Limoneira Co (LMNR) 2013 Q4 法說會逐字稿

Good day and welcome to the Limoneira fourth-quarter fiscal year 2013 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Mills of ICR. Please go ahead, sir.

Good morning, everyone, and welcome to Limoneira's fourth-quarter and full-year 2013 conference call. On the call today are Harold Edwards, President and Chief Executive Officer, and Joe Rumley, Chief Financial Officer.

By now, everyone should have access to the fourth-quarter fiscal 2013 earnings release, which went out today at approximately 7 AM Eastern time. If you have not had a chance to review 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 at Limoneira.com.

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 that 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 risks 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.

Also, within the Company's earnings release and in today's prepared remarks, we include EBITDA, which is a non-GAAP financial measure. A reconciliation of EBITDA to the most directly comparable GAAP financial measures is included in the Company's press release, which has been posted on our website.

And with that, it's my pleasure to turn the call over to the Company's President and CEO, Mr. Harold Edwards. Go ahead, Harold.

Thanks, John. Good morning, everyone, and thank you for joining us. On today's call, I will begin with a brief overview of some financial highlights for the year and provide an update about our business progress in some of our growth opportunities. Joe will review the financial results for the fourth quarter and full year in more detail, and I will then provide you 2014 outlook and open the call up for your questions.

We are pleased to report a record year for Limoneira. In fiscal 2013, we generated solid revenue, EBITDA and net income growth, driven by many aspects of our business, including year-over-year growth for lemons and avocados. Total revenue increased 29% to $84.8 million, primarily driven by agribusiness sales, which increased 30% compared to last year.

Our lemon business performed well throughout the year. For the full year, our lemon sales increased 32% compared to the fiscal year 2012 sales, underscoring the success of our direct lemon sales and marketing strategy, as well as our ability to integrate acquired citrus orchards over the past few years into our operations.

Our avocado revenue also contributed to our agribusiness growth, increasing to $11.7 million compared to $9.5 million last year, reflecting higher volume partially offset by lower prices. We also delivered year-over-year growth for our orange and specialty citrus and other crops business.

This strong performance across the board for our agribusiness highlights our growing portfolio of productive agricultural acres, as well as our operating expertise based on our agricultural history and experience. For the year, we generated $5.3 million in operating income, $9.9 million in adjusted EBITDA and earnings per share of $0.36.

We also made significant improvements to our balance sheet throughout the year and ended the year with an improved overall financial position.

Joe will discuss our balance sheet in more detail, but there are a few points I would like to highlight. In fiscal year 2013, we reduced our long-term debt by $27 million or 31%. We used the net proceeds from our February 2013 public offering, combined with the cash generated by the sale of Calavo Growers stock and the sale of the HM Eastridge property, to repay long-term debt and acquire additional citrus orchards. A stronger balance sheet enhances our financial flexibility to make strategic investments into our business, particularly our core agribusiness.

As we have stated before, our long-term strategy includes opportunistically monetizing certain assets, which will enable us to continue to add high-quality, productive acreage to our agribusiness. In fiscal year 2013, we executed on this strategy. The aforementioned sale of Calavo Growers stock and HM Eastridge property generated approximately $10.5 million in cash.

In addition, in December 2013, we announced the sale of our Sevilla and Pacific Crest properties located in Santa Maria, California. Both properties are being sold to the same buyer, and the combined purchase price of the two properties is $8.3 million.

Following the escrow period, we expect this deal to close in March of 2014, and we expect to receive $8.1 million net cash in October of 2014, in addition to interest earned on the notes receivable.

As with our asset sales in fiscal year 2013, we will use this cash to continue to pay down our long-term debt and strategically invest in our agribusiness and other key initiatives.

Throughout fiscal year 2013, we strategically added to our rich portfolio of productive agricultural land. We ended fiscal year 2013 with over 10,000 acres of owned, leased and managed agricultural property, which is almost a 30% increase in agricultural land compared to the beginning of fiscal year 2013, and we expect this to significantly contribute to our fiscal year 2014 operating results.

