Limoneira (LMNR) Q1 2023 Earnings Call Transcript

Limoneira (LMNR 1.40%)
Q1 2023 Earnings Call
Mar 09, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Limoneira's first quarter fiscal year 2023 financial results conference call.[Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR. Thank you. You may begin.

John Mills -- Head of Investor Relations

Good afternoon, everyone, and thank you for joining us for Limoneira's first quarter fiscal year 2023 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 first quarter fiscal year 2023 earnings release, which went out today at approximately 4:00 PM Eastern Time. If you have not had a chance to view 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 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 risk 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 as 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 provide 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 adjusted EBITDA, adjusted net loss per diluted earnings per share, and diluted net loss per common share, which are non-GAAP financial measures. A reconciliation of adjusted EBITDA, adjusted net loss per diluted EPS, and diluted net loss per common share to the most directly comparable GAAP financial measures are included in the company's press release, which has been posted to its website. And with that, it is my pleasure to turn the call over to the company's president and CEO, Mr. Harold Edwards.

Harold Edwards -- President and Chief Executive Officer

Thanks, John, and good afternoon, everyone. I am pleased with our performance in the first quarter. Despite the heavy rains in California pushing the initial first quarter avocado harvest and a portion of the lemon harvest into the second quarter, we generated over $37 million of revenue in our seasonally softer quarter. We had minimal damage to our crops from the rain and fully expect to recoup the delayed revenue in the second and third quarters, keeping our full year 2023 volume guidance intact.

Additionally, we expect pricing for fresh lemon cartons to increase in the second half of the fiscal year. For new investors listening to our call today, I would like to quickly recap our strategic transition plan that is pivoting our business toward an asset-lighter model in order to streamline our operations and sell non-strategic assets, improve the consistency of our earnings, increase EBITDA and dividends per share, reduce debt, right-size the balance sheet and improve the return on invested capital. This plan involve the identification of approximately $150 million of assets for sale, which because of greater value realized in initial monetization efforts, we believe are now worth approximately $180 million and a transition to a more efficient operating plan. We've made significant progress advancing our strategy to monetize certain non-strategic assets with nearly all of those identified assets sold, expanding our One World of Citrus initiative with the recruitment of close to 1 million additional cartons from new grower partners and executing on Harvest at Limoneira, all of which are transforming our balance sheet and positioning us to improve our top and bottom line results.

Management will be meeting with our board of directors this month for our annual strategic planning session to implement a new strategic capital allocation plan, taking into account our very strong balance sheet. We have successfully closed on the sale of four of the six identified assets over the past six months for a total of $130 million in proceeds. We ended the first quarter with the announced closing of our Northern Properties sale for approximately $99 million in net cash proceeds. The Northern Properties sale is the most transformative as the proceeds were used to significantly reduce our net debt position by 72% from year-end 2022 to $28.9 million is expected to be accretive on a pro forma EBITDA and earnings basis will strengthen the balance sheet and enable us to pursue a range of strategic opportunities to maximize shareholder value.

When we were looking for a buyer of our Northern Properties, it was imperative that we find one that allowed us to keep our lemon supply chain intact. The property consists of 3,537 acres, made up of 2,700 planted acres, 231 acres of plantable ground, and 606 acres of open space. As we laid out in the announced sale press release, as part of this transaction, Limoneira and Prudential Agricultural Investments entered into a farm management services agreement to provide farming services related to the property for an initial term of one year and entered into a grower packing and marketing agreement to provide packing, marketing and selling services for lemons harvested on the property for a minimum five-year period. This piece of the transaction fits squarely with our strategic plan to expand our One World of Citrus in an asset-lighter way, as we focus on leveraging our leading global packing, marketing, and selling services using more grower partner fruit.

The economics of using grower partners is extremely attractive with Limoneira targeting $2.00 to $2.50 per carton of margin, with no additional capital outlay. It also reduces the impact of pricing volatility and rising farming costs on our business and will be additive to EBITDA and earnings per share on a pro forma basis. We have become very attractive to grow our partners and continue to develop best-in-class grower services to bolster our appeal through investments in our technology and supply chain. Our strategic approach to fresh utilization enables our sales and marketing team to successfully market fresh lemons throughout the year with one of the best fresh utilization rates in the market.

