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Limoneira (NASDAQ:LMNR)
Q2 2018 Earnings Conference Call
Jun. 11, 2018 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Limoneira's second-quarter fiscal 2018 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Mills of ICR. Please go ahead.

John Mills -- ICR Investor Relations

Thank you. Good afternoon, everyone, and thank you for joining us for Limoneira's second-quarter fiscal year 2018 conference call. On the call, today are Harold Edwards, president and chief executive officer, and Mark Palamountain, chief financial officer. By now everyone should have access to the second-quarter fiscal year 2018 earnings release, which went out today at approximately 4 p.m. Eastern Time.

If you've not had a chance to review the release, it's available on the Investor Relations portion of the company's website at limoneira.com. This call is being webcast and a replay will be available on the Limoneira's website as well. Before we begin, we would like to remind everyone that prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control and could cause its future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks detailed in the company's 10-Qs and 10-Ks filed with the SEC and those mentioned in the earnings release.

Except as required by law, we undertake no obligation to update any forward-looking or other statements herein, whether a result of new information, future events, or otherwise. Please note that during today's call, we will be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira's ongoing results of operations, particularly when comparing underlying results from period to period. We've provided as much detail as possible on any items that are discussed on an adjusted basis. Also, within the company's earnings release and in today's prepared remarks, we include EBITDA which is a non-GAAP financial measure. A reconciliation of EBITDA to the most directly comparable GAAP financial measures is included in the company's 10-Q and press release which have been posted to our website today. And with that, it is my pleasure to turn the call over to the company's president and CEO, Mr.

Harold Edwards.

Harold S. Edwards -- President and Chief Executive Officer

Thanks, John, and good afternoon, everyone. Thank you for joining us. On today's call, I will begin with a brief overview of our financial results for the second quarter of 2018 and provide an update on our progress across our businesses. Mark will review the financial results in more detail.

Then I will discuss our outlook for the fiscal year 2018. After that, we will open the call and take your questions.I'm pleased to announce a solid second-quarter performance that built upon the momentum we saw in the first quarter and puts us on pace to achieve our fiscal 2018 earnings targets. In the second quarter, revenue increased 17% to $43.1 million, primarily due to stronger lemon sales, which were bolstered by improving pricing in the marketplace. We continue to experience the benefits of our more efficient operating infrastructure, which is improving margins while we continue to drive our top line.

Our operating income for the second quarter improved by 51% to $9.4 million and our EBITDA increased 43% to $11 million. Shifting to our business segments, we will start with agribusiness. Over the past few years, we have made significant investments that are driving our top and bottom-line growth. We've expanded our customer base to over 200 customers and increased distribution by leveraging our domestic and international marketing and sales channels. We're focused on our trade, marketing, and consumer-facing strategies as well as increasing our packing capacity.

In addition, we have eliminated seasonality for our customers by sourcing citrus from different global locations, giving us 365 days of fresh lemons. Collectively, this is the basis of our "One World of Citrus" initiative and the platform we are leveraging to become a global leader in not only lemons but overall citrus offerings. Our new packing house in Santa Paula has doubled our annual capacity and greatly increased the operating efficiency of our lemon packing operations. Since commissioning the new packing facility, we realized a material increase in our packing productivity. For example, in fiscal 2017, we packed 300,000 additional fresh lemon cartons than in fiscal 2016 for $400,000 less cost and 11% savings per carton. In the second quarter of fiscal 2018, we realized an additional 5% savings in our per carton packing cost versus the prior year, which demonstrates our ability to efficiently manage the planned growth in our fresh lemon volume as more of our acreage becomes productive as well as additional third-party grower lemons, which we are actively recruiting. The new packing facility has the capacity to double 2017's lemon volume.

And as we increase volume, the efficiencies will continue to improve. We currently have over 8,200 planted agricultural acres, of which approximately 1,600 acres are currently non-bearing lemons and are estimated to become full bearing over the next four years. Beyond these 1,600 acres, Limoneira currently intends to plant an additional 500 acres of lemons in the next two years that will further build our long-term pipeline of productive acreage. We anticipate this additional acreage will increase our annual lemon supply from our current level by approximately 30%, or about 900,000, to 1.3 million additional fresh cartons as the non-bearing and planned acreage becomes productive. In addition, we expect to have a steady increase in third-party grower fruit.

