Limoneira Co (LMNR) 2014 Q4 法說會逐字稿

Good day and welcome to the Limoneira fourth-quarter fiscal year 2014 conference call. Today's conference is being recorded and at this time, I would like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir.

Good afternoon, everyone and welcome to Limoneira Company's fourth-quarter and fiscal year 2014 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 2014 earnings release which went out today at approximately 4 PM Eastern Time. If you have not had a chance to review the release, it is available on the Investor Relations portion of the Company's website at Limoneira.com. This call is being webcast and replay will be available on the Limoneira website as well.

Before we begin, I would like to remind everyone that the 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 risk 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 risk details in the Company's 10-Q's and 10-K's 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, Herald.

Thanks, John. Good afternoon, everyone and thank you for joining us. On today's call I will begin with a brief overview of financial highlights for the fourth quarter and year and provide an update on our progress across all of our business areas. Joe will review the financial results for the fourth quarter and full year in more detail and I'll then discuss our 2015 outlook and open the call up for your questions.

Fiscal year 2014 was another strong year for Limoneira. We made progress across all aspects of our business and recorded a record financial performance. For the year, our revenue increased 22% and surpassed $100 million, an exciting milestone for us. Our top line was driven by our agribusiness and in particular our lemon sales, which increased by 37% on a year-over-year basis.

We enjoyed higher than historical average lemon prices throughout fiscal year 2014 and we also benefited from the success of our direct lemon sales strategy and additional lemon acreage that we acquired over the past couple of years. Our top line also benefited from higher orange sales in fiscal year 2014 which offset anticipated lower avocado sales.

As a reminder, the avocado crop typically experiences alternating years of high and low production due to plant physiology. Fiscal year 2014 was a year of low production.

Our adjusted EBITDA in fiscal year 2014 increased 45% to $14.5 million and we achieved net income applicable to common stock of $6.5 million or $0.46 per diluted share. In fiscal year 2014 we generated operating cash flow of $15.7 million which is an increase of $10.2 million as compared to fiscal year 2013.

This has enabled us to make strategic investments into our business to drive future growth while continuing to return value to shareholders in the form of a quarterly dividend which we increased 20% in fiscal year 2014. As we begin 2015, we are excited about the momentum for Limoneira and we are well-positioned for continued long-term growth for each segment of our business.

Beginning with our agribusiness, since the beginning of 2012, we have expanded our total agricultural acres through strategic acquisitions and leases of lemon and citrus orchards by approximately 54%. We ended fiscal year 2014 with over 160 direct lemon customers and believe we are well-positioned to increase our customer base over the course of fiscal year 2015 as well as in future years.

We are working on the expansion of our lemon packing facilities in Santa Paula, which is expected to increase efficiency and double the annual capacity of our lemon packing operations. We expect to complete the expansion during the summer of 2015 as we continue to execute on our long-term growth strategy to acquire additional lemon orchards, build relationships with third-party growers and add lemon customers. The expanded facilities should help us maximize growth opportunities for Limoneira and improve operating margins.

We expect to benefit from a number of investments and acquisitions that we made in fiscal year 2014 to further increase our packing capacity as well as enhance our position as a year-round global supplier of lemons. First, we purchased the packing house property and equipment of the Marlin Ranching Company which is located in Yuma, Arizona, strategically near our existing farming operations.

We use the facility to wash and pack lemons from Limoneira's orchards in Arizona as well as citrus from other growers in the region. This acquisition creates opportunities for additional operating income beginning in fiscal year 2015 resulting from a combination of cost savings from not shipping fruit to our Santa Paula packing facilities and incremental fruit packing operations.

Our second key acquisition in fiscal year 2014 was our first international business expansion with the investment and Rosales S.A., a citrus packing marketing and sales operation located in La Serena, Chile. La Serena is located in a coastal region of northern Chile and is a major citrus and avocado growing area of that country.

Rosales primarily packs and sells lemons and currently sells its products in Asian, European and Chilean markets. Limoneira now handles Rosales' sales into Asian markets, leveraging our existing relationships and providing opportunities to expand our business in Asia, benefiting both Rosales and Limoneira.