In fiscal year 2022, we sold over 78% of lemons fresh at competitive prices compared to our largest competitor who was at approximately 50%. This is obviously an important draw with grower partners. We are also working to better support our grower partners by reconfiguring our global lemon packing network. This includes reducing certain orange and lemon acreage globally, while still maintaining the packing and marketing of the lemons grown on these locations.

In the first quarter of fiscal year 2023, roughly 66% of our U.S. pack fresh lemon source volume came from grower partners and our goal is to have that number closer to 75%. The structure of our Northern Properties deal with Prudential Agricultural Investments is a great example of the direction we are headed, growing the service part of our business as we focus on packing, marketing, and selling. And in return, you will begin to see meaningful improvement to our returns on invested capital with better margins, cash flow, and earnings that become a lot more stable and predictable over the next 12 to 18 months.

As far as our remaining assets, we have $50 million of the now $180 million in assets identified that we plan to monetize over the next 12 to 18 months. Even after the Northern Properties transaction, we continue to own approximately 11,800 acres with over 21,000 acre feet of owned water rights, usage rights, and pumping rights. We are finding great monetization opportunities for our water assets by either fallowing acreage, leasing pumping rights, or selling the water rights for significant appreciation over our investments. A near-term water monetization opportunity is the 1,300 acres of farmland we have in Yuma, Arizona that has associated Class 3 Colorado River water rights.

The Department of the Interior has instructed that seven states that derive water from the Colorado River to reduce their intake by a third and the cuts will first come from Class 8 water rights all the way down. These states will be forced to go to those with senior rights, like Class 3 water rights, and pay for their water. There is a proposed new fallowing program of which we plan to take advantage with 600 of our 1,300 acres, and we expect to receive $2,433 an acre to divert water from farming to urban use. A recent $80 million transaction in the City of Buckeye, Arizona provides a comparable water sales value of $13,500 per acre foot, which would equate to over $150 million for our Class 3 Colorado River water rights, of which Limoneira would be entitled 50%.

There's no guarantee we could achieve this value, but this is a great example of what is happening in our space for comparable water assets. In addition to these assets, we have our real estate development project Harvest at Limoneira. We announced at the end of December that we increased our cash proceeds projection for this project by over 20% to $115 million and updated our timeline to include both the Harvest development and the Harvest Medical Pavilion across the highway. We received the first $8 million of proceeds in the fourth quarter of fiscal year 2022 and expect to generate the full $115 million over seven fiscal years.

The project is currently approved to develop 1,500 residential units and we are in negotiations with the City of Santa Paula to expand that up to 2,000 units. We believe we will be able to announce the additional 500 units later this year. Finally, we look forward to transacting on $5 million of land sales at the Harvest Medical Pavilion in the fourth quarter of 2023. So what is next for Limoneira now that we have a very strong balance sheet and a clear path to stronger EBITDA, cash flow, and earnings? Over the next 12 to 18 months, you can expect to see our continued transition to an asset-light business model and focus on the best use of our assets to enhance shareholder value.

Our board and management team will continue to evaluate how to best leverage our expertise in packing, marketing, and distributing citrus combined with our valuable portfolio of agricultural lands, real estate properties, and water rights in order to enhance long-term shareholder value. As for longer term, in addition to capital allocation decisions, our upcoming strategic Board of Directors planning session will also review different areas where we can potentially reinvest that will produce more consistent and more reliable returns. Potential areas of investment could be in our supply chain through investments in the forward distribution, forward warehousing and increased packing capacity and expanding our avocado production and potentially adding value to avocados beyond production as a complement to our One World of Citrus product offerings. And with that, I'll now turn the call over to Mark.

Mark Palamountain -- Chief Financial Officer

Thank you, Harold, and good afternoon, everyone. As a reminder, it is best to view our business on an annual not quarterly basis due to the seasonal nature of our business. Historically, our first and fourth quarters are the seasonally softer quarters, while the second and third quarters are stronger. For the first quarter of fiscal year 2023, total net revenue was $37.9 million, compared to total net revenue of $39.3 million in the first quarter of the previous fiscal year.

Agribusiness revenue was $36.5 million, compared to $38.1 million in the first quarter last year. Other operations revenue was $1.4 million, compared to $1.2 million in the first quarter of fiscal year 2022. Agribusiness revenue for the first quarter of fiscal year 2023 includes $24.7 million in fresh lemon sales, similar to $24.7 million during the same period of fiscal year 2022. Approximately 1,308,000 cartons of fresh lemons were sold during the first quarter of fiscal year 2023 at an $18.88 average price per carton, compared to approximately 1,207,000 cartons sold at a $20.48 average price per carton during the first quarter of fiscal year 2022.

