Alico, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2013; filed August 6, 2013. The supplied request metadata refers to “2012 Q3,” but the filing itself is the fiscal 2013 third-quarter report, with fiscal 2012 comparatives.
Business Context
Alico is a Florida agribusiness and land-management company owning approximately 130,800 acres across six Florida counties. Its principal activities are citrus groves, agricultural supply-chain management, improved farmland including sugarcane, cattle and conservation, land leasing, and other operations including rock-mining royalties.
Financial Performance and Position
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Operating revenue | $35.229 million | $40.401 million | $94.995 million | $120.545 million |
| Gross profit | $9.065 million | $10.509 million | $19.865 million | $30.261 million |
| Income from operations | $6.812 million | $8.638 million | $13.340 million | $24.593 million |
| Net income | $4.079 million | $9.607 million | $7.890 million | $18.954 million |
| Diluted EPS | $0.55 | $1.31 | $1.07 | $2.58 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $14.753 million | $25.626 million |
Reported margins were approximately 25.7% gross, 19.3% operating, and 11.6% net for the quarter, compared with approximately 26.0%, 21.4%, and 23.8%, respectively, in the prior-year quarter. Nine-month gross, operating, and net margins were approximately 20.9%, 14.0%, and 8.3%, compared with 25.1%, 20.4%, and 15.7% in the prior-year period.
- Liquidity: Cash and cash equivalents were $6.803 million at June 30, 2013, down from $13.328 million at September 30, 2012. Working capital was $27.085 million, compared with $34.319 million at fiscal year-end, and the current ratio was 3.24-to-1.
- Debt: Total debt was $36.500 million, consisting of a $36.500 million term loan. The $60.000 million revolving credit line was undrawn and fully available. Debt was down from $39.900 million at September 30, 2012. The company was in compliance with its loan covenants.
- Cash uses: Nine-month investing cash outflows included $16.792 million of property and equipment purchases. Financing uses included $3.400 million of debt principal payments, $2.877 million of treasury-stock purchases, and $1.164 million of dividends paid.
- Capital structure: Stockholders’ equity was $132.178 million at June 30, 2013. The company declared dividends of $0.08 per share for the quarter and $0.16 per share for the nine-month period.
Material Changes Versus the Prior Comparable Period
- Total revenue declined 12.8% in the quarter and 21.2% year to date. Citrus Groves revenue declined 12.0% and 21.1%, respectively, while Alico Fruit revenue declined 37.0% and 41.7%.
- Citrus Groves gross profit declined 34.3% in the quarter and 49.8% year to date. Harvested boxes, pounds solids produced, and pounds solids per box all decreased, reflecting weather, horticultural conditions, citrus greening, pests, and premature fruit drop. Growing costs increased 10.9%, primarily due to higher fertilizer prices.
- Sugarcane was a significant offset: revenue increased 597.7% in the quarter and 46.9% year to date, primarily from a larger producing acreage base. Sugarcane gross profit increased 62.4% year to date.
- General and administrative expense increased 20.4% in the quarter and 15.1% year to date, including $494,000 and $1.171 million, respectively, of costs related to evaluating a potential transaction involving Alico.
- Prior-year other income included nonrecurring real-estate sale gains. Consequently, other income declined from $6.888 million to a $167,000 net expense in the quarter and from $6.026 million of income to a $448,000 net expense year to date.
- Operating cash flow fell $10.873 million year to date to $14.753 million, while investing cash use increased by $9.040 million to $13.837 million.
Outlook, Risks, Contingencies, and Unusual Items
- Subsequent conservation easement: In July 2013, Alico received $20.678 million for a conservation easement covering approximately 11,600 acres. Management expected an approximately $19.900 million pretax gain in fourth-quarter results. The related $19.900 million tax capital gain was expected to offset part of a $48.000 million capital-loss carryforward.
- Strategic alternatives: Atlanticblue, which owned approximately 50.6% of Alico, announced its intention 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 retained Deutsche Bank Securities and Greenberg Traurig to evaluate alternatives. No transaction was reported as completed in the filing.
- Agricultural risks: Results are seasonal and exposed to weather, disease, pests, crop yields, commodity prices, fertilizer costs, and other natural and market conditions. The USDA forecast a 9% decline in Florida’s orange crop for 2012/2013.
- Purchase commitments: Alico Fruit had approximately $20.600 million of remaining citrus-purchase obligations for fiscal 2014 through 2016, covered by sales agreements. Management expected committed volumes to be sold at cost or higher.
- Change-in-control exposure: Potential payments under change-in-control agreements were estimated at $2.503 million for executive officers and $1.600 million for other key employees.
- Legal matters: The company was involved in routine legal matters and believed their resolution would not materially affect financial position or results. No material changes to previously disclosed risk factors were reported.
- No formal earnings guidance: The filing does not provide a clear numerical revenue, earnings, or cash-flow forecast for the fiscal year.
Most Important Facts for Investors to Verify
- Whether the July 2013 conservation-easement transaction closed as described and whether the expected approximately $19.9 million gain was recognized in the fourth quarter.
- The status, terms, and potential shareholder impact of Atlanticblue’s proposed sale of its controlling Alico stake and the special committee’s strategic-alternatives process.
- Future citrus yields, pricing, citrus-greening effects, fertilizer costs, and the sustainability of sugarcane production gains.
- Available liquidity after capital expenditures, scheduled $2.0 million annual debt maturities, dividends, and stock repurchases.
- The company’s ability to satisfy the $20.6 million citrus-purchase commitments and its exposure to related-party transactions and change-in-control obligations.