Alico, Inc. (ALCO), a leading Florida-based agriculture and land management company, addressed shareholders in its Second Quarter 2024 Earnings Conference Call, acknowledging a significant inventory write-down and challenging production conditions.
The company reported a $28.5 million inventory write-down due to lower citrus production, primarily attributed to Hurricane Ian's aftermath and the persistent issue of citrus greening. Despite these setbacks, Alico expressed optimism about the upcoming year, detailing plans to double the trees treated with Oxytetracycline (OTC) therapy and finalize a new contract with Tropicana that promises higher prices per pound solid.
The company is also exploring ways to optimize the value of its real estate assets, including converting under performing citrus groves for alternative uses like mining and leasing. With a focus on growth and a commitment to the Florida citrus industry, Alico is poised to apply OTC therapy to the majority of its producing trees in fiscal 2024, aiming to significantly boost fruit harvests.
Key Takeaways
- Alico faced a $28.5 million inventory write-down due to decreased citrus production.
- The production shortfall was linked to Hurricane Ian's impact and citrus greening.
- Plans to double OTC therapy-treated trees could increase next year's production.
- Negotiations with Tropicana may lead to higher prices for Alico's citrus products.
- The company is assessing real estate assets for potential value maximization.
- A strong balance sheet supports Alico's commitment to the Florida citrus industry.
Company Outlook
- Alico remains dedicated to the Florida citrus industry, planting over 2.2 million new trees since 2017.
- OTC therapy is expected to be applied to most producing trees in fiscal 2024.
- The company is evaluating property uses to ensure long-term value.
Bearish Highlights
- The past citrus season's production was disappointing, leading to a substantial inventory write-down.
- No updated guidance on net debt was provided due to impairments.
Bullish Highlights
- Alico is optimistic about the second year of OTC therapy to improve fruit quality and yield.
- Renewal of contracts with processors is underway, potentially at higher prices.
- The company has available lines of credit and pending land sales to support operations.
Misses
- The company did not finalize any agreements with processors during the earnings call.
- Updated guidance on net debt was not available.
Q&A Highlights
- Alico acknowledged the support of their stakeholders.
- The next earnings call was announced for August, where further updates will be provided.
Alico's strategic focus on increasing citrus production through enhanced treatments and renegotiating processor contracts indicates a proactive approach to overcoming recent production challenges. By leveraging its strong balance sheet and real estate assets, the company aims to deliver value to investors through both agricultural investment and active land management.
As Alico navigates the complexities of the agriculture sector and market negotiations, stakeholders will be looking forward to the next earnings update in August for clearer insights into the company's financial health and operational progress.
InvestingPro Insights
Alico, Inc. (ALCO) has demonstrated resilience in the face of adversity, with strategic initiatives aimed at revitalizing its citrus production and optimizing asset value. Let's delve into some key metrics and insights from InvestingPro that may shed light on the company's current financial health and market position:
InvestingPro Data:
- Market Cap (Adjusted): 205M USD, reflecting the company's valuation in the market.
- P/E Ratio: 5.25, suggesting that the stock may be undervalued relative to its earnings.
- Revenue Growth (Quarterly) for Q1 2024: 32.08 %, indicating a significant uptick in sales compared to the previous quarter.
InvestingPro Tips:
- High shareholder yield and a history of maintaining dividend payments for 20 consecutive years underscore a commitment to returning value to investors.
- Analysts expect sales growth in the current year, which aligns with Alico's plans to improve citrus production and renegotiate contracts with processors.
For investors seeking more comprehensive analysis and additional insights, there are 10 more InvestingPro Tips available for Alico, Inc. at https://www.investing.com/pro/ALCO. These tips could provide a deeper understanding of the company's prospects and help inform investment decisions. Furthermore, by using the coupon code PRONEWS24, investors can enjoy an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a wealth of financial data and expert analysis.
Alico's strategic efforts, coupled with the data and insights from InvestingPro, suggest a company that is not only weathering the storm but also positioning itself for potential growth in the agriculture sector. As the company moves forward with its plans, these financial metrics and expert tips will be invaluable to stakeholders monitoring Alico's progress.
