Executive Summary / Key Takeaways

• Limoneira is undergoing a significant strategic transformation, shifting towards an asset-lighter model focused on optimizing its unique land, water, and agricultural assets to unlock long-term shareholder value.
• A key driver is the planned merger of citrus sales and marketing operations with Sunkist Growers, effective Q1 FY26, expected to yield approximately $5 million in annual cost savings and improve EBITDA by enhancing supply chain efficiency and market access.
• The company is strategically expanding its avocado production by 2,000 acres through FY27, leveraging robust consumer demand and implementing advanced farming techniques expected to significantly increase future yields and drive EBITDA growth.
• Substantial value is being unlocked through real estate development, particularly the Harvest at Limoneira joint venture, which is projected to deliver an additional $155 million in cash distributions over the next six fiscal years, alongside ongoing water monetization efforts.
• While facing near-term headwinds from a temporarily oversupplied lemon market impacting recent financial results, the strategic initiatives, including the Sunkist partnership and avocado expansion, are positioning the company for stronger operational performance and margin expansion beyond fiscal year 2025.

Setting the Scene: A Legacy of Land and Growth

Limoneira Company, with roots tracing back to 1893 and shared founders with Sunkist Growers, stands as one of California's oldest citrus growers. Built on a foundation of responsibly managing extensive land and water resources, the company has evolved from a traditional agribusiness into a diversified entity strategically focused on maximizing value from its unique asset base. This involves not only cultivating and marketing citrus and avocados but also leveraging significant real estate holdings through joint ventures and monetizing valuable water rights.

The overarching strategy is a deliberate shift towards an asset-lighter model, aiming to enhance profitability and unlock embedded value. This strategic pivot is a direct response to market dynamics and an effort to optimize the return on the company's diverse assets, which include approximately 10,500 acres of land and 21,000 acre-feet of owned water usage and pumping rights across California, Arizona, Chile, and Argentina.

Competitive Landscape: Navigating Diverse Markets

Limoneira operates within a competitive landscape spanning fresh produce (lemons, avocados, oranges, specialty citrus) and real estate development. In agribusiness, key publicly traded competitors include Calavo Growers (CVGW), Fresh Del Monte Produce (FDP), Dole plc (DOLE), and Mission Produce (AVO).

These rivals vary in scale and focus. Companies like CVGW and AVO specialize heavily in avocados, benefiting from scale and efficient supply chains in that specific market. FDP and DOLE are larger, globally diversified produce companies with extensive international networks and logistics capabilities, often achieving lower production costs per unit due to sheer volume and scale.

Limoneira's competitive positioning is differentiated by its unique combination of agribusiness, significant real estate holdings, and valuable water resources. While it may not possess the same scale or avocado-specific specialization as CVGW or AVO, or the global reach of FDP or DOLE, its diversification across these segments provides a degree of resilience against volatility in any single market. The real estate assets, in particular, offer a value creation avenue distinct from pure-play produce companies.

However, Limoneira faces challenges, including potentially higher operating costs per unit in certain agricultural segments compared to larger, more specialized competitors. The temporarily oversupplied lemon market, as noted by management, highlights the pricing pressures that can arise when competing against players potentially selling below cost to maintain market share. Limoneira's strategic response includes enhancing its operational efficiency, expanding into high-growth channels like quick-serve restaurants (QSR), and leveraging partnerships like the upcoming one with Sunkist to improve market access and cost structure.

Operational Excellence and Technological Adoption

Limoneira's operational capabilities span farming, harvesting, packing, and marketing. The company operates its own packinghouses in Santa Paula, California, and Yuma, Arizona, which provides a competitive advantage by allowing control over quality and processing, although fixed costs mean efficiency is tied to fruit throughput. To optimize these operations, Limoneira supplements its own fruit with lemons procured from third-party growers, focusing on quality to maintain fresh utilization rates and pricing.

