Limoneira Co (LMNR) 2015 Q1 法說會逐字稿

Good day, and welcome to the Limoneria first-quarter fiscal year 2015 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.

Thank you. Good afternoon, everyone, and welcome to Limoneira's first-quarter fiscal year 2015 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 first-quarter fiscal 2015 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 a replay will be available on Limoneira's website as well.

Before we begin we 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 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 risk details 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 that are 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 is my pleasure to turn the call over to the Company's President and CEO, Mr. Harold Edwards. Go ahead, Harold.

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 first quarter and provide an update on our progress across all of our business areas. Joe will review the financial results for the first quarter in more detail and I will then discuss our 2015 outlook and open the call up for your questions.

We are off to a solid start in fiscal year 2015. While our first-quarter financial results reflect anticipated seasonality of our Agribusiness, we are pleased to report top-line growth of 8% to $28 million in the first quarter. This reflects another strong quarter for our lemon business, which had revenue growth of 18% compared to the first quarter of last year reflecting a higher average price per carton as well as increased volume.

Based on our year-to-date results and outlook for the remainder of the year we are reiterating our annual guidance. I will review this later during our remarks. Over the last several months we have continued to make progress on our long-term growth strategy across all aspects of our business and we are very excited about the growth opportunities ahead of us.

First, regarding our Real Estate Development business, a few weeks ago we received the final requisite approval to break ground on the Santa Paula Gateway Project. As we previously announced at a City Council meeting held last month, the Santa Paula City Council unanimously approved our updated East Area 1 Master Tentative Tract Map, our Supplemental Environmental Report and updated development agreement.

Following the vote the property is now fully entitled which allows us to move forward with our plans. We have been working closely with the city of Santa Paula on this development of this project for over 10 years and, while this approval was expected, we are extremely excited to have the final regulatory hurdle behind us.

The Santa Paula Gateway project consists of a 550 acre master planned community with up to 1,500 residential units, 560,000 square feet of commercial space and 150,000 square feet of light industrial facilities.

The plans for the project also include a kindergarten through eighth grade public school and a 38 acre community park. In addition, land is earmarked for a future high school or academy site as well as other master planned community amenities.

The Santa Paula Gateway project will benefit from its prime location near the Pacific Ocean with easy access to Los Angeles. As we've stated before, our estimates suggest that our master planned community represents approximately 25% of Ventura County's buildable residential lots for the next several years.

We have already begun rock removal on the property and are well down the road to the first phase of grading for the Santa Paula Gateway Project. We plan to announce a development partner in the coming months and, pending market conditions, we anticipate commencing construction in 2015.

As the project progresses Limoneira is positioned to benefit from significant additional cash flow. Subject to real estate and overall economic conditions, we expect this project to deliver over $100 million in cash flow to us over the next 5 to 10 years and we look forward to providing you with updates on our progress.

Now turning to our Agribusiness. We continue to execute on our long-term growth strategy to add productive agricultural properties to our portfolio. We recently announced that we expanded our agricultural lease agreement with Cadiz Inc. to include an additional 200 acres.

We acquired a total of 200 acres of lemon trees and associated irrigation lines from Cadiz and one of its leasing tenants. We amended our existing lease with Cadiz, which we entered in July of 2013, and Limoneira now has the right to plant up to 1,480 acres of lemons over the next three years at the Cadiz Ranch operations in the Cadiz Valley, which is in San Bernardino County, California. The acquired lemon trees are expected to be productive beginning in fiscal year 2017.

This acquisition complements a number of investments and acquisitions that we completed last fiscal year, including our purchase of the packing house property and equipment of the Marlin Ranching Company in Yuma, Arizona as well as our investment in Rosales S.A., a citrus packing, marketing and sales operation located in La Serena, Chile.

In addition, we are continuing the expansion of our lemon packing facilities in Santa Paula and remain on track for its completion later this year. The expanded facility is expected to increase efficiency and double the annual capacity of our lemon packing operations.

This should help us maximize growth opportunities for Limoneira and improve operating margins as we continue to execute on a long-term growth strategy to acquire additional lemon orchards, build relationships with third-party growers and add new lemon customers.

Now turning to the Rental Operation segment of our business. We remain on track with the development of 71 additional agricultural workforce housing units in Santa Paula, California that should be available for rent to local agricultural workers and Limoneira employees during fiscal year 2015. When the project is completed we anticipate this will add an additional $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.

