Business Overview and History

Alico, Inc. (ALCO) is a Florida-based agribusiness and land management company that is undergoing a strategic transformation to unlock the value of its substantial land holdings. The company, which has historically been one of the nation's largest citrus producers, has decided to wind down its Alico Citrus division after the current crop is harvested in 2025, shifting its focus to a diversified land usage and real estate development strategy.

Alico, Inc. was founded in 1889 and has been publicly traded since 1972. The company operates two main business segments: Alico Citrus and Land Management and Other Operations. Alico Citrus has been the primary revenue driver, generating 96.6% and 95.7% of the company's operating revenues in fiscal years 2024 and 2023, respectively.

Over its long history, Alico has grown to become one of the largest citrus producers in the United States, owning and operating citrus groves across several counties in Florida. The company has weathered various challenges common to the agricultural industry, such as fluctuating commodity prices, disease outbreaks, and extreme weather events like hurricanes and freezes.

In the 2000s, Alico branched out beyond its core citrus activities, establishing its Land Management and Other Operations segment. This division oversees the company's grazing and hunting leases, as well as its rock mining and other non-citrus revenue streams. This diversification has helped offset some of the volatility inherent in the citrus business.

Over the past decade, Alico's citrus production has declined by approximately 73% despite significant investments in land, trees, and citrus disease treatments. This decline has been primarily driven by the devastating effects of citrus greening disease and the impact of multiple hurricanes that have hit the company's groves in Florida. In fiscal year 2024, Alico recorded a staggering $67.5 million operating loss in its Alico Citrus segment.

Faced with these mounting challenges, Alico's management team and Board of Directors have made the strategic decision to wind down the company's citrus operations after the current crop is harvested in 2025. The company will instead focus on leveraging its substantial land holdings, which encompass approximately 53,371 acres across eight counties in Florida, as well as approximately 48,700 acres of oil, gas, and mineral rights, to pursue a diversified land usage and real estate development strategy.

Financial Performance and Liquidity

Alico's financial performance has been volatile in recent years, reflecting the challenges faced by its citrus operations. In the fiscal year ended September 30, 2024, the company reported total revenue of $46.6 million, a net income of $6.97 million, and negative operating cash flow of $30.5 million. The company's annual free cash flow was also negative at $48.4 million for the same period.

For the quarter ended December 31, 2024 (Q1 FY2025), Alico reported revenue of $16.89 million, a 20.8% increase compared to the same period in the prior year. This increase was primarily driven by a 38.7% increase in the price per pound of fruit sold, partially offset by a 13.3% decrease in pound solids produced during the Early and Mid-Season harvest. The company reported a net loss of $9.17 million for the quarter, compared to net income of $42.95 million in the prior year period, largely due to the absence of significant land sales that generated a $77.03 million gain in the prior year quarter.

The Alico Citrus segment generated $16.33 million in operating revenues for Q1 FY2025, accounting for 96.6% of the company's total operating revenues during that period. Operating expenses for this segment totaled $25.11 million, a decrease of 10.7% compared to the prior year period. The Land Management and Other Operations segment generated $568,000 in operating revenues, an increase of 44.5% compared to the same period in the prior year, primarily due to higher rock and sand royalty income and increased sod sales.

Alico maintains a robust liquidity position, with $73.5 million in available credit under its revolving line of credit as of December 31, 2024. The company has no significant debt maturities until 2029, providing it with the financial flexibility to execute its strategic transformation. As of December 31, 2024, Alico had a debt-to-equity ratio of 0.09, with $104.9 million in total debt and $246.84 million in total stockholders' equity. The company had $4.39 million in cash and cash equivalents, a current ratio of 4.84, and a quick ratio of 2.37.

Alico expects to generate approximately $20 million in land sale proceeds during fiscal year 2025, which, combined with cash from the upcoming Valencia harvest, should sustain the company's operations through fiscal years 2026 and 2027. The company anticipates recognizing positive cash flow for the remainder of the current fiscal year after land sales that have already been negotiated close, severance and restructuring costs are paid, and harvesting activities conclude.

