Hugo Grajales Today we are checking back in on the Limoneira Company (NASDAQ:LMNR). We continue to think this is a hold here, following closing out a trade in December at $20.64. We also suggested leaving a little profit in the name for a long-term house position. Having a so-called house position allows you as a trader to now have a long-term investment to capture all future growth in the stock, as well as possible spinoffs, future dividends, etc. And a spinoff with Limoneira is possible. This is because they are a diversified citrus and avocado growing, packing, selling, and marketing company with related agribusiness activities, but also have real estate development operations. We could easily see the real estate being spun off into a standalone company in the future. Now, as many of you know, we have traded this stock at our Investing Group and have issued public trades. The last trade returned 50% since our last buy call from September 2023. But at these levels, we think LMNR stock is a hold. The price action has been very sideways. Near-term we do not see a major catalyst to push shares higher, but long-term we like the real estate and the planting being done on tons of acreage to expand their avocado offerings, while continuing to produce tons of citrus. So in this column, we check back in on the company and discuss recent performance following the recently reported earnings for the company’s fiscal second quarter. Performance remains positive, and cash flow is steadily coming in with their recent real estate deals. Revenues were down from last year and that surprised us, while earnings outperformed. Let us discuss this bifurcated performance. In its recently reported fiscal Q2, the company missed consensus estimates on the top line, and it was a large miss which surprised us, but surpassed estimates heavily for its EPS result. Hence, we characterize this as bifurcated. Before getting into more specifics, we really still like a hold because the valuation is expensive, but the company is stronger than ever and has invested in acreage for future growing seasons with its plantings. Thus, we expect volume and revenue growth, provided pricing cooperates. Citrus and avocados are commodities like anything else, so the pricing based on supply and demand will be the wildcard, as it always is. That said, while there will be some tough growing seasons occasionally, the company has invested heavily in more growing acreage to ramp up future volumes. From an investment standpoint, it is their real estate footprint that is very interesting to us, in addition to the investments for future seasons. It takes years for the trees to grow and bear fruit, keep in mind. Citrus and avocados are extremely popular, especially among those following healthy cooking and eating trends. But they are commodities, so, prices will move with supply, and, of course, demand. So, things that damage or reduce the yield on crops globally can help pricing (reducing supply), so long as it is not limited to Limoneira’s properties where they grow. Limoneira stock has been stuck since we recommended taking profit. In fact, the stock is a few percent lower. But we still like holding on to shares, thanks in large part to substantial balance sheet improvement over the last few years. The company has made strategic moves to shift to a more asset-light model. Debt has been reduced substantially. At the end of fiscal Q2, long-term debt as was $59.5 million, compared to $104.1 million at the start of 2023. However, this debt has ticked up compared to $40.6 million at the end of fiscal year 2023. Debt levels, less $1.4 million of cash on hand, give us a net debt position of $58.7 million at quarter end here for Limoneira. Now, there was a cash influx recently to point out, as the 50%/50% real estate development joint venture with Lewis company closed an additional 554 residential home sites in April 2024. As such, the joint venture distributed $30.0 million in June 2024, of which Limoneira received $15.0 million. So what happened to cause the revenue miss? Well, total net revenue was $44.6 million, compared to total net revenue of $48.1 million a year ago. This comes despite asset sales. Agribusiness revenue was $43.3 million, compared to $46.7 million last year, and underperformed expectations. Other operations revenue was $1.3 million, about flat from a year ago. When we dig into the agribusiness, we see that volumes of lemons weighed on results despite a boost from avocados. Fresh lemon revenue fell to $25.8 million, compared to $26.6 million during the 2023 quarter. This was on lower volume. The company moved 1,446,000 cartons of U.S. packed fresh lemons. This was down from 1,547,000 million cartons last year. However, pricing was better. This quarter, those cartons fetched $17.85 each versus $17.23 a year ago. But this pricing is down about 15% from the linked quarter. So-called brokered lemons and other lemon sales were $3.8 million, up from $2.5 million a year ago. This quarter, there was $2.3 million of avocado revenue, down from $3.6 million a year ago. However, a year ago saw a $2.4 million legal settlement bonus, so backing this out, revenue organically was nearly a double from $1.2 million last year. And keep in mind that major investments are being made for future avocado revenues. The company sold 1,595,000 pounds of avocados at a $1.47 average price per pound, compared to 941,000 pounds sold at a $1.30 average price per pound last year. Oranges, another citrus the company moves, generated $1.2 million in revenue. Volumes were down to 66,000 cartons, falling from 88,000 a year ago, but pricing per carton improved to $17.58 from $15.72. Specialty citrus and other crop sales tend to do well, but there was slight weakness here as those revenues were just $0.8 million, while farm management revenue was $2.0 million. Now, despite revenue pressure, we saw total costs and expenses come down to $49.3 million versus $51.9 million last year. What gave us some pause is that the operating loss widened from a year ago to $4.7 million from a loss of $3.9 million a year ago. However, adjusted EBITDA improved to $16.6 million versus $6.2 million a year ago, while net income on an adjusted basis improved to $8.1 million from $3.9 million a year ago. This was sizably higher than we expected, as we were looking for more around $4.7 million here or so, or around $0.24-$0.25 in EPS. Adjusted EPS was actually $0.44, more than doubling from a year ago, and surpassing estimates by $0.25 As we look ahead, the revenue picture was a surprise, but the earnings power was strong. The company also updated guidance. First, the company is still guiding for fresh lemon volumes of 5.25 million cartons at the midpoint for 2024, but significantly upped its avocado volume expectations. Management had previously guided avocado volume of 7.5 million pounds at the midpoint. Now it sees 9.5 million pounds at the midpoint. Surprisingly, this massive increase in avocado poundage was not a catalyst to really get the stock going again. Further, the real estate proceeds outlook was increased big time. Previously, the company expected a 14% increase in proceeds to $131 million over the next 7 years, but now sees a 46% increase to $180 million due to both additional lots and the appreciation in value of the properties. But at 80X FWD earnings, Limoneira Company stock is expensive, with revenues only growing in single or low-double digits. However, long-term, we still like holding a house position. The real estate business could be a future Limoneira Company spinoff. Further, in terms of volumes and revenue potential from the agribusiness, there are 700 Lemon and Avocado acres that will become fruit-bearing in the next 4–5 years.
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