In its farming operations, particularly for the expanding avocado acreage, Limoneira is adopting advanced techniques and technology. This includes planting higher density trees (over 180 per acre compared to older plantings around 90 per acre), utilizing different and more robust rootstocks, and implementing modern irrigation systems. These pressurized lines allow for more precise "spoon-feeding" of water and nutrients on a weekly basis, a fundamental shift from older, less efficient systems. The company has also received FAA approval for drone spray application in California, offering a more precise, cost-efficient, and sustainable method for pest control and other applications compared to traditional methods like helicopters.

Management's internal models for the new avocado plantings project average yields of approximately 17,000 pounds per acre, a significant increase from historical averages (which ranged from 7,000 to 15,000 pounds per acre). This expected increase in productivity, driven by higher density plantings and improved farming practices and technology, is a critical operational detail underpinning the long-term EBITDA growth outlook for the avocado segment. These technological and operational advancements are aimed at improving yield, reducing costs, and enhancing the quality and consistency of the produce, thereby strengthening Limoneira's competitive position, particularly in the avocado market where it is making a significant strategic push. Despite lacking proprietary, quantifiable technology differentiators, the company is leveraging available technology effectively.

Agribusiness: Navigating Market Headwinds and Strategic Shifts

The agribusiness division, comprising Fresh Lemons, Lemon Packing, Avocados, and Other Agribusiness, remains the core operational engine. Recent performance, particularly in the second quarter and first six months of fiscal year 2025, reflects the impact of challenging market conditions.

For the three months ended April 30, 2025, total net revenues decreased by 21% to $35.1 million compared to $44.6 million in the prior year period. This was primarily driven by a 26% decrease in Fresh Lemons revenue ($22.7 million vs. $30.8 million), largely due to decreased volume and lower prices for fresh lemons sold. Fresh packed lemon sales volume saw a slight decrease (1.36 million cartons vs. 1.45 million cartons), but the average price per carton dropped significantly ($14.52 vs. $17.85). Brokered lemon sales also declined. The temporarily oversupplied lemon market and resulting pricing pressure were cited as key factors. Agribusiness costs and expenses decreased by 22% ($31.7 million vs. $40.4 million), primarily due to lower third-party grower costs (driven by lower prices) and decreased growing costs (partly due to the termination of a farm management agreement). Despite cost reductions, the Fresh Lemons segment saw its operating income decline.

For the six months ended April 30, 2025, total net revenues were $69.4 million, down 18% from $84.3 million in the prior year. Fresh Lemons revenue decreased 20% ($46.4 million vs. $58.2 million), again due to lower volume and prices. Fresh packed lemon volume was 2.50 million cartons at $16.31/carton, down from 2.58 million cartons at $19.27/carton. Agribusiness costs decreased 18% ($65.2 million vs. $79.6 million), with third-party grower costs down 20% ($26.8 million vs. $33.7 million) and growing costs down 35% ($7.6 million vs. $11.7 million). The agribusiness operating loss improved to $1.2 million for the six months ended April 30, 2025, compared to a $2.0 million operating income in the prior year period, reflecting the top-line pressure despite cost controls.

Avocado performance provided a partial offset. For the three months ended April 30, 2025, avocado revenue increased 18% to $2.8 million ($2.3 million in prior year), driven by significantly higher prices ($2.26/pound vs. $1.47/pound), despite lower volume (1.2 million pounds vs. 1.6 million pounds). The six-month period showed a similar trend, with avocado revenue up 25% to $2.9 million ($2.3 million in prior year), selling 1.3 million pounds at $2.25/pound compared to 1.6 million pounds at $1.47/pound. Management noted strategically delaying harvest to capture better pricing and size.

A significant strategic move in agribusiness is the announced merger of citrus sales and marketing operations with Sunkist Growers, effective Q1 FY26. This partnership is anticipated to yield approximately $5 million in annual cost savings by transferring sales and marketing personnel and leveraging Sunkist's infrastructure. It will also provide access to Sunkist's extensive customer base, including key food service and retail accounts, and allow Limoneira to utilize excess wash and storage capacity within the Sunkist system, eliminating the need for expensive third-party leases. While this transition will shift the brokerage business to Sunkist, reducing top-line revenue, the expected cost efficiencies and enhanced market access are projected to significantly improve EBITDA and strengthen packing margins.