In summary, the progress we are making with our Real Estate Development efforts combined with our expanding Agribusiness and Rental Operations make this a very exciting time for Limoneira. We remain focused on continued execution across all business segments and capitalizing on opportunities to monetize our rich portfolio of assets and strategically investing in our Agribusiness. With that I will turn the call over to Joe.

Thank you, Harold, good afternoon, everyone. For the first quarter ended January 31, 2015 revenue was up 8% to $28 million compared to the first quarter of fiscal year 2014. Agribusiness revenue was up 9% to $26.9 million reflecting higher lemon revenue. Rental Operations was $1.1 million in the first quarter of fiscal year 2015 and the first quarter of last year.

Our first-quarter 2015 Agribusiness revenue includes $24.7 million of lemon sales compared to $20.9 million of lemon sales during the same period of fiscal year of 2014, primarily reflecting a higher average price per carton due to more favorable market conditions as well as an increase in the number of cartons of lemons sold.

As we expected, due to the typical seasonality of the avocado crop there were no significant avocado sales in the first quarter of fiscal year 2015. We recognized 1.1 -- $1.5 million of orange revenue in the first quarter of 2015 compared to $1.9 million of orange revenue in the same period last year. This decrease reflects lower prices partially offset by higher sales volume.

Specialty citrus and other crop revenues were $723,000 in the first quarter of 2015 compared to $1.9 million in the first quarter of fiscal year 2014. This decrease is primarily due to lower prices and sales volume.

Turning to cost and expenses, for the first quarter of fiscal year 2015 we incurred $30.5 million of costs and expenses compared to $28.1 million in the first quarter of last year. The year-over-year increase in operating expenses primarily reflects increased Agribusiness costs mainly associated with the higher packing costs related to increased lemon sales volume and our packing business in Yuma, Arizona, which we acquired in June of 2014.

In addition, third-party grower costs were higher in the first quarter of 2015 compared to the same period of last year reflecting a larger volume of fruit procured from third-party growers at a higher price.

Operating loss for the first quarter of fiscal year 2015 was $2.5 million compared to operating loss of $2.2 million in the same period last year. EBITDA was a negative $1.2 million in the first quarter of fiscal year 2015 compared to a negative $1.1 million in the first quarter of last year.

Net loss applicable to common stock for the first quarter of fiscal year 2015 was $1.6 million compared to $1.3 million in the first quarter of the prior year. Loss per diluted share for the first quarter of fiscal year 2015 was $0.11 on approximately 14.1 million weighted average shares outstanding compared to a loss per diluted share of $0.09 on approximately 14 million weighted average shares outstanding last year.

Regarding our cash flow and balance sheet, in the first quarter of fiscal year 2015 net cash used in operating activities was $5.8 million compared to $4.1 million in the same period of the prior year.

Net cash used in investing activities was $7.1 million in the first quarter of fiscal year 2015 compared to net cash used in investing activities of $4.8 million in the same period of fiscal year 2014, primarily relating to our investments in the expansion of the lemon packing facilities and additional farm worker housing units.

Net cash provided by financing activities was approximately $12.9 million in the first quarter of 2015 compared to $8.9 million in the prior year period. As of January 31, 2015 long-term debt was $81.8 million compared to $67.8 million at the end of fiscal year 2014.

The increase in long-term debt is primarily related to funding our strategic initiatives including agricultural property development, the lemon packing house expansion project, farm worker housing project, acquisitions of Yuma packing house equipment and our equity interest in Rosales as well as ongoing investments into the Santa Paula Gateway Real Estate Development project.

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

Thanks, Joe. We are reiterating our fiscal year 2015 operating income and earnings per share outlook. Based on a decrease in the estimated size of the lemon harvest we are revising some of our assumptions.

In fiscal 2015 we now expect to sell approximately 3 million cartons of fresh lemons compared to our previous guidance of between 3.2 million and 3.4 million cartons of fresh lemons. Offsetting the expected reduction in sales volume we anticipate the average price per carton to increase to approximately $24 per carton compared to our previous estimate of an average price of approximately $22 per carton.

We continue to expect to sell approximately 6.5 million to 7.5 million pounds of avocados at approximately $1 per pound. However, as we stated on our last earnings call, certain of our avocado orchards experienced freezing temperatures earlier this year that likely caused some 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.

