Maui Land
seeks sweet taste
of success

It's taking steps to improve
pineapple operations while
bracing for the effects of a
slowing economy

---

By Dave Segal
Star-Bulletin

MOST DAYS, the trading activity in Maui Land & Pineapple's stock is about as quiet as the gallery during a putt at the Mercedes Championships golf tournament, which the company hosts at the Kapalua Resort.

But less than two years ago, one stroke of fortune had the shareholders cheering as if they had seen the second coming of Tiger Woods.

Honolulu-born Steve Case pulled off his biggest shot this side of the America Online-Time Warner merger with the announcement that he was spending about $40 million to buy a 41.2 percent stake of the company.

The following day, July 2, 1999, shares of the company rocketed 102 percent, hitting $30.75, before ending the trading session on the American Stock Exchange with a one-day rise of 30.9 percent. That move brought the company's shares from $15.19 to $19.88 and its stock went on to finish the year up 91.7 percent. In 2000, the stock climbed another 36 percent.

But Maui Land & Pineapple shareholders lately have experienced a reality check.

Since that midsummer day, the stock has come back to earth amid continuing losses from the company's pineapple operations. That point was hammered home Tuesday when the company issued a first-quarter earnings report with net income plunging 59.9 percent, largely due to a $967,000 loss from its pineapple division. The quarterly results follow a rough year in 2000 when the company's profits plunged 90.3 percent. Again, the main culprit was its pineapple unit, which bled $2.9 million worth of red ink. Despite stability from its resort business and a slight increase from its commercial and property operations, the company has seen its stock fall 25.9 percent since the start of the year.

It's a situation the company is trying to rectify as it deals with a slowing economy and increased competition for its retail ventures.

"Certainly, we have our challenges on the pineapple side," acknowledged President and Chief Executive Officer Gary L. Gifford. "We're working to address that in a very competitive marketplace -- what appropriate products and new products to have -- and what we need to do to improve production and reduce production costs and improve overall financial conditions.

"It's clear that pineapple is a big component of the company. So it's certainly important to us. We've got our challenges and we're got our opportunities and we're looking for long-term success."

The company, which holds its annual shareholders meeting Wednesday in Kahului, Maui, has been looking to expand its pineapple operations to Oahu as a means of reducing its production and shipping costs. One of the drawbacks for the company has been the shorter runway at the Kahului Airport, which has limited the amount of pineapple that the company has been allowed to ship per flight due to weight restrictions. The two Maui runways, which are 7,000 and 5,000 feet in length, don't afford the company the opportunity to ship a fully-loaded aircraft, as Maui Land & Pineapple would be able to do at Honolulu Airport, which has four runways, including three longer than 9,000 feet.

"That's one of the primary reasons it may make sense to farm on Oahu because we don't have the airlift capacity to ship our fresh whole pineapples to the mainland in adequate quantities," said Paul J. Meyer, Maui Land & Pineapple's executive vice president/finance.

"The possible farming operation out of Oahu is still under review and analysis and it's not a sure thing that we will proceed with that project. The opportunity is there but whether it provides adequate return on the investment required is still under analysis. We should have an answer within a few weeks."

Meyer, who declined to disclose the location of the land or the identity of the landlord, said that expanding to Oahu wouldn't mean a reduction in operations on Maui, which now operates the state's only pineapple cannery.

"This would be an additional activity," Meyer said. "And if a decision is made to do it, we would want to move very quickly this year."

Maui Land & Pineapple's stock, which closed yesterday at $17.50 -- just above its 52-week low of $17 -- has averaged only 748 shares a day in trading volume over the past six months. That's not surprising, considering that Case -- who last year bought an additional 19,045 shares of stock -- now owns 2.98 million shares of about 7.2 million shares outstanding. Case's holdings, which he bought at $13.25, now represent 41.4 percent of Maui Land & Pineapple, while members of the Cameron family own an additional 35.1 percent. That leaves 23.5 percent of the company left to trade.

"It's a good, solid company from what I know. I wish we had more activity in the stock," said Patrick M. Baker, a market maker for AGS Specialist Partners in New York.

Baker, who matches buyers and sellers for the stock, said he remembers well the day when it was announced that Case had purchased the shares from foundations left by the late Honolulu financier Harry Weinberg and managed by the Associated Jewish Community Federation of Baltimore. Volume in the stock swelled to 213,000 on the first trading day after the announcement.