Full transcript - Alico (ALCO) Q2 2024:
Operator: Welcome to Alico's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, today's conference is being recorded. Last night, the company issued a press release announcing its results for the second quarter ended March 31, 2024. If you have not had a chance to view the release, that is available on the Investor Relations portion of the company's website at alicoinc.com. This call is being webcast, and a replay will be available on Alico website as well. Before we begin, we would like to remind everyone that the prepared remarks may contain forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in these statements. Important factors that could cause or contribute to such differences include risk details in the company's quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K and any amendments thereto filed with the SEC and those mentioned in the earnings release. The company undertakes no obligation to subsequently update or revise the forward-looking statements made on today's call expect as required by the law. During this call, the company will also discuss non-GAAP financial measures including EBITDA, adjusted EBITDA and net debt. For more details on these measures, please refer to the company's press release issued yesterday. With that, I would now like to turn the call over to the company's President and CEO, Mr. John Kiernan.
John Kiernan: Thank you, Jenny, and thank you everyone for joining us for Alico's Second Quarter 2024 earnings call this morning. I along with nearly everyone else involved in the Florida citrus industry disappointed and frustrated with the production realized this past season. Fruit quality was poor at the beginning of both crop harvest, but improved then the rate of fruit drop accelerated, lower levels of production for early and mid-season and Valentia harvest this season, resulted in lower levels of pound solids being sold, which has led to a total inventory write-down of $28.5 million for the fiscal year 2024. We believe that the early and mid-season and Valencia box production was affected by the continued impacts of Hurricane Ian. We managed our costs aggressively over the past year, but the lower revenue base was out of our control for the second year in a row. Alico began treating citrus trees in January of 2023 with an Oxytetracycline product via trunk injection as a citrus greening therapy. In 2023, we treated over 35% of our trees with OTC, which was expected to mitigate some of the impacts of citrus greening and also decrease the rate of fruit drop and improve food quality. Although the small crop harvested this season was not impressive when measured against control groups in each grove, Alico trees that received an initial OTC application therapy did show measurable improvement in. yield. However, quality improvements in reduced fruit drop were not noticeably observed this season. The financial incentives in place to offset OTC treatments in 2024 have encouraged Alico to double the number of trees that will treat before our next harvest season and we do remain optimistic that production will increase next year. Although some of our significant contracts to supply Tropicana with fruit are expiring shortly, Alico is confident that a new multiyear contract at higher prices per pound solid will be finalized soon and should better reflect current market pricing. Our relationships with our lenders remain strong, we have approximately $95 million of undrawn capacity under a combination of a revolving line of credit, which matures in November of 2029 and a working capital line of credit which matures in November of 2025 both to provide ample liquidity as our trees continue to recover from Hurricane Ian. We have steady access to workers and contractors and our employee base is stable. Alico has over 125 years of experience as a leader in Florida agriculture and land management. Outside of our citrus operations, Alico continues to invest resources, as it evaluates the long-term highest and best use of our real estate assets. To be clear, Alico will continue to conduct our regular citrus operations at nearly all of our growth for years to come. We will continue evaluating all of our properties to explore creative solutions to enhance and extract value. We seek to provide our investors with the benefits and stability of a conventional agricultural investment with the optionality that comes with active land management. Last year, after evaluating the direct hit it took from Hurricane Ian in 2022, we made a difficult decision to transition our TRB grove in Charlotte County from proprietary citrus operations to a mix of third-party mining, vegetable and fruit crop leasing activities. This year, we evaluated another struggling grove and have decided to also move beyond citrus there to realize its highest and best use. In 2022, Alico entered into a Purchase Option Agreement with a third -arty, E.R. Jahna Industries for the sale of approximately 899 acres of land at a price of approximately $11,500 per acre on our 2x6 grove located in Hendry County, Florida, which expires in January 2025. It is expected that this Option Agreement will be exercised by the end of December 2024. It is understood that Jahna plans to conduct sand mining operations on the land, once regulatory approval has been obtained. And Alico will have the right to lease back most of these acres, including 340 net citrus acres, for de minimis lease payments. In April 2024, we entered into an agreement to sell another approximately 780 acres of land at the 2x6 grove to a third-party for approximately $7.0 million or $9,000 per acre, and that includes an option to purchase another 680 acres within ten months from the closing date of the sale, at the same price per acre. But Alico will have -- will continue to grow citrus on those 680 acres for the next harvest season. This new transaction, which is expected to close at the end of July 2024, illustrates our strategy of monetizing underperforming citrus groves on a case-by-case basis to redeploy capital, to generate better returns for our shareholders. With that, I will turn the call over to Brad, to discuss our more detailed financial results.
