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 principal activities are citrus production, cattle ranching, conservation and environmental services, and related land, mining and oil-rights operations.
This unaudited Form 10-Q covers the three months ended December 31, 2016, compared with the three months ended December 31, 2015. Results are seasonal, with the second and third fiscal quarters generally generating most annual revenue and the first and fourth quarters typically requiring more working capital.
Financial Performance and Position
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Operating revenue | $17.445 million | $20.604 million |
| Gross profit | $2.753 million | $1.366 million |
| Loss from operations | $1.035 million | $2.559 million |
| Net loss | $1.743 million | $3.019 million |
| Net loss attributable to common stockholders | $1.735 million | $3.011 million |
| Loss per diluted share | $0.21 | $0.36 |
| Cash flow from operations | $(17.437) million | $(14.781) million |
| Dividends declared per share | $0.06 | $0.06 |
Revenue declined 15.3%, while gross profit increased 101.5%. Gross margin improved to approximately 15.8% from 6.6%; operating margin improved to approximately negative 5.9% from negative 12.4%. The improvement reflected lower operating costs, higher citrus pricing and lower non-citrus expenses, despite reduced production and revenue.
Orange Co. revenue decreased 12.5% to $16.877 million, but gross profit increased 65.5% to $2.792 million. Conservation and Environmental Resources revenue declined 70.1% to $301,000, while its gross loss narrowed to $213,000. Other Operations revenue was $267,000 and gross profit was $174,000.
At December 31, 2016, cash and equivalents were $1.126 million, compared with $6.625 million at September 30, 2016. Working capital increased to $67.258 million from $53.193 million, and the current ratio improved to 6.30:1 from 3.85:1. Inventories increased to $62.522 million, primarily reflecting unharvested fruit, cattle and nursery inventory.
Total principal debt and lines of credit were $216.465 million, compared with $202.219 million at September 30, 2016. Long-term debt, net of financing costs, was $188.118 million, and lines of credit were $21.945 million. The Company had approximately $37.8 million available under its working capital line and $25.0 million available under its revolving line of credit. Outstanding standby letters of credit totaled approximately $10.3 million.
Net cash used in investing activities was $1.810 million, including $2.357 million of capital expenditures. Financing activities provided $13.748 million, including net revolving-credit borrowings of $16.945 million, partially offset by $2.699 million of term-loan principal payments and $498,000 of dividends.
Material Changes Versus the Prior Comparable Period
- Revenue fell by $3.159 million, primarily because of fewer citrus boxes harvested, lower third-party fruit resale activity and the elimination of certain contract harvesting and hauling work.
- Early and mid-season citrus boxes harvested decreased 21.5%, and total boxes harvested decreased 23.2%; however, the early and mid-season price per pound solids increased 24.9% to $2.51.
- Orange Co. gross profit improved despite lower volume because of higher citrus pricing and reduced cost of sales and resale activity.
- General and administrative expense decreased 3.5% to $3.788 million, although the quarter included approximately $900,000 of lump-sum payments to new executives.
- Interest expense decreased $176,000, and gains on real estate sales increased by approximately $294,000 versus the prior year.
- Operating cash usage worsened by $2.656 million, primarily because of seasonal working-capital requirements and a larger working-capital investment.
- The Company drew net amounts under its revolving credit facilities to fund working capital and investing activities.
Guidance, Outlook, Risks and Unusual Items
Management expects fiscal 2017 citrus production of approximately 8.3 million boxes, or about 90% of fiscal 2016 production. The USDA forecast a 12.3% decline in Florida’s statewide orange crop for the 2016-17 season. Management expects the lower industry crop to support materially higher fiscal 2017 price per pound solids.
The Company expects cash on hand, operating cash flow and available credit facilities to provide sufficient liquidity for debt service, working capital and capital expenditures for at least the next twelve months. Liquidity remains sensitive to seasonal cash needs, crop yields, citrus pricing and continued access to credit.
Key operating risks include weather, citrus greening and other diseases or pests, water availability and allocations, labor costs, commodity and energy prices, interest-rate changes, agricultural land values, seasonality, debt-covenant compliance and the availability of additional financing. Management stated that the Company was in compliance with its financial covenants at December 31, 2016.
The South Florida Water Management District conservation contract provides for potential implementation reimbursements of up to $4.0 million and annual operating and maintenance payments of up to $12.0 million, subject to compliance and annual funding approval. Permitting was underway, and the filing states that annual payments are not assured.
Clayton G. Wilson stepped down as Chief Executive Officer effective December 31, 2016 and will receive up to $750,000 under a consulting arrangement. Remy W. Trafelet became President and Chief Executive Officer, with Henry R. Slack and George R. Brokaw becoming Executive Chairman and Executive Vice Chairman. The new executives received lump-sum payments and performance-based stock options.
The Company agreed in principle to sell approximately 49 acres and facilities in Hendry County for approximately $2.2 million. The sale closed on February 2, 2017, after the reporting period, and no impairment was expected because the sale price exceeded book value.
The filing reports no material litigation, no defaults upon senior securities and no material changes to previously disclosed risk factors or market-risk disclosures.
Important Facts for Investors to Verify
- Whether higher citrus prices offset the expected reduction in production and support full-year cash generation.
- The sustainability of the Company’s very low cash balance and reliance on revolving-credit borrowings during seasonal working-capital periods.
- Debt-covenant compliance, available borrowing capacity and the effect of the May 2017 LIBOR-spread adjustment.
- Progress, permitting and annual funding approval for the water-retention contract and the potential $12.0 million annual payment.
- The financial impact of the executive transition, consulting obligations, severance provisions and stock-option grants.
- The effect of citrus greening, weather, premature fruit drop and smaller fruit on yields and inventory valuations.
- Completion and use of proceeds from the $2.2 million post-quarter-end property sale.