Strategic Transformation and Diversification

Alico's strategic transformation involves a shift away from its historical focus on citrus production towards a more diversified land management and real estate development strategy. The company estimates that approximately 75% of its current land holdings can remain in agricultural use, while the remaining 25% can be transitioned and entitled for non-agricultural purposes, such as commercial and residential development.

To this end, Alico has already begun selling select non-core assets and evaluating opportunities to leverage conservation programs to create value and enhance environmental outcomes. The company has identified five properties, ranging from 348 acres to 7,789 acres, as case studies to explore the possibilities provided by Florida's Rural and Family Lands Protection Program.

Furthermore, Alico is in discussions with various agricultural operators in Florida regarding potential leasing arrangements for sod production, expanded sand mining activities, and the cultivation of seasonal crops like corn, sugarcane, vegetables, and fruits. These diversified farming operations are expected to generate profitable revenue streams that are not citrus-related, complementing the company's long-term real estate development plans.

Alico management estimates that the present value of its current land holdings could be worth approximately $650 million to $750 million, even with approximately 75% of these acres valued for agricultural usage and assuming 10% of those acres are entitled for development within the next five years.

Risks and Challenges

While Alico's strategic transformation presents significant opportunities, the company also faces a number of risks and challenges:

1. Execution Risk: The successful implementation of Alico's diversified land usage and real estate development strategy will depend on the company's ability to navigate the complex regulatory environment, secure necessary approvals and permits, and effectively manage and allocate resources to these new business initiatives.

2. Macroeconomic Conditions: Alico's performance will be influenced by broader economic trends, including factors such as inflation, interest rates, and the potential for continued supply chain disruptions, which could impact the company's costs and the viability of its real estate development plans.

3. Environmental and Weather Risks: As a Florida-based agribusiness, Alico remains susceptible to the ongoing threats posed by climate change, including the risk of severe weather events, such as hurricanes, that could adversely affect the company's operations and asset values. The recent impact of Hurricane Milton on fruit drop demonstrates the ongoing vulnerability to such events.

4. Regulatory and Legal Uncertainties: Changes in government policies, environmental regulations, or legal requirements could introduce additional complexities and costs that may hinder Alico's ability to execute its strategic transformation.

5. Production Challenges: Alico expects its total harvest volume for fiscal year 2025 to be lower than fiscal year 2024 due to continued production challenges. This decline in production volume could impact the company's revenue and cash flow in the short term as it transitions away from citrus operations.

Future Outlook

As Alico completes its final significant citrus harvest in fiscal year 2025, the company is positioning itself for a new chapter focused on diversified land management and real estate development. The success of this transition will be crucial in determining Alico's long-term trajectory and its ability to create sustainable value for shareholders.

The company's expectations for $20 million in land sale proceeds in fiscal year 2025, combined with its available credit facilities and the cash from the upcoming Valencia harvest, should provide Alico with sufficient liquidity to fund its operations through fiscal years 2026 and 2027. This financial cushion will be important as the company navigates the challenges of winding down its citrus operations and ramping up its new strategic initiatives.

Conclusion

Alico, Inc. (ALCO) is at a critical juncture in its history, as the company transitions from its longstanding focus on citrus production to a diversified land management and real estate development strategy. While the challenges facing the company's citrus operations have been significant, Alico's substantial land holdings and robust liquidity position provide it with the resources and flexibility to pursue a strategic transformation that could unlock significant value for shareholders.

As Alico navigates this pivotal period, investors will closely monitor the company's execution of its diversification plans, its ability to generate profitable revenue streams from non-citrus agricultural operations, and its progress in entitling and developing its real estate assets. The success of Alico's strategic transformation will be crucial in determining the company's long-term trajectory and its ability to create sustainable value for its shareholders in the face of ongoing industry challenges and evolving market conditions.