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TR

TEJON RANCH CO (TRC)·Q4 2016 Earnings Summary

Executive Summary

  • Q4 2016 revenue from operations was $12.7M, down 18.4% year over year and down 3.0% sequentially; diluted EPS was -$0.01 vs $0.08 in Q4 2015 and $0.02 in Q3 2016, driven primarily by weaker almond pricing and lower farming sales .
  • “Revenues and other income, including equity in earnings of unconsolidated joint ventures” totaled $15.3M, down 11.6% YoY (vs. $17.3M), with the almond price decline (-24.9% or $0.83/lb) cited as the main pressure .
  • Strategic wins: Kern County unanimously approved the Grapevine master-planned community; two new JV partnerships with Majestic Realty add ~1.1M sq ft to the industrial portfolio; corporate G&A fell 8.3% YoY in Q4 .
  • 2017 outlook: excess-water sales likely to be negatively impacted by heavy winter precipitation; farm revenues may be pressured by almond prices; capital/liquidity remain solid with ~$27.9M cash/securities and ~$22.3M undrawn revolver .
  • No Q4 2016 earnings call transcript was found; Wall Street consensus estimates via S&P Global were unavailable, limiting beat/miss assessment [List: earnings-call-transcript not found] [functions.GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • Regulatory milestone: “Grapevine at Tejon Ranch was unanimously approved by the Kern County Board of Supervisors,” a key step toward unlocking long-term asset value .
  • Industrial expansion: “We formed two new partnerships with Majestic Realty Co., which will ultimately increase our commercial/industrial portfolio by over 1.1 million square feet of industrial space,” strengthening TRCC’s hub positioning .
  • Cost discipline: Corporate G&A fell to $3.3M in Q4 (-8.3% YoY) aided by the absence of a prior-year pension settlement charge; equity income from JVs remained robust at $1.45M in Q4 .

What Went Wrong

  • Farming weakness: Q4 farming revenue fell to $7.6M (vs. $11.4M), and segment swung to a loss (-$0.43M vs. +$4.09M) as almond prices declined 24.9% YoY ($0.83/lb) and timing of crop sales hurt volume .
  • Top-line pressure: Q4 total revenues from operations decreased to $12.7M (vs. $15.6M), driving a net loss to common of -$0.29M and diluted EPS of -$0.01 (vs. $0.08 prior year) .
  • Mineral resources softness (full-year): FY mineral resources revenues declined $1.0M YoY, reflecting slumping oil prices; management also flagged 2017 excess-water sales headwinds due to California’s wet winter .

Financial Results

Headline Results vs Prior Periods and Estimates

MetricQ4 2015Q3 2016Q4 2016
Revenues from Operations ($USD Millions)$15.568 $13.079 $12.696
Net Income Attributable to Common ($USD Millions)$1.715 $0.324 -$0.287
Diluted EPS ($USD)$0.08 $0.02 -$0.01
Equity in Earnings of Unconsolidated JVs ($USD Millions)$1.463 $2.353 $1.448
Corporate G&A Expense ($USD Millions)$3.594 $3.096 $3.288

Non-GAAP Performance (Company-Defined)

MetricQ4 2015Q4 2016
EBITDA ($USD Millions)$10.065 $1.525
Adjusted EBITDA ($USD Millions)$14.650 $2.813
Note: Company defines EBITDA to include JV allocations; Adjusted EBITDA excludes stock compensation .

Segment Revenue and Operating Profit

SegmentQ4 2015 Revenue ($MM)Q4 2016 Revenue ($MM)Q4 2015 Operating Profit ($MM)Q4 2016 Operating Profit ($MM)
Real estate – commercial/industrial$2.552 $2.905 $0.045 $0.945
Real estate – resort/residential——-$0.464 -$0.378
Mineral resources$0.942 $1.101 $0.569 $0.465
Farming$11.366 $7.606 $4.092 -$0.430
Ranch operations$0.708 $1.084 -$0.021 -$0.387
Total revenues from operations$15.568 $12.696 Income from Operating Segments$4.221