This is all organic growth and doesn't include potential acquisition opportunities in our highly fragmented industry. Globally, we are now growing our own fruit in the United States and Chile and manage the marketing and sales function for locally sourced citrus grown by business partners in South Africa, Chile, Argentina, and Mexico. As our lemon business grows, our customers recognize the quality and consistency they receive with Limoneira lemons, as well as high levels of service that are a fundamental part of our culture. These efforts combine to make us an important and consistent source of year-round fresh citrus supply to our growing roster of global customers. From an operational standpoint, we believe vertical integration of international production and marketing combine to maximize our revenue and margin opportunities while smoothing out the seasonality of our business over the long term. Turning now to our real estate development segment, the partnership between Limoneira and the Lewis Group of Companies for the development of harvest at Limoneira is progressing well.

With its highly desirable location in the Pacific Ocean, we believe we will receive approximately $100 million over the estimated seven- to 10-year life of the project, including $20 million we received from Lewis when the joint venture was formed. We expect the project to realize cash flow from lot sales beginning in the first quarter of the fiscal year 2019. Importantly, the joint venture is now self-sufficient from a capital perspective and Limoneira will no longer be directly supporting the project with our balance sheet and cash flows. In January of 2018, the joint venture entered into $45 million unsecured line of credit to fund early development activities. Then in February 2018, the obligations under the loan were guaranteed by certain principals from Lewis and Limoneira.

Today, Phase 1 site improvements are under way and we've successfully engaged with national and regional homebuilders in the lot bidding process to deliver on initial lot sales at the beginning of the fiscal year 2019. In summary, we are really pleased with our progress for the first half of the fiscal year 2018. We have made many strategic investments in all aspects of our business during the past few years that are helping us drive margins and profitability. These investments have also put us in a position to continue building out our global supply of fresh citrus, both organically and through acquisitions. We operate in a high and very fragmented industry.

And based on our strong platform, global presence, and leading brands, we are well-positioned to capitalize on the long-term consolidation trend that is incurring in many of our markets. And with that, I'll now turn the call over to Mark.

Mark Palamountain -- Chief Financial Officer

Thank you, Harold. Good afternoon, everybody. I will discuss some of the details of our financial results for the second quarter ended April 30, 2018. For the second quarter of the fiscal year 2018, total net revenue increased 17% to $43.1 million, compared to total net revenue of $36.9 million in the second quarter of the previous fiscal year. Agribusiness revenue was $41.9 million, compared to $35.4 million in the second quarter last year, primarily due to stronger lemon sales.

Agribusiness revenue for the second quarter of the fiscal year 2018 includes $33.6 million in lemon sales, compared to $26.2 million of lemon sales during the same period of the fiscal year 2017, with the increase primarily the result of higher volume of fresh lemons and higher prices compared to the same period in fiscal year 2017. Approximately 1,157,000 cartons of fresh lemons were sold during the second quarter of the fiscal year 2018 at an average of $23.42 per carton, compared to approximately 958,000 cartons sold at $21.50 average price per carton during the second quarter of the fiscal year 2017. As anticipated, due to the seasonality of this year's avocado crop, avocado revenue was negligible for the second quarter of the fiscal year 2018 at $900,000, compared to $2 million in the same period last year, primarily the result of lower prices and volume compared to the same period in the fiscal year 2017. We expect the majority of our avocado revenue will be recognized during our fiscal third quarter. The company recognized $5.2 million of orange revenue in the second quarter of the fiscal year 2018, compared to $4.9 million in the same period of the fiscal year 2017, primarily attributable to higher prices of oranges sold, partially offset by lower volume compared to the same period in the fiscal year 2017. Specialty citrus and other crop revenues were $2.1 million in the second quarter of the fiscal year 2018, compared to $2.3 million in the second quarter of the fiscal year 2017.