Brad Heine: Thank you, John and good morning everyone. As our business is seasonal and the majority of our citrus crop is harvested in the second and third quarters of the fiscal year, but the majority of our profit and cash flows also recognized in the second and third quarters. The quarterly results for the second quarter are not indicative of our full year results. The 14.9% decrease in revenue for the three months ended March 31 2024, as compared to the three months ended March 31 2023 was primarily due to a combination of the timing of the Valencia harvest which started later than in the prior year to allow the fruit more time to mature and an acceleration of the harvest in the prior year as a result of Hurricane Ian, to try to mitigate the fruit drop, partially offset by an increase in growth management services revenue as a result of citrus grove management agreement we entered into on October 30 2023 with an unaffiliated group of third-parties to provide citrus grove caretaking services for approximately 3,300 acres owned by such parties. The 0.7% increase in revenue for the six months ended March 31 2024, as compared to the six months ended March 31 2023 was primarily due to an increase in the price per pound solids for both the early and mid-season and Valencia crops, as a result of more favorable pricing in one of our contracts with Tropicana and an increase in growth management services revenue as a result of the new Grove Owners Agreement, partially offset by a decrease in pound solids for the six months ended March 31 2024 as compared to the prior year period. The 31.3% and 53.6% increase in operating expenses for the three and six months ended March 31 2024 as compared to the three and six months ended March 31 2023 was primarily driven by insurance proceeds of $4.8 million for crop insurance claims received during the three months ended March 31 2023 which was recorded as a reduction of operating expenses and a combination of the inventory adjustments recorded at September 30 2022, on the ending inventory balance as a result of the impact of Hurricane Ian which effectively lowered the inventory to be expensed in fiscal year 2023 and the $4.8 million of proceeds from crop insurance claims received in the prior year period respectively. General and administrative expenses increased $0.4 million for the six months ended March 31, 2024 compared to the six months ended March 31, 2023, primarily due to increased employee costs. Other income expense, net, for the six months ended March 31, 2024 increased $72.6 million compared to the six months ended March 31, 2023, primarily due to a gain of $74.9 million on the sale of 17,229 acres of the Alico Ranch to the State of Florida during the six months ended March 31, 2024. By comparison, for the six months ended March 31, 2023, we recognized gains on the sale of property and equipment of approximately $4.8 million relating to the sale of 888 acres in the aggregate from the Alico Ranch to several third parties. For the second fiscal quarter ended March 31, 2024, we reported a net loss attributable to Alico common shareholders of $15.8 million compared to a net loss of $7.8 million for the second fiscal quarter ended March 31, 2023, driven by the timing of revenue in the current quarter and insurance proceeds of $4.8 million for crop claims received during the three months ended March 31, 2023. For the six months ended March 31, 2024, we reported net income attributable to Alico common stockholders of $27.1 million compared to a loss attributed to Alico common stockholders of $10.9 million, driven by the gain of $74.9 million on the sale of the remaining 17,229 acres of the Alico Ranch on December 21, 2023, partially offset by the inventory adjustments recorded at September 30, 2022 on the ending inventory balance as a result of the impact of Hurricane Ian, which effectively lowered the inventory to be expensed in fiscal year 2023. A $12.2 million increase in the tax provision for the six months ended March 31, 2024 and the $4.8 million of proceeds from crop insurance claims recognized in the prior year. I will now pass the call back to John.
