Limoneira Company — Form 10-Q Summary
Business context and reporting period
Limoneira Company is a California agribusiness and real estate development company engaged in growing and marketing lemons, avocados, oranges and specialty crops, as well as rental operations and real estate development. The filing covers the unaudited three and six months ended April 30, 2012, compared with the same periods in 2011. Agricultural results are seasonal, with revenue generally increasing through the second and third fiscal quarters.
Key financial metrics
| Metric | Three months ended April 30, 2012 | Three months ended April 30, 2011 | Six months ended April 30, 2012 | Six months ended April 30, 2011 |
|---|---|---|---|---|
| Total revenue | $16.1 million | $12.5 million | $26.3 million | $18.4 million |
| Operating income (loss) | $1.1 million | $(1.5) million | $(3.6) million | $(7.1) million |
| Net income (loss) | $0.7 million | $(0.3) million | $(2.1) million | $(3.6) million |
| Net income (loss) per common share | $0.06 | $(0.03) | $(0.20) | $(0.33) |
| Net cash used in operating activities | Not separately presented | $(3.0) million | $(4.8) million |
- Agribusiness revenue increased 31% in the quarter and 48% year to date, primarily from higher lemon volume and pricing. Lemon revenue increased 41% in the quarter and 69% year to date.
- Quarterly operating margin improved to approximately 7.0% from negative 12.3%; six-month operating margin improved to approximately negative 13.7% from negative 38.5%.
- Quarterly net margin was approximately 4.6%, compared with negative 2.6% in the prior year; six-month net margin was approximately negative 7.9%, compared with negative 19.5%.
- Adjusted EBITDA was $1.5 million for the quarter versus $1.5 million in the prior year, and negative $2.4 million for the six months versus negative $3.2 million.
- Cash was $16,000 at April 30, 2012, compared with $21,000 at October 31, 2011. Total current assets were $12.6 million and current liabilities were $11.4 million.
- Total debt was $90.7 million, including $62.0 million outstanding under the Rabobank revolving facility and approximately $28.7 million under Farm Credit West facilities. Rabobank availability was approximately $25.0 million.
- Total assets were $172.7 million and stockholders’ equity was $51.2 million at April 30, 2012.
- Capital expenditures were $3.8 million for the six months, including $2.1 million for property, plant and equipment and $1.7 million for real estate development.
Material changes versus the prior comparable period
- Revenue growth was driven by fresh lemon sales of $11.1 million in the quarter on 688,000 cartons at an average price of $16.13 per carton, versus $7.9 million on 586,000 cartons at $13.48 per carton in 2011.
- Avocado revenue increased despite lower average pricing, reflecting higher volume. Orange and specialty-crop revenue declined.
- Agribusiness costs increased 20% in the quarter and 33% year to date. Third-party grower costs increased 63% in the quarter and 107% year to date, primarily because of higher lemon volumes and a larger proportion of third-party fruit.
- Real estate impairment charges were zero in 2012 versus $1.2 million in the comparable 2011 periods, supporting the improvement in operating results.
- The prior-year periods included a $1.4 million gain on the sale of Rancho Refugio/Caldwell Ranch; no comparable gain occurred in 2012.
- Operating cash use improved year to date, but higher accounts receivable consumed $4.7 million of cash as a result of increased agricultural sales.
- Debt increased from $82.9 million at October 31, 2011 to $90.7 million at April 30, 2012, principally reflecting net borrowings used to fund operations and investment.
Guidance, outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided. Management stated that operating cash flows and available borrowing capacity were expected to be sufficient for capital expenditures, debt service, working capital and other obligations through the remainder of fiscal 2012.
- On May 1, 2012, the company replaced its $13.0 million Farm Credit West non-revolving line with a facility maturing in May 2018. The new agreement requires minimum principal payments of $175,000 per lot sold in the Windfall real estate project.
- The company entered into ten-year operating leases for approximately 1,000 acres of orchards in Lindsay, California, with aggregate base rent of approximately $500,000 per year, plus potential profit-sharing rent. The company will not share in related citrus revenue during fiscal 2012.
- Interest-rate exposure remains material. Approximately $39.8 million of debt was variable-rate at April 30, 2012, while swaps covered $42.0 million through June 2013 and $40.0 million beginning July 2013 through June 2018. Derivative liabilities totaled $3.5 million.
- Key risks include weather and freezes, water supply and allocations, pests and disease, crop pricing and market conditions, labor disruptions, energy costs, interest rates, financing availability and weakness in California real estate markets.
- Real estate development assets totaled $74.4 million. Management noted that market conditions remain challenging and that additional third-party capital may be needed to advance projects.
- The company’s investment in Calavo Growers was valued at $19.1 million and generated a $4.1 million pretax unrealized holding gain during the six months, recorded in other comprehensive income rather than earnings.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No material pending legal proceedings were reported.
Important facts for investors to verify
- Whether lemon pricing and volume strength can persist amid seasonal production, global supply and demand, and weather variability.
- The company’s ability to fund operations while holding only $16,000 of cash and relying on revolving debt availability.
- Compliance with debt covenants, including the Rabobank debt-service coverage covenant and Farm Credit West restrictions.
- The maturity, pricing and refinancing risk of variable-rate debt and the economic impact of the interest-rate swaps.
- Whether real estate development assets require future impairment charges or additional capital.
- Accounts receivable concentration, including dependence on major customers and packinghouses, and the company’s exclusive sale of avocado production to Calavo.
- The timing and cash requirements associated with orchard leases, agricultural property acquisitions, capital expenditures and pension contributions.