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Shares of This Citrus Grower Are Surging Despite a Challenging Year: Is a Turnaround in Sight?

By Asit Sharma - Jan 15, 2020 at 1:51PM

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A new year brings a fresh start and potentially improved harvests for this agricultural specialist.

After several quarters of weather-impacted results, is Santa Paula, California-based agribusiness Limoneira (LMNR 0.00%) about to turn the corner? The company's fourth quarter of fiscal 2019 was notable for a wide leap in revenue tempered by lower lemon prices. But management sees rejuvenated earnings prospects in the new fiscal year, and shareholders are also expressing confidence, as shares rose both before and following Limoneira's earnings report released Monday after the close of trading.

Below, as we review the quarter, note that all comparative numbers are presented against those of the prior-year quarter.

Limoneira results: A bird's-eye view of the numbers

Metric Q4 2019 Q4 2018 Change
Revenue $36.5 million $14.7 million 148.3%
Net income (loss) ($3.2 million) ($3.4 million) 5.9%
Diluted EPS ($0.18) ($0.19) 5.3%

Data source: Limoneira. EPS = earnings per share.

Essential highlights from the quarter

  • Fresh lemon sales of $17 million more than doubled the comparable-quarter's result of $7.1 million, although at reduced prices (due to the abundance and size of lemons resulting from excessive rains as the company has discussed in previous quarters). Limoneira sold 793,000 cartons of lemons at an average price of $21.46 during the fourth quarter, versus 239,000 cartons of fresh lemons sold at an average price of $29.71 in Q4 2018.
  • After implementing new accounting revenue-recognition standards, the company recognized $7 million in brokered lemon sales during the quarter.
  • Limoneira received an expected $2.3 million in insurance proceeds for the prior year's avocado harvest, which was drastically reduced by excessive heat.
  • Oranges revenue rose to $2.3 million against $0.3 million in the prior-year period, resulting in part from a $1.4 million boost tied to the new revenue-recognition standards.
  • Specialty citrus and "other" revenue rose 50% to $2.1 million on an increase in pistachio and wine grape sales.
  • Limoneira generated an operating loss of $3.6 million, an improvement on the $9.6 million operating loss booked in the comparable quarter. The company's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of $2.1 million, however, increased against a loss of $1.2 million in the fourth quarter of 2018.
A rustic presentation of lemonade glasses on a wooden table, surrounded by fresh lemons and herbs.

Image source: Getty Images.

Management's thoughts at year-end

After a tumultuous year, CEO Harold Edwards provided investors with some perspective on the last four quarters in the company's earnings press release, and also promised healthier earnings in the new fiscal period:

We achieved record revenue and expanded our market share in fiscal year 2019. However, the uncontrollable weather aspect of our business affected lemon and orange pricing throughout the year and dramatically reduced our avocado crop. Even with these temporary challenges, we generated positive EBITDA and adjusted EBITDA, closed a strategic acquisition and are very well positioned to continue our market share growth and return to strong EBITDA and adjusted EBITDA results in fiscal 2020.

For context, on the earnings figures Evans refers to above, the lemon crop travails of fiscal 2019 caused full-year adjusted EBITDA to fall to just $1.9 million, against $23.4 million in 2018. The strategic acquisition Edwards mentions is Limoneira's $15 million purchase of a 51% interest in a joint venture that holds an Argentinean citrus farm in May 2019. The acquisition will move Limoneira closer to its goal of offering a year-round supply of fresh lemons to the global market. 

A share-price jump follows hints of a turnaround 

Limoneira shares rose 6% on Monday in anticipation of earnings and added another 5.2% in the Tuesday trading session following the report's release. Investors anticipated on Monday that management would leave the current fiscal 2020 outlook unchanged after four earnings revisions during 2019 caused by weather-related uncertainty. Tuesday's trading in Limoneira shares emphasized investors' relief when management indeed maintained the 2020 outlook, but opportunistic buying likely also pushed shares higher.

After all, Limoneira's stock was essentially flat in 2019 on a total return basis, against a 25.5% total return for the small-cap benchmark Russell 2000 index. As Limoneira's earnings outlook clears -- and depending, as always, on the quality of this year's lemon harvest -- the LMNR symbol may be primed to make up lost ground in the coming quarters.

As for the 2020 outlook, I discussed in my earnings preview Limoneira's new annual guidance framework, which consists simply of an annual adjusted EBITDA expectation and a projection of the number of fresh lemon cartons the company expects to sell. The citrus grower anticipates generating adjusted EBITDA of $22 million to $26 million in fiscal 2020, which will represent a firm rebound from 2019's slim earnings. To hit this range, Limoneira will aim to sell between 7.5 million and 9.5 million cartons of fresh lemons globally during the period. 

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