- Capital expenditures included sugarcane farmland expansion, sugarcane replanting, cattle purchases, citrus investment, and other projects.
- Financing cash flow was negative $4.105 million, reflecting debt repayments, $1.411 million of treasury-stock purchases, and $294,000 of dividends paid.
- The company repaid the Farm Credit mortgage during the quarter and made a $500,000 principal payment on the Rabobank term loan.
- Cash declined by $12.426 million during the quarter, from $13.328 million to $902,000.
Guidance, Outlook, Risks, and Unusual Items
- Management expects citrus volumes handled by Alico Fruit to decline because of an estimated 13% to 15% smaller Florida citrus crop. Early- and mid-season citrus prices were lower and management expected the pressure to continue; the outlook for Valencia pricing remained uncertain.
- Management expects fiscal 2013 cattle pricing to remain broadly consistent with fiscal 2012 and was pursuing additional improved-farmland leases after a tenant did not renew one lease.
- The company expects to finalize the sale of a conservation easement covering approximately 11,600 acres for approximately $20.7 million and expects to recognize an estimated $19.5 million capital gain. The filing does not provide a completed-sale date or recognized gain for the quarter.
- Alico Fruit incurred approximately $300,000 of non-recurring trailer repair and maintenance costs, contributing to its quarterly gross deficit.
- The company had approximately $18.984 million of citrus purchase commitments through fiscal 2016, fully covered by sales agreements; management expects the committed quantities to be sold at cost or higher.
- Alico’s agricultural operations are seasonal and exposed to weather, crop yields, commodity prices, market conditions, and working-capital volatility. Management stated that cash, the available revolving facility, and expected operating cash flow should provide sufficient liquidity for foreseeable requirements.
- Atlanticblue, which owns approximately 51% of Alico and controls the company, announced plans to explore selling substantially all of its assets and actively pursue a sale of its entire Alico equity position. A Special Committee of independent directors was formed to evaluate potential transactions.
- The IRS settlement for prior tax years resulted in federal and state tax and interest payments. The company accrued an estimated $149,000 of additional state interest and penalties at December 31, 2012.
- The company reported no material changes to previously disclosed risk factors, no material adverse legal contingencies, and effective disclosure controls with no material changes to internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether citrus crop volume and pricing weakness persists and whether the sugarcane improvement offsets citrus-related deterioration.
- The timing, approval, tax treatment, and final proceeds from the proposed conservation-easement transaction.
- Liquidity after the sharp decline in cash, including use and availability of the $60.0 million revolving facility.
- Debt covenant compliance, floating-rate exposure, and scheduled term-loan repayments.
- The potential effects of Atlanticblue’s proposed sale of its Alico stake or substantially all of its assets on control, governance, and shareholder value.
- The company’s seasonal working-capital requirements and ability to fund planned capital expenditures without additional borrowing.