With our investment Limoneira has a 35% interest in the business. We will earn equity income from our investment as well as $0.50 a carton on lemon sales to Asian markets which combined is estimated at $200,000 to $300,000 of additional cash flow per year. This acquisition was completed in the fourth quarter of fiscal year 2014, so we expect to realize its benefits beginning in fiscal year 2015.

We've been looking for the right opportunity to enter the Chilean agricultural market and we are very excited about our partnership with Rosales in our first direct international investment.

These two acquisitions represent significant progress on one of our important long-term growth initiatives of improving our position as a year-round global supplier of lemons which is becoming increasingly important in today's market. Looking forward, we continue to be pleased with the healthy pipeline of future acquisitions and investment opportunities to complement the organic growth of our agribusiness.

Before I move on to our next business segment, I would like to briefly comment on the California drought as it relates to our business. As we have previously discussed, California continues to experience one of the most severe droughts on record. And although California has enjoyed rain and snowfall recently, a consistent period of precipitation is needed to provide relief to the current drought conditions.

As we have previously stated, Limoneira is extremely fortunate in that thus far the drought has not had a material impact on our operations. Water for our farming operations located in Ventura County, California is secured from existing water resources associated with our land, which includes approximately 8,600 acre-feet of adjudicated water rights in the Santa Paula basin and the unadjudicated Fillmore basin.

We use a combination of groundwater provided by wells and water from various local water districts in Tulare County, California which is an agriculturally productive San Joaquin Valley. Our associated citrus packers farming operation in Yuma, Arizona sources water from the Colorado River through the Yuma Mesa irrigation and drainage district where we have access to approximately 11,700 acre-feet of Class III Colorado River water rights.

We use groundwater provided by wells at the Cadiz Ranch in San Bernardino County in California and our Windfall Farms property located in San Luis Obispo County obtains water from wells deriving water from the Paso Robles basin.

In fiscal year 2014 irrigation costs for our agricultural operations were approximately $300,000 greater than the same period of last year resulting from pumping more water from wells and basins due to less rainfall. This trend may continue as we pump more water than we have historically as demand for limited water supplies increases the cost for such supplies and federal, state and local water delivery infrastructure costs increase to access these limited water supplies.

In challenging conditions such as these, it is beneficial that we have significant water rights and other water access across our agribusiness operations. Our water assets and resources are an important part of our business. We believe that we have access to adequate supplies of water for our agricultural operations as well as our real estate development and rental operation segments of our business.

However, if drought conditions persist or worsen, or if regulatory responses to such conditions limit our access to water, our business could be negatively impacted by these conditions or regulatory responses in terms of access to water and/or cost of water.

Now turning to the rental operation segment of our business, we remain on track with the development of 51 additional agricultural workforce housing units in Santa Paula, California that should be available for rent to local agricultural workers and Limoneira employees beginning in the second quarter of fiscal year 2015. When the project is completed we anticipate this will add $850,000 to $900,000 of annual revenue to our rental business.

Our rental operations segment provides a dependable revenue stream and source of annual cash flow, as well as the unique ability to offer housing to agricultural workers and to our employees.

Regarding our real estate development efforts, we continue to make progress with our East Area 1 project, also known as the Santa Paula Gateway project. As a reminder, this project consists of a 550 acre master-plan community with up to 1,500 residential units, 560,000 square feet of commercial space and 150,000 square feet of light industrial facilities.

We estimate that the residential component represents approximately 25% of all single-family homes, town homes and condominiums that are currently planned or approved in Ventura County over the next several years.

Last month, we rescheduled the Santa Paula City Council hearing to approve the specific plan and development agreement until February 2015. The hearing was previously scheduled to occur on December 15, 2014. The rescheduled hearing allows the three new city council members that were sworn into office on December 1, 2014 additional time to evaluate the project.

To ask them to evaluate and vote on such a large and important project for the city of Santa Paula two weeks after they were sworn into office would not have been reasonable. In addition, following discussions with potential development partners, we are very -- we were encouraged to consider including the potential for age targeted senior housing in the project specific plan.