Total costs and expenses for the second quarter of the fiscal year 2018 were up modestly on an absolute-dollar basis to $33.8 million, compared to $30.7 million in the second quarter of the last fiscal year. However, as a percentage of sales, we experienced excellent expense leverage during the quarter by more than 480 basis points. These expenses are largely related to our agribusiness, which includes packing costs, harvest costs, growing costs, and costs related to the fruit we pick, share, and sell for third-party growers and depreciation expense. Given the efficiencies we are creating with our packing operations, we are driving greater expense leverage which we expect to continue as our revenue base grows. Operational income for the second quarter of the fiscal year 2018 increased 51% to $9.4 million, compared to income of $6.2 million in the second quarter of the previous fiscal year.

Net income applicable to common stock after preferred dividends for the second quarter of the fiscal year 2018 was $6.5 million and compares to $3.4 million in the second quarter of the fiscal year 2017.Net income per diluted share for the second quarter of the fiscal year 2018 was $0.44, compared to net income per diluted share of $0.24 for the same period of the fiscal year 2017 based on approximately 15 million and 14.7 million, respectively, weighted average diluted common shares outstanding versus the prior year. EBITDA increased 43% to $11 million in the second quarter of the fiscal year 2018, compared to $7.7 million in the same period of the fiscal year 2017. Lastly, a few comments on our balance sheet and financing vehicles. Long-term debt as of April 30, 2018, was $107.7 million, compared to $102.1 million at the end of fiscal 2017. As Harold mentioned in his remarks regarding our joint venture with Lewis, Limoneira is now removed as a direct source of funding for harvest at Limoneira's development following the joint venture entering into $45 million unsecured line of credit in January, and guaranteed obligations made by the joint venture parties subsequently in February 2018.

The loan matures in January 2020 with an option to extend the maturity date until 2021, subject to certain conditions. The interest rate on the loan is LIBOR plus 2.85%, payable monthly. The loan contains certain customary default provisions and the joint venture may prepay any amounts outstanding under the loan without penalty. The joint venture recorded an $8.7 million outstanding loan balance at April 30, 2018, related to this loan. As we consider our capital needs at Limoneira, we recently made the decision in May 2018 to lock the rate on the non-revolving credit supplement at 4.77%, effective July 1, 2018.

You may recall that earlier this year in January we amended the revolving credit supplement to increase the borrowing capacity from $60 million to $75 million. The supplement provides aggregate borrowing capacity of $115 million, comprised of $75 million under the revolving credit supplement and $40 million under the new non-revolving credit supplement. This gives us good debt financing flexibility at a very attractive fixed rate, which we believe is advantageous given expectations for further rate increases. Now, I would like to turn the call back to Harold and to discuss our fiscal year 2018 outlook.

Harold S. Edwards -- President and Chief Executive Officer

Thanks, Mark. We expect our agribusiness to continue to benefit from the more efficient infrastructure we have in place as we are able to build revenues through expansion of our in-house citrus orchards as well as growth in third-party volumes that we pack and market and potential acquisitions. We feel great about the long-term growth trajectory we are on and look forward to continuing to deliver value for our shareholders. With that, let's discuss our fiscal 2018 outlook. We are reiterating our fiscal year 2018 guidance.

The underlying fundamental business drivers for our core agribusiness remain unchanged and are summarized as follows. We continue to expect to sell between 3.1 million cartons and 3.3 million cartons of fresh lemons at an average price of approximately $24.50 per carton. We continue to expect to sell approximately 6 million pounds to 6.5 million pounds of avocados at approximately $1.30 per pound. The timing of this year's lemon harvest will be heavier in our fiscal third quarter and light in our fourth quarter than compared last year. Therefore, we expect to realize a relatively higher volume of lemons and consequently higher agribusiness revenue and earnings contribution in the third quarter than compared to last year. We continue to believe operating income for the fiscal year 2018 will increase to our guided range of $15.7 million to $17.8 million.