As we have stated on previous calls, we see a healthy pipeline of potential agribusiness acquisition opportunities. Many farmers in our core markets do not have a succession plan for their business and are looking for an exit strategy to their farming business. With our strong cash flow and improving financial position, this creates an opportunity for Limoneira to expand our agribusiness portfolio in existing and adjacent markets and leverage our operating experience and scale with additional lemon, avocado, orange and other orchards.

In fiscal year 2013, we acquired Associated Citrus Packers, or Associated, which added 1300 acres of agricultural property, primarily lemon orchards, in Yuma, Arizona. Associated is now a wholly-owned subsidiary of Limoneira. In addition to adding a significant number of cartons of Limoneira-grown lemons to our annual lemon sales, this acquisition is also significant in that it helps us provide our customers with a year-round lemon supply chain, which is extremely important in today's marketplace. The harvest and selling season in this region of Arizona complements those of our California lemon orchards. Our fiscal year quarter benefited from this acquisition, and our first quarter of fiscal 2014 agribusiness sales and operating profit is expected to benefit from the acquisition as well.

In fiscal year 2013, we also entered into a long-term lease agreement with Cadiz, Incorporated, to develop new lemon orchards on Cadiz's agricultural property in eastern San Bernardino County, California. Under the terms of this agreement, Limoneira has secured the right to plant up to 1280 acres of lemons over the next five years at the Cadiz Ranch operations in the Cadiz valley. This serves as another example of our ability to enter into partnerships that leverage our unique understanding of California's agribusiness operations.

Also in October of 2013, we acquired approximately 760 acres of agricultural property in the town of Porterville, in Tulare County, California, for $8.8 million in cash. This property consists of approximately 400 acres of productive lemon orchards and 360 acres primarily leased for cattle grazing. The addition of this property, which we call Lemons 400, brings Limoneira's owned and leased lemon holdings to over 1000 acres in the San Joaquin Valley and total lemon acreage to approximately 3900 acres in California and Arizona.

Lemons 400 is typically harvested and sold from November through May. We expect production of approximately 200,000 cartons of lemons for fiscal year 2014 for Lemons 400, and we anticipate that the harvest will increase by an additional 100,000 cartons of lemons in future years after certain orchard redevelopment on the property is complete. We expect to achieve annual production of approximately 300,000 to 350,000 cartons subsequent to orchard redevelopment over the next several years.

The Associated acquisition, the agreement with Cadiz and the acquisition of Lemons 400 represent three examples of different ways in which we can expand our agribusiness. We are the largest vertically integrated supplier of lemons in the United States and one of the largest growers of avocados in the United States. We are well-positioned to capitalize on the robust opportunities to further expand our leadership position in our market through both organic and acquired growth.

Turning to the rental segment of our business, we have begun development of 71 agricultural workforce housing units in Santa Paula, California, that will be available for rent to local agricultural workers and Limoneira employees towards the end of fiscal year 2014. We anticipate that this will add approximately $850,000 to $900,000 to our annual rental business. Our rental business is a steady and predictable revenue stream that provides us with a dependable source of annual cash flow.

In addition, it provides us with the unique ability to offer housing to agricultural workers and our employees, which in turn helps provide us with a consistent source of labor that is core to the success of our agribusiness.

Moving to our real estate development segment, fiscal year 2013 marked a key turning point in our real estate development efforts. Following the annexations of East Area 1 and 2 into the city of Santa Paula, we cleared all the necessary regulatory hurdles in order to begin development of these properties. This is extremely exciting for Limoneira, as we have been working on these projects for approximately 10 years.

As a reminder, East Area 1 and 2 consists of 550 acres for a master-planned community of residential units, commercial and light industrial properties comprising up to 1500 residential units, 560,000 square feet of commercial space and 150,000 square feet of light industrial space. We estimate that the residential component represents approximately 25% of all single-family homes, townhomes and condominiums that are currently in construction, planned or approved in Ventura County over the next 10 years.

The project should benefit from the land's prime location, which is 14 miles from the Pacific Coast and 65 miles from Los Angeles and easily accessible to several major highways. We are committed to entering into a deal with a reputable builder or builders that will optimize the success, cash flow and profitability of the project and ultimately maximize shareholder value.