As of today, we have submitted the updated East Area 1 master tentative tract map and the supplemental environmental impact report known as the SEIR to the city of Santa Paula. In addition, we are currently in the process of finalizing responses to SEIR comments and finalizing an updated development agreement which we plan to submit once completed.

These items are expected to be heard simultaneously at the February 2015 City Council hearing. Following the hearing we anticipate approval to break ground on the project. We've been working on our East Area 1 development for several years and we are certainly anxious to begin monetizing our investment.

We anticipate that we will break ground on the project in calendar year 2015. We are actively engaged in discussions with leading developers and reputable homebuilders and are committed to entering into the agreement that is best for our Company, our community and one that will maximize shareholder value.

As a final update on our business, I'd like to discuss our Windfall Farms property located near Paso Robles, one of the premier wine growing regions of California. As a reminder, Windfall Farms is a 720 acre property that may be subdivided into 10 to 40 acre lots and includes extensive equestrian facilities and access to deepwater wells.

We planted approximately 100 acres of Cabernet Sauvignon grapes during fiscal year 2014 and expect to plant an additional 100 acres in fiscal year 2015. Vineyards are generally productive after four years. The vineyards are expected to generate cash flow when they are fruit bearing and enhance the potential for lot sales.

In summary, we are excited about what we accomplished in fiscal year 2014. And as we begin fiscal year 2015, we remain focused on our key strategic initiatives of expanding our agribusiness and monetizing our rich portfolio of real estate assets.

We finished the year in a healthy financial position and are confident that we are on track to deliver another solid year in 2015. With that, I'd like to turn the call over to Joe to discuss our fourth-quarter financial results.

Thank you, Harold. Good afternoon, everyone. For the fourth quarter ended October 31, 2014, revenue was up 14% to $16.3 million compared to the fourth quarter of fiscal year 2013. Agribusiness revenue was up 17% to $15 million primarily reflecting higher lemon revenue.

Rental operations revenue was $1.2 million in the fourth quarter of fiscal year 2014 compared to $1.1 million in the fourth quarter last year. Our fourth-quarter 2014 agribusiness revenue includes $13.8 million of lemon sales compared to $9.5 million of lemon sales during the same period of fiscal year 2013, primarily reflecting a higher average price per carton due to more favorable market conditions, as well as an increase in cartons of lemon sold.

During the fourth quarter of fiscal year 2014 and throughout the year we enjoyed higher than historical average lemon prices. As we expected, there were minimal avocado sales in the fourth quarter of fiscal year 2014 compared to $1.2 million of avocado sales in the same period of fiscal year 2013.

We recognized $585,000 of orange revenue in the fourth quarter of 2014 compared to $360,000 of orange revenue in the same period last year. Specialty citrus and other crop revenues were $585,000 in the fourth quarter of 2014 compared to $1.7 million in the fourth quarter of fiscal year 2013. This decrease is primarily due to lower olive, peach, plum and pistachio production.

Turning to cost and expenses, for the fourth quarter of fiscal year 2014 we incurred $20.8 million of costs and expenses as compared to $15.9 million in the fourth quarter of last year.

The year-over-year increase in operating expenses primarily reflects increased agribusiness costs mainly associated with packing costs at our newly acquired packing business in Yuma, Arizona, higher cost of fruit procured from third-party growers and certain SG&A expenses associated with our strategic initiatives and higher employee incentive compensation resulting from increased annual profitability of the Company.

Operating loss for the fourth quarter of fiscal year 2014 was $4.5 million compared to an operating loss of $1.6 million in the same period last year. EBITDA was a negative $3.3 million in the fourth quarter of fiscal year 2014 compared to a negative $0.6 million in the fourth quarter of last year.

As noted above, the increase in the fourth-quarter loss was due to lower avocado and specialty and other crop revenue and increased agribusiness and selling, general and administrative costs.

In addition, while fresh lemon sales were higher in the fourth quarter of fiscal year 2014 compared to fourth quarter of fiscal year 2013, 42% of fresh lemons sold in the fourth quarter of fiscal year 2014 were procured from third-party growers at an average price per carton of $25.71 compared to 38% for the fourth quarter of fiscal year 2013 at an average per carton cost of $17.12.