Of the 1,308,000 and 1,207,000 cartons of U.S. packed fresh lemons sold during the first quarters of fiscal year 2023 and 2022, respectively, 66% and 57%, respectively, were procured from outside growers. As part of the company's strategic plan, it is transitioning One World of Citrus to an asset-light model through the expansion of grower partners. Due to heavy rainfall that occurred during the first quarter of fiscal year 2023, the timing for the initial avocado harvest was pushed from the first quarter into the second quarter of fiscal year 2023.

The company recognized no avocado revenue in the first quarter of fiscal year 2023, but expects to recoup this delayed revenue in the second and third quarters. The company recognized $800,000 of avocado revenue in the first quarter of fiscal year 2022 on approximately 365,000 pounds at a $2.10 average price per pound. The company recognized $1.2 million of orange revenue in the first quarter of fiscal year 2023, compared to $900,000 in the first quarter of fiscal year 2022. Approximately 64,000 cartons of oranges were sold during the first quarter of fiscal year 2023 at an $18.00 average price per carton, compared to approximately 53,000 cartons sold at a $16.47 average price per carton during the first quarter of fiscal year 2022.

Specialty citrus and other crop revenues was $1.2 million in the first quarter of fiscal year 2023 compared to $900,000 in the first quarter of fiscal year 2022. Total costs and expenses for the first quarter of fiscal year 2023 were $12 million compared to $48.8 million in the first quarter of last year. The decrease of $36.8 million was primarily the result of the gain recognized from the sale of the Northern Properties in January 2023. During the first quarter of fiscal year 2023, the company made funding contributions of $2.6 million to fully fund and settle the company's retirement plan and recorded settlement charges of $2.7 million.

There are no remaining benefit obligations or plan assets. In addition, a patronage dividend of $1.4 million will be recorded in the second quarter of fiscal year '23, compared to a patronage dividend of $1.6 million recorded in the first quarter of fiscal year 2022. Operating income for the first quarter of fiscal year 2023 was $25.9 million, compared to an operating loss of $9.6 million in the first quarter of the previous fiscal year. Net income applicable to common stock after preferred dividends for the first quarter of fiscal year 2023 was $15.5 million, compared to a net loss applicable to common stock of $6.6 million in the first quarter of fiscal year 2022.

Net income per diluted share for the first quarter of fiscal year 2023 was $0.84, compared to a net loss per diluted share of $0.38 for the same period of fiscal year 2022. Adjusted net loss for diluted EPS for the first quarter of fiscal year 2023 was $9.3 million, compared to a loss of $5.7 million in the same period of fiscal year 2022. Adjusted net loss per diluted share was $0.53, compared to an adjusted net loss per diluted share of $0.33 for the first quarter of fiscal year 2022. A reconciliation of net income or loss attributable to Limoneira Company to adjusted net loss for diluted EPS is provided at the end of our earnings release.

Adjusted EBITDA was a loss of $7.9 million in the first quarter of fiscal year 2023, compared to a loss of $5.6 million in the same period of fiscal year 2022. A reconciliation of net income to loss attributable to Limoneira Company to adjusted EBITDA is also provided at the end of our earnings release. Turning now to our balance sheet and liquidity. On January 31st, 2023, we sold our Northern Properties which resulted in total net proceeds of $98.8 million.

The proceeds were used to pay down all of our domestic debt, except the AgWest Farm Credit $40 million non-revolving line of credit, which is fixed at 3.57% until July 1st, 2025. Long-term debt as of January 31st, 2023 was $40.9 million, compared to $104.1 million at the end of fiscal year 2022. Debt levels as of January 31st, 2023 minus $12.5 million of cash on hand resulted in a net debt position of less than $29 million at quarter end. Also, we have $50 million of remaining non-strategic assets for monetization and expect their sale combined with improving EBITDA will result in the opportunity to have no debt and a cash position on our balance sheet.

Now, I'd like to turn the call back to Harold to discuss our fiscal year 2023 outlook and longer-term growth pipeline.

Harold Edwards -- President and Chief Executive Officer

Crop reports for lemons continue to suggest industrywide production is expected to be down 10% to 15% in fiscal year 2023 from Mother Nature. However, due to the planned expansion of our grower partner fruit, we are expecting to increase volume and increase our market share in fiscal year 2023. We continue to expect total lemons sales volume to be in the range of 5 million cartons to 5.4 million cartons for fiscal year 2023. This is up from 4.9 million cartons in fiscal year 2022 and 4.4 million cartons in fiscal year 2021.

For the second quarter of fiscal year 2023, we expect to experience continued pricing pressure but believe the industrywide lower production will lead to higher prices beginning in the second half of fiscal year 2023. Also, during the second quarter of fiscal year 2023, we received a patronage dividend from our primary lender AgWest, formerly Farm Credit West, of $1.4 million. We continue to expect avocado volumes for fiscal year 2023 to be in the range of 4 million pounds to 5 million pounds. It's important to note that while fiscal year 2022 was a record year for avocado revenue, the California crop typically experiences alternate years of high and low production due to plant physiology.

This, along with adverse weather conditions, is contributing to the year-over-year decline. We experienced unusually high temperatures in early September and a wind event in November that knocked fruit off of our trees and will have a negative impact on our 2023 avocado crop. In addition, we continue to expect to receive $115 million, compared to the previous estimate of $95 million from Harvest at Limoneira and the addition of the Limoneira Lewis Community Builders II and East Area II spread out over seven fiscal years, with proceeds of $8 million already received in the fourth quarter of fiscal year 2022. Our cash flow projections were updated last quarter to include the medical campus in our East Area II development and a portion of the cash flow projections were pushed out approximately 18 months due to the higher interest rate environment, which reduced the current number of new home starts.

The breakdown is expected to be as follows. Fiscal year 2022 generated $8 million of cash to Limoneira. Fiscal year 2023 is expected to generate $5 million. Fiscal year 2024 is expected to generate $8 million.

Fiscal year 2025 is expected to generate $17 million. Fiscal year 2026 is expected to generate $25 million. Fiscal year 2027 is expected to generate $30 million and fiscal year 2028 is expected to generate $22 million. And lastly, as previously stated, we have identified $180 million of non-strategic assets for sale.

We have made great progress thus far executing against our plan with the sale of $130 million in the past six months, and expect to announce the sale of the remaining $50 million in the next 12 to 18 months. And with that, I'd now like to open the call up to your questions. Operator?

Questions & Answers:

Operator

Certainly. [Operator instructions] The first question comes from Eric Larson from Seaport Research Partners. Please go ahead.

Eric Larson -- Seaport Research Partners -- Analyst

Hi, guys. How are you doing today?

Harold Edwards -- President and Chief Executive Officer

Hi, Eric.

Mark Palamountain -- Chief Financial Officer

Hi, Eric.

Eric Larson -- Seaport Research Partners -- Analyst

So my first question, and I think I'd know the answer to this. So on your big asset sales, the water rights are going with those I'm assuming. Is that true or is it not? And is there any way to sort of split or try to figure out what the valuables water rights would have been as part of the sale price?

Harold Edwards -- President and Chief Executive Officer

So part of the compelling price that we received for the Northern Properties, Eric, was due to the access of reliable water and water rights. So the water assets did go with the land assets in those sales. There were a number of different water rights associated with those properties with various and varying ranges of value based on the reliability and the sustainability of each of those sources. But prior to the divestiture of the Northern Properties, we had about 28,000 acre feet of water rights.

And that number now is down to 21,000 acre feet. So about 7,000 acre feet of water went with those properties.

Mark Palamountain -- Chief Financial Officer

And Eric, just further detail. So far and above the best water rights that we have left, which are here the adjudicated Santa Paula basin and Yuma, which equate to over 90% of the prior water value. So still in great shape with water and moving forward there.

Eric Larson -- Seaport Research Partners -- Analyst

OK. Thank you. That's good clarification. So next question is just the lemon business.

Obviously, it was soft again this quarter. You're under $19 per carton. I think you need to be around $20 to kind of even breakeven and make some money. Give us a little more flavor, Harold, about really when does the supply situation really start to tighten up? What is [Inaudible] kind of gradual improving price into the rest of the year, but it seems to be continuing getting delayed and I'm just curious as to how you look at the cadence of how that pricing outlook is going to be?

