Alico (Nasdaq:ALCO) earnings are getting hurt by the oversupply of citrus product in Florida and a weak environment for its real estate operations. (To dig deeper into the subject of earnings, check out Earnings: Quality Means Everything.)

Alico is a land-management company that owns 135,500 acres in Florida's Collier, Glades, Hendry, Lee and Polk counties. Company revenues and earnings come primarily from agricultural activities. Although it has operations in sugarcane, sod, cattle and vegetables, Alico earns almost 70% of its revenues from citrus operations. It also engages in real estate development operations.

Citrus Operations Weak

Earnings at Alico have been weak. In the fiscal third quarter ending June 30, the company reported revenues of $42 million, down from $46 million in fiscal Q3 2007. Income from continuing operations was 36 cents versus $1.39. The company detailed its agricultural operations by product for the quarter, and three of the six had negative gross margins (sugarcane, sod and cattle). (Speaking of margins, be sure to check out The Bottom Line On Margins.)

The weak performance wasn't even related to these three areas, according to Dan L. Gunter, president and CEO of Alico.

"Citrus prices have declined an estimated 28% during fiscal year 2008," Gunter said. He cited as a cause the "increasing supply of citrus as groves have recovered from the damages brought on by the hurricanes of 2004 and 2005".

According to the Florida Department of Citrus, this year's citrus crop was up 31% over last year and prices declined from a range of 28% to 37%. Season-ending inventories are estimated at 28.5 weeks, up 68% from last year.

Land, Land, Land

Although earnings are down for Alico, many investors see an upside in the company's value due to its large land holdings, which offer the potential for revaluation to higher and more valuable use as residential and commercial property as Florida's population grows. Alico is involved in this real estate development through a subsidiary, Alico Land Development, and a partnership, Alico-Agri.

Unfortunately, this area has been struggling as well. The company's real estate operations also had a negative gross margin in fiscal Q3, and the company is having difficulty collecting on a receivable from 2005 land sales.
Mineral development also may offer an upside for Alico shareholders. The company does not disclose what percentage of mineral rights it owns on its land, so it is difficult to discern this value. Although Florida is not known for its oil and gas properties, it has producing onshore areas, according to the U.S. Geological Service - including some in Lee and Collier Counties where Alico owns land.

Other companies with extensive land holdings include Texas Pacific Land (NYSE:TPL), which owns 964,813 acres in Texas, Tejon Ranch (NYSE:TRC), which owns 270,000 acres in California, and Capital Properties (AMEX:CPI), which owns 18 acres in downtown Providence, R.I.

Bottom Line

Although Alico is an interesting play on citrus in Florida with a potential upside on its land holdings, both areas seem to be heading down into cyclical troughs at the current time.

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