Lemons procured from third-party growers earn much lower margins than lemons that are grown on our orchards.

Net loss applicable to common stock for the fourth quarter of fiscal year 2014 was $3 million compared to $1.1 million in the fourth quarter of the prior year. Loss per diluted share for the fourth quarter of fiscal year 2014 was $0.21 on approximately 14.1 million weighted average shares outstanding compared to loss per diluted share of $0.08 on approximately 13.7 million weighted average common shares outstanding last year.

The year-over-year increase in shares outstanding is primarily due to the increase -- primarily due to the shares issued in connection with the acquisition of the citrus packing business in Yuma, Arizona.

Now turning to our full-year results, revenue in fiscal year 2014 was $103.5 million, an increase of 22% compared to $84.9 million in fiscal year 2013. This was primarily driven by a 23% increase in agribusiness revenue including an increase in lemon sales of 37% due to higher prices for fresh lemons sold, partially offset by decreased volume.

Our agribusiness also benefited from higher orange sales for fiscal year 2014 which increased 38% compared to the prior year. Avocado sales decreased by 38% on a year-over-year basis reflecting expected lower production for fiscal year 2014. Specialty citrus and other crops revenue decreased 18% on a year-over-year basis due to lower olive, peach, plum and pistachio production.

Operating income for fiscal year 2014 increased 83% to $9.9 million and adjusted EBITDA increased 45% to $14.5 million. Net income applicable to common stock for fiscal year 2014 was $6.5 million compared to $4.6 million last year.

Fiscal year 2014 financial results include an impairment charge of $435,000 associated with a nonbinding letter of intent for the sale of our Centennial property. The sale did not go through but we still recognized the impairment charge.

For comparative purposes, it's important to recall that net income for fiscal year 2013 includes a $3.1 million gain associated with the sale of Calavo Growers common stock and a $1.8 million equity loss related to the sale of the Company's investment in HM East Ridge LLC. These two transactions combined generated approximately $900,000 of net income and $0.07 earnings per diluted share for the year ended October 31, 2013.

Earnings per diluted share for fiscal year 2014 were $0.46 on approximately 14.1 million weighted average common shares outstanding compared to $0.36 on approximately 12.8 million weighted average common shares outstanding. The year-over-year increase in shares outstanding is primarily due to the shares issued in connection with the acquisition of the citrus packing business in Yuma.

Regarding our cash flow and balance sheet in fiscal year 2014, net cash from operating activities was $15.7 million compared to $10.2 million greater than last year -- excuse me, which was $10.2 million greater than last year.

Net cash used in investing activities was $28.2 million in fiscal year 2014 compared to net cash used in investing activities of $11.3 million in the same period of fiscal year 2013, primarily related to our investments in the expansion of the lemon packing facilities, additional farm worker housing units and our equity investment in Rosales.

Net cash provided by financing activities was approximately $12.5 million for fiscal year 2014 compared to $5.9 million in fiscal year 2013.

Fiscal year 2014 net financing cash flows include net borrowings from long-term debt of $6.2 million, $9.3 million in proceeds from the issuance of preferred stock and common and preferred dividends paid of approximately $2.8 million.

October 31, 2014 long-term debt was $67.8 million compared to $61.6 million at the end of fiscal year 2013.

Now I'd like to turn the call back to Harold to discuss our fiscal year 2015 guidance.

Thanks, Joe. Before I discuss fiscal year 2015 guidance, I'd like to make some comments regarding the guidance we provided at the end of our third quarter regarding our expected fiscal year 2014 results.

We had anticipated full-year pretax income in the range of $13.2 million, to $14.2 million and earnings per diluted share in the range of $0.57 to $0.62. We generated $10.6 million of pretax income and $0.46 of earnings per diluted share. The difference between our guidance and our actual results is mainly due to the following factors.

We sold approximately 120,000 fewer fresh lemon cartons in the fourth quarter of 2014 than we expected because our District 2 Ventura County production was smaller in size and quantity as the season completed.

