Limoneira Company — Q1 Fiscal 2012 Form 10-Q Summary
Business context and reporting period
Limoneira is an agribusiness and real estate development company focused on lemons, avocados, oranges, specialty crops, citrus packing, rentals and California real estate projects. The filing covers the unaudited three months ended January 31, 2012, compared with the three months ended January 31, 2011. Agribusiness is seasonal, with the first quarter typically producing the least annual revenue.
Financial performance and position
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Total revenue | $10.237 million | $5.901 million | +73% |
| Agribusiness revenue | $9.202 million | $4.875 million | +89% |
| Operating loss | $4.740 million | $5.537 million | Improved $0.797 million |
| Net loss | $2.809 million | $3.327 million | Improved $0.518 million |
| Net loss applicable to common stock | $2.875 million | $3.393 million | Improved $0.518 million |
| Basic and diluted loss per share | $0.26 loss | $0.30 loss | Improved $0.04 |
| EBITDA | $3.853 million loss | $4.594 million loss | Improved $0.741 million |
| Operating margin | (46.3%) | (93.8%) | Improved |
| Net margin | (27.4%) | (56.4%) | Improved |
Lemon revenue increased to $7.767 million from $3.091 million, driven by fresh lemon volume of 415,000 cartons versus 175,000 and a higher average price of $17.35 versus $16.00 per carton. Avocado revenue increased to $124,000 from $6,000. Orange revenue declined 47% to $500,000 because of lower volume and pricing.
Total costs and expenses rose 31% to $14.977 million. Agribusiness costs increased 49% to $11.390 million, including higher packing and third-party grower costs and $0.2 million of non-cash orchard-removal expense. Selling, general and administrative expense declined 7% to $2.771 million.
Rental operations generated $991,000 of revenue and $423,000 of operating income. Real estate development generated $44,000 of revenue and a $204,000 operating loss. The filing does not present a consolidated gross margin.
Net cash used in operating activities was $4.984 million, compared with $5.753 million used in the prior-year quarter. Investing cash use was $1.734 million, including $1.667 million of capital expenditures. Financing activities provided $6.725 million, consisting primarily of $10.070 million of borrowings less $2.929 million of debt repayments and $416,000 of common and preferred dividends. Ending cash was only $28,000.
At January 31, 2012, total assets were $168.303 million, current assets were $11.106 million and current liabilities were $9.024 million. Total debt was approximately $90.012 million, including $61.117 million outstanding under the Rabobank revolving facility and $28.895 million under Farm Credit West facilities. Stockholders’ equity was $49.948 million.
Material changes versus the prior comparable period
- Revenue growth was concentrated in lemons, reflecting substantially higher fresh lemon volume and pricing.
- Agribusiness operating loss narrowed to $2.188 million from $2.763 million despite materially higher costs.
- Corporate and other operating costs declined to $2.771 million from $2.950 million, largely because of lower SEC compliance and related expenses.
- Interest expense declined to $175,000 from $354,000, while derivative-related interest income declined to $159,000 from $477,000.
- Unrealized after-tax gains on the Calavo Growers investment were $1.854 million and were recorded in other comprehensive income, not net income.
- Real estate development activities resumed on certain Templeton parcels in December 2011. Real estate development assets increased to $73.763 million from $72.623 million.
- In January 2012, the company entered into ten-year leases covering approximately 1,000 acres of California orchards, with base rent of approximately $500,000 annually plus potential profit-sharing rent.
- The Rabobank revolving facility was amended to increase the borrowing limit to the lesser of $100 million or 60% of pledged real estate value, extend maturity to June 2018 and modify the future interest-rate spread.
Outlook, risks, contingencies and unusual items
Management stated that operating cash flows and available borrowing capacity were expected to fund fiscal 2012 capital expenditures, debt service, working capital and contractual obligations. Management also noted the ability to control the timing of investing cash flows if liquidity demands require it. No quantitative earnings or revenue guidance was provided.
Key risks include weather and freezes, crop disease and pests, water supply and allocation, commodity prices, energy costs, labor disruptions, market and volume pressures, regulatory and trade changes, interest rates, financing availability and California real estate market conditions. The company relies on Calavo for all avocado sales and has exposure to third-party packinghouses and agricultural customers.
The company had $25.9 million of availability under the Rabobank facility at January 31, 2012. Debt includes variable-rate obligations and interest-rate swaps; the company reported derivative liabilities of $3.827 million. A forward swap fixes the rate on $40 million of borrowings at 4.30% beginning July 2013 through June 2018. The company was in compliance with its annual debt-service coverage covenant at October 31, 2011.
Contractual obligations totaled $102.114 million, excluding $25.0 million of estimated interest payments, and included $12.102 million of operating lease obligations. The company expected to contribute approximately $0.8 million to its frozen defined-benefit pension plan during fiscal 2012. Solar rebates that reduce agribusiness costs are scheduled to expire in fiscal 2013.
Real estate projects remain dependent on obtaining third-party capital, and management stated that market conditions make the timing and amount of future funding difficult to predict. The filing reports no material pending legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls as of January 31, 2012.
Most important facts for investors to verify
- Whether higher lemon volumes and pricing can continue and offset the company’s seasonal first-quarter operating losses.
- Available borrowing capacity, debt maturities in 2013, variable-rate exposure and compliance with all credit-facility covenants.
- Liquidity given $28,000 of period-end cash and $4.984 million of quarterly operating cash use.
- The sustainability of cash flows after the planned orchard leases, capital expenditures, debt service, dividends and pension contributions.
- Calavo concentration, including the company’s approximately 4.5% Calavo ownership and dependence on Calavo for avocado sales.
- Potential impairment charges or additional funding needs for the $73.763 million of real estate development assets.
- The expiration of solar rebates in fiscal 2013 and the effect on agribusiness costs.
- The distinction between reported earnings and non-cash items, including Calavo unrealized gains and derivative mark-to-market income.