Limoneira adjusts its business model to 'asset lighter' approach

Santa Paula, Calif.-based Limoneira Co. reported an improving financial picture when announcing its financial results for the quarter ending April 30 and announced a shift to an “asset lighter” approach to growth.

“We enter the second half of fiscal year 2022 with an improving topline driven by increased revenues for avocados, oranges and specialty citrus in the second quarter of fiscal year 2022,” Harold Edwards, president and CEO of the Company, said in the release. “Our avocado segment has continued to outperform expectations this fiscal year with pricing over 50% higher year-over-year in the second quarter and strong demand leading us to expect continued strong profitability for the third quarter of fiscal year 2022.”
Lemon pricing remained “challenged” in the second quarter, Edwards said in the release, as the domestic lemon market works through a surplus of inventory.

“We were encouraged to see the lemon export market begin to slowly return to normal,” he said in the release. “The topline improvement in the second quarter was partially offset by the cost side of our business, as our industry continues to face rising labor costs and higher packing and supplier costs.”

Changing direction

The Limoneira board of directors has created a strategic plan to expand the company’s One World of Citrus to unlock the value of the company’s many assets and leverage the company’s global citrus position, Edwards said in the release. Additionally, Limoneira will increase its avocado plantings and sell certain assets to “dramatically increase” the company’s cash flow in the near future.

“We expect to increase our One World of Citrus business by focusing on growth of 'asset lighter' sales using more grower partner fruit in order to reduce the impact of pricing volatility and farming costs,” Edwards said in the release.

The company has more than 15,400 acres of agricultural lands, real estate properties and water rights in California, Arizona, Chile and Argentina, with a fair-market value of over $600 million, he said in the release. Those properties have a book value on Limoneira’s balance sheet of $220 million because many of the assets were acquired years ago at a low-cost basis. 

“Selective monetization of certain assets in Limoneira’s portfolio creates a tremendous value creation opportunity for our shareholders,” Edwards said in the release.

The company recently announced a fallowing program with the Yuma Mesa Irrigation and Drainage District at Limoneira’s Associated Citrus Packers ranch. The program will save more than 1.3 billion gallons of water annually and increase operating results by over $1 million, he said in the release, noting that, “We continue to evaluate all potential options for our assets with the goal of further deleveraging the Company’s balance sheet and unlocking significant value for our shareholders."

Quarterly results

For the second quarter of fiscal year 2022, the company reported net revenue of $46.8 million, up from total net revenue of $45.1 million the same quarter last year, according to the release.

Agribusiness revenue was $45.4 million, compared to $44 million in the second quarter of last fiscal year. Agribusiness revenue for the second quarter includes $27.3 million in fresh lemon sales, compared to $28.7 million of fresh lemon sales during the same period of fiscal year 2021, according to the release.

About 1.55 million cartons of U.S. packed fresh lemons were sold in aggregate during the second quarter of fiscal year 2022 at a $17.57 average price per carton compared to approximately 1.53 million cartons sold at an $18.79 average price per carton during the second quarter of fiscal year 2021, the company reported.

Lemon revenues in the second quarter of fiscal year 2022 and 2021 included brokered fruit and other lemon sales of $2.7 million and $2.3 million, respectively, the release said. Brokered fruit revenue is primarily comprised of packed fruit for resale where the company is the principal in the transaction, according to the release.

Limoneira reported $3.6 million of avocado revenue in the second quarter, up from $2.7 million of avocado revenue in the same period last year.

Roughly 1.9 million pounds of avocados were sold in total during the second quarter of fiscal year 2022 at a $1.90 average price per pound, compared to approximately 2.1 million pounds sold at a $1.26 average price per pound during the second quarter of fiscal year 2021, the release said.

The company recognized $2.6 million of orange revenue in the second quarter, up from $1.4 million in the same period last year.

About 328,000 cartons of oranges were sold during the second quarter of fiscal year 2022 at a $7.98 average price per carton, compared to approximately 154,000 cartons sold at a $9.12 average price per carton during the quarter a year ago.

Specialty citrus and other crops revenue for the second quarter of fiscal year 2022 was $1.4 million, up from $1.2 million in the same period a year ago.

Total costs and expenses for the second quarter of fiscal year 2022 were $44.2 million, up from $42.7 million in the second quarter of last fiscal year. The increase was primarily attributable to increases in packing costs and growing costs, the release said.

Operating income for the second quarter of fiscal year 2022 increased to $2.6 million, up from operating income of $2.4 million in the second quarter a year ago.

Net income attributable to common stock for the second quarter of fiscal year 2022 was $1.4 million, compared to net income of $1.8 million in the second quarter of fiscal year 2021, the release said.

For the six months ending April 30, Limoneira reported revenue of $86 million, up from $83.4 million in the same period last fiscal year. Operating loss for the first six months of fiscal year 2022 was $7 million, compared to operating loss of $3.3 million in the same period last fiscal year, according to the release. 

COVID-19 impact

The COVID-19 pandemic has had an adverse impact on the industries and markets in which the company conducts business, the release said. 

In particular, the U.S. lemon market saw a significant decline in volume, with lemon demand falling since March 2020, resulting in a significant market oversupply., according to the release. 

The export market for fresh produce also significantly declined due to the COVID-19 pandemic impacts. As of April 30, the demand within both markets is recovering but has not yet returned to pre-pandemic levels, the company said.

The pandemic-related decline in demand for Limoneira’s products beginning the second quarter of fiscal year 2020 negatively impacted sales and profitability for the last three quarters of fiscal year 2020, all of fiscal year 2021, and the first six months of fiscal year 2022, according to the released.

“While the duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are influenced by a number of factors outside management’s control, the company expects improvement in fiscal year 2022 compared to fiscal year 2021,” Limoneira said in its second quarter report.

As foodservice and export markets recover, Limoneira expects lemon prices to increase in the second half of fiscal year 2022 compared to the prior year period, the release said.

The company expects fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2022, with avocado volumes to be in the range of 6 million to 7 million pounds for fiscal year 2022.

The release said Limoneira has an additional 1,000 acres of non-bearing lemons estimated to become full bearing over the next four years. The company expects 200 of the 1,000 acres to become full bearing in fiscal year 2022, the release said, and that additional acreage will increase its domestic supply of Limoneira-owned lemons from its 2021 level by approximately 50%, or by about 900 thousand to 1.3 million additional fresh cartons.