Santa Paula, California-based fruit producer Limoneira Company (NASDAQ:LMNR) rebounded from a disappointing fourth quarter in 2018 with a resilient report covering its 2019 fiscal first quarter. Notably, the company's revenue improved substantially on higher lemon volumes. Shareholders appreciated the lemon zest, sending shares up more than 8% in the trading session following Limoneira's earnings release on March 12.

Note that all comparative numbers in the discussion that follows are presented against the prior-year quarter (the fiscal first quarter of 2018).

Limoneira: The raw numbers

Metric Q1 2019 Q1 2018 Growth (YOY)
Revenue $42 million $31.6 million 32.9%
Net income (loss) ($4.8 million) $8.5 million N/A
Diluted earnings per share ($0.28) $0.58 N/A

Data source: Limoneira Company. YOY = year over year.  

What happened this quarter?

  • Lemon sales increased by 39% to $38.6 million. The increase resulted partially from a spillover effect due to the delayed fourth-quarter 2018 harvest. 

  • Lemon volume jumped nearly 40% to 1.27 million cartons during the quarter. However, the average selling price per carton dropped to $24.30, versus $26.32 in the prior-year quarter. Management attributed the decrease in selling price to colder weather, which affected dining habits, as well as lower-priced foreign fruit entering the U.S. market over the last three months.

  • Orange revenue dipped 31% to $900,000, as weaker orange prices offset rising volume. Limoneira sold 124,000 cartons at an average selling price of $7.63, versus 104,000 cartons sold at an average price of $12.91 in the first fiscal quarter of 2018. As is typical in the first quarter, Limoneira had negligible avocado revenue.

  • Limoneira generated an operating loss of $3 million against an operating loss of $1.7 million in the comparable period. Most of the loss stemmed from an increase in agribusiness expenses, which management enumerated as "packing costs, harvest costs, growing costs, costs related to the fruit procured and sold for third-party growers and depreciation expense."

  • The company also recorded a quarterly mark-to-market unrealized loss of $3.9 million on its 250,000 shares of Calavo Growers (NASDAQ:CVGW) as required by new accounting rules. Calavo Growers and Limoneira hold noncontrolling equity stakes in each other; Calavo also markets Limoneira's entire annual avocado production.

  • In early February, Limoneira entered into an agreement with Argentinian citrus grower FGF Trapani (FGF) to form a joint venture that will own (via subsidiaries of the respective companies) a 1,200-acre lemon plantation located in Argentina, called Finca Santa Clara. Limoneira's subsidiary will acquire a 50% stake in the plantation over the next three years, manage it, and be responsible for all sales of fresh fruit.

  • "Harvest at Limoneira," one of the company's real estate development projects, is moving closer to the construction phase. Management announced that the organization sold lots equivalent to 174 residential units in the Santa Paula-based development during February and March.

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A lemon hanging from a lemon tree in a garden.

Image source: Getty Images.

What management had to say

In Limoneira's earnings press release, Senior Vice President Alex Teague commented on the new joint venture with FGF Trapani, and its role in supporting the company's global citrus ambitions:

We are very excited to start off the first half of this year with a strategic move into Argentina, as we continue to look for ways to access new markets and networks to increase our production and distribution as part of our One World of Citrus initiative. This expansion of our global footprint into Argentina strengthens our ability to become a 365-day, 24/7 global supplier of fresh citrus to our valued customers around the world. In addition, we are pleased with the successful integration of our two acquisitions last year and are seeing great grower retention from the [2018] Oxnard Lemon acquisition and increased production capabilities.

Looking forward

Despite the vigorous top-line showing over the last three months, for now Limoneira is holding to previously announced financial estimates for fiscal 2019. Management sees a potential doubling of fiscal 2018's operating income of $9.5 million, as this number is anticipated to land between $20 million and $23 million this year.

Limoneira expects adjusted diluted earnings per share (EPS) of $0.75 to $0.85, against adjusted EPS of $0.50 booked in fiscal 2018. Note that this estimate excludes mark-to-market changes in the company's Calavo Growers stock, and it also doesn't include any expected equity earnings from the Harvest at Limoneira real estate project. As more lots are sold in the next few months, investors may see a positive adjustment to Limoneira's full year in the back half of fiscal 2019.