In addition, a larger portion than expected of the lemons that we sold in the fourth quarter of fiscal year 2014 were procured from third-party growers which is lower margin than lemons that we harvest on our own property. Such fluctuation in harvest results is a normal part of our agricultural business.

In addition, certain costs and expenses were higher than we expected in the fourth quarter of fiscal year 2014, including farming costs driven in part by additional pest-control expense due to the drought and treatments for the Asian citrus psyllid; packing costs, including the recently acquired Yuma, Arizona lemon packing operations; and certain selling, general and administrative expenses including costs associated with our strategic initiatives.

Now turning to fiscal 2015, we expect to sell between 3.2 million and 3.4 million cartons of fresh lemons at an average price of approximately $22 per carton and expect to sell approximately 6.5 million to 7.5 million pounds of avocados at approximately $1 per pound in grower return.

However, certain of our avocado orchards recently experienced freezing temperatures that likely caused damage to a portion of the fiscal year 2015 crop. The extent of the damage is being assessed and we don't expect to know the extent until the second quarter of fiscal year 2015. The volume range of production I noted reflects our current estimate of production net of the effects of this pending damage.

We expect operating income and net income for fiscal year 2015 to be similar to fiscal year 2014 operating income and net income as a result of higher anticipated avocado revenue due to the potential for increased production, depending on the extent of the avocado freeze damage and lower expected selling, general and administrative expenses offset by anticipated lower lemon revenue due to lower fresh lemon prices.

In addition, subject to the extent of the avocado freeze damage noted above, we expect to earn approximately $9.4 million to $10.2 million in operating income in fiscal year 2015 compared to $9.9 million of operating income in fiscal year 2015.

Fiscal year 2015 income before tax is expected to be approximately $10.4 million to $11.1 million compared to $10.6 million of income before tax for fiscal year 2014. We expect fiscal year 2015 earnings per diluted share to be in the range of $0.42, to $0.46 compared to fiscal year 2014 earnings per diluted share of $0.46.

Overall, I am very pleased with our performance in fiscal year 2014 and I'm excited about our outlook for 2015. We are beginning the year in a strong position with expanded agribusiness operations including increased participation in the global market as a result of the recent investments we have made in packing houses in Arizona and Chile.

Throughout fiscal year 2015 we plan to continue to capitalize on opportunities to further grow our core agribusiness through strategic investments and acquisitions. We also remain confident that we will break ground on our East Area 1 development this year and we expect to benefit from the significant cash flow associated with this project.

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

(Operator Instructions). Brent Rystrom, Feltl.

Good afternoon, guys. A couple of quick questions. Can you give us a quick review of your acreage that's productive right now by type? So how many acres of lemons, how many acres of oranges, avocados, etc.?

Joe, do you want to field that one?

In fact you will see that in the 10-K, Brent, when you get a chance on page 10.

That is fine. Actually just leave it at that then; I will look it up in there. I haven't had a chance to look at it.

Yes, the chart by acreage and by crop and years of production and all that is spelled out on page 9 and 10. You'll see I think a couple of useful charts.

Super. Secondly, can you give us an update on how the funding of the new K-8 school might work that you've committed some capital to?

Sure, I'd be delighted to do that. So the timing of the school we anticipate will be blended also with the first phase of our residential building as well as some of the first commercial building that will take place on the project.

As we've reported before, we are evaluating a number of nondisclosure agreements that we have signed with potential development partners who we are very optimistic will allow us to create a partnership for the eventual build out of the whole project. But who will also help capitalize the various components of the projects, not least of which will be the infrastructure that will need to be implemented as well, as you mentioned, the new school.

All of our pro forma projections of the project include about a $30 million total investment into the school. And the school will be financed by a -- in part by what's known as a CFD, we believe, which is called a community fund district where residents who are home buyers in the East Area 1 project will contribute to the funding of the development of the school.

We are also working and watching very closely a very dynamic funding environment at the state level and there may actually be state of California funds that would help offset the cost that we have pro forma'd in the project.