The strategic expansion of avocado production by 2,000 acres through fiscal year 2027 is another critical initiative. This expansion, coupled with the adoption of advanced farming techniques, is expected to significantly increase future avocado volumes and drive substantial EBITDA growth as the new plantings mature and reach full production (projected to yield around 17,000 pounds per acre on average for new plantings, targeting 30 million pounds total by 2029 as a baseline average).

Real Estate and Water: Unlocking Latent Value

Beyond agribusiness, Limoneira holds substantial value in its real estate and water assets. The Real Estate Development division, primarily centered around the Harvest at Limoneira joint venture with The Lewis Group of Companies, continues to be a significant source of potential value creation and liquidity.

The Harvest project has seen strong progress, with the sellout of Phase II completed in April 2024 (totaling 1,261 residential units closed since inception). The Santa Paula City Council's approval in May 2024 to increase the total residential units from 1,500 to 2,050 (a 37% increase) further enhances the project's potential. Management expects to receive an additional $155 million in cash distributions from Harvest and the East Area II development over the next six fiscal years. The joint venture itself maintains a healthy cash position ($37.3 million as of April 30, 2025) and currently has no debt, providing flexibility for future development phases, including planned infrastructure like a bridge across Santa Paula Creek. The recent FEMA flood zone map revision, effective May 15, 2025, which reduces mandatory flood insurance requirements for properties in East Area 1 and East Area 2, is also expected to positively impact future real estate interest and sales velocity.

Limoneira's water resources, particularly the 21,000 acre-feet of owned usage and pumping rights, represent another valuable asset class. The company successfully monetized a portion of its Santa Paula Basin water pumping rights in January 2025 through three separate transactions totaling $1.7 million, realizing a gain of $1.5 million. These sales, valued at $30,000 per acre-foot, provide a tangible benchmark for the value of these assets, which management notes are significantly more valuable than the company's Colorado River water rights. Further water monetization opportunities, including additional sales and potential long-term water leases at municipal rates, are anticipated in fiscal year 2025. The company is also exploring the strategic development of a water utility to provide service to its properties and potentially others, aggregating its water resources in a regulated manner. Limoneira also participates in a fallowing program with the Yuma Mesa Irrigation and Drainage District, generating approximately $1.3 million in value annually from its Colorado River water rights.

The Rental Operations division, while smaller, provides steady cash flows ($1.5 million in Q2 FY25 revenue, $3.0 million in 6M FY25 revenue) and supports employee housing. A new 50/50 joint venture with Agromin Corporation to expand the organic waste recycling facility is expected to begin construction in the second half of fiscal year 2025, adding another potential revenue stream within this division.

Financial Health and Liquidity

Limoneira's financial health is influenced by the cyclical nature of agribusiness, the long-term development cycles of real estate, and strategic asset monetization. For the six months ended April 30, 2025, the company reported a net loss attributable to Limoneira Company of $6.4 million, compared to net income of $3.0 million in the prior year period. This shift was primarily driven by a significant decrease in equity in earnings of investments, net ($0.6 million vs. $16.6 million), reflecting the timing of large real estate lot sales in the prior year, coupled with the decline in agribusiness revenues due to the challenging lemon market, partially offset by improved operating expenses and the gain on water rights sales. Adjusted EBITDA for the six months ended April 30, 2025, was $2.5 million, down from $11.7 million in the prior year period, largely reflecting the same factors.

Despite the recent operating loss, the company's liquidity position appears manageable. As of April 30, 2025, cash on hand was $2.1 million. Net cash used in operating activities for the six months ended April 30, 2025, was $4.0 million, an improvement from $13.3 million used in the prior year period. Investing activities used $6.5 million, primarily for capital expenditures ($6.5 million, mainly orchard development) and equity investment contributions ($2.0 million), partially offset by water rights sales proceeds ($1.7 million). Financing activities provided $9.6 million, primarily from net borrowings of long-term debt ($14.4 million), partially offset by dividends and stock exchanges.