We are maintaining our fiscal 2018 adjusted earnings per diluted share forecast of $0.65 to $0.75 per share, which includes earnings per share benefit of $0.10 per share from the full fiscal year of 2018 related to the company's lower effective tax rate from 38.4% to 27.1%. Importantly, this guidance excludes the one-time non-cash deferred-tax benefit of $0.67 per diluted share that the company recognized in the first fiscal quarter of 2018. We're also maintaining our fiscal 2018 EBITDA forecast in the range of $23 million to $25 million, which compares to 2017 adjusted EBITDA of $19 million. Note that our estimates do not include potential equity income from harvest at Limoneira project. We are currently engaged with potential homebuilders in a lot bidding process, which puts the project on track to close initial lot sales in the first quarter of the fiscal year 2019. And with that, I'd like to open the call up to your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator instructions]. And we will go first with Gerry Sweeney with Roth Capital.

Gerry Sweeney -- Roth Capital -- Analyst

Hey, good afternoon, Harold and Mark. How are you doing? Congratulations on a nice quarter. Just a couple of questions around the cadence of those 3.1 million to 3.3 million cartons of lemons. How much of those lemons are Limoneira's own lemons and how much do you think are third-party? I think previously you mentioned 60-40, 60 Limoneira.

Just wanted to make sure that was still the case.

Mark Palamountain -- Chief Financial Officer

Gerry, it's Mark. Right now we're sitting at about 54% Limoneira and the balance being outside growers. It's just due to a bit more recruiting efforts that we've seen.

Gerry Sweeney -- Roth Capital -- Analyst

And then on that recruiting efforts, this is where I think in the past you've discussed a little bit and I want to make sure I'm clear. You're looking at adding about 500,000 cartons per year. And how many cartons do you think you're adding this year over last year and is 500,000 still the target for 2019?

Mark Palamountain -- Chief Financial Officer

Yeah, two question there. We expect this year to be about 350,000 incremental new cartons. That will be fiscal year '18. And then '19, our goal is 500,000 cartons and we're well on our way to that.

Gerry Sweeney -- Roth Capital -- Analyst

OK, perfect. Thank you. And then just on agri cost, they're up a little bit. Obviously, third-party packing carries [Inaudible] costs because you've got to acquire a lot those lemons that may have been the differential a little bit in my model but any other costs that were outside of expectations or anything unusual or just in line as expected?

Harold S. Edwards -- President and Chief Executive Officer

No, it's in line, Gerry. And your first comment is exactly what it is. It's a higher percentage than the earlier forecast of outside growers versus our own fruit coupled though with higher volumes. So on a per-carton basis, lower overall cost per carton but the higher costs were predominantly attributable to the outside grower cost.

Gerry Sweeney -- Roth Capital -- Analyst

Perfect. And I'm not concerned about it. Obviously, there is going to be some puts and takes on both sides but I just want to make sure my model was correct. And finally, obviously, you mentioned acquisitions, highly fragmented market, different phrases like that at a couple of times in the prepared remarks.

As you're looking out at the industry, could you frame out anything that you will be looking at from a strategic perspective? Maybe a little bit of detail on that.

Harold S. Edwards -- President and Chief Executive Officer

Yes. So currently we're turning rocks over in all parts of the growing regions in the world but really looking at the opportunities as they relate from two perspectives. One is to round out or complete our year-round supply chains for the various markets that we're serving but the second component is trying to and working on maintaining the discipline over return on invested capital approach to any of the acquisitions that we would make. So there's a number of different ways that we're viewing to do that but we're looking at opportunities as it relates to that not only in other productive acreages here in California and Arizona but also potential packing opportunities as well as production opportunities in Mexico, in Chile, in Argentina and in South Africa, all the while looking at those foreign opportunities also through a lens of political risk mitigation and making sure we have the right partnerships and structures in place.

So, all those things combined have given us a lot of great opportunities to look at and we're optimistic that in the not so distant future we'll be announcing some acquisitions.

Gerry Sweeney -- Roth Capital -- Analyst

Got it. All right, thanks. That's enough for me. I'll jump back in the queue.

I really appreciate it. Thank you.

Operator

We'll go next to Eric Larson with Buckingham Research Group.

Eric Larson -- Buckingham Research Group -- Analyst

Hey, good afternoon, everyone. Thanks for taking my question. The first question I have is on the new loan that you have for the harvest at Limoneira. What did it cost Limoneira to get out of future cash obligations until you generate cash, let's say, probably what the first quarter '19? Am I looking at this properly?

Harold S. Edwards -- President and Chief Executive Officer

Yes. So, Eric, first of all, good to hear your voice. So we were really excited about the loan from a number of different perspectives but not least of which was typically when a construction loan is put in place, it's because a real estate development project is far enough along down the path toward development that a lender feels comfortable securing a loan by a first deed of trust that then creates different obligations to what can and can't be done as that revolving credit is put in place.And so we were extremely pleased to put this line of credit in place in partnership joint and several with the Lewis Group of Companies because in essence the $45 million line of credit was secured by [Inaudible] letters from the two entities, which prevents us from having to actually backstop a loan from collateral perspective with the first deed of trust, which creates a lot more flexibility and optionality for the partnership to use that cash and not only the cash from the proceeds of the lot sales but also the cash from the down payments from the homebuilders as we go forward. And that creates great advantages for us in terms of retaining working capital for the partnership.As a result, as we pro forma the project going way back before this note was put into place, we'd anticipated going pari passu 50-50 on the deal with capital calls and capital contributions considerably farther into the future as the project gained its footing.

So, we were very, very pleased to put this line of credit in place, which now negates Limoneira's requirement to additionally fund the project at this point and according to our pro formas for the remainder of the project, which is a great news for Limoneira from a cash-flow perspective.

Eric Larson -- Buckingham Research Group -- Analyst

Yes, that makes sense. Thanks for the detailed explanation. The next question I have quickly is on avocados. You're still looking for, I guess, and maybe this is the timing and the cadence of how you successfully did it last year, you were able to defer volume into your third quarter to get better pricing, I guess I am curious, I think the pricing right now is probably below that $1.30 per carton.

Can you tell us why your full-year guidance is still like $1.30 per pound?

Harold S. Edwards -- President and Chief Executive Officer

Yes. So, basically, there are two choices out there. We believe that 6 million to 6.5 million pounds are there. We've been seeing some better size picking out there, which has given our size profile the top end of the range compared to where we were.

And as with all estimating, especially in avocados and looking up in the tree, the delta swings plus or minus 10% usually in how we look at that. And so the higher quality curve, the bigger sizing and potential for more pounds gave us [Inaudible] where we were.

Mark Palamountain -- Chief Financial Officer

Yes. And your question is very insightful, Eric. So what I would say that we think we see as we look up is we think we see more pounds. What is really going to outcome down to is really the size curve that we're actually able to get off the tree.

And if you're following the market, which you probably are right now, right now 48s are delivering about $1.40 a pound whereas 60s are generating in the $1.10 range. So if we're able to migrate closer toward that peaking at size 48, we'll have a much better shot of hitting our price as well as our volume targets. And that's why we haven't really changed the original guidance because at this point it's a little too early. In the second quarter we did some clean picks to try to get the weaker fruit and the smaller fruit and the fruit that was probably going to fall off the tree anyways off the tree and into the market but now we're selectively size picking. And as we commented in our earlier remarks, it looks like the majority of our harvest will take place now in the third quarter.

And our fingers are crossed that we're going to migrate toward the higher size of that size curve, closer toward size 48s and 40s.

Eric Larson -- Buckingham Research Group -- Analyst

Got it. That makes perfect sense. And then the final question and then I'll turn it over to someone else. The first quarter your lemon volumes were a little light because, I think, Arizona was the high end and you thought that would push a little bit more volume into Q2.

Did that in fact happen? And do you know what that volume number was deferred from the first quarter into Q2?

Harold S. Edwards -- President and Chief Executive Officer

I don't have it specifically but the way you explained is exactly what happened. We were lighter coming out of Q3, remember, in the fourth quarter, and then that actually hit in the first quarter. And then we've been pretty much front-end-loaded in the second quarter, so more volume in the second quarter than we anticipated at better pricing than we also anticipated. So as we now look toward the third and fourth quarter, I think we're going to see at or, as talked about before, higher volume still in the third quarter but probably lower volumes in the fourth quarter. And the fourth quarter is what gets really opaque because that's when we switch the growing region from here on the Coast, District 2, to the desert and we move to Yuma.

And it's still a little too early to know what things are going to be like in Yuma. We think there's a bigger crop hanging in the trees there at this point but a lot of that harvest is determined by the weather and the heat and it's just too early to really call it right now. So we're cautiously suggesting now higher volumes on fairly similar pricing in the third quarter followed up by probably lower volumes and lower pricing in the fourth quarter.

Eric Larson -- Buckingham Research Group -- Analyst

OK, perfect. Final question, you've probably gotten this question from everybody. Mexican tariffs, it did hit a bunch of fruit items, I think, apples and I guess I forget all the little segments. I think avocados were clearly exempt.

What about lemons? Is there any tariff issue with lemons? You don't pull lemons in from Mexico, I don't think, but I'm just curious if there is a business there.

Harold S. Edwards -- President and Chief Executive Officer

We've had virtually no impact from any of our citrus operations. The one tariff impact that's hitting us was China's tariffs and the additional tariffs that were put on oranges coming out of California to China. So that's the one area in the global trade arena that's hit us. And, of course, as you know from following Calavo, avocados out of Jalisco still aren't allowed into the United States, they haven't been certified.

Nor are they allowed into China. So that's slowing down the progress of sourcing fruits from that region but that's really impacting more of Calavo's business than it is of Limoneira's business today.

Eric Larson -- Buckingham Research Group -- Analyst

OK. And that's a result of the tariffs as well of that region coming out of Mexico? That's a tariff-related issue?

Harold S. Edwards -- President and Chief Executive Officer

It's complicated. It has to do with not necessarily direct relations as it relates to avocados and/or citrus but it's intertwined between these trading partners as they grapple with potato trade and the trade of grapes and apples.

Eric Larson -- Buckingham Research Group -- Analyst

Got it. I mean, there are so many moving parts in these tariffs. It's almost impossible to keep up what that at all. All right, thanks, guys.

I appreciate your comments.

Harold S. Edwards -- President and Chief Executive Officer

Yes, just final comment here. Thanks for the great question. From an outsider looking in, Limoneira's citrus business has virtually been unaffected by any of these tariff impositions.

Eric Larson -- Buckingham Research Group -- Analyst

Perfect. Thank you.

Operator

[Operator instructions]. We'll go next to Chris Krueger with Lake Street Capital Markets.

Chris Krueger -- Lake Street Capital Markets -- Analyst

Good afternoon, guys. Just a couple of questions here. In your presentation and in your press release you talk about planting an additional 500 acres of lemons. Is there any planting of oranges or any non-lemon stuff or acquisition potential or new plantings?

Harold S. Edwards -- President and Chief Executive Officer

The answer is yes but mostly just pulling out overtired grows and replacing them with newer varieties but also new plantings but in our San Joaquin acres we've seen what [Inaudible] and probably another 100 acres of navel oranges planted and some further expansion of certain specialties like blood oranges and cara caras.

Chris Krueger -- Lake Street Capital Markets -- Analyst

And then can you remind us how many acres of harvest at Limoneira project and was that all avocado?

Harold S. Edwards -- President and Chief Executive Officer

So, actual productive acreage, the harvest at Limoneira real-estate development project pulled out of production, I think, about 220 acres of approximately 50-50 between lemons and avocados. And the one thing that I would comment on is that in both lemons and avocados, they were older blocks that we're beginning to be on their downslope of productivity but the biggest impact of those orchards' removal has been felt in lemons. And I think, Mark, if I recall, it was about 100,000 cartons of impact of lemons.

Mark Palamountain -- Chief Financial Officer

It's included in our estimate.

Chris Krueger -- Lake Street Capital Markets -- Analyst

OK. Well, back in December there was the heavy flares in your area. Now you've had a couple of quarters to go through. Have you better analyzed the effect of that on you guys or it wasn't much of an impact?

Harold S. Edwards -- President and Chief Executive Officer

Fortunately, from an actual tree-loss or a fruit-loss perspective, it was negligible. Probably about 200 acres in total were impacted in some way. Most of that acreage was new acreage that wasn't necessarily bearing. And so as we've gone through and are finishing the spring flush which is really where the trees really kick in and have their growth spurts, we're keeping our eyes on what trees are actually going to make it and what aren't going to make it.