"There were beautiful trading ranges all the way up," he said. "When the news came out that Case was involved in the stock, the market's going to do what the market's going to do. Then after that, the stock settled in and it went quiet again."

Maui Land & Pineapple, whose business is divided into pineapple, resort, and commercial and property operations, may feel pressure on all three fronts this year.

Its resort division, which include all facets of operations from the Kapalua Resort, its three golf courses and its housing developments (the latest being The Coconut Grove on Kapalua Bay and Pineapple Hill Estates), is expected to feel the effect from the slowing U.S. economy.

Although the resort division achieved record profits of $7.8 million last year amid record visitor arrivals for the state, the tourist slowdown already is taking hold.

Hotel occupancy on Maui fell 4.4 percent last month, according to travel industry consultants PKF-Hawaii. In addition, visitor arrivals on Maui slipped 0.5 percent last month, the state Department of Business, Economic Development and Tourism reported.

"There's no question the state of the national economy has an impact on us here and it affects tourism resort occupancy," Gifford said. "Resort operations depend on those occupancies and it also affects resort-oriented real estate. How negative that will be will determine how we'll do going forward. So far, although it's been down, it's not down to the point where it's causing despair."

In the latest quarter, the resort division showed a 2.8 percent decline in revenues compared with the first quarter of 2000 while operating profit fell 17.6 percent. But, as Gifford points out, comparing quarters isn't an exact science.

"Part of the difference has to do with timing of the closing of real estate sales and recognition of profit from them," he said. "Real estate is tough to measure on a quarter-to-quarter basis."

Maui Land & Pineapple, whose commercial and property division includes 570,000-square-foot Queen Kaahumanu Center in Kahului (the company has a 50/50 partnership with the Employees Retirement System of the State of Hawaii) and 45,000-square-foot Napili Plaza, a community shopping center in West Maui, could see that aspect of operations affected by competitive pressures from established and new retailers. The division had an operating loss of $441,000 last year but did show signs of life in the first quarter as improved results at Queen Kaahumanu Center helped the division post an operating profit of $26,000 in the first quarter.

"The shopping center operations depend on the general health of the Maui economy, which experienced eight consecutive depressed years," Meyer said. "It will take a few good years of high economic activity to recover from those bad years of 1992 to '98."

It's the resort operations, though, that Richard Behnke, principal owner of broker-dealer Abel-Behnke Corp. in Honolulu, sees as the driving force for the company.

"They're basically a landed company. That's where the future is," said Behnke, who is a small shareholder in the company and a former market maker for the stock when it traded on the over-the-counter market. "They have more than 10 linear miles of beachfront and many thousands of acres in strong hands. Case would be the best example of that.

"People forget that in the latter part of '98 and '99 the stock was under $10 and is now $17.50 with earnings. As far as the economics of pineapple, I don't have much hope. But it keeps the place green and the taxes are low on agriculture.

"It looks nicer to have macadamia nuts or greenery on land that's appreciating in value than to have real estate for development. In terms of taxation, agricultural land is taxed more favorably than other forms of land holding."

Still, Maui Land & Pineapple is determined to get its pineapple operations on the right footing. One step in that direction occurred this week when the U.S. International Trade Commission unanimously voted to extend antidumping duties on canned pineapple from Thailand. The five-year extension keeps in place a 1995 ruling that levies tariffs on canned pineapple imported at less than fair value.

The company also has several initiatives under way that are expected to make production more efficient and to lower the cost of production. Those include pulling out of some of the least efficient pineapple fields and installing an integrated accounting and information system.

"We've seen a very competitive period in the year 2000 and the first quarter also was very competitive," Meyer said. "We believe that the intense level of competition will moderate as we get further into the year. We've seen in international publications that production of canned pineapple in Thailand is down substantially in 2001 from the production levels in 2000. And that means that less pineapple will be available worldwide and presumably less imported to us from Thailand. That would give us reason to believe that U.S. prices will improve the second part of the year.

"We also believe that as greater contributions are received from new products, like fresh-cut pineapple, salsa pineapple, pineapple juice packed in PET containers and fresh whole hybrid pineapple, that results will improve."