10-Q: Limoneira Reports Q2 Loss Amidst Revenue Decline and Reduced Real Estate Gains, Shifts Focus to Core Agribusiness and Strategic Asset Monetization

Limoneira Company reported a net loss of $3.4 million for the second quarter and $6.4 million for the first six months of fiscal year 2025, driven by decreased lemon sales and significantly lower equity earnings from real estate investments, despite improved operating cash flow.

Summary

• Total net revenues for the three months ended April 30, 2025, decreased by 21% to $35.1 million from $44.6 million in the prior year period.
• Total net revenues for the six months ended April 30, 2025, decreased by 18% to $69.4 million from $84.3 million in the prior year period.
• The company reported a net loss of $3.4 million, or $(0.20) per basic common share, for the second quarter of fiscal year 2025, a significant decline from net income of $6.6 million, or $0.36 per basic common share, in the same period last year.
• For the first six months of fiscal year 2025, the net loss was $6.4 million, or $(0.38) per basic common share, compared to net income of $2.9 million, or $0.15 per basic common share, in the prior year period.
• Adjusted EBITDA for the second quarter was a loss of $0.2 million, down from a gain of $16.6 million in the prior year, and for the six months, it was a loss of $2.5 million, down from a gain of $11.7 million.
• The decrease in net income and Adjusted EBITDA was primarily due to a $16.1 million decrease in equity in earnings of investments, net, mainly from Limoneira Lewis Community Builders, LLC (LLCB), which closed 554 residential homesites in the second quarter of fiscal year 2024.
• Agribusiness revenues decreased by 22% for the three months and 19% for the six months, primarily due to lower lemon volumes and prices, and a significant reduction in farm management revenue following the termination of the Farm Management Agreement (FMA).
• Avocado revenues increased by 18% for the three months and 25% for the six months, driven by higher prices despite decreased volume.
• Orange revenues increased by 36% for the three months and 37% for the six months, due to increased volume and higher prices.
• The company sold Santa Paula Basin water pumping rights for $1.7 million in January 2025, recording a gain of $1.5 million.
• Net cash used in operating activities improved significantly, decreasing to $4.0 million for the six months ended April 30, 2025, from $13.3 million in the prior year period.
• The Board of Directors approved a share repurchase program authorizing up to $30.0 million of outstanding common stock, though no shares were repurchased under this program as of April 30, 2025.
• The company received a $10.0 million cash distribution from its Harvest at Limoneira real estate joint venture in April 2025.
• Long-term debt, less current portion, increased to $54.9 million as of April 30, 2025, from $40.0 million as of October 31, 2024.

Sentiment

Score: 3

Explanation: The sentiment is negative due to significant declines in net revenue and a swing to net losses for both the quarter and year-to-date periods. Adjusted EBITDA also turned negative, reflecting reduced operational profitability. While there are strategic initiatives and improved operating cash flow, the overall financial performance is substantially worse than the prior year, primarily driven by lower lemon sales and reduced real estate joint venture contributions.

Positives

• Net cash used in operating activities significantly improved to $4.0 million for the six months ended April 30, 2025, compared to $13.3 million in the prior year, indicating better operational cash management.
• Avocado revenues increased by 18% for the three months and 25% for the six months, driven by higher prices, reflecting strong consumer demand trends for avocados.
• Orange revenues showed robust growth, increasing by 36% for the three months and 37% for the six months, due to increased volume and higher prices.
• The company successfully monetized non-core assets by selling Santa Paula Basin water pumping rights for $1.7 million, resulting in a $1.5 million gain.
• A $10.0 million cash distribution was received from the Harvest at Limoneira real estate joint venture, bolstering liquidity.
• The company's operating loss decreased for both the three-month and six-month periods, indicating some cost control or improved efficiency in core operations despite revenue declines.
• The Board approved a $30.0 million share repurchase program, signaling confidence in the company's value and a commitment to returning capital to shareholders.
• The company is entering a 50%/50% joint venture with Agromin Corporation to expand organic waste recycling, diversifying revenue streams and aligning with sustainability trends.
• A new Commercial Packinghouse License Agreement with Sunkist Growers, Inc. will commence in November 2025, potentially enhancing lemon packing operations and market reach.

Negatives

• Total net revenues decreased by 21% for the three months and 18% for the six months ended April 30, 2025, primarily due to lower lemon sales and reduced farm management revenue.
• The company swung to a net loss of $3.4 million for the second quarter and $6.4 million for the first six months of fiscal year 2025, compared to net income in the prior year periods.
• Adjusted EBITDA turned negative, reporting a loss of $0.2 million for the second quarter and $2.5 million for the six months, a substantial decline from positive Adjusted EBITDA in the prior year periods.
• Equity in earnings of investments, net, decreased by $16.1 million for the six months, primarily due to fewer residential homesite closings by the LLCB joint venture compared to the prior year.
• Fresh packed lemon sales decreased by $6.1 million for the three months and $8.9 million for the six months, due to decreased volume and lower average per carton prices.
• Farm management revenue significantly decreased by 83% for the three months and 63% for the six months, primarily due to the termination of the Farm Management Agreement (FMA).
• Third-party grower and supplier costs for lemons decreased, but the percentage of lemons procured from third-party growers increased to 92% (from 76%) for the three months and 88% (from 79%) for the six months, indicating a higher reliance on external supply.
• Long-term debt, less current portion, increased by approximately $14.9 million from October 31, 2024, to April 30, 2025, indicating increased leverage.

Risks

• Adverse weather conditions, natural disasters, and other natural conditions (e.g., freezes, rains, fires, winds, droughts) can significantly affect the production, transportation, storage, import, and export of fresh produce.
• Disruption of water supplies or changes in water allocations, including extreme drought conditions in Ventura County and a Tier 1 shortage in Lake Mead affecting Arizona's water allotment, pose ongoing challenges to farming operations.
• Increased pressure from crop disease, insects, and other pests can negatively impact crop yields and quality.
• Fluctuations in global supply and demand, particularly for lemons, can lead to significant price volatility and impact revenues.
• Changes in laws, regulations, rules, quotas, tariffs, and import laws could adversely affect the company's agribusiness operations and international markets.
• Disruptions in the global supply chain can impact product and raw materials supply and pricing, as well as energy supply and pricing.
• General economic conditions for residential and commercial real estate development, including government approvals, project revenue and cost estimates, and financing sources, can affect real estate development project timing and profitability.
• Labor disruptions, strikes, shortages, or work stoppages could impact farming and packing operations.
• The company's ability to pay debt obligations and maintain compliance with debt covenants under loan agreements is crucial for financial stability.
• Legal claims are inherently uncertain, and potential future litigation could adversely affect the company's business, financial condition, liquidity, or operating results.

Future Outlook

The company remains committed to executing its comprehensive strategic roadmap to create long-term stockholder value, including opportunistically evaluating potential strategic merger and acquisition opportunities and advancing initiatives to monetize non-core assets. It expects to enter into a joint venture with Agromin Corporation and begin construction on an expanded organic waste recycling facility in the second half of fiscal year 2025. A new Commercial Packinghouse License Agreement with Sunkist Growers, Inc. will become effective on November 1, 2025, for an initial term of three years. The projected annual effective blended tax rate for fiscal year 2025, excluding discrete items, is approximately 24.0%. The company believes its cash flows from operations, available borrowing capacity, and distributions from equity investments will be sufficient to meet its capital expenditures, debt service, and working capital needs for at least the next 12 months and beyond.

Management Comments

• "We are primarily an agribusiness company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 10,500 acres of land, water resources and other assets to maximize long-term stockholder value."
• "We are one of California's oldest citrus growers and according to the California Avocado Commission, we are one of the largest growers of avocados in the United States."
• "We believe we have a competitive advantage by maintaining our own lemon packing operations, even though a significant portion of the costs related to these operations are fixed."
• "Since fiscal year 2023, we expanded our avocado production by 500 acres, and we plan to expand an additional 500 acres through fiscal year 2027. This 1,000-acre expansion reflects our strategy to capitalize on robust consumer demand trends for avocados."
• "Our residential rental units generate cash flows that we use to partially fund the operating costs of our business and provide affordable housing to many of our employees, including our agribusiness employees. We believe that this unique employment benefit helps us maintain a dependable, long-term employee base."
• "Generally, we see our Company as a land and farming company that generates annual cash flows to support our progress into diversified real estate development activities."
• "We believe we have adequate supplies of water for our agribusiness segments as well as our rental and real estate development activities."
• "While this formal exploration process has concluded, we remain committed to executing our comprehensive strategic roadmap to create long-term stockholder value. As part of our normal course of business, we will continue to be opportunistic in evaluating potential strategic merger and acquisition opportunities, while also advancing our initiatives to monetize non-core assets."

Industry Context

Limoneira operates within the agricultural sector, specifically in citrus (lemons, oranges, specialty citrus) and avocados, and also has significant real estate development interests. The company's performance is influenced by global supply and demand dynamics for fresh produce, weather conditions, and water availability, as evidenced by the impact of drought conditions in California and Arizona. The expansion of avocado production aligns with robust consumer demand trends for avocados, suggesting a strategic move to capitalize on a growing market segment. The termination of the farm management agreement and the focus on monetizing non-core assets indicate a strategic shift towards optimizing core operations and capital allocation, potentially in response to market conditions or internal strategic reviews. The new organic waste recycling joint venture with Agromin Corporation positions the company to benefit from increasing environmental regulations and demand for sustainable practices in California.

Comparison to Industry Standards

• The document states Limoneira is 'one of California's oldest citrus growers' and 'one of the largest growers of avocados in the United States' according to the California Avocado Commission, implying a significant market position within these specific agricultural segments.
• The company's strategy to expand avocado production by an additional 500 acres through fiscal year 2027, following a 500-acre expansion since fiscal year 2023, reflects a proactive approach to capitalize on 'robust consumer demand trends for avocados,' suggesting an alignment with growth opportunities in the avocado market.
• The reliance on third-party growers for a significant portion of lemon supply (92% for Q2 FY2025, up from 76% in Q2 FY2024) indicates a flexible supply chain model, which can be an industry practice to manage seasonal variations and ensure consistent supply, but also exposes the company to third-party pricing and availability.
• The company's continued investment in real estate development projects, such as Harvest at Limoneira, and the formation of new joint ventures like the organic waste recycling facility, demonstrate a diversification strategy beyond traditional agriculture, which is common among large landholders seeking to maximize asset value.

Corporate Governance

Legal Proceedings

• The company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. As of April 30, 2025, the company is not aware of any pending or threatened litigation that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. However, legal claims are inherently uncertain, and adverse effects are possible in the future.

Related Party Transactions

• The company rents residential housing assets to employees on a month-to-month basis, recording rental income.
• Transactions with mutual water companies include capital contributions, water purchases, and water delivery services, with the company having representation on their boards.
• Purchased services and supplies from a non-profit cooperative association for pest control, where the company has board representation.
• Purchased water from Yuma Mesa Irrigation and Drainage District (YMIDD), where the company has board representation, and received fallowing revenue from YMIDD.
• Transactions with FGF Trapani (FGF), a 49% partner in Trapani Fresh joint venture, include receivables for lemon sales and packing supplies, payables for fruit purchases and services, revenue from licensing intangible assets, and rental revenue from leased land.
• Transactions with Limoneira Lewis Community Builders, LLC (LLCB), a joint venture for real estate development, include contributions to LLCB II, LLC, and cash distributions from LLCB.
• Paid dividends to a principal owner with over 10% ownership shares.
• Recognizes lemon and orange sales to Rosales (an equity interest investee) and procures lemons and oranges from Rosales.
• Provides farm management services to Del Mar (an equity interest investee) and markets lemons through the company, with a payable due to Del Mar for lemon procurement.
• Received legal services from a law firm where one of the company's directors is a partner, incurring amounts due for such services.

Stakeholder Impact

• **Shareholders:** Experienced a net loss and negative Adjusted EBITDA, impacting profitability. However, the Board approved a $30.0 million share repurchase program and declared a cash dividend of $0.075 per common share, indicating a commitment to shareholder returns and confidence in future value.
• **Employees:** Residential rental units provide affordable housing, which is seen as a unique employment benefit helping to maintain a dependable, long-term employee base. Stock-based compensation awards are granted to management, key executives, and non-employee directors.
• **Customers:** Lemon supply may be affected by decreased company-grown volume, with increased reliance on third-party growers. Avocado and orange customers benefit from increased volume and higher prices for avocados.
• **Suppliers:** The company incurred significant costs for third-party grower fruit, indicating continued business for external growers and suppliers.
• **Creditors:** Long-term debt increased, but the company states it was in compliance with debt covenants as of October 31, 2024, and believes it has sufficient liquidity to meet obligations.

Next Steps

• Begin construction on the 70-acre commercial-scale organic waste composting facility in the second half of fiscal year 2025, as part of the joint venture with Agromin Corporation.
• The Commercial Packinghouse License Agreement with Sunkist Growers, Inc. will become effective on November 1, 2025, for an initial term of three years.
• Continue to evaluate potential strategic merger and acquisition opportunities as part of normal course of business.
• Advance initiatives to monetize non-core assets.
• Expand avocado production by an additional 500 acres through fiscal year 2027.

Key Dates

Recommendation

Keywords

Agribusiness, Lemons, Avocados, Oranges, Citrus, Farming, Packing, Real Estate Development, Water Rights, SEC Filing, Quarterly Report, LMNR, Agriculture, Produce, Organic Recycling