Business Overview

Limoneira Company, a leading agribusiness and real estate development company, has demonstrated its ability to navigate the challenges of the agricultural industry and capitalize on emerging opportunities. With a strategic focus on expanding its avocado production and leveraging its valuable real estate assets, Limoneira is poised for long-term growth and value creation.

Financials

For the fiscal year ended October 31, 2023, Limoneira reported annual net income of $9.4 million and annual revenue of $179.9 million. The company's annual operating cash flow was -$15.9 million, and its annual free cash flow was -$26.2 million. These financial results reflect the company's ongoing efforts to optimize its operations and invest in strategic initiatives.

In the second quarter of fiscal year 2024, Limoneira generated total net revenues of $44.6 million, a 7% decrease compared to the same period in the prior year. This decline was primarily due to decreased lemon and avocado revenues, partially offset by an increase in farm management revenues. The company reported a net income applicable to common stock of $6.4 million, or $0.35 per diluted share, compared to a net loss of $1.7 million, or $0.10 per diluted share, in the second quarter of fiscal year 2023.

Avocado Expansion: A Strategic Shift

Limoneira has made a strategic decision to focus on expanding its avocado production, which it believes will drive significant long-term value creation. The company plans to plant an additional 1,000 acres of avocados over the next three years, bringing its total avocado acreage to 2,000 acres.

This expansion is expected to increase Limoneira's avocado production from 7-8 million pounds in fiscal year 2023 to 9-10 million pounds in fiscal year 2024. Furthermore, the company has raised its long-term EBITDA target from $30 million to $45-$55 million by fiscal year 2030, primarily driven by the increased avocado production.

The rationale behind this strategic shift is Limoneira's confidence in the sustainable demand for California avocados, particularly during the May to July window when Mexican production is between seasons. The company believes its geographic location and water resources in Ventura County provide a competitive advantage in the avocado market.

Real Estate Development: Unlocking Value

Limoneira's real estate development joint venture, Harvest at Limoneira, has been a significant driver of value creation for the company. In April 2024, the joint venture closed on the sale of an additional 554 residential units, bringing the total number of residential units sold to 1,261 since the project's inception.

Furthermore, the Santa Paula City Council recently approved the joint venture's proposal to increase the total number of residential units for the Harvest project from 1,500 to 2,050 units. This 37% increase in residential units is expected to unlock further value creation opportunities for Limoneira.

Based on these events and the continued increase in the land value associated with the Harvest project, Limoneira has increased its cash flow projections by 46% and now expects to receive $180 million in total future proceeds, spread out over the next seven fiscal years, with approximately $18 million expected in fiscal year 2024.

Liquidity

Limoneira's balance sheet and liquidity position have been strengthened through strategic asset sales and debt reduction. As of April 30, 2024, the company's long-term debt stood at $59.5 million, compared to $40.6 million at the end of fiscal year 2023. This increase was primarily driven by working capital needs, which typically peak in the second quarter.

It is important to note that Limoneira's 50-50 joint venture with Lewis held $102.1 million of cash and cash equivalents as of April 30, 2024, of which Limoneira's share is 50%. Furthermore, the joint venture distributed $30 million in June 2024, with Limoneira receiving $15 million in cash proceeds. This additional liquidity source from the joint venture partnership provides further financial flexibility beyond Limoneira's quarter-end net debt position.

Operational Highlights

In the second quarter of fiscal year 2024, Limoneira's fresh lemon sales were $25.8 million, on 1,446,000 cartons sold at an average price of $17.85 per carton. Brokered lemons and other lemon sales increased by 52% year-over-year to $3.8 million.

Avocado revenues in the second quarter were $2.3 million, with 1,595,000 pounds sold at an average price of $1.47 per pound. The company strategically postponed a significant portion of its avocado harvest from the second quarter to the third quarter to capture more favorable pricing.

For the full fiscal year 2024, Limoneira expects fresh lemon volumes to be in the range of 5-5.5 million cartons and avocado volumes to be in the range of 9-10 million pounds, an increase from the previous guidance of 7-8 million pounds.

Risks and Challenges

Limoneira's business is subject to various risks and challenges, including weather conditions, disease and pest pressures, water supply disruptions, and fluctuations in commodity prices. The company's avocado expansion plans also carry execution risks, as the successful establishment and maturation of the new orchards will be critical to achieving its long-term EBITDA targets.

Additionally, the company's real estate development activities are subject to market conditions, regulatory approvals, and the ability to secure financing on favorable terms. Any delays or setbacks in the Harvest at Limoneira project could impact Limoneira's expected cash flow projections.

Outlook

Limoneira's strategic focus on avocado expansion and its valuable real estate development assets position the company for long-term growth and value creation. The company's decision to pivot away from the Chilean packinghouse investment and instead allocate resources to its domestic avocado production aligns with its goal of enhancing shareholder value.

Longer-term, the company is raising its EBITDA outlook to $45-$55 million by fiscal year 2030, up from the previous target of $30 million. This increase is underpinned by the planned expansion of avocado production, as well as the continued growth and value creation from the Harvest at Limoneira real estate development project.

With a strengthened balance sheet, improved liquidity, and a robust pipeline of real estate and agribusiness initiatives, Limoneira is well-positioned to capitalize on the favorable trends in the avocado market and continue to deliver value to its shareholders.