KPIs and Selected Items

KPI / ItemPeriodValue
Almond price changeFY 2016 vs FY 2015-24.9% or -$0.83/lb
Pistachio yield recovery2016 vs 20153.2M lbs vs 73K lbs
Gain on sale of real estateQ4 2016$1.044M
Cash & marketable securities12/31/2016~$27.9M
Total capital and debt12/31/2016~$415.9M
Revolver availability12/31/2016~$22.3M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Excess water sales (Mineral resources)FY 20172016: Lower oil royalties; almond/pistachio prices declined; pistachio yields recovering; water sales variable Expected negative impact in 2017 due to heavy winter rain/snow increasing statewide water resources Lowered
Farm revenues (almonds)FY 2017Almond prices declined $1.00–$1.50/lb; 2016 almond revenues down May be adversely impacted in 2017 due to recent declines in almond prices Maintained cautious
TRCC development/leasing focusFY 2017Continue aggressive development/leasing; JV with Majestic; outlet and industrial growth Continue aggressive TRCC investment, leasing, JV expansion; solidify TRCC as industrial hub Maintained
Residential entitlements (Centennial, Grapevine, Mountain Village)FY 2017Centennial Specific Plan work; Grapevine approval expected Dec’16; MV tract maps in process Invest to complete entitlements (Centennial, Grapevine) and pre-development for MV; anticipate variability due to litigation/regulatory timelines Maintained/advanced
Capital & liquidityFY 2017Cash/securities ~$31.0M at 9/30/16; $19.0M revolver availability Cash/securities ~$27.9M; $22.3M revolver availability Updated levels

Earnings Call Themes & Trends

No Q4 2016 earnings call transcript found; themes synthesized from company releases and filings.

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Industrial/logistics hub (TRCC)Marketing focus on large, centralized distribution; JV activity; vacancy/pricing dynamics vs Inland Empire Positioning TRCC as “industrial hub” with two Majestic JVs adding ~1.1M sq ft Strengthening
Commodity pricing (almonds/pistachios)Almond/pistachio prices declined $1.00–$1.50/lb; pistachio yields recovering Almond prices down 24.9%; main driver of farming revenue/EPS pressure Ongoing headwind
Oil royaltiesExpect continued pressure from low prices and reduced production through 2016 FY mineral resource revenue down $1.0M YoY; oil prices cited Headwind persisted
Water salesVolumes/pricing mixed; Nickel contract price escalation; 2016 water sales variability 2017 excess-water sales expected to be negatively impacted by wet winter Headwind likely
Regulatory/legal (entitlements)Grapevine approval expected Dec’16; Centennial plan progressing; MV tract maps Grapevine unanimously approved; advancing tract maps and entitlements Positive momentum

Management Commentary

  • “During fiscal 2016 we made significant progress in our efforts to monetize our land, set the stage for future revenue growth, and create long-term shareholder value… Grapevine… was unanimously approved… We… formed two new partnerships with Majestic Realty Co.… increase our… portfolio by over 1.1 million square feet” — Gregory S. Bielli, President & CEO .
  • “By securing approval of these entitlements for Grapevine, Tejon Ranch Co. is taking an important step forward in unlocking the asset value of Tejon Ranch… a vital component of our strategic vision to create significant value as a fully integrated real estate development company.” — Gregory S. Bielli .
  • 2017 Outlook notes variability: “Mineral resource revenue from excess water sales is expected to be negatively impacted in 2017 due to heavy winter rain and snow… Farm revenues may be adversely impacted… due to recent declines in almond prices” .

Q&A Highlights

  • No Q4 2016 earnings call transcript was found in the document catalog; therefore, Q&A themes and clarifications are unavailable [List: earnings-call-transcript not found].

Estimates Context

  • Wall Street consensus estimates (S&P Global/Capital IQ) for Q4 2016 EPS and revenue were unavailable due to data access limits, so we cannot assess beat/miss versus consensus for this quarter [functions.GetEstimates error].
  • Given the almond price decline and farming revenue pressure, near-term estimates could drift lower for farming-exposed KPIs; industrial/JV income trends remain supportive .

Key Takeaways for Investors

  • Near-term earnings pressure tied to commodity pricing persists: almond price declines drove Q4 EPS to -$0.01 and reduced farming profitability; monitor almond/pistachio pricing and crop carryover effects .
  • Structural value creation advancing: Grapevine approval and Majestic JVs expand the real estate runway and TRCC’s role in California logistics; this supports medium-term NAV and cash flow diversification .
  • Liquidity remains adequate to fund entitlements and development: ~$27.9M cash/securities and ~$22.3M revolver availability at year-end 2016 .
  • 2017 headwinds likely in water sales given wet winter; expect mineral resource revenue variability and continued oil royalty softness .
  • Equity income from JVs is a stabilizer; continued TRCC leasing/operations support earnings amid farming cyclicality .
  • Cost discipline showing up: Q4 corporate G&A down 8.3% YoY; watch for ongoing efficiency to offset commodity swings .
  • With no consensus data available, focus on operational drivers: crop pricing, entitlements milestones, TRCC leasing velocity, and JV performance to inform near-term trading and medium-term thesis [functions.GetEstimates error] .