The Company expects 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 anticipated stable lemon and avocado revenue, lower orange and specialty citrus revenues partially offset by lower expected selling, general and administrative expenses.

In general, 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.

It is important to note that our guidance does not reflect any potential cash flow from expected transactions for the Santa Paula Gateway Project. While we anticipate the development transaction will generate significant cash flow over the estimated 5 to 10 year life of the project, we believe it is prudent to wait to update our guidance until a deal is reached.

We are excited about our strong start to the year. We will continue to focus on our opportunities to expand our core Agribusiness. 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 would like to now open the call up for your questions. Operator?

(Operator Instructions). Brent Rystrom, Feltl.

Just a couple quick ones. Can you give us a sense of how you might be thinking about the acquisition calendar this year? You think about the last few years, some years things kind of spread over the course of the year, some years they kind of clumped together. And I am just curious, does the pipeline look like things are coming in kind of over the quarters or is it going to be lumpy?

I think it is probably going to be lumpy. We have still a robust portfolio of diligence going on right now. We have potential acquisitions south of the equator down in Chile. We are also we believe close to the potential of some acreage expansion up in the San Joaquin Valley.

We are hopeful that we will be able to execute transactions in both of those places this year. However, as we have experienced in the past, predicting the actual closing of the deals that we are working on has proven to be difficult just because typically these are generational family farms and there is always issues that come up with them.

Is there still a sense that the -- in particular [a] acquisition in the San Joaquin could be a relatively big one?

I think there is the potential of that. We have actually increased the number of potential orange-related transactions that we have been looking at and we believe that potentially there is a big one in our future.

And maybe, if I recall, your strategy long-term is to build to 10 million cartons of lemons and 10 million cartons of oranges, so that is pretty consistent with that, right?

That would be the goal. How soon we are able to execute on either the 10 million carton goal in lemons or the 10 million carton goal in oranges will really just be driven by our success in finding those strategic acquisitions. We are certainly talking to a number of potential targeted acquisitions (technical difficulty) if we were successful would allow us to get there. Predicting the timing of being able to do that is the challenge.

All right, thanks. Next question then would be just out of curiosity on the worker housing that you are developing, are those properties -- are they deed restricted on what they can be used for?

Yes. And that is the primary challenge of building workers' housing in Ventura County. The zoning on these properties typically is agricultural 40 or agricultural 100 which makes the subdivision very, very complex and takes a variance to existing regulated zoning rules.

Because Limoneira has been a legacy provider of workforce housing we built the argument with the County of Ventura that we should be able to expand an existing workforce housing development area that we had. And as such were successful in getting that variance to conventionally regulated zoning laws. But it took a lot of work to get that variance and we were very -- we were successful to get it.

The upside of that is that we are sort of alone in providing this workforce housing which makes the ability to rent these houses very, very high and very, very strong. And the prices that we can get for them are very attractive. But it was very difficult getting that zoning variance.

When you mentioned that (technical difficulty) agricultural 40s or 100s are you talking about a 40 acre parcel?

Yes, exactly.

All right. And then my final question actually has to do with the comments about the avocados. So I am assuming you will be updating your guidance on the avocado volumes on the second-quarter call?

That's right. A couple dynamics with what we will hear in the second quarter. So, we have got the issue, we had one ranch that was impacted significantly of all of our ranches of avocado production in Fillmore, California, our La Campana property.

Just about every other property where we grow avocados made it through the freeze pretty well. We are really waiting to see the extent of the drop in -- what happens when an avocado experiences freezing temperatures, it may look like it survived the freeze okay, but after a little bit of time following the freeze it just literally falls on the ground and becomes unmarketable and we lose it.

At this point we haven't experienced high levels of drop, but we are continuing to guide with caution because we really won't know until we get there. So you will hear about that.

The other dynamic that we will hear about will be our forward-looking thinking of how imported fruit will affect the market and specifically the huge amounts of volume that we anticipate coming from both Mexico and Peru this year that we think will encourage us or push us to conduct an earlier harvest of our avocado crop earlier this year versus years before.

And the impact of that would be higher pricing which we could get because the foreign fruit won't be in the market, but we may actually experience a smaller overall crop because we will have harvested smaller fruit and as such receive a lower total volume. So it is very dynamic, a lot of variables. We will be able to give guidance with a lot more clarity following our second-quarter release.

All right, thank you.

Eric Larson, Janney Capital