Company's Q3 2025: Contradictions Emerge on Lemon Pricing, Avocado Volumes, and Water Monetization

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $47.5M, down 25% YOY (vs $63.3M in Q3 FY2024)
• EPS: -$0.06 per diluted share, compared to +$0.35 in the prior-year quarter
• Operating Margin: -1.3%, compared to 14.2% in the prior-year quarter

Guidance:

• FY2025 fresh lemon volume: 4.5–5.0M cartons.
• FY2025 avocado volume: ~7M lbs (lower vs FY2024 due to alternate bearing).
• FY2026 lemons expected to return to profitability with normalized pricing and fresh utilization; volume plan 4.0–4.5M cartons.
• Sunkist partnership to deliver ~$5M annual cost savings/EBITDA uplift beginning FY2026.
• Expect better lemon pricing in 2026 amid international shortages (e.g., Turkey/Spain).
• 700 acres non-bearing avocados to reach full bearing over 2–4 years; first major volume step-up expected in 2027; continued plantings.
• Real estate distributions expected to total ~$155M over next five fiscal years; potential additional asset divestments in FY2026.
• Exploring Linco del Mar residential development; entitlement process underway.

Business Commentary:

* Agricultural Production and Pricing Challenges: - Limoneira Company faced continued pricing pressure in the lemon market during the first two months of Q3, although they saw improvement in July. - The company held lemons longer in storage to capture higher prices, leading to lower fresh utilization. - The citrus sales and marketing partnership with Sunkist is expected to enhance resilience to market volatility and create operational efficiencies starting in fiscal year 2026.

• Avocado Volume and Production Expansion:
• Avocado revenue was $8.5 million in Q3, lower than the previous year due to the alternate bearing nature of avocado trees.
• Despite this, avocado pricing and volume were on plan for fiscal year 2025.

• Limoneira expects significant avocado production increases as newly planted acreage matures, with an estimated 700 acres of non-bearing avocados becoming full bearing in the next two to four years.

• Real Estate Development and Value Creation:

• The company's real estate development projects are ahead of schedule, with future distributions estimated at $155 million over the next five fiscal years.
• Limoneira is exploring development options for the Linco del Mar property, aiming to address Ventura County's critical housing shortage.

• The proposed residential development is expected to stimulate economic growth, create jobs, and contribute to vibrant, livable communities.

• Water Monetization and Financial Performance:

• In January 2025, Limoneira sold water pumping rights in the Santa Paula Basin for $30,000 per acre foot, generating $1.7 million in proceeds.
• Total net revenue for Q3 was $47.5 million, compared to $63.3 million in the previous year.
• The operating loss for Q3 was $600,000, compared to operating income of $9 million in the previous year, primarily due to lemon market conditions.

Sentiment Analysis:

• Results softened: revenue fell to $47.5M from $63.3M and the quarter posted an operating loss and -$0.06 EPS (vs +$0.35 prior year). Management cites pricing pressure and lower fresh utilization. Outlook is constructive: lemons expected to return to profitability in FY2026 with normalized pricing; Sunkist partnership targets ~$5M annual EBITDA/cost savings; avocado acreage maturing drives 2027 volume growth; and ~$155M real estate distributions anticipated over five years.

Q&A:

• Question from Benjamin David Klieve (Lake Street Capital Markets): What costs and timeline should we expect for the Linco del Mar entitlement process, and how might Limoneira partner for development?
  Response: Entitlement is expected to take 3–5 years with $3–$5M of costs, largely capitalized; development partnering remains flexible.

• Question from Benjamin David Klieve (Lake Street Capital Markets): How do you define normalized lemon pricing for next year, and what supply factors support it?
  Response: Management expects low-$20s/carton pricing supported by global shortages (notably Turkey and Spain) and more contracted business via Sunkist.

• Question from Benjamin David Klieve (Lake Street Capital Markets): Any preliminary view on avocado volumes for 2026?
  Response: Too early, but likely similar to or below 2025; major volume increase anticipated in 2027 as new acreage matures.