Riverbend International Hits Pay Dirt : Publicly Held Farm Firm Looks to Gain Edge by Integrating Operations
Riverbend International, known as family-owned Riverbend Farms until last March when its stock began trading publicly, is intent on becoming a fruit-and-vegetable version of the meat-packing business, which once bragged that it used “all the pig but the squeal.”
In terms of tomatoes, for example, Riverbend’s processing plant in nearby Visalia extracts seeds from tomatoes being turned into paste and later plants the recovered seeds to produce another crop. That program illustrates the company’s strategy to integrate its operation, as Vice President Perry L. Walker put it, “from seed right straight through to the consumer product.”
That integration--and the fact that Riverbend leases rather than owns most of the land it farms--will set this agricultural firm apart from most of its farming or marketing competitors, Walker said. As a family-owned company, it expanded during the years when agricultural prices and land values were plunging. Because land for lease is readily available as huge amounts of acreage have been transferred from farmers to absentee landlords, including banks and insurance firms, it expects no difficulty in continuing to expand.
“Our No. 1 challenge is to remain competitive in a world environment,” Walker explained as he led a visitor around the 5-year-old plant. “If there’s anything that has changed in California agriculture, it’s that we don’t operate in a cocoon. We operate in a world market, and it’s a question of finding and exploiting those areas where we have a comparative advantage.”
Riverbend’s “comparative advantage”--what it expects to do better than its competitors in agriculture--lies not only in integrating production, he said, but in improving efficiency at each stage, from planting, managing and harvesting crops to packing, processing and marketing them. Adding the tomato processing line two years ago to the existing citrus processing line in Visalia was another step in that direction.
Tomatoes give the plant needed work from July through October, when processing of the Valencia orange crop is winding down, thus keeping it running and the crew working year-round, which improves efficiency. For the same reason, the company last year added various tree fruits, grapes, kiwi and avocados to its packing operation. And it expects a new tomato processing line to be running at its citrus plant in Yuma, Ariz., next year, Walker said.
The quest for comparative advantage was also behind the company’s decision to go public, said President Donald D. Dauer. One reason for selling stock to the public, he said, was to improve 1668441444view Riverbend as just another farming operation, subject to all the vicissitudes to which the 1980s have subjected farmers. In fact, the company’s operations have expanded during this difficult decade.
“The financial world looks at us differently now,” said Dauer, a 20-year veteran of the lending business.
On the other hand, it is not yet clear whether investors do.
When Riverbend made its initial public offering last March, the 1.1 million shares sold at $9 each. Soon thereafter, however, they bumped down to a low of $4 in American Stock Exchange trading. That development followed disappointing first-quarter earnings due mostly to weather factors--freezing temperatures and a lack of rain. Those factors affected the citrus industry generally, noted David A. Goldman, who assessed Riverbend’s prospects for L. F. Rothschild & Co. in June. (Goldman’s parent firm, L. F. Rothschild, Unterberg, Towbin, was lead underwriter for Riverbend’s initial offering).
Undervalued by Market
“Riverbend is recovering rapidly from a slow start in fiscal 1987,” Goldman concluded. “A freeze in February damaged the early orange crop somewhat and left much of the fruit picked in the first quarter unacceptable for fresh market distribution. . . . Fortunately, the second quarter made up much of the lost ground,” Goldman said.
The third quarter got even better, and year-end earnings, expected early next month, will likely make the 1987 fiscal year ended Oct. 31 a very good one in terms of growth of both revenue and earnings, said Donna M. Hostetler of the Los Angeles brokerage of Crowell, Weedon. Nonetheless, the company’s common stock has hovered about $5 in recent Amex trading, closing Christmas Eve--the latest trading day--at $5.375, up 50 cents.
Hostetler, who published her initial assessment of Riverbend in September, judged the company’s stock to be undervalued by the market. She forecast 1987 revenue of $45 million to $50 million, up from $41.9 million in 1986, and estimated 1988 revenue at $53 million; 1988 earnings per share should approach 70 cents, up from an estimated 50 to 55 cents this year--an important consideration for investors because the company has declared its intention not to pay a cash dividend for the foreseeable future.
Further, Hostetler said in an interview, Riverbend last month signed a leasing agreement to pack and market Texas grapefruit and oranges. That move will not only spread the company’s sources of supply into a new region but should increase revenue by about $1 million in the first half of 1988. In addition, Hostetler said, 11% of last year’s fresh fruit sales came from exports.
“We’re going to hear a lot more about foreign operations in the next year,” she predicted.
In a prospectus prepared for the initial public offering, Riverbend identified a trend toward absentee ownership of farm land that it said plays into its strategy of avoiding the cost of land ownership by securing, through farm management and leasing arrangements, flexible control of resources of supply that can be matched to demand.
Family in Control
“We sign up only what we need,” Walker said. Moreover, by linking the prices paid to participating growers to proceeds from selling their crops, Riverbend plays down the industry’s chronic exposure to fluctuating commodity prices, he said.
The company, begun in the 1950s by R. E. Harris, a building contractor who planted some orange groves, now controls about 6% of the California-Arizona citrus crop, a significant but distant second to the industry leader, Sunkist Growers, the big Sherman Oaks-based marketing cooperative, whose annual market share hovers around 50%.
Before last March’s initial offering of 1 million shares of new common stock and 60,000 shares of family-held stock, Riverbend was wholly owned by Harris and his children, Larry R. Harris and Kristie A. Walker (who is married to Perry Walker). Proceeds of the offering retired all of the company’s short-term bank loans, $6.75 million, and provided additional working capital.
But the Harris family remains very much in control of the business. Its members own 67% of the outstanding common shares and hold 97% of the vote (thanks to sole ownership of the company’s Class A common shares, each of which has 10 votes).
As it prepared to go public and surveyed California agriculture, Riverbend and its underwriters discovered with some surprise the company’s uniqueness as a planting-to-sales agricultural enterprise. “You can list a lot of food processors,” Walker said, “but none that control dirt”--that is, farm production.
“We’re similar to parts of other companies,” Dauer added, “but we could find nothing comparable to us.”
