Today we do a quarterly check back in on the Limoneira Company (NASDAQ:LMNR). We continue to think this is a hold here at these levels, following closing out a trade in December 2023 at $20.64. As a reminder, at that time we also suggested leaving a little profit in the name for a long-term house position. That position is now up nearly another 20%. We like having a so-called house position. This is because doing so enables you as a successful trader to now have a long-term investment, all with some profit in the trade, to capture all future growth in the stock, as well as possible spinoffs, future dividends, etc. Given the heavy move into avocados and the real estate venture that this company is involved in, we very much think a future spinoff with Limoneira is in the cards. Near term, we do not see a major catalyst to push shares higher unless pricing of citrus and avocados really moves substantially higher due to demand or global crop yield. That would be something shorter-term.

For the long term, what we like has not changed. We like the real estate side of the business, but also the substantial planting being done on tons of acreage to expand their avocado offerings over the coming years, while continuing to produce citrus, which is always in demand. In this column, we check back in on the company and discuss the recent performance of the just announced fiscal Q3 earnings.

Limoneira fiscal Q3 headline results

This was a solid quarter on the headlines, quite frankly. The company “missed” consensus estimates on the top line, but really it was in line. That said, the company crushed expectations on the EPS result. Still, despite the earnings power and revenue growth, we still like a hold because the valuation is expensive on many metrics. We think the company can over time grow into the valuation. Long-term, we expect volume and revenue growth, provided pricing cooperates. We mentioned all the planting being done, but takes years for the trees to grow and mature and start to produce yield. Despite being in constant demand, fruits are commodities, so, prices will move with supply and demand.

Balance sheet

We still like holding on to shares, and we have seen some balance sheet improvement over the last few years. The company had previously made strategic moves to shift to a more asset-light model. What about debt? Debt has been reduced substantially. Long-term debt as of July 31, 2024, was $40.0 million, compared to $40.6 million at the start of the fiscal year, but debt is down from over $100 million in fiscal 2023. Debt levels as of July 31, 2024, less $1.1 million of cash on hand, resulted in a net debt position of $39.6 million at quarter end. The net debt also was down sequentially.

Cash influx from real estate

The 50%/50% real estate development joint venture with Lewis company continues to pay off. Recall that the JV closed an extra 554 residential homesites in April 2024. The joint venture distributed $30.0 million in June 2024, of which Limoneira received $15.0 million. As of July 31, 2024, the joint venture had $69.9 million of unaudited cash and cash equivalents on hand. There is also more to come. In May 2024, the Santa Paula City Council approved the proposal brought forward by the JV to increase the total number of residential units for the project from 1,500 to 2,050 units. With the approval, the 550-unit increase will provide 250 additional single family for-sale homesites. It should be noted that a separate joint venture with Lewis plans to construct 300 multifamily rental homes on a mixed-use portion of the project.

Fruit segment performance

Total net revenue was $63.3 million, compared to total net revenue of $52.5 million a year ago. This was a “miss” of $0.26 million. We would say this is basically in line. Agribusiness revenue was $61.8 million, compared to $51.1 million last year. Other operations revenue was $1.5 million, about flat from a year ago’s $1.4 million. Commenting on the quarter, Harold Edwards, President and CEO, stated in the release:

Our avocados experienced robust demand and favorable pricing dynamics. This strong market response positions us to achieve record avocado revenue this fiscal year. Further, we anticipate reaching a milestone as our avocado segment is expected to contribute approximately four million to five million pounds in our seasonably softer fourth quarter for the first time in our company’s history.”

This is great to see. The company has a strategic plan to increase avocado production by over 1,000 acres in the next three years. Fresh lemon revenue was $25.8 million, compared to $24.2 million during the 2023 quarter. This was on higher volume. The company moved 1.4 million cartons of U.S. packed fresh lemons. This was up from 1.352 million cartons last year. However, pricing was better. This quarter, those cartons were sold at an average $18.43 each, versus $17.92 a year ago. So-called brokered lemons and other lemon sales were $9.8 million, up from $8.0 million a year ago.

This quarter, there was $13.9 million of avocado revenue, way up from $3.5 million a year ago. The company sold 8.85 million pounds of avocados at a $1.57 average price per pound, compared to just 2.82 million pounds sold at a $0.99 average price per pound last year. Oranges generated $1.2 million in revenue. Volumes were down to 43,000 cartons, falling from 71,000 a year ago, but pricing per carton improved to $26.98 from $18.17. Specialty citrus and other crop revenues were just $0.6 million, while farm management revenue were $3.2 million.

Earnings power

With increased revenues, we expected a bump in total costs and expenses, but they were almost flat from last year, helping earnings power. We saw total costs and expenses come in at $54.3 million versus $54.0 million last year. Operating income swung from a loss to a gain. Operating income was a strong $8.6 million versus a loss of $1.5 million a year ago. Further, adjusted EBITDA improved to $13.8 million versus $2.8 million a year ago, while net income on an adjusted basis improved to $7.8 million from $0.4 million a year ago. This was sizably higher than we expected, as we were looking for more around $6.75 million here or so, or around $0.36-$0.38 in EPS. Adjusted EPS was actually $0.42, way up from $0.02 a year ago and crushing estimates by $0.08.

Looking ahead

Shares are down on this quarter, but it was a good quarter, As we look ahead, the company also updated guidance. Management now expects avocado volumes to be in the range of 14.5 million to 15.5 million pounds for the fiscal year, compared to previous guidance of 9.0 million to 10.0 million pounds, a more than 50% increase compared to prior guidance. However, there was down guide on lemons which may be weighing. Management now expects fresh lemon volumes to be in the range of 4.5 million to 5.0 million cartons for the fiscal year. This compares to previous guidance of 5.0 million to 5.5 million cartons. The lower guide stems from “lower fresh utilization from late season rains.”

Over the next 7 years, the company also expects proceeds of an additional $180 million from its Harvest real estate projects. However, next year will be the lowest year of just $8 million seen before ramping up in later years. This may also be weighing short-term. The other headwind was that management said that avocado volume in fiscal 2025 will be down from 2024. This was attributed to the alternate bearing nature of avocado trees. Another negative was that management believes avocado pricing may be slightly lower in 2025. All things considered, we still rate this house position following a trade a hold, but see great long-term potential for Limoneira Company.