After weathering three wild quarters, Limoneira (NASDAQ:LMNR) heads into the fourth quarter of its fiscal year with an eye toward stabilization. Due to heavy rains in the first and second quarters of its fiscal year that resulted in an overabundance of large, lower-value lemons, the West Coast agribusiness watched lemon prices continue to erode in the third quarter. Yet as earnings issued after the close of trading on Monday illuminated, harvest trends are returning to normal, with the worst of an uneven season apparently behind the company.

As I unpack the third quarter below, note that all comparative numbers are presented against those of the prior-year quarter.

Limoneira results: The raw numbers

Metric Q3 2019 Q3 2018 Change
Revenue $50.9 million $40.0 million 27.3%
Net income (loss) ($1.1 million) $8.1 million N/A
Diluted EPS ($0.06) $0.50 N/A

Data source: Limoneira. EPS = earnings per share. N/A = not applicable; difference too great to be meaningful. 

A pitcher of lemonade surrounded by fresh lemons on a wood table outdoors.

Image source: Getty Images.

What happened with Limoneira this quarter?

  • The company sold 1.87 million cartons of lemons at a steeply discounted average selling price of $19.09 per carton, compared with 992,000 cartons sold in the third quarter of 2018 at $25.91. Total lemon sales rose 51% to $46.4 million due to the higher volume.
  • Management relayed that selling prices have improved during the fourth quarter as lemon sizes have decreased and normalized, with lemons recently fetching an average price of $21.50 per carton. 
  • Avocado revenue fell 55% to $2.5 million, though higher prices partially offset a slump in current-year volume caused by excessive heat in the summer of 2018.
  • Lower orange prices caused orange revenue to slump 65% to $0.7 million.
  • Limoneira's operating income plunged even as revenue soared from extremely robust volume. The company booked operating income of $2.1 million against $11.4 million in the prior-year quarter.
  • Interest expense nearly tripled to $774 million as debt balances increased year over year. The higher interest expense, coupled with an unrealized loss of $1.7 million on the company's shares in fellow agribusiness Calavo Growers, pushed the operating loss into a net loss for the quarter. 
  • On Aug. 30, roughly one month after quarter-end, Limoneira sold a multi-use commercial facility in Santa Paula, California, containing a quick-service restaurant, gas station, convenience store, and car wash. The company received $4 million in net proceeds and will record a gain of $0.6 million on the sale in the fourth quarter.
  • The organization disclosed that after completing an initial 210 lot sales in its Harvest at Limoneira residential real estate development project in fiscal 2019, it expects to close on an additional 33 lots in the first quarter of fiscal 2020. Limoneira now expects to eventually build and sell 1,500 units in the project.

What management had to say

Harvest at Limoneira is one of a handful of revenue streams that diversifies the company's agribusiness risk, and it's also likely to be a significant source of future net earnings. CEO Harold Edwards provided more detail on the project in Limoneira's earnings press release within a larger discussion of results:

The weather events that affected the overall lemon and orange industry during the first nine months of this year offset the fact that we have achieved our grower retention goals and increased our market share. As we turn our sights to fiscal 2020, we are well positioned for a return to solid growth and improved profitability. Our Harvest at Limoneira real estate venture generated $2.6 million of equity earnings during the first nine months of this year and we are working with three of the leading homebuilders in the United States. Overall we continue to believe this venture will deliver approximately $100 million of cash flow over the estimated 7- to 10-year life of the project.

Looking forward

In my earnings preview, I discussed the multiple earnings revisions Limoneira has made this year and likely trajectory for the consumer staples stock should management be forced to push estimates down for a fourth time in fiscal 2019. Limoneira ended up leaving its latest earnings guidance, issued on Aug. 28, unchanged. The company still expects an operating loss in fiscal 2019 of $0.5 million to $3 million, and a diluted loss per share of $0.10 to $0.20. Management anticipates that full-year adjusted EBITDA will land between $7 million and $9.5 million. Finally, Limoneira remains on track to achieve record revenue in fiscal 2019, despite the disappointing profitability. Shareholders' sense of relief given the solidified forecast was palpable: Shares rose as much as 3.5% in afternoon trading on Tuesday.

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