Harold Edwards -- President and Chief Executive Officer

So that's a great question. So we keep dealing with the reality of an oversupplied lemon market exacerbated by a lot of young plantings throughout California and Arizona domestically, but also a lot of fruit ready to be imported from the southern hemisphere. And so Mark actually -- Mark and his team completed a really fascinating and interesting analysis about the economics of each of the growing districts in California and Arizona. And the profitability of each of the districts as it related to a weighted average sort of here is what the costs of all of them together are and then here's what the price achieved in each of those timeframes of the year when each of those lemons go to market.

And what we found was really interesting. So the year starts for us in the desert. And what we found there was that the cost structure was high really driven because it's a tough place to grow lemons, which compromises the yields. And the lower yields equates to higher cost per carton, because you're not generating the amount of fruit that you do in other places, and the cost of transportation to get it all the way from Arizona to our packing house in Santa Paula.

So you put that together and that really was a really negative part of the margin that we were achieving. So what's going on in Arizona now is almost -- 50% of what's going on Arizona is more of a water story where we followed 600 of the 1,300 acres, which takes half of the cost of farming out of that equation. And it's now being replaced by a water coupon that we received for the fallowing program. So overnight now the desert operation has become profitable.

Now we go up into the San Joaquin Valley, similar situation, actually higher productivity, so higher yields. But because of the transportation costs and some of the other costs associated with the farming in the North that were related to necessary agricultural applications for pests related to the Asian Citrus Psyllid, that also was a high cost structure. So now that has all been divested and now that's been replaced by farm management services income. And yet, we still keep that supply chain coming through our packinghouse.

Now you come down to the California coast, which is where 50% of our total production takes place. And as you know, these lemons are what come out in the seasonally high time of the year when consumptions in the highest in the late spring and the early summer. And the profitability of the production down here on the coast is actually pretty good. And it's really because it's a much lower cost structure driven by higher yields, but also higher pricing typically that we get at that time of the year.

So when you put it all together, I think what you're going to see is you're going to see even with these challenging prices that we're receiving that's driven by just the pervasive oversupply of lemons, that you'll start seeing our margins start to improve now because of the restructuring of the business.

Eric Larson -- Seaport Research Partners -- Analyst

Got it. That makes a lot of sense. That's good insight. So when you kind of factor in the whole thing, are you also seeing an increase in imports on lemons, or is this really a domestic issue that can be solved with sort of the analytic that you just laid out?

Harold Edwards -- President and Chief Executive Officer

Well, I think that the greatest challenge is also the greatest opportunity is that when you get pricing down at this level, it kind of creates a moat around the market because it becomes uneconomic for the southern hemisphere shippers to ship into the market at this price because their costs of logistics to get it here makes that prohibitive. So I think it really takes -- I think it takes an overall price above $20 a carton to make the import reality, a competitive threat and we're just not there yet. We want to be there, right, because our domestic fruit can enjoy those economics. But right now, I think that as we look forward, we don't see any catalysts until the second half of the year to drive pricing up.

So we'll just have to see where we get when we get to the summer -- the late spring, early summer. But because it is a smaller crop domestically, we are optimistic that we'll see higher pricing in the late spring, early summer.

Eric Larson -- Seaport Research Partners -- Analyst

Got it. OK. Final question, you guys are just getting -- you think now in the next few days just hammered with rain and stuff again, you don't complain about moisture because when you don't have it you realize how much you miss it. But are the weather conditions here still going to be such that it is going to be prohibitive for you to harvest, or how are you looking at -- I think there's six to eight inches of rain in some parts of -- in mountains right to the East of you in the next few days.

So how are you looking at all that?

Harold Edwards -- President and Chief Executive Officer

Yes. So we had a -- it's another great question. We had an all-hands-on-deck meeting on that very subject this morning. And I guess the good news is that we have good inventory across all size and grade structures.

We do anticipate being delayed in picking for the better part of this week. As you're pointing out, there's a lot of rain coming to Central and Northern California. We are ready right now with the crews ready to go here on the coast if we need to go get fruit. But we anticipate being just fine in terms of continuing on with our harvest in District 1.

Right now the crop is kind of midway through the season, up in the San Joaquin Valley. And so we think that'll finish out in a kind of a normal way, even with this weather and this rain, and then transition smoothly into District 2 onto the coast. I think as you might remember, Eric, the District 2 crop is always there, because the trees are blooming here year-round. So we do have access to good amounts of fruit.

