Business Context and Reporting Period
Alico, Inc. is a Florida agribusiness and land management company owning approximately 130,800 acres. Its principal businesses are citrus groves, agricultural supply chain management, improved farmland including sugarcane, ranch and conservation, and other operations such as rock mining. This unaudited Form 10-Q covers the three months ended December 31, 2013, Alico’s fiscal 2014 first quarter.
The company realigned its reporting segments in fiscal 2013; prior-period segment information was reclassified to conform, without changing consolidated results. Agricultural results are seasonal, with stronger revenue generally occurring in the second and third fiscal quarters.
Financial Performance and Position
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Total operating revenue | $14.989 million | $21.356 million | Down 29.8% |
| Gross profit | $2.837 million | $3.786 million | Down 25.1% |
| Gross margin | 18.9% | 17.7% | Up approximately 1.2 points |
| Operating income (loss) | $(0.990) million | $1.978 million | Decline of $2.968 million |
| Operating margin | (6.6%) | 9.3% | Down approximately 15.9 points |
| Net income (loss) | $(0.704) million | $1.038 million | Decline of $4.108 million |
| Basic and diluted EPS | $(0.10) | $0.14 | Down $0.24 |
| Cash dividends declared per share | $0.12 | None | Newly declared |
- Citrus Groves revenue was $5.633 million, down 23.8%, while gross profit increased 13.2% to $1.735 million. Harvested boxes declined 38.9%, but price per pound solid increased 11.3%.
- Agricultural Supply Chain Management revenue declined 60.2% to $2.106 million and remained unprofitable at a gross loss of $0.219 million.
- Improved Farmland revenue declined 18.2% to $6.532 million, and gross profit declined 52.6% to $1.002 million, primarily reflecting lower sugarcane prices.
- Corporate general and administrative expense increased 111.7% to $3.827 million, substantially offsetting segment gross profit.
- Effective tax rates were 43.7% in Q1 FY2014 and 38.0% in the prior-year quarter. The company recorded a $0.547 million income tax benefit in the current quarter.
Cash Flow, Debt and Liquidity
| Metric | December 31, 2013 | September 30, 2013 |
|---|---|---|
| Cash and cash equivalents | $13.470 million | $24.583 million |
| Working capital | $46.602 million | $48.304 million |
| Current ratio | 6.17 to 1 | 5.20 to 1 |
| Total assets | $193.361 million | $198.840 million |
| Total debt | $35.500 million | $36.000 million |
- Operating cash flow was negative $4.088 million, compared with negative $2.939 million in the prior-year quarter.
- Capital expenditures were $6.539 million, primarily for sugarcane planting, farmland improvements, citrus nursery development, citrus trees, breeding herd purchases, and equipment.
- Investing cash outflow was $4.570 million, partly offset by a $1.966 million return on the Magnolia investment.
- Financing cash outflow was $2.455 million, including $1.371 million of treasury stock purchases, $0.584 million of dividends paid, and $0.500 million of debt principal payments.
- The company had no outstanding balance on its $60 million revolving credit line and reported $60 million of remaining availability. The $35.5 million term loan matures in October 2020, with $2 million due within one year.
Material Changes Versus the Prior Comparable Period
- Revenue decreased $6.367 million, driven by lower citrus and sugarcane activity and a statewide delay in citrus harvesting.
- Net results shifted from $1.038 million of income to a $0.704 million loss.
- Corporate general and administrative costs increased by $2.019 million. Change-in-control costs totaled $1.745 million, including $0.184 million of accelerated equity vesting expense and $0.849 million for director and officer insurance for departing directors.
- Cash declined $11.113 million during the quarter, reflecting operating cash use, capital spending, share repurchases, dividends and debt repayment.
- On November 19, 2013, 734 Agriculture and affiliates acquired approximately 51% of Alico’s voting stock from Atlanticblue, obtaining control of the company. The transaction resulted in a new board and the appointment of Clayton G. Wilson as CEO.
- The company approved listing approximately 3,200 acres of Polk County real estate, including approximately 80 acres of citrus groves. The properties were classified as held for sale at a carrying value of $3.601 million; management stated estimated fair value exceeded book value and no impairment was recorded.
Guidance, Outlook, Risks and Unusual Items
- Management stated that the 2013/2014 citrus crop decrease is expected to be broadly in line with the USDA’s January 2014 estimate of a 14% decline in Florida’s orange crop.
- The delayed citrus harvest reduced current-quarter volume, although management indicated the delay was intended to allow fruit to mature.
- Fiscal 2014 sugarcane-producing acreage is expected to increase to 16,728 acres from 13,272 acres, but lower market prices reduced first-quarter revenue and gross profit.
- Management believes cash on hand, operating cash generation and the available revolving credit facility will provide sufficient liquidity for foreseeable working capital and capital expenditure needs.
- Key risks include agricultural seasonality, weather and other natural phenomena, crop yields, commodity prices, citrus disease or production declines, floating interest rates, land values, and execution following the change in control.
- Alico Fruit had approximately $23.648 million of remaining citrus purchase commitments for fiscal 2014 through 2016. These commitments were covered by sales agreements, and management expected the committed volume to be sold at cost or higher.
- Management reported no material changes to previously disclosed risk factors, market-risk disclosures, contractual obligations or off-balance-sheet arrangements. Routine legal matters were not expected to have a material adverse effect.
Important Facts for Investors to Verify
- Confirm the sustainability of liquidity after the $11.113 million quarterly cash decline and the timing of seasonal operating cash generation.
- Assess whether citrus harvest volumes and the expected statewide crop decline align with management’s outlook and whether improved pricing offsets lower production.
- Monitor sugarcane pricing, per-acre yields and the financial effect of expanded planted acreage.
- Separate recurring corporate costs from the $1.745 million of reported change-in-control expenses and evaluate post-transaction general and administrative spending.
- Review the implications of 734 Agriculture’s approximately 51% voting control, related-party arrangements, executive compensation and board changes.
- Verify compliance with debt covenants, the $2 million annual term-loan principal payments, floating-rate exposure and availability under the $60 million revolving facility.
- Evaluate the planned sale of Polk County properties and whether proceeds, timing or fair values differ from the filing’s disclosures.