All of our pro formas don't include any state participation, but -- because just to be conservative. But at this point it looks like there could be a significant amount of some of that money coming from the state of California. It's a dynamic situation.

All right, thank you. On Windfall Farms, can you give us a sense of how much -- and this may be in the case, I apologize if I haven't read it yet -- how much it cost per acre to establish the 100 acres of vineyards?

So right now we are spending -- not including the basis of our land investment or the improvements that we've made to the property, but just to invest in the planning of the vineyards, we are investing about $15,000 an acre to do that.

And is that $15,000 -- is that all upfront cost or does that include anticipated carrying costs until you can get vineyards up and producing grapes?

No, that is pretty much all in the upfront cost. Joe, do you have a feel for the carrying cost?

It tends to be pretty similar to our other orchards, so it runs roughly in the neighborhood of $2,000 an acre per year. So if we are going to carry that for the three or four years until it becomes productive that's how you're going to get to capitalizing all the costs over the period of time of growing it to production.

Okay and then once it becomes productive, an acre of vineyard, how do you expect the EBITDA to start and then how do you think it will peak?

This is total swag, Brent, because there's a lot of variables that go into the answer to that question. It's a great question by the way. But essentially we will harvest our first grapes in year three, but would expect very limited if any revenue to come from that at all.

But from year four -- from say year four to year seven I think we should anticipate somewhere between $500 to $1,000 of net return per acre. And what I'm including in that is the gross revenues less the direct expenses to come up with that operating profit. That does not include depreciation.

And once the grapes are full bearing, which we anticipate around year seven, we anticipate annually generating returns per acre somewhere between $3,500 an acre to as much as $6,000 an acre.

And are those numbers based on -- [some of management] I know has outside interests with family companies that are very large grape growers. Is that based on the experience say in those operations? Is it based looking at that area around Paso Robles? Or how would you define how you came up with that expectation?

Yes, so you alluded to it. So the Teague family have been farming grapes up in the King City area of California for generations. And by their involvement in that operation they have been very instrumental in bringing a turnkey approach towards not only establishing the vineyards and getting the grapes planted, but also introducing us to who might be the potential contract buyers of the wine grapes once we get closer towards being full bearing.

And so these results that we've pro forma'd and that we've discussed are really based on the experience that the Teague families have had and continue to have. But also with our knowledge and our understanding of what grape -- wine grape growers around us in the Paso Robles areas are achieving.

As we look out into the future, we continue to be very bullish on the future of wine grape production. We believe that global trends continue to be very supportive of more plantings. And we've seen a real shift recently in global demand for wine as it relates to what is now being considered limited amounts of arable acres in the world to produce high-quality wine. And so we believe that the global trends are playing right into our hands of this development.

Final quick question on that and then I have one other question. How do you think this will impact the valuation of Windfall? I mean will it -- I don't recall what you were asking, but I believe -- just looking at the website, I believe the prices you had listed were about $50,000 an acre -- per acre. Does that seem high or is that --?

No, that's probably realistic. The real drivers of value on that property is the fact that it has a fully entitled plat map that was established in the 1930s that allows that 720 acre piece of property to be subdivided into 10 acre parcels or smaller parcels. And that ability to subdivide is where a big piece of the value comes from, because most of the Paso Robles area is zoned agriculturally where the smallest amount of increments that land can be broken down into are 100 acre parcels.

So having the ability to have a smaller parcel creates a real opportunity to create a lifestyle type of a development where a person could have a home and a small vineyard and have that be very manageable for them. So certainly the subdivision is a big piece.

The next piece that turns out to be a really big piece, and it was like to us to this property originally, is Paso Robles is experiencing the very negative impacts of the drought. And this area in particular is really suffering from the drought around Paso Robles.

And our property, we're very fortunate, has secured three new wells that we were able to establish before the well moratorium was put into place. And each of those wells are going to be capable of generating somewhere between 2,000 and 2,500 gallons a minute. So we're very, very pleased with not only the water quantity but also the water quality we have there. And in today's environment, the water has made that land very, very valuable.

And then the third piece is planting the grapes on the property and establishing a high quality vineyard. So in combination, the whole thing should bring values up around the $50,000 an acre level that we've been talking about.

