Alico, Inc. (NASDAQ:ALCO) is a Florida-based agribusiness and land management company that has been a leader in the citrus industry for over 125 years. The company owns approximately 54,500 acres of land and mineral rights throughout Florida, with its primary operations focused on citrus production and land management.

Business Overview

Alico operates in two main segments: Alico Citrus and Land Management and Other Operations. The Alico Citrus segment is responsible for the company's citrus production, including the planting, cultivating, and managing of citrus groves to produce fruit for sale to fresh and processed citrus markets. The Land Management and Other Operations segment encompasses activities related to native plant sales, grazing and hunting leasing, management and/or conservation of unimproved native pastureland, and other insignificant lines of business.

Financials

In the fiscal year ended September 30, 2023, Alico generated annual revenue of $39,846,000 and a net income of $1,835,000. The company's annual operating cash flow was -$6,254,000, and its annual free cash flow was -$22,910,000.

Quarterly Performance

For the second quarter of fiscal year 2024, which ended on March 31, 2024, Alico reported a 14.9% decrease in revenue compared to the same period in the prior year. This was primarily due to a combination of the timing of the Valencia harvest, which started later than in the prior year, and an acceleration of the harvest in the prior year as a result of Hurricane Ian. However, the company saw a 0.7% increase in revenue for the six months ended March 31, 2024, compared to the same period in the prior year, driven by an increase in the price per pound solids for both the Early and Mid-season and Valencia crops, as well as an increase in Grove Management Services revenue.

The company's operating expenses increased by 31.3% and 53.6% for the three and six months ended March 31, 2024, respectively, compared to the same periods in the prior year. This was primarily due to insurance proceeds of $4.8 million for crop claims received during the three months ended March 31, 2023, which were 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.

For the second quarter of fiscal year 2024, Alico reported a net loss attributable to common shareholders of $15.8 million, compared to a net loss of $7.8 million in the same period of the prior year. However, for the six months ended March 31, 2024, the company reported net income attributable to common shareholders of $27.1 million, compared to a loss of $10.9 million in the same period of the prior year. This was 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.

Citrus Operations and OTC Therapy

Alico's citrus operations have been impacted by the continued recovery from Hurricane Ian, which hit the company's groves in 2022. The early and mid-season and Valencia box production was affected, resulting in lower levels of pound solids being sold and a total inventory write-down of $28.5 million for the fiscal year 2024.

To combat the effects of citrus greening, Alico began treating its citrus trees in January 2023 with an Oxytetracycline (OTC) product via trunk injection. In 2023, the company treated over 35% of its trees with OTC, which was expected to mitigate some of the impacts of citrus greening and decrease the rate of fruit drop. While the small crop harvested this season did not show significant improvements, Alico's trees that received the initial OTC application therapy did show measurable improvement in yield. The company is now planning to double the number of trees that will be treated before the next harvest season, and it remains optimistic that production will increase next year.

Diversification and Land Management

In addition to its citrus operations, Alico continues to explore the highest and best use of its real estate assets. The company has made the decision to transition its TRB grove in Charlotte County from proprietary citrus operations to a mix of third-party mining, vegetable, and fruit crop leasing activities. Additionally, Alico has entered into an agreement to sell approximately 780 acres of land at its 2x6 grove in Hendry County, Florida, for $7.0 million, with an option to purchase an additional 680 acres within ten months at the same price per acre. The company will continue to grow citrus on the 680 acres for the next harvest season.

These strategic moves demonstrate Alico's commitment to diversifying its revenue streams and maximizing the value of its land assets. By transitioning underperforming citrus groves to alternative uses, the company aims to generate better returns for its shareholders while maintaining its core citrus operations.

Liquidity

Alico's balance sheet remains strong, with a current ratio of 2.55 to 1 and a debt ratio of 0.20 to 1 as of March 31, 2024. The company has approximately $95 million of undrawn capacity under a combination of a revolving line of credit and a working capital line of credit, providing ample liquidity as its citrus groves continue to recover from Hurricane Ian.

The company's relationships with its lenders remain strong, and it is confident in its ability to secure a new multiyear contract with Tropicana at higher prices per pound solid, which should better reflect current market pricing.

Risks and Challenges

Alico's citrus operations are subject to various risks, including adverse weather conditions, natural disasters, disease, and market price fluctuations. The company's ability to effectively manage its citrus groves and navigate the challenges posed by citrus greening will be crucial to its future success.

Outlook

Despite the challenges faced in the current fiscal year, Alico remains committed to the Florida citrus industry for the long term. The company's strategic investments in new tree plantings and the expansion of its OTC therapy program are expected to support a significant increase in fruit harvest in the next season. Additionally, Alico's diversification efforts and focus on maximizing the value of its land assets provide the company with the flexibility to adapt to changing market conditions and generate long-term value for its shareholders.

Conclusion

Alico, Inc. is a well-established player in the Florida citrus industry, with a long history of leadership and innovation. While the company has faced headwinds in the current fiscal year due to the continued recovery from Hurricane Ian and the impacts of citrus greening, Alico's management team has demonstrated its ability to navigate these challenges and position the company for future growth.

The company's strategic investments in its citrus operations, coupled with its diversification efforts and focus on land management, suggest that Alico is well-positioned to weather the current storm and emerge as a stronger, more resilient organization. As the company continues to execute on its strategic initiatives, investors may find Alico's story of interest as it navigates the complexities of the citrus industry and seeks to create long-term value for its shareholders.