Inventories are good. And unlike 2019 where we had that situation where the lemons got big because we weren't able to get into harvest, we're all over that this year and making sure that that does not happen, and trying to make sure that our inventories are balanced by size and grade so that we can keep the supply chains cooking right along even with this weather.

Eric Larson -- Seaport Research Partners -- Analyst

All right. Thanks. I'll get back in queue.

Operator

The next question comes from Raj Sharma from B. Riley. Please go ahead.

Raj Sharma -- B. Riley Financial -- Analyst

Hi. Thank you for taking my question. I had a -- sort of following up on the lemons, you just mentioned that you expect a significant pickup in the cartons with improved pricing. Where is this increased production going to come from? Can you talk about that? I know you said there were external growers as well.

And also, you did just talk about why you thought the pricing was going to improve and that was going to be a second half event. What kind of a pricing increase can we expect on lemons?

Harold Edwards -- President and Chief Executive Officer

Hi, Raj. That's a great question. I wish I could answer that directly with my crystal ball. But what we know is that we're behind in our harvest up in the valley, and kind of on par with our harvest for the remainder of the season on the coast.

And as we look at our tree crops, we have ample production of our own production. But also we were successful in recruiting an additional 1 million cartons of new fruit across all three of the districts that are in combination with our own production and the grower partners that we serviced in 2022. And so even though Mother Nature brought us a lower tree crop of about 15% across each of the districts, our recruiting actually give us great belief that we'll be able to grow and have access to enough fruit. And so we're still sort of hanging on to our guidance of 5.2 million to 5.4 million cartons for the year, which would demonstrate some pretty good growth year on year.

I think we finished last year with 4.9 million cartons. And so the fruit is there and we've got enough time to go get it and the weather is not causing that much disruption at this point in terms of changing size or grade structure. So we're optimistic that we'll be able to get it and put it through the packinghouse and get it into the market.

Mark Palamountain -- Chief Financial Officer

Yes. And to follow up on pricing, as Eric asked earlier, it all comes down to that supply demand balance from the imports that typically start from Argentina in late April, early May. So if the transportation costs aren't there, if the price isn't high enough for them to break even, we'll usually get a $2 or $3 lift from current pricing, which is right about just below $18 right now. And then Mother Nature does the rest of her thing.

But that's historically how we've looked at it from a budgeting perspective.

Raj Sharma -- B. Riley Financial -- Analyst

That's great. Thank you. And then on the avocado production, clearly lower this year than last year. How much of a recovery do you see in Q2 onwards? What's happening on the production side? Are you going to be able to recover a lot of it, most of it? Can you talk about that please?

Harold Edwards -- President and Chief Executive Officer

Yes. So the rain is actually really helpful for the avocados. So I think it gives us optimism that we should be in the high range of sort of the targeted volume numbers. The harvest really now at this point will be driven by the opportunities that we see in the marketplace.

Great news was we saw an uptick in avocado pricing last week. 48s are now getting a little over $1.20 in the marketplace. And that's kind of directionally where we were hoping to harvest. So we find the market seems to be improving and coming to us at this point.

And we're pretty confident that there's on the upper end of the 4 million to 5 million pound range that we guided to. So I think our overall avocado number and guidance is intact. Fingers crossed that it comes in a little better, but if it does, it'll be driven by more favorable market pricing. And it's just too difficult for us to pin that down.

But we watch the market every day. And when the market moves, we will start harvesting. I think if I had to guess how the fruit flow would play out, I'd say 50% of 5 million pounds in Q2 and 50% in Q3.

Raj Sharma -- B. Riley Financial -- Analyst

Got it. And then just if I can move on to profitability, can you kind of philosophically talk about where you see EBITDA improvements and do you see EBITDA improvements, sort of profitability improvements in terms of margins this year? Is that coming from a greater sort of brokering and shipping?

Harold Edwards -- President and Chief Executive Officer

Yes. So a great question and a bunch of niches to that.

Raj Sharma -- B. Riley Financial -- Analyst

How much of an EBITDA can we expect?

Harold Edwards -- President and Chief Executive Officer

So as we've alluded to, this transition period is going to be about 12 to 18 months, which we'll see accretiveness from the transaction side accretiveness, both from an EBITDA perspective and EPS. The areas that we will see benefit from are, as you said, the new recruiting, so 1 million new cartons, which comes into effect basically starting in the fall of this year and then circles all around through the seasons. And that's the targeted $2.00 to $2.50 a carton operating profit. And then also the brokerage agency business, which this prior year was just over 1 million cartons trying to ramp that to about 1.5 million this year, and then about 3 million to 3.5 million over the next five years.

So as we've tried to highlight, we're subject to lemon pricing. Our costs have been relatively under control. Our packing costs this quarter year over year was down versus prior year per unit. So all of the measures that we put in place from the cost efficiencies have really started to come to play.

So we still see ourselves targeting plus $30 million of EBITDA in the next five years.

Raj Sharma -- B. Riley Financial -- Analyst

Got it. And just last question from me, the additional $50 million in sales that you just mentioned that would happen in the next year or two years. Can you give us generally the areas? Is that water rights sales, land, any color on that?

Harold Edwards -- President and Chief Executive Officer

Yes. So the additional 50 million, if I got the question right, is the two specific assets, our southern hemisphere Chilean farming, which is two ranches, lemons primarily, and then our Windfall vineyard estates. And so those are placeholders at 50 million, pretty close to book value. So we felt that that was an appropriate number.

But I think depending on the right opportunity and the right buyer and the water circumstances, there will be opportunity for upside in there.

Raj Sharma -- B. Riley Financial -- Analyst

Great. Well, thank you for answering my questions and good luck. I'll take this offline. Thank you.

Harold Edwards -- President and Chief Executive Officer

Thank you, Raj.

Mark Palamountain -- Chief Financial Officer

Thank you, Raj.

Operator

The next question comes from Ben Klieve from Lake Street Capital Markets. Please go ahead.

Ben Klieve -- Lake Street Capital Markets -- Analyst

Thanks for taking my questions. Just a couple for me. First of all, on the avocado side, I want to make sure I understand kind of the strategy and the timing here. The weather caused delays of harvesting in the first quarter.

And Harold, your comments earlier suggested that you'd kind of maybe intentionally delayed harvest kind of in February, at least through February, because of kind of pricing conditions. So first of all, is that accurate that you could have harvested avocados so far in the second quarter, but you've kind of chosen not to strategically?

Harold Edwards -- President and Chief Executive Officer

Yes. That's exactly right. We could have harvested. There's fruit that is harvestable right now, but the markets have been -- I don't know if you're following the markets, but they've been pretty soft.

And they're just starting to improve now. And when you layer on the benefits of the rain, which is sizing the fruit faster, we actually find ourselves in pretty good shape to start our harvest beginning next week.

Ben Klieve -- Lake Street Capital Markets -- Analyst

OK. Great. That's helpful. Yes, I have been following that market and the grind, and I think I've also been watching the same weather reports that Eric has.

And so I've been concerned about that. But that's good to see that how you guys are navigating that. And then my other question is, it looks like you've got a pretty impressive gain in market share this year so far, and I'm wondering if you can comment on a high level about the correlation between lemon prices and your ability to take share? When prices here are down in this just kind of dreary $17, $18 range, are you able to get these relationships developed with farmers faster than if you're in $20, $22 range?

Harold Edwards -- President and Chief Executive Officer

So part of gaining share is gaining supply first. So we're really having a lot of success with that, with our grower services team, our very high fresh utilization rates, and then our very competitive returns going back to growers. So as a result, we really made huge progress in our ability to access new supply. And then with that supply, then it allows us to go into the marketplace at food service and retail and be much more competitive with reliable levels of supply.

And so I think the combination of those two things is what's driving our growth and allowing us to pick up share. You may recall when we first started kind of talking about the business together, we always sort of as a placeholder suggested that food service represented 70% of our market opportunity and retail was 30%. There was sort of a structural change in the marketplace driven by COVID that really hasn't changed that much since we've all returned back to normal life. But I'd say the actual demand is from a consumer perspective is probably 50-50 now, 50% food service and 50% retail.

And so our biggest pickups in gains have been at the retail level. And so that's the battlefield for us right now. And we're really honing in on new big retail accounts. And as you go out to your local market, you'll have a much better chance of finding Limoneira stickered lemons in those supermarkets now because of this new approach and really where we're focusing.

Ben Klieve -- Lake Street Capital Markets -- Analyst

Got it. Very helpful. OK. Thanks for taking my questions.

I'll get back in line.

Harold Edwards -- President and Chief Executive Officer

Thanks, Ben.