All right. And then my final question was going to be on the packing houses. Obviously you want to drive new leverage through what you are doing in Santa Paula and as you think about Arizona and Chile. Is Arizona also a place where you continue to plan to expand or is it primarily leveraging the Santa Paula and Chilean assets?

There will be growth opportunities in Arizona sparingly. Just as a refresher, the reason that we were so attracted into each of these different areas is each of these areas has a very different and specific microclimate that really influences the seasonality of the lemons. And by having operations in each of those three places it allows us to now perfect our 365-day supply chain.

So the desert lemons, the Yuma, Arizona lemons, they start harvest and we're able to go to market with that fruit starting in August and going all the way out to probably January. At which point the production shifts up to the San Joaquin Valley and that's really November to March. And then the seasonality of the lemon shifts down to the California coast, which is Santa Paula, and that's from March to August.

The reason I make that point is that as we look to expand we are also looking -- trying to expand in a balanced way and we don't want any one area to get too far ahead of the other areas or else we potentially would create supply chain issues.

So the other detail about Arizona that's interesting is that up until probably December and -- November/December it's very, very difficult to get trucks to roll out to that part of the country, whereas in Santa Paula it's very easy to get trucks because of the flourishing produce business which is there.

Starting in about November/December, a very high percentage of the winter vegetables that are consumed in the US are produced in Yuma, Arizona and at that point every single trucking company is down in Yuma. So it's very easy to get transportation. But up until that time it's very difficult to get trucks.

And so, when we end up buying freight, outbound freight in Yuma, we find that it's -- even before November/December we find it's very expensive to get that trucking before November/December.

So that had a big part to do with our acquisition of this Yuma packing house because, from about November on when there's trucks there, it's much more efficient for us to pack and ship lemons out of Yuma for that fruit. But before November it's much more efficient, believe it or not, for us to wash the fruit in Arizona but then bring it to Santa Paula for packing.

Great, thank you very much.

(Operator Instructions). Chris Krueger, Lake Street Capital Markets.

Hi, good afternoon. I know on your guidance for your lemon sales, for now you are expecting about $22 per carton. What was that number for fiscal 2014 on average?

Ended up right around $24 and change I believe.

Okay. Then I believe earlier in the year there was a lime shortage and you notice that a lot of food service type customers were getting people to switch from using a lime to a lemon, whether it's in their beverages or whatnot. Are you seeing that stick as limes come back or can't you tell?

We've been very pleased with the demand, Chris, and I think it continues to be and exceeds expectation. Not only with the demand that we are seeing in the United States, but also demand globally. And so, as we talk about that $22 price, which remember is the average price for the eight different sizes and the three different grades that we sell fresh, we continue to be very pleased with the strength of the pricing, which we do believe is demand driven right now.

And so as we gave guidance at $22 a carton, we've thrown that out there to be -- well, hopefully to be conservative. And we'll continue to report quarter to quarter on where the pricing is landing and how that changes our view of the year. But at this point we've been very pleased with the continued demand and pricing.

Okay. One other question, does the city Council have an exact date for that meeting in February?

It is February 15.

Okay, thanks. That's all I've got.

Eric Larson, Janney Capital Markets. Steven Martin, Slater Capital Management.

The last question asked about the average for 2014, what was the total cartons for 2014?

2.9 million.

Okay, so next year's -- is next year's estimate or guidance -- how would you -- would you call it reasonable, conservative, aggressive?

No, I think it is reasonable. We know the fruit's there right now. In fact, we think there might be more fruit than that there. The main issue -- and there's no go gets in that number. In other words it doesn't factor in us having to go recruit new third-party growers or see anything that we don't know of at this point.

The only thing that I'd just throw out there is that it got pretty cold the last couple of weeks. We don't think we sustained any damage in the lemons, but I just throw that out there as sort of a cautionary tale just because our avocados we feel were impacted by we'll just have to keep our eye on it. And that would be the one thing that I think could influence the volume if there was one thing to really be concerned about.

Thank you (multiple speakers).

