Limoneira Company 10-Q Summary
Business Context and Reporting Period
Limoneira Company is an agribusiness and real estate development company focused on lemons, avocados, oranges, specialty crops, rental operations and California real estate projects. The report covers the unaudited three months ended January 31, 2013, compared with the three months ended January 31, 2012. Results are seasonal and the first quarter is not necessarily indicative of full-year performance.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $17.4 million | $10.2 million | Up 70% |
| Agribusiness revenue | $16.3 million | $9.2 million | Up 77% |
| Operating loss | $(5.3) million | $(4.7) million | Loss increased $0.6 million |
| Net loss | $(3.1) million | $(2.8) million | Loss increased $0.3 million |
| Net loss attributable to common stock | $(3.2) million | $(2.9) million | Loss increased $0.3 million |
| Basic and diluted loss per share | $(0.28) | $(0.26) | Worsened $0.02 |
| EBITDA | $(4.4) million | $(3.9) million | Loss increased $0.5 million |
| Net cash used in operating activities | $(4.9) million | $(5.0) million | Improved $0.1 million |
| Net cash used in investing activities | $(2.0) million | $(1.7) million | Use increased $0.3 million |
| Net cash provided by financing activities | $6.9 million | $6.7 million | Up $0.2 million |
Calculated operating margin was approximately negative 30.7% in Q1 2013 versus negative 46.3% in Q1 2012. Net margin was approximately negative 18.0% versus negative 27.4%. Despite improved revenue absorption, agribusiness remained loss-making and corporate costs remained significant.
At January 31, 2013, cash was $24,000, total assets were $180.1 million and stockholders’ equity was $50.2 million. Current assets were $14.1 million versus current liabilities of $13.9 million. Total debt was approximately $97.0 million, including $68.8 million outstanding under the Rabobank revolving facility and approximately $28.2 million under Farm Credit West loans and its non-revolving line of credit. Rabobank availability was $18.2 million.
Capital expenditures were $1.9 million, including approximately $0.8 million for property, plant and equipment and $1.1 million for real estate development. The company paid $0.4 million of common dividends and $0.1 million of preferred dividends during the quarter.
Material Changes Versus the Prior Comparable Period
- Lemon revenue increased 80% to $14.0 million, primarily from higher volume, while average fresh lemon prices declined to $15.17 per carton from $17.35 because of increased Mexican supply.
- Fresh lemon volume rose to 837,000 cartons from 415,000. Third-party growers supplied 94% of cartons sold versus 86% in the prior-year quarter, increasing third-party grower costs by 91% to $9.0 million.
- Navel and Valencia orange revenue increased 188% to $1.4 million, reflecting higher volume and prices and production from the Sheldon Ranch.
- Avocado revenue declined 94% to $7,000 because of the timing of the harvest.
- Total costs and expenses increased 52% to $22.7 million. Agribusiness expenses rose 63% to $18.6 million, and selling, general and administrative expenses rose 18% to $3.3 million.
- Rental operations generated $1.0 million of revenue and $0.4 million of operating income, broadly consistent with the prior year. Real estate development generated minimal revenue and an operating loss of $0.2 million.
- Income tax benefit increased to $1.7 million from $1.6 million; the estimated effective tax rate was approximately 34.7% versus 36.2%.
- Accumulated other comprehensive loss improved to $(1.6) million from $(2.5) million, primarily reflecting other comprehensive gains, including unrealized gains on the Calavo investment and derivative-related items.
Guidance, Outlook, Risks and Unusual Items
Management stated that operating cash flows and available borrowing capacity were expected to be sufficient for capital expenditures, debt service, working capital and other contractual obligations for the remainder of fiscal 2013. Management also noted that investment spending could be adjusted based on liquidity needs.
In February 2013, the East Area 1 real estate project was annexed into the City of Santa Paula, enabling planned development of approximately 1,500 residential units, 210,000 square feet of commercial space and 350,000 square feet of light industrial space. The company expected to begin tract mapping and permitting and anticipated breaking ground in 2014. A related cost-sharing agreement requires reimbursement of 28.5% of specified Santa Paula Creek improvements, capped at $5.0 million, plus a $150,000 study advance.
In February 2013, the company issued 2.07 million common shares at $18.50 per share, generating approximately $36.0 million of net proceeds. It used the proceeds to repay approximately $36.0 million of long-term debt, including approximately $22.6 million under the Rabobank facility, $12.5 million under the Farm Credit West non-revolving line and $0.9 million under a Farm Credit West term loan.
Key risks include weather and freezes, crop disease and pests, water supply and allocation changes, labor disruptions, energy and input costs, commodity pricing and global supply conditions, interest-rate exposure, financing availability, California real estate conditions, regulatory and trade changes, and concentration among customers and suppliers. One domestic exporter represented 15% of first-quarter revenue; one third-party grower represented 47% of lemon supply. The company sells all avocado production to Calavo.
The company had a $42.0 million interest-rate swap maturing in June 2013 and a $40.0 million forward swap beginning in July 2013. The filing reports derivative liabilities of $3.2 million at January 31, 2013. Total contractual obligations were $107.2 million, excluding stated interest payments of $23.2 million.
The filing reports no material pending legal proceedings, no material change in previously disclosed risk factors, and no material off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of January 31, 2013.
Investor Verification Checklist
- Verify the post-quarter February 2013 equity offering, share dilution and the exact debt balances and interest savings after repayment.
- Assess whether lemon pricing pressure from Mexican supply and the increased reliance on third-party growers continue.
- Review seasonal crop volumes, harvest timing and the expected effect on second- and third-quarter cash generation.
- Monitor Rabobank and Farm Credit West covenants, borrowing capacity, variable interest rates and the June 2013 swap maturity.
- Evaluate the funding, permitting, cost-sharing obligations and execution timeline for East Area 1 and other real estate projects.
- Reconcile reported liquidity with the very low cash balance, operating cash outflows and approximately $97.0 million of debt at January 31, 2013.
- Review customer, supplier and Calavo concentration exposure, along with water availability and agricultural operating risks.