John Kiernan: Thank you, Brad. Although the harvest season was disappointing, which we believe is a result of the continuing recovery from Hurricane Ian, Alico has a strong balance sheet and is continuing to make investments in its growth, which we believe will help us turn the corner next season as well as we’ll be another year removed from the hurricane. Alico has over 125 years of experience as a leader in Florida agriculture and land management. Since 2017 we've planted over 2.2 million new trees. We remain committed to the Florida citrus industry for the long term. We plan to apply the OTC therapy to substantially all of our producing trees in fiscal year 2024, and we believe that these treatments combined with the recent tree plantings that are maturing and consistent care taking practices should support a significant increase in fruit harvest next season. In addition, Alico is continuing to evaluate all of our properties to determine their highest and best use to create long-term value for our shareholders. We strive to provide our investors with the benefits and stability of conventional agricultural investment with the enhanced optionality that comes through active land management. And with that, we will now open the line up to questions from industry analysts. Jenny?
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Gerry Sweeney from ROTH Capital. Please ask your question.
Gerry Sweeney: Hey, guys. Thanks for taking my call. I apologize sort of multitask and have another call going on in the background. So, if I ask a question that was already sort of covered in the box, I apologize. But John, you touched briefly on the OTC side. I just want to get a little bit better maybe understanding of the impact on the trees. Did it help the fruit? Did it help the quality of fruits? And generally speaking, my high-level understanding is improvement can continue not just in year one but year two, year three. So if you could maybe give a little bit more commentary on that that would be great.
John Kiernan: Thank you, Gerry. Thanks. That's a great question. Obviously, OTC is an important part of our strategy going forward for our citrus operations. This was the first year we harvested fruit that had been treated with OTC which we applied in -- beginning in January 2023. We did see against control groups in each of our groves material and substantial improvement in production. So we got more fruit which was great. It certainly met our expectations. It was just coming from a low base. So it did not look spectacular this year, but we were encouraged by that. We did not see this first year improvements in quality. So we can get a lot more juice because of that but we did actually recognize when we started this therapy that it was going to be probably a multiyear sequential improvement program. So we've already started basically doing the trunk injections and again I think we said nearly all of our producing trees for the next harvest season are underway with this OTC treatment. So we're even more optimistic that the second year we should get additional benefits and results from that.
Gerry Sweeney: Got it. And I believe you're working on a renewal for your citrus program with one of your off-takers. Could you provide an update on that front if you're available to?
John Kiernan: Yes. So we have sold over the most recent years nearly all of our fruit to Tropicana under multiyear contracts. We've got a couple of significant contracts that are expiring now that the season -- the harvest season has concluded. We're in the process of renewing negotiations. We've approached all of the processors in the state and we hopefully are going to get a multiyear agreement that is at or better than current market pricing today. So we think that should be higher prices for us over the next several years on those new contracts. Obviously, we think that will lift the average price that we would sell against the contracts that we are still going to have in place next year as well. So we are cautiously optimistic that we should close those very soon. We just don't have anything to report at this time that's finalized and formal yet.
Gerry Sweeney: Got you. And then final question on the debt side I think you've been targeting $75 million to $80 million of net debt by year end. I think you're sitting around in that range right now. Does that sort of change your perspective on the balance sheet at least in the near term? And offsetting that obviously you do have some real estate sales that are coming up, but can you comment on that?
Brad Heine: Hey, Gerry, this is Brad.
Gerry Sweeney: Yes.
Brad Heine: Thanks. So on that front first I'd want to stress we do not see any liquidity concerns there at all coming from any of these transactions. As we noted we have over 95 -- about $95 million in lines of credits available to us and the pending land sales. That being said as a result of the impairments, it is difficult for us to forecast exactly what our net debt will be and we would not expect it to be in that same range. Unfortunately, we just can't provide an updated guidance as we need to see how everything shakes out still.
Gerry Sweeney: Got you. I appreciate it guys. Thanks and I apologize if I was a little disorganized here but I appreciate it.
John Kiernan: Gerry. Thanks for your support.
Operator: Thank you. We have reached the end of today's question-and-answer session. I would like to turn the call back over to Mr. Kiernan for closing remarks.
John Kiernan: Thank you, Jenny and thank you everyone for joining our call today and also for your continued support of Alico. We look forward to speaking with you about our third quarter results in August.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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