Alico, Inc. Form 10-Q Summary
Reporting period: Quarterly and year-to-date periods ended March 31, 2014, compared with the corresponding periods ended March 31, 2013. The request metadata identifies “2013 Q2,” but the filing is for the second quarter of fiscal 2014. Alico is a Florida agribusiness and land-management company owning approximately 130,800 acres across six Florida counties. Its principal segments are Citrus Groves, Agricultural Supply Chain Management, Improved Farmland, Ranch and Conservation, and Other Operations.
Financial Performance and Position
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $37.5 million vs. $38.4 million; down 2.4% | $52.5 million vs. $59.8 million; down 12.2% |
| Gross profit | $9.9 million vs. $7.0 million; up 40.6% | $12.7 million vs. $10.8 million; up 17.6% |
| Gross margin | 26.3% vs. 18.3% | 24.2% vs. 18.1% |
| Income from operations | $7.4 million vs. $4.6 million; up 62.0% | $6.4 million vs. $6.5 million; down 2.2% |
| Net income | $4.1 million vs. $2.8 million; up 46.8% | $3.4 million vs. $3.8 million; down 11.7% |
| Basic and diluted EPS | $0.55 vs. $0.38 | $0.46 vs. $0.52 |
| Operating cash flow | Not separately provided | $3.5 million vs. $6.9 million |
| Capital expenditures | Not separately provided | $8.8 million vs. $13.0 million |
Balance sheet at March 31, 2014: Cash and cash equivalents were $15.4 million, down from $24.6 million at September 30, 2013. Working capital was $48.4 million, and the current ratio was 5.35 to 1. Total assets were $196.0 million and stockholders’ equity was $141.2 million.
Debt and liquidity: Total debt was $35.0 million, consisting of a $35.0 million term loan; the company had no balance on its $60.0 million revolving line of credit. The term loan carried an effective rate of 2.65% and matures in October 2020, with $2.0 million due within one year. Management stated that cash, the available revolving facility, and expected operating cash flow should satisfy foreseeable working-capital and capital-expenditure needs.
Dividends and repurchases: The company paid $1.5 million of dividends and spent $4.7 million repurchasing treasury stock during the six months. It announced a reduction in the third-quarter dividend to retain cash for reinvestment and potential growth opportunities.
Material Changes Versus Prior Comparable Period
- Citrus Groves revenue increased 13.8% in the quarter and 2.5% year to date. Citrus gross profit rose 65.2% and 51.3%, respectively, primarily because higher prices more than offset lower production.
- Citrus production declined: total boxes harvested fell 10.3% in the quarter and 19.4% year to date, while pound solids produced fell 7.4% and 17.0%. Citrus Greening, weather, pests, and other environmental factors adversely affected production.
- Agricultural Supply Chain Management revenue declined 48.3% in the quarter and 52.0% year to date, reflecting lower Florida citrus production and management’s decision to reduce externally handled fruit. Segment gross profit declined 52.5% and 80.4%.
- Improved Farmland revenue increased 20.4% in the quarter and 2.1% year to date, but year-to-date gross profit decreased 26.0% as lower sugarcane prices outweighed higher production.
- Ranch and Conservation revenue increased 169.2% in the quarter and 68.3% year to date, principally due to the timing of cull-cow and bull sales.
- Corporate general and administrative expense increased 47.8% year to date, primarily due to change-in-control-related costs, including accelerated equity vesting, departing director and officer insurance, and consulting and non-competition charges.
- The six-month effective tax rate increased to 42.1% from 39.0%, primarily due to nondeductible projected political contributions and limits on certain deductions related to incentive awards.
- Cash declined by $9.2 million during the six months, primarily because of capital expenditures, treasury-stock purchases, dividends, and debt repayment, partially offset by operating cash flow and a $2.6 million return on the Magnolia investment.
Outlook, Risks, Contingencies, and Unusual Items
- The company did not provide a formal earnings or revenue forecast. Management expects seasonal improvement in operating cash flow during the second and third fiscal quarters as crops are harvested.
- The USDA’s April 9, 2014 forecast indicated that Florida’s orange crop was expected to decline approximately 17.7% from the prior year. Alico expected its 2013/2014 Valencia crop to decrease approximately 15%.
- Management identified risks from weather, citrus disease and pests, water availability and allocations, commodity and energy prices, labor disruptions, interest rates, agricultural land values, financing availability, restrictive debt covenants, land-use regulation, seasonality, and concentrated stock ownership.
- On November 19, 2013, 734 Agriculture and affiliates acquired approximately 51% of Alico’s voting stock, resulting in a change of control. The transaction led to substantial board and management changes, including the appointment of Clayton G. Wilson as CEO.
- Alico entered into a consulting and non-competition agreement with former CEO JD Alexander requiring $2.0 million in payments over 24 months.
- Alico Fruit had approximately $17.9 million of remaining citrus-purchase commitments at March 31, 2014, covering deliveries through fiscal 2016. Management stated that the committed volume was covered by sales agreements and expected to be sold at cost or higher.
- Certain Florida real estate parcels totaling approximately 3,200 acres were classified as held for sale. The filing states that estimated fair value exceeded carrying value and no impairment was recognized.
- The company reported no material changes to previously disclosed legal proceedings or risk factors, and management concluded that disclosure controls were effective.
Most Important Facts to Verify
- Whether citrus production, particularly the effects of Citrus Greening and the expected Florida crop decline, will continue to pressure volume despite stronger pricing.
- Whether the reduced third-quarter dividend is temporary or signals a broader change in capital-allocation policy.
- The sustainability of liquidity after $8.8 million of capital expenditures, $4.7 million of treasury-stock purchases, and lower operating cash flow.
- The terms, governance implications, and related-party effects of the 734 Agriculture change in control and the Silver Nip employee-lease arrangement.
- The timing and economics of the planned sale of approximately 3,200 acres of real estate.
- Compliance with covenants and future interest-rate exposure under the floating-rate term loan and undrawn revolving credit facility.
- Whether the $17.9 million of citrus-purchase commitments remain fully covered by sales agreements at cost or higher.