We are and have been engaged in discussions with reputable builders, and our goal is to break group on the project and begin selling homes in the next 12 to 18 months, subject to general business, market and economic conditions. In the meantime, we have begun working with a rock remediation company to begin preparations of East Area 1 for development.

With our growing agribusiness and building momentum of our real estate development business, this is a very exciting time for Limoneira. We believe that we have the foundation in place for solid results for years to come as we begin to unlock the value of our diverse and rich assets. We are pleased with what we accomplished in fiscal year 2013 and are even more excited about our fiscal 2014 outlook, which I will discuss later in the call.

With that, I would like to turn the call over to Joe to discuss our fourth-quarter financial results.

Thank you, Harold. Good morning, everyone.

For the fourth quarter ended October 31, 2013, revenue was $14.3 million compared to revenue of $14.8 million in the fourth quarter of the previous year. Agribusiness revenue was $12.9 million compared to $13.6 million in the fourth quarter last year, primarily reflecting lower avocado volume and revenue. Rental operations was $1.1 million in the fourth quarter of fiscal year 2013 and fourth quarter last year. Real estate development revenue was $316,000 compared to $90,000 in the fourth quarter of last year. Our fourth-quarter 2013 agribusiness revenue includes $9.5 million in lemon sales compared to $8.5 million in lemon sales during the same period of fiscal year 2012, reflecting a lower number of cartons fresh offset by higher average price per carton.

Avocado revenue was $1.2 million compared to $3.3 million during the same period of the previous year, reflecting lower harvest volume, partially offset by a higher price per pound. The lower volume is due to an earlier completion of the harvest period in fiscal 2013 compared to fiscal 2012.

We recognized $400,000 of orange revenue in the fourth quarter of 2013 compared to $700,000 of orange revenue in the same period of fiscal year 2012. This decrease reflects a smaller crop compared to fiscal 2012. Specialty citrus and other crop revenues were $1.7 million in the fourth quarter of fiscal 2013 compared to $1.1 million in the fourth quarter of fiscal year 2012.

Turning to costs and expenses, for the fourth quarter of fiscal year 2013, we incurred $15.9 million of cost and expense as compared to $14.3 million in the fourth quarter of last year. The year-over-year increase in operating expenses primarily reflects increased agribusiness costs associated with our growing agribusiness, including the acquisition of Associated Citrus Packers. Operating loss for the fourth quarter of 2013 was $1.7 million compared to an operating income of $500,000 in the fourth quarter of last year. Operating loss for the fourth quarter was primarily the result of a $2.1 million decrease in avocado revenues.

Associated earned $500,000 of operating income in the fourth quarter of fiscal year 2013 from its September 6, 2013 acquisition date. Interest expense was zero in the fourth quarter of fiscal year 2013 due to repayments of long-term debt made with the proceeds of our February 2013 public offering of common stock. All interest incurred during the fourth quarter of fiscal year 2013 was capitalized on non-bearing orchards, real estate development projects and significant construction in progress. In the fourth quarter of fiscal year 2012, interest expense was $100,000.

Non-cash fair value adjustments on our interest rate swap were zero in the fourth quarter of fiscal year 2013 compared to $200,000 in the same period of the prior year. The interest rate swaps that generated the income in the prior periods expired in the third quarter of fiscal 2013.

Net loss applicable to common stock after preferred dividends for the first quarter -- fourth quarter of fiscal 2013 was $1.1 million compared to net income applicable to common stock of $0.1 million in the fourth quarter of the prior year. Loss per diluted share for the fourth quarter of fiscal year 2013 was $0.08, approximately 13.6 million weighted average diluted common shares outstanding, compared to earnings per diluted share of $0.01 on approximately 11.2 million weighted average diluted common shares outstanding in the same period last year. The year-over-year increase in shares outstanding is due to the 2013 public offering of common stock and the stock issued in the acquisition of Associated.

Turning to our full-year results for fiscal year 2013, revenue increased 29% to $84.9 million compared to $65.8 million last year. Lemon sales increased 32% to $58.1 million in fiscal year 2013 compared to $44.2 million in fiscal year 2012 as a result of increased volume and higher prices.