We have gone ahead and applied for insurance relief on some of that. And so it's a little too early to say whether we'll get some of that. I think we will get some of it. We're not sure the extent of it.

And then of course, as mentioned before, we lost the 14 workforce houses in our trailer park in Wheeler Canyon and we're now in the process of making plans or laying down plans to have those replaced.

Chris Krueger -- Lake Street Capital Markets -- Analyst

OK, last question on the harvest at Limoneira. I don't know if it's a new law or new regulation in California related to the requirement to put solar panels on new homes. Do you see any impact from that on your project?

Harold S. Edwards -- President and Chief Executive Officer

Still assessing the actual impact. It's interesting it was already legislated and mandated that any new construction in California, and I'm not sure how far back this legislation goes, but any new construction, residential housing in California had to be wired to accommodate solar. So the only part that's new here is now the actual solar panels need to be installed on the houses. Everything we've read and learned is that it's going to add another 7% to 10% of cost on to the houses.

However, what we don't know is how that will manifest itself from the standpoint, is that going to be direct margin reduction for the builders, will the builders pass this along to the homebuyers. And our guess is that this just is another thing that will make housing that much more expensive to end user buyers. We'll see. From our perspective of selling finished lots, we've been impacted at no level in terms of feeling the fundamental demand for these lots just because we continue to operate in a dramatically underserved market environment as it relates to new housing starts in Ventura County.

Chris Krueger -- Lake Street Capital Markets -- Analyst

All right, that's all I got. Thanks.

Operator

And we will take a follow-up question from Gerry Sweeney with Roth Capital.

Gerry Sweeney -- Roth Capital -- Analyst

Sorry, guys, just one more quick one. Avocados for this year, it was supposed to be a larger crop just based on the growing pattern but I think you lost some of the avocados in the [Inaudible] fire due to the winds associated with fire. Does this mean the avocado crop next year will be in around that 6 million to 6.5 million or does the tree replenish a little bit and we go back to a larger crop? Does that question make sense in terms of the variability from season to season? Do you understand what I am trying to ask?

Harold S. Edwards -- President and Chief Executive Officer

It really does and there is no rule of thumb but what we can tell you from what we're seeing right now, Gerry, is just because the timing of when we were guiding and when we were talking about what we thought we'd have for fiscal 2018 in our avocado production, what we never communicated was when the original set was out there and we were going into the season before the winds and the fires hit, we believe we had approximately 10 million pounds. And then after the winds, we believe 30% of that fruit blew off the trees. So that took us down to the 6 million to 6.5 million pounds of production that we've since guided toward. As we go around the blocks of avocados throughout our properties right now, and it's way too early to forecast this, but it's been really the perfect conditions in the spring in terms of setting up bloom and set for next year and right now there's a lot of small fruit hanging on the trees for next year. So it looks like, preliminarily, it's going to be big but it's just way too early to make any comments on it because of all the variables that will really play out between now and next December when that fruit is actually harvestable but, as we say, that's why we love our business.

Hope spring is eternal and we're off to a good start. If we were off to a bad start right now, we'd also know that too. So at least we've cleared the first hurdle, it looks like, where the bloom and the set for 2019 looks very promising.

Gerry Sweeney -- Roth Capital -- Analyst

OK, that's helpful. And it's a good way to just parse out my model for next year. So I appreciate it. Thank you.

Operator

And we have no more questions at this time. So I hand the call back over to Harold Edwards for any additional or closing remarks.

Harold S. Edwards -- President and Chief Executive Officer

Thank you for your questions and interest in Limoneira. We look forward to updating you again in September on our third-quarter call. Thank you again and have a great day.

Operator

[Operator signoff]

Duration: 43 minutes

Call Participants:

John Mills -- ICR Investor Relations

Harold S. Edwards -- President and Chief Executive Officer

Mark Palamountain -- Chief Financial Officer

Gerry Sweeney -- Roth Capital -- Analyst

Eric Larson -- Buckingham Research Group -- Analyst

Chris Krueger -- Lake Street Capital Markets -- Analyst

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