Long-term debt as of April 30, 2025, was $54.9 million, up from $40.0 million at the end of fiscal year 2024, reflecting increased borrowings under the AgWest Farm Credit facility. The company had $60.1 million of availability under this facility's aggregate borrowing capacity of $115.0 million. Management believes existing cash flows, available borrowing capacity, and expected distributions from the real estate joint venture ($10.0 million received in April 2025) are sufficient to meet obligations for the next 12 months and beyond. The company was in compliance with its debt covenants as of October 31, 2024. The net debt position as of October 31, 2024, was $37.6 million, which management views in conjunction with the Harvest JV's significant cash balance ($33.5 million share).

Outlook and Value Drivers

Limoneira's outlook for fiscal year 2025 reflects the ongoing transition and market conditions. Fresh lemon volume guidance for FY25 has been revised downwards to 4.5 million to 5 million cartons (from 5 million to 5.5 million), primarily due to lower fresh utilization in the second quarter. Avocado volumes are expected to be in the range of 7 million to 8 million pounds, lower than the record 15.1 million pounds in FY24 due to the alternate bearing nature of the crop.

Looking beyond FY25, management expresses strong confidence in the EBITDA outlook, underpinned by several key value drivers. The Harvest and East Area II real estate developments are expected to contribute an additional $155 million over the next six fiscal years. The strategic expansion of avocado production is anticipated to significantly enhance EBITDA as new trees mature and reach full production in the coming years. The Sunkist partnership, effective in Q1 FY26, is projected to provide a sustainable $5 million annual improvement in EBITDA through cost savings and operational efficiencies. Early estimates for FY26 lemon volume are in the range of 4 million to 4.5 million cartons, reflecting the structural changes from the Sunkist partnership.

These operational results and projections do not account for anticipated additional gains from asset monetization, such as further water rights sales or potential divestitures of non-core farming assets in Chile and the Windfall Farms vineyard. The company's strategic roadmap, including the asset-lighter model, avocado expansion, Sunkist partnership, real estate development, and water monetization, forms the basis for expected long-term value creation.

Risks and Challenges

Despite the strategic initiatives and long-term potential, Limoneira faces notable risks. The agribusiness segment is inherently exposed to adverse weather conditions (drought, freezes, fires), crop disease, and fluctuations in global supply and demand, which can significantly impact pricing and profitability, as evidenced by the current oversupplied lemon market. Water availability, particularly in California and Arizona, remains a critical concern, with drought conditions potentially affecting yields and costs, although the company's owned water rights and fallowing programs provide some mitigation.

The real estate development projects are subject to market conditions, government approvals, and financing availability, which can affect the timing and amount of expected cash flows. While the Harvest JV has shown strong progress, delays or changes in market demand could impact projections. The company is also exposed to general economic conditions, currency exchange and interest rate fluctuations, and labor disruptions. Legal proceedings, though currently not expected to have a material adverse effect, are an inherent risk in the ordinary course of business. The success of the strategic initiatives, including the integration with Sunkist and the avocado expansion, depends on effective execution and market acceptance.

Conclusion

Limoneira is a company in the midst of a significant strategic transformation, leveraging its historical foundation in agribusiness and unique asset base to pursue multiple avenues for value creation. While the near-term financial performance is being impacted by challenging market conditions in the lemon segment, the strategic initiatives underway paint a compelling picture for the long term.

The planned Sunkist partnership promises to fundamentally improve the efficiency and profitability of the citrus business, while the aggressive expansion into avocados, supported by modern farming techniques, positions the company to capitalize on robust consumer demand for years to come. Coupled with the ongoing monetization of valuable real estate through the successful Harvest joint venture and the strategic management and potential sale of water resources, Limoneira is actively working to unlock the latent value embedded within its assets. For investors, the story is one of a company strategically repositioning itself, moving towards a more focused and potentially more profitable future, underpinned by tangible assets and clear growth drivers, despite the inherent risks and volatility of the agricultural sector.