Fresh lemon cartons sold increased 29% to 3.1 million cartons in 2013 compared to 2.4 million last year. Avocado sales increased to 22% to $11.7 million in 2013 compared to $9.5 million in 2012, primarily as a result of higher production. We sold 15 million pounds of avocados in 2013 compared to 12 million pounds in 2012. The California avocado crop typically experiences alternate years of relatively higher and lower productivity due to plant physiology. Operating income for fiscal year 2013 was $5.4 million compared to $4.6 million last year. EBITDA for fiscal year 2013 was $9.9 million compared to $6.9 million last year.

Net income applicable to common stock after preferred dividends in 2013 was $4.6 million compared to the $2.9 million last year. Earnings per diluted share for fiscal year 2013 were $0.36 on approximately 12.8 million weighted average diluted common shares outstanding compared to $0.13 on approximately 11.2 million weighted average diluted common shares outstanding last year.

Fiscal year 2013 operating results includes a $3.1 million gain on the share of Calavo Growers common stock and a $1.8 million equity loss on the Company's investment in HM Eastridge LLC associated with the disposition of property by that LLC.

Turning to our balance sheet, as Harold stated, we improved our balance sheet in fiscal year 2013. We reduced our long-term debt by $27.3 million or 31% to $61.6 million compared to long-term debt of $88.9 million in fiscal year 2012. We used the net proceeds from our February 2013 public offering stock to pay down debt and provide capital for strategic initiatives.

In addition, we sold 165,000 shares of Calavo Growers stock in April 2013, and our equity investee, HM Eastridge LLC, sold its property in June 2013. These sales generated net cash of $4.8 million and $5.7 million, respectively, which was also used to pay down debt. These transactions are consistent with our goals of strategically monetizing assets to increase our financial flexibility to capitalize on future agribusiness acquisition opportunities and invest in real estate development projects.

Now I would like to turn the call back to Harold to discuss our fiscal year 2014 guidance.

Thanks, Joe. For the first and second quarters of fiscal year 2014, we expect to realize incremental revenue and earnings resulting from the acquisitions of Associated and Lemons 400. For the fiscal year ended -- ending October 31, 2014, the Company expects to sell between 3 million and 3.3 million cartons of fresh lemons and expects to sell approximately 6 million pounds of avocados.

The California avocado crop typically experiences alternating years of high and low production due to plant physiology. Fiscal 2013 was a high avocado production year, and fiscal 2014 is expected to be a lower avocado production year. Lemon and avocado prices are expected to be higher in fiscal year 2014 than 2013, due to lower industry production.

We expect to earn approximately $7 million in operating income in the fiscal year 2014, representing an approximate increase of 30% compared to fiscal year 2013 operating income of $5.4 million. The expected increase in operating income is primarily due to the additional lemon revenues to be generated by the acquisitions of Associated and Lemons 400, partially offset by lower expected avocado revenues. Fiscal year 2014 pretax earnings are anticipated to be similar to fiscal year 2013, as $1.3 million of earnings from asset sales and $700,000 of interest rate swap income realized in fiscal year 2013 are not expected to recur in fiscal year 2014.

We begin fiscal year 2014 with approximately 2300 additional agricultural acres, representing a 30% increase compared to the beginning of fiscal year 2013.

And with that, I would now like to open up the call for your questions. Operator?

(Operator Instructions). Tony Brenner, ROTH Capital Partners.

Harold, you have been in negotiations with homebuilders for quite a while. And earlier you had indicated that these would be concluded before the end of the fiscal year, then before the end of the calendar year, and at this point, they are still ongoing. Home sales, which, as I recall originally, were said to begin at the end of fiscal 2013 now look like they are not going to take place until fiscal 2015. So I'm wondering what really is the timeline here and why is this dragging on for so long.

Thank you, Tony. Good question. We anticipated that question. And essentially for the last six months, we have been in exclusive negotiations with a single homebuilder, which ultimately did not conclude in a satisfactory way for Limoneira. And during that time period, we received some very good suggestions on slight alterations to the specific plan that we believe, upon incorporation, will do a much better job helping us to meet the true market demand when the first products start to get built.