Mark Palamountain -- Chief Financial Officer

Thanks, Ben.

Operator

[Operator instructions] The next question comes from Vincent Anderson from Stifel. Please go ahead.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

Thanks. Good afternoon.

Harold Edwards -- President and Chief Executive Officer

Hi, Vince.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

When I look at just how many overseas growing regions have yet another year of poor production, I can definitely understand where your price expectations are coming from as we move through the balance of this year. But what I'm still trying to wrap my head around is just the recent pressure we've seen. So I guess a two-parter then. On the demand side, how have Asian exports been looking, particularly since apparently China told everyone to start drinking lemon water? And then on the supply side, how much of this pressure maybe is being caused by unseasonable Mexican imports into the U.S.

and what on earth is causing that? Because I can't remember the last time I saw this kind of volume from them this early in the year.

Harold Edwards -- President and Chief Executive Officer

Yes. So we continue to hope that it's the first part of your analysis, which is that it's demand pickup, but that's what's moving more slowly than supply pickup. There was just an awful lot of young plantings across each of the districts. And that's really what's driving the oversupply domestically.

And then when you layer into that the massive amount of plantings out of Argentina and some of the other southern hemisphere suppliers, that's what's really exacerbated the entire situation. What's caused the sort of the malaise in the market and the softer pricing now is, remember last year, we were really proud of our fresh utilization rates and our ability to move fruit fresh for higher returns back to the growers. Our primary competitor really underperformed. And so they've kind of took the gloves off this year and said, all right, we're not going to let that happen again.

And so there's a lot more chasing price down to try to hang on to share. And if you looked across all of the -- so we're a member of what's called CALGA, the California/Arizona Lemon Growers Association, which is a consortium of all of the shippers. I think it represents almost 90% of the domestic supply of U.S. lemon production.

Limoneira's pricing is right at the top of the list right now. And we try to remain as disciplined as we can as we go about doing that. Typically what happens though is when coolers get full, and you can imagine how this works, when coolers get full and fruit has a hard time moving, competition typically will use price to move fruit. And that's what's exacerbating the pricing problem in the marketplace.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

OK. That's very helpful. And then as I just kind of speculate on the potential deployment of your capital beyond deleveraging, it sounded like maybe there were some citrus assets in Europe that might be looking for a new home. I'm just wondering if it makes any sense to make an investment in that market from a packing and brokering perspective, especially if there's a way in which you can have it become another like valve for your South American fruit, or if that's not really a high return market in your mind?

Harold Edwards -- President and Chief Executive Officer

Well, I think that's a really astute observation. And it is actually something we've been studying and have been thinking about. The biggest winner in that equation would be Argentina, because a lot of that Argentina fruit can find its way into the European markets competitively. The U.S.

fruit, because of logistics, it's pretty tough. Foreign exchange doesn't help that as well. So that's really less of an opportunity for us at this point. I think we see pretty -- and our Board will help us with this in our upcoming strategic planning session, but we see really interesting opportunities to invest in our supply chain through automation and enhanced capabilities through storage and capacity improvement to take advantage of the supply chains that we have, but to drive cost out of the business.

And the other thing to remember is remember when we sold Oxnard Lemon, we actually did a sale-leaseback on the initial part of that sale to take advantage of that storage that we still depend on. So within three years, we're going to be in a position where we're going to need to find alternative storage. And we're sort of -- we've got the calculators out and are running the numbers of what investing in increased storage capabilities here in Santa Paula would do. But the results are pretty significant.

And so we think there'd be a great return on invested capital to invest in storage here in Santa Paula, as a complement to our recently updated packinghouse. So look sort of toward something like that. And also -- and we've talked about this before, investments in increased packing capacity in Chile.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

OK. All right, very helpful. I appreciate it.

Operator

[Operator instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Harold Edwards for any closing remarks. Please go ahead.

Harold Edwards -- President and Chief Executive Officer

Thank you all for your questions and your interest in Limoneira. Have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

John Mills -- Head of Investor Relations

Harold Edwards -- President and Chief Executive Officer

Mark Palamountain -- Chief Financial Officer

Eric Larson -- Seaport Research Partners -- Analyst

Raj Sharma -- B. Riley Financial -- Analyst

Ben Klieve -- Lake Street Capital Markets -- Analyst

Vincent Anderson -- Stifel Financial Corp. -- Analyst

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