The other thing, Steve, just as a point of reference, 3.1 million cartons were sold in fiscal 2013. So we're in that same general ballpark of the low 3 million's area.

Okay. Now I assume that you said that that doesn't include having to go out and purchase any other. Are there any other acquisitions or where do you stand? You've been notably quiet lately on acreage.

Yes, we have a full pipeline of deal opportunities. We're in diligence on quite a few of these right now. And I guess recall that these are typically generational family farms that typically involve estate planning and they can be very, very complicated and so -- and they take quite a while. We find that the diligence period takes quite a while.

But as we saw last year, we were very fortunate with the Associated Citrus Packers Group joining us. That turned out to be incredibly opportunistic and just a really great acquisition for the Company. And we are hopeful that we'll be able to see other deals just like that come to the table in 2015.

Is there a problem with the new higher average pricing that the sellers now want to base the price on the most recent pricing versus where it was say 12 or 18 months ago?

Not really, Steve. Farmers have seen good times, they've seen bad times and the more mature farming companies and farming families understand the commoditized impact of whatever it is they are producing. And so, when it's good they enjoy it and when it's bad they prepare for it.

So I don't think that the higher pricing is really correlating to expectations of higher land values. I would say that the one thing that is influencing land values more today than I've ever seen is access to water. And so, land may now has -- clearly established water rights is seeing a premium because of that.

Got you. Next question is sort of a little touchy but a little out of your control. On this same call last year you expected East Area 1 and 2 to have occurred and you made the comment that you would've expected to have broken ground and actually entered into sale -- land sale contracts within 12 to 18 months.

Recognizing that a lot of this is out of your control, but you are now further into the process, how long after -- on the assumption you get the approvals in February and you have a contract with the developer, when would you expect to actually start selling land or breaking ground and [selling]?

Okay, yes, so those are all great questions and the out of our control part of it is what makes it challenging. But I guess the nice thing about what we are nearing now is having everything about to be in our control. And so, at that point now it's just executional risk and going right into the dynamics of the marketplace.

But to try to answer your questions more specifically, technically we've already broken ground. We are actually removing rock as we speak and preparing parts of the project property for earth compaction, which is all part of the process to grade and then be able to build. So that part is actually happening right now, so technically we have broken ground.

We also are down to the short strokes in identifying our potential development business partner for the project. We've had some excellent candidates demonstrate an interest. The economics that we've been discussing in this relationship have been sort of right in the general area that I've been discussing publicly. And so, I think we are very optimistic to be able to announce that relationship.

We'll be very careful with the announcement of that relationship. We won't make the announcement until we've actually executed the deal. And we believe that from the date that we select the partner to the date that we announce who that will be, we believe that will be a 60-day process.

But to specifically address when we think we'll sell the first houses, I think what will happen is you'll see homebuilders that will come in and do lot takedowns and I would expect those to begin -- Joe, have we commented on that publicly? I think we believe that right at the end of 2015 is when you'll see the first lot takedowns begin to take place. And I think we would expect that we'll begin to see the first homes sell at the -- towards the back half of 2016.

Yes, that sounds directionally right with what we've been thinking (multiple speakers).

And when you say lot takedowns, does that mean a developer writing a check to either Limoneira or the joint venture?

It would be a homebuilder. So just pick a homebuilder, a public, a private, a small, a big that would come down and purchase as many as 500 lots at a time. And so typically those relationships are -- that would be the way that the money would flow.

And they would purchase the 500 lots and then wait for the actual development of the lots to be completed. And the way that the money flows would most likely be a little bit upfront to reserve them and then probably the balance coming out upon the delivery of the finished lot.

You don't mean the finished lot, you mean the finished home?

No, the finished lot, because then the homebuilder will go in and do their thing and build the house.

Got you. Okay.

And we have no further questions in the queue at this time. Mr. Edwards, I'll turn things back over to you for any additional or closing remarks.

Great. Thank you for your questions and for your continued interest in Limoneira. Tomorrow we will be presenting at the ICR Xchange and we will be attending select investor events over the next several months. We hope to see many of you there. Thank you again and have a good day.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation.