Company Overview and History

Limoneira Company, a 131-year-old international agribusiness headquartered in Santa Paula, California, has grown to become one of the premier integrated agribusinesses in the world. The company engages primarily in growing citrus and avocados, harvesting citrus, and packing, marketing, and selling citrus.

Founded in 1893, Limoneira has a rich history rooted in California agriculture. The company started as a fruit production, sales, and marketing company in Santa Paula, California. Over the decades, Limoneira has expanded its operations to include a diverse portfolio of citrus, avocado, and other crop varieties. The company has strategically acquired land and water rights not only in California but also in Arizona, Chile, and Argentina, significantly broadening its agricultural footprint. To support its growing operations, Limoneira opened its own packing houses in Santa Paula and Yuma, Arizona, enabling it to process and sell both its own lemons and those grown by other producers.

In the early 2000s, Limoneira began diversifying beyond its core agribusiness operations by investing in real estate development projects. The company formed joint ventures to develop multi-family housing, single-family homes, and apartments in California, adding a new dimension to its business model. Today, Limoneira owns approximately 10,500 acres of land, with water rights to 8,600 acre-feet of adjudicated water in the Santa Paula Basin aquifer and un-adjudicated water in the Fillmore and Paso Robles Basins aquifers. Additionally, the company has 11,700 acre-feet of Class 3 Colorado River water rights in Yuma, Arizona.

Business Divisions

Limoneira’s business is divided into three main divisions: agribusiness, rental operations, and real estate development. The agribusiness division, which includes the fresh lemons, lemon packing, avocados, and other agribusiness segments, is the core of the company’s operations. Limoneira is one of the largest growers of lemons and avocados in the United States, according to the California Avocado Commission.

The company’s rental operations division includes residential and commercial rentals, leased land operations, and organic recycling. This segment provides a steady stream of cash flow to support the company’s agribusiness activities. Limoneira’s real estate development division focuses on long-term investments in projects such as the Harvest at Limoneira, a master-planned community in Santa Paula, California.

Financial Performance

Financially, Limoneira has demonstrated resilience in the face of challenges. As of the latest quarter ended July 31, 2024, the company reported total net revenues of $147.6 million, a 7% increase compared to the same period last year. The agribusiness division, which accounts for the majority of Limoneira’s revenues, generated $143.4 million in net revenues, up from $134.3 million in the prior-year period.

For the most recent fiscal year 2023, Limoneira reported revenue of $179.90 million and net income of $9.40 million. The company’s operating cash flow (OCF) for fiscal year 2023 was -$15.87 million, while free cash flow (FCF) was -$26.18 million.

In the most recent quarter (Q3 2024), Limoneira’s revenue reached $63.30 million, representing a 21% year-over-year growth. Net income for the quarter was $6.59 million, showing a substantial 468% increase compared to the same quarter in the previous year. The quarter’s operating cash flow was $11.27 million, while free cash flow was -$6.68 million. The significant increase in revenue and net income was primarily attributed to higher pricing and volume for fresh lemons and avocados.

The company’s adjusted EBITDA, a key metric for the company, reached $25.5 million for the first nine months of fiscal year 2024, a significant improvement from $1.1 million in the same period of the previous year. This growth was driven by improved pricing and volume in both lemons and avocados, as well as the company’s strategic decision to delay a portion of its avocado harvest from the second quarter to the third quarter to capture more favorable pricing.

Segment Performance

Breaking down the company’s performance by segment for the first nine months of fiscal year 2024:

Lemon Packing: Segment revenues were $43.88 million, a 2% decrease from the prior year period, due to lower volumes of lemons packed and sold. Lemon packing costs decreased 3% to $35.45 million, resulting in operating income per carton sold of $2.12 compared to $1.98 in the prior year period.

Avocados: Revenues in this segment increased 130% to $16.25 million, driven by a 178% increase in volume to 10.45 million pounds sold at an average price of $1.55 per pound. Segment costs and expenses rose 36% to $5.53 million.

Other Agribusiness: Revenues in this segment decreased 7% to $16.47 million, primarily due to lower orange and specialty citrus sales, partially offset by increased farm management revenue. Costs and expenses increased 2% to $16.12 million.

Overall, Limoneira’s agribusiness segment operating income was $18.46 million, up from $8.02 million in the prior year period, due to the higher sales and improved margins.

Liquidity and Balance Sheet

The company’s balance sheet remains solid, with a net debt position of $39.6 million as of July 31, 2024, down significantly from $104.9 million at the end of fiscal year 2022. This improvement was largely due to the sale of the company’s Northern Properties in January 2023, which generated $98.4 million in net proceeds and were used to pay down debt.

As of July 31, 2024, Limoneira’s debt-to-equity ratio stood at 0.21, indicating a relatively low level of leverage. The company had $1.09 million in cash and a $115 million credit facility with AgWest Farm Credit, of which $75 million was available. The current ratio was 0.93, and the quick ratio was also 0.93, suggesting that the company’s short-term liquidity position is somewhat tight but manageable.

Future Outlook and Guidance

Looking ahead, Limoneira has provided guidance for its fiscal year 2024 operations. The company now expects fresh lemon volumes to be in the range of 4.5 million to 5 million cartons, down from its previous guidance of 5 million to 5.5 million cartons, due to lower fresh utilization from late-season rains. However, the company has significantly increased its avocado volume guidance, now expecting 14.5 million to 15.5 million pounds, up from its previous guidance of 9 million to 10 million pounds.

The company’s strategic focus on expanding its avocado production by 1,000 acres over the next three years is a key initiative aimed at capitalizing on robust consumer demand for the fruit. While the company expects avocado volumes to be lower in fiscal year 2025 due to the alternate-bearing nature of avocado trees, it believes pricing may remain favorable compared to historical levels.

Limoneira continues to expect to receive total future proceeds of $180 million from their Harvest at Limoneira real estate development joint venture over the next seven fiscal years.

Real Estate Development

Limoneira’s real estate development joint venture, Harvest at Limoneira, continues to be a source 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 closed units to 1,261 since the project’s inception. Furthermore, in May 2024, the Santa Paula City Council approved the joint venture’s proposal to increase the total number of residential units for the project from 1,500 to 2,050, a 37% increase that unlocks further value creation opportunities.

Industry Trends

Limoneira operates within the broader agriculture market, which was valued at $14.35 trillion in 2024 and is projected to grow to $19.28 trillion by 2028, at a CAGR of 7.7%. This growth can be attributed to factors such as population growth, globalization of food supply chains, and rising demand for organic and sustainable agricultural products. As a company focused on citrus and avocados, Limoneira is well-positioned to benefit from these industry trends.

Geographic Markets

While Limoneira primarily sells its products in the United States, the company also has a presence in Canada, Asia, Australia, and other international markets. As a small-cap company, Limoneira does not have significant geographic diversification outside of the US, but its international operations provide some exposure to global market trends and opportunities.

Conclusion

The company’s strategic initiatives, strong financial position, and diversified business model position Limoneira well to navigate the challenges and capitalize on the opportunities in the citrus and avocado industries. Throughout its long history, Limoneira has faced various challenges, including freezes, droughts, and changing market conditions. Most recently, the COVID-19 pandemic negatively impacted the company’s sales and profitability from 2020 to 2023 due to declines in the export market for fresh produce. However, Limoneira has consistently demonstrated resilience, utilizing its diversified business model and strategic asset sales to navigate these difficulties.

The company’s recent financial performance, particularly the strong growth in avocado sales and the improved pricing for fresh lemons, demonstrates its ability to adapt to market conditions and capitalize on opportunities. The significant increase in avocado volume guidance for fiscal year 2024 reflects the company’s success in this segment and its potential for future growth.

Limoneira’s real estate development projects, particularly the Harvest at Limoneira joint venture, continue to provide additional value and diversification to the company’s portfolio. The recent approval to increase the number of residential units in the project presents further opportunities for long-term value creation.

While the company faces some short-term challenges, such as the downward revision of fresh lemon volume guidance and the cyclical nature of avocado production, its overall strategy and market positioning appear sound. The company’s focus on expanding avocado production, improving operational efficiency, and developing its real estate assets aligns well with broader industry trends and consumer preferences.

As Limoneira continues to execute its growth strategy, investors will be closely watching the company’s ability to deliver consistent financial performance and create long-term value for shareholders. The company’s resilience in the face of past challenges, combined with its strategic initiatives and favorable industry trends, suggests that Limoneira is well-positioned to navigate future uncertainties and capitalize on growth opportunities in the agribusiness sector.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.