ML Macadamia
profit plummets

A price slump and deferred
administrative costs offset
a strong harvest

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By Dave Segal
dsegal@starbulletin.com

ML Macadamia Orchards LP, hurt by lower nut prices and higher expenses, said yesterday that third-quarter earnings plunged 91.1 percent despite rising revenues and a strong harvest.

The company, which owns or leases 4,171 acres of orchards on the Big Island, posted net income of $43,000, or 1 cent per Class A unit, compared with $485,000, or 6 cents per unit, a year ago. Revenues rose 6.3 percent to $5.1 million from $4.8 million.

"It was a good crop and costs were under control, but the prices were disappointing," said Dennis Simonis, president and chief operating officer of ML Macadamia. "So we're hoping there is some upside on the price."

ML Macadamia sells its nuts exclusively to Mauna Loa under long-term purchase contracts. Mauna Loa then processes and markets the nuts under the Mauna Loa brand name. ML Macadamia has a complex pricing arrangement in which the price it receives for its nuts is based half on the current year processing and marketing results of Mauna Loa and half on the two-year trailing average of U.S. Department of Agriculture macadamia nut prices.

In the third quarter, ML Macadamia received an estimated per-pound average of 47 cents, roughly 5 percent lower than the 49 cents it received a year ago. Simonis said the 47-cent price is an estimate by Mauna Loa and that the actual price will be known in January.

Meanwhile, ML Macadamia's third-quarter harvest of 8.4 million pounds was 14 percent higher than a year ago while nut revenues rose 8.3 percent to $3.9 million from $3.6 million in the same period of 2001. Farming service revenues were $1.1 million, essentially flat with a year ago.

Besides the lower nut prices, earnings were hampered by general and administrative costs that nearly quintupled to $517,000 from $112,000 a year ago as spending planned for earlier in the year was deferred to the third quarter. For the first nine months of the year, though, general and administrative costs rose just 6.5 percent from 2001.

Simonis said, though, there appears to be a silver cloud on the horizon after three straight years of drought in the Big Island's Kau region. He said the crop year forecast is promising because of ample rainfall received in the region this year. Also, continued adverse weather in Australia is expected to reduce world supply and may have a favorable effect on future macadamia prices.

However, ML Macadamia still continues to be plagued by late payments from Mauna Loa, which recently caught up on what it owed for the first half of the year. ML Macadamia still is waiting for Mauna Loa to pay $1.1 million from a total balance of $3.9 million for nuts delivered and services provided in the third quarter.

"Because of the bigger crops, Mauna Loa didn't expect that many nuts to come in," Simonis said. "They didn't have the credit capacity to pay for additional costs."

Simonis said Mauna Loa has indicated it expects to pay the remaining balance this month.