So in essence, we lost about six months during these negotiations. We have just come out of that period of exclusivity, and we are back at the table speaking with a number of different builders now. And we believe that, while a little bit later than we had hoped, the strength of the project has built, the quality of the project has increased. And we, while we are trying to hedge our bets and do a better job communicating to the market of our expectations of announcing a deal or deal with the homebuilders, we put a placeholder of being able to announce those in the next 12 to 18 months. But I think the best way to characterize it is that we are in ongoing conversations with a number of builders currently, and we hope to announce relationships, a relationship or relationships with a number of builders in a short period of time.

That being said, the process that lies ahead of us related to the homebuilding involves a significant amount of rock remediation of the project. We have actually begun to move the rock off the project, which is preparing, now, the land for ultimately soil compaction. And that leads to grading and then the first pieces of infrastructure set to be built, which are roads and utilities, which we began -- we anticipate to begin by the end of fiscal 2014.

It's our goal to have an announcement of a builder or builders by the end of 2014 so that by the time that the infrastructure is laid down or at least the first phase of infrastructure is laid down, we will begin to build the very first product beginning at the end of 2014 or the beginning of 2015. And while that is still kind of rough and, I know, not specific to the level that some hoped, we do believe we have done the right thing for the shareholders by sticking to our belief in the values of the project and continuing our ongoing negotiations with homebuilders.

When you said you have changed the objective for the structure of the deal, originally you were contemplating developing land and then selling that land to homebuilders. So does that mean you are thinking of a different way of doing this now?

No. We believe that is still the way to do it. I think what I meant by that comment is, as we look forward to the demand in the marketplace for the type of product, which could be single-family homes attached, single-family homes detached, product for rent, product for sale, we have a much better feeling today for what we believe the market will want and absorb along with the appropriate size of the homes and price points of the homes.

And so, in order to incorporate those ideas, we have laid out the project slightly differently.

In terms of from an investor's standpoint or the way we believe the project will perform financially, we are still of the belief that we will create numbers of finished lots, which we will then sell to a homebuilder or homebuilders over the life of the project.

(Operator Instructions) Brent Rystrom, Feltl and Company.

Good morning, guys. Just a couple quick ones. In Tulare, did you guys sustain any damage in December from the cold weather up there?

No. We were very fortunate in that all of the Limoneira assets navigated through the extremely cold temperatures very effectively, with the one exception that some of the orange properties were affected. We believe that at this point it's still preliminary, but we believe our total orange crops were affected to the tune of about 10% damage.

That being said, the reason that we haven't made much noise about it is that we believe that our estimates of production are approximately 10% up over where we thought they were going to be. So net-net, we believe that our oranges will make it through relatively unscathed, and we are anticipating increased pricing, which we are starting to see in both lemons and oranges currently.

And that was going to be my next question. I was up there last week and talked to about a dozen growers and a couple package houses. And everybody was talking about pretty significant damage, a little bit higher than you are talking, maybe 10% to 25% damage to the crop and everything grading lower. So I would imagine you are going to have a pretty good pricing cycle coming out of that region.

We are already seeing it in lemons. And for instance, last year our average FOB for the year was about $16.50 for a 40-pound carton, and currently we are enjoying average sales prices in the $23 range right now. We believe that those prices will continue to be sustained.

On the orange side, it's still a little bit early to predict or just because the packing houses are still going through very strict efforts to make sure that they don't ship any bad product. And so the pricing is holding fairly steady. But, as you point out, we do expect prices to firm up here in the coming weeks.

All right. And then any updates -- last time I visited with you, we talked a lot about possibly starting to plant wine grapes on some of the land. Any updates or thoughts on that?

Yes. So I was just up at our Windfall Farms property in Paso Robles. It's currently staked out, and the trellises will begin to be put in, beginning in February-March. The vines are ordered, and 60,000 vines will be planted about the middle of April. And the first 100 acres of Windfall Farms will be planted to predominantly Cabernet Sauvignon.

Great. Thanks, guys.

And at this time, we have no further questions in the queue. I will turn the conference back over to management for any additional remarks.

Thank you for your questions and interest in Limoneira. We will be presenting at the ICR XChange Investor Conference today, and over the next several months, we will be attending select investor events. And we hope to see many of you there. Thank you, again, and have a great day.

And that does conclude today's conference. Again, thank you for your participation.