Agricultural specialist Limoneira Company (NASDAQ:LMNR) harvested a revenue shortfall in its fiscal fourth-quarter 2018 earnings released on Monday, although projections for fiscal 2019 remain strong. Below, let's unpack the company's financial results over the last three months and discuss 2019 prospects. Note that all comparative numbers in this article are presented against the prior-year quarter (the fiscal fourth quarter of 2017).
Limoneira: The raw numbers
|Metric||Q4 2018||Q4 2017||Growth (YOY)|
|Revenue||$14.7 million||$15.9 million||(7.5%)|
|Net income (loss)||($3.4 million)||($2.8 million)||(21.4%)|
|Diluted earnings per share||($0.19)||(0.19)||0%|
What happened this quarter?
Agribusiness revenue declined 7.5% to $13.5 million. The company attributed the dip primarily to persistent rains, which delayed the timing of the desert-zone lemon harvest into the first quarter of fiscal 2019. Limoneira also cited a weaker-than-expected wine harvest for the softer revenue.
Lemon sales, the biggest component of agribusiness revenue, slipped 2.5% to $11.7 million, due to the harvest timing mentioned above. Limoneira sold 239,000 cartons of fresh lemons, versus 414,000 cartons in the fiscal fourth quarter of 2017. Yet a much higher average selling price per carton of $29.71, versus $21.01 in the prior-year period, supported total lemon revenue.
In other agribusiness lines, the company saw negligible avocado revenue, similar to the comparable quarter. Orange revenue dropped from $0.6 million to $0.3 million due to lower orange pricing, somewhat offset by higher volumes.
Limoneira's "specialty citrus and other crop" revenue dropped 30%, from $2.0 million to $1.4 million. While management didn't specifically state the reason, presumably this difference is due to harvest delays of specialty citrus planted in the desert zone: Specialty citrus and other crops formed the biggest component of the company's total year-over-year revenue decline.
Limoneira posted an operating loss of $9.6 million, more than double the prior-year quarter's $4.3 million loss. Management cited a number of factors underlying the wider loss, including $600,000 in lemon-harvesting expense for which Limoneira won't be able to book revenue until the first quarter of fiscal 2019, a non-cash impairment charge of $1.6 million on its Santa Maria real estate assets in California, and a loss of $400,000 on the company's wine harvest due to to a late frost in March.
Operating losses were partially offset by a gain of $4.2 million from the sale of Calavo Growers (NASDAQ:CVGW) stock. Calavo Growers, a diversified avocado distributor, markets Limoneira's entire avocado production, and the two companies hold non-controlling equity stakes in each other. As of quarter-end, Limoneira still holds 250,000 shares of Calavo, equal to roughly $20.2 million at Calavo's share price as of this writing.
- The company's common stock offering in July of last year had the effect of reducing losses per share in comparison to net income in the current period, as you can see in the table above. A weighted average of 17.5 million shares was used to calculate diluted earnings per share (EPS) in the fourth quarter of 2018, versus 14.4 million shares in the fourth quarter of fiscal 2017. Thus, this quarter's loss was spread among more shares, reducing the per-share loss to flat against the prior-year period.
What management had to say
In Limoneira's earnings press release, CEO Harold Edwards discussed both near-term earnings catalysts and longer-term opportunities:
In fiscal 2019, we expect our two recent strategic acquisitions, San Pablo in Chile and Oxnard Lemon in California, to be meaningfully accretive, and combined with other organic growth opportunities throughout our agribusiness, we believe we are well positioned to achieve record revenue, EBITDA, and earnings. Looking beyond 2019, we have an additional 1,200 acres currently of non-bearing lemons that are estimated to become full-bearing over the next four years, which will enable us to achieve strong organic growth for many years to come. Lastly, the successful $69 million equity raise completed in 2018 will enable us to add to our organic growth with additional strategic acquisitions in the United States and throughout the world, driving our One World of Citrus platform.
The acquisitions mentioned above, which I discussed in more detail last quarter, will expand Limoneira's avocado and lemon revenue potential and help it achieve a goal of broadening beyond the U.S. market.
Limoneira reiterated its previous fiscal 2019 guidance within its earnings press release. The company expects operating income of between $20 million and $23 million, which, if achieved, will more than double fiscal 2018's operating income of $9.5 million.
Diluted earnings per share are expected to land between $0.75 and $0.85, based on an estimated average diluted share count of 18.4 million for the full year. Shareholders should note that this EPS range doesn't include any mark-to-market changes in the value of Limoneira's Calavo shares. Under new accounting rules, Limoneira will recognize changes in the value of Calavo stock on its income statement this year, which may lead to a bit of volatility in EPS. Going forward, shareholders should simply remember that these non-cash impacts are separate from operations and will be broken out by management in Limoneira's earnings releases.