Limoneira's Q4 2025 Earnings Call: Contradictions Emerge on Lemon Pricing, Sunkist Partnership Cost Savings, and Water Monetization Strategies

Date of Call: None provided

Financials Results

• Revenue: Q4: $42.8M, down vs $43.9M in Q4 prior year; FY: $159.7M, down vs $191.5M prior year
• EPS: Q4 net loss $0.49 per diluted share vs $0.11 in Q4 prior year; Q4 adjusted loss $0.45 vs $0.09 prior year; FY net loss $0.93 per diluted share vs FY2024 net income $0.40

Guidance:

• Fiscal 2026 fresh lemon volumes 4.0M–4.5M cartons.
• Fiscal 2026 avocado volumes 5M–6M pounds.
• ~$10M in expected cost savings in FY2026 (SG&A reductions and operational efficiencies).
• Expect FY2027 meaningful contribution from avocado ramp and Agroman JV ($4M–$5M EBITDA).
• $155M expected real estate distributions over next five fiscal years.

Business Commentary:

• Strategic Transformation and Cost Savings:
• Limoneira announced $10 million in anticipated cost savings for fiscal year 2026, stemming from operational restructuring and the transition to Sunkist.

• This strategic initiative is designed to reduce exposure to volatile lemon pricing, enhance cost structure efficiency, and enhance customer relationships.

• Avocado Expansion and Production Increases:

• The company has 1,500 acres of avocado trees, with 700 acres currently not bearing fruit.

• Expansion is expected to lead to a nearly 100% increase in avocado production capacity, with significant production contributions anticipated by fiscal year 2027.

• Real Estate Development and Asset Monetization:

• Limoneira aims to receive $155 million in distributions from its real estate development projects over the next five fiscal years.

• The monetization of water rights, including $1.7 million from the sale of Santa Paula Basin pumping water rights, is expected to contribute an additional $50 million to $70 million by fiscal year 2027.

• Financial Performance Challenges:

• For fiscal year 2025, Limoneira reported an operating loss of $20.4 million, compared to an operating loss of $6.2 million in the previous year.
• This decline is attributed to decreased agribusiness revenues, particularly from lemons and avocados, and increased costs associated with strategic transformation efforts.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized transformation and future savings: "we expect to generate $10 million in cost savings" and "Fiscal year 2026 will mark the beginning of this transformation's financial impact," highlighting Sunkist partnership, avocado expansion and asset monetization as drivers of improved results.

Q&A:

• Question from Pooran Sharma (Stephens): Please give more granularity on how you expect to get the $10 million in cost savings and how the partnership affects contracted vs open lemon volumes compared to before the partnership?
  Response: The $10M is roughly split: ~$5M from the sales/marketing transition to Sunkist and ~$5M from storage and operational efficiencies; returning to Sunkist reduces sales/marketing cost per carton (from ~$1.50 to ~$0.60) and improves access to major retail and foodservice contracts, providing stronger pricing protection.

• Question from Pooran Sharma (Stephens): Regarding water monetization this quarter — how do realized/expected valuations compare to prior expectations and what are the key puts and takes (local government pushback, etc.)?
  Response: Water monetization opportunities depend on local scarcity: monetizing conserved pumping rights in the Santa Paula Basin and Class III Colorado River rights in Yuma via programs that pay growers to reduce use; management is negotiating programs and expects material value (company cited $50M–$70M potential through FY2027) while considering community/social impacts.

• Question from Gerard Sweeney (ROTH Capital Partners): With the renegotiation of the Colorado River arrangements and expected cuts, can you confirm this is a strong positive for your water rights strategy and provide details?
  Response: Yes — Class III rights are senior and well-positioned; negotiations are progressing toward agreements (deadline 12/31/26) and market chatter suggests materially higher per-acre-foot values, with programs likely to pay growers to fallow.

• Question from Gerard Sweeney (ROTH Capital Partners): Is there any risk that cuts would reach Class III rights, or will cuts come from lower-priority classes?
  Response: Cuts are expected to start with the most junior classes and move upward; current discussions indicate reductions will be targeted below Class III (down to Class V), which leaves Class III in a favorable position to capture demand/value.

• Question from Gerard Sweeney (ROTH Capital Partners): For Limco Del Mar (infill land), do you plan to sell, self-develop, or partner again as with Harvest at Limoneira?
  Response: Primary focus now is obtaining entitlements through community engagement and environmental review; development approach undecided — could partner (as with Harvest) but value creation depends on winning the public vote and annexation steps.

• Question from Gerard Sweeney (ROTH Capital Partners): What is the cadence for the 700 nonbearing avocado acres coming into production and the expected operating income per acre?
  Response: Planting cadence: ~250–300 acres per year with multiple plantings; long-term expectations ~17,000 lb/acre average (with alternate-bearing cycles) and operating profit roughly $12,000–$14,000 per acre using ~$1.30+/lb long-term price assumptions.

• Question from Mark Smith (Lake Street Capital Markets): How much of the SG&A savings are from the Sunkist transition versus other projects and how much has already been realized?
  Response: Conservative full-year estimate is ~$10M: a material portion from the salesforce transition to Sunkist and the remainder from operational/storage efficiencies, brokerage sale and lease renegotiations (e.g., Oxnard lease saved ~$700k); realization began Nov 1 with further validation into FY26.

• Question from Mark Smith (Lake Street Capital Markets): Any insights on near-term lemon pricing or guidance through the fiscal year?
  Response: No formal price forecast; Sunkist partnership provides floor protection via contracts, current prices are just under $20/ctn, and structural factors (southern hemisphere disruptions) could support higher prices next summer if low-price troughs are avoided.

• Question from Mark Smith (Lake Street Capital Markets): Comfort around the balance sheet after covenant talks — any update on debt and covenant relief?
  Response: Renegotiated covenants provide runway: full access to $115M facility with $41.6M availability as of Oct 31, new balance-sheet-based capitalization covenant replaces a backward-looking leverage test, debt-service coverage test suspended until end of FY27; goal remains to pay down net debt toward ~$40M.

Contradiction Point 1

Lemon Pricing Expectations

It involves differing expectations regarding lemon pricing, which is critical for revenue forecasting and investor expectations.

What is your outlook for lemon pricing? - Mark Smith (Lake Street Capital Markets)

20251224-2025 Q4: With improved market balance and strong customer access, there's potential for a $2 increase in average price per carton compared to last year. However, pricing will depend on foreign supply and balance of imports. - Mark Palamountain(CFO)

How do you define normalized pricing in the lemon market today, and what supply constraints support pricing normalization? - Benjamin Klieve (Lake Street Capital Markets, LLC, Research Division)

2025Q3: Shortages in Spain and Turkey due to weather issues are expected to support pricing. The balance between supply and demand, driven by foodservice recovery, will likely result in stable prices starting with a '2' in the next fiscal year. - Mark Palamountain(CFO)

Contradiction Point 2

Cost Savings from Sunkist Partnership

It involves differing explanations of cost savings from the Sunkist partnership, which is crucial for operational efficiency and profitability.

Can you detail how the partnership will generate $10 million in cost savings? What percentage of lemon volumes are now contracted vs. open market, and how does this compare to pre-partnership levels? - Pooran Sharma (Stephens)

20251224-2025 Q4: $5 million in cost savings is from the transition of our sales and marketing team to Sunkist, expanding their program with all of our customers. The other $5 million comes from storage and operational efficiencies, including renegotiating storage contracts and using Sunkist's unused capacities, lowering transportation and leasing costs. - Mark Palamountain(CFO)

Was the issue not addressed directly? - Question not directly addressed in the provided transcript.

2025Q3: We were spending about $1.50 per carton for sales and marketing efforts, which significantly decreases to $0.60 per carton after re-joining Sunkist. - Harold Edwards(CEO)

Contradiction Point 3

Water Monetization Strategy

It involves the strategy and expected timeline for monetizing water rights, which impacts the financial outlook.

Can you clarify the strategic or non-core assets being sold, especially water assets, and how their valuation compares to expectations? Are there any obstacles to achieving a higher valuation? - Pooran Sharma (Stephens)

20251224-2025 Q4: Opportunities arise from conservative water rights in Santa Paula Basin and Class 3 Colorado River water rights. Monetization involves selling water rights to cities for urban development and to programs that pay for reduced water usage to divert water for urban use. Negotiations are underway for potentially high-value programs. - Harold Edwards(CEO)

Can you discuss the strategic or non-core assets you're selling, particularly water and its valuation? - Pooran Sharma (Stephens Inc., Research Division)

2025Q4: Proceeds from the monetization of the Class III and Class V water rights are expected to reach $50 million to $70 million by fiscal year 2027. - Harold Edwards(CEO)

Contradiction Point 4

Sunkist Partnership and Operational Costs

It involves differing explanations of the financial benefits and operational changes resulting from the Sunkist partnership, which could impact investor perceptions of the company's strategic direction and financial health.

How will you achieve the $10 million cost savings through the partnership? What percentage of lemon volumes are contracted versus open, and how does this compare to pre-partnership levels? - Pooran Sharma (Stephens)

20251224-2025 Q4: On the cost side, we achieved $5 million in cost savings last quarter, with the balance expected in Q1 of this year. As a reminder, $5 million in cost savings is from the transition of our sales and marketing team to Sunkist, expanding their program with all of our customers. The other $5 million comes from storage and operational efficiencies, including renegotiating storage contracts and using Sunkist's unused capacities, lowering transportation and leasing costs. - Mark Palamountain(CFO)

Can you explain the per-box economics of the Sunkist deal and its structure? - Benjamin Klieve (Lake Street Capital Markets)

2025Q2: There are three main benefits to the Sunkist partnership. Firstly, we will use Sunkist's wash and storage capacities, reducing our lease costs. Secondly, our sales and marketing staff will move to Sunkist, lowering our costs. Lastly, we can now offer a full category of citrus to retail customers. This, combined with operational efficiencies, supports a $5 million annual EBITDA increase from this year to next year. - Harold Edwards(CEO)

Contradiction Point 5

Water Rights Monetization Strategy

It highlights differing perspectives on the value and monetization strategy of water rights, which are crucial for the company's long-term financial health and sustainability.

What strategic or noncore assets, particularly water, are being sold? How does the current valuation compare to expectations, and what obstacles hinder achieving a higher valuation? - Pooran Sharma (Stephens)

20251224-2025 Q4: Water value depends on scarcity, with high demand in water-scarce areas like California. Opportunities arise from conservative water rights in Santa Paula Basin and Class 3 Colorado River water rights. Monetization involves selling water rights to cities for urban development and to programs that pay for reduced water usage to divert water for urban use. Negotiations are underway for potentially high-value programs. - Harold Edwards(CEO)

Is there any balance sheet impact from the Sunkist transaction? - Benjamin Klieve (Lake Street Capital Markets)

2025Q2: Regarding water, and we've mentioned this before, we own all of our water rights. We have extensive rights in the Santa Paula Basin, which is in the city of Santa Paula, which sits just outside of the Los Angeles basin. And we have Class Three river water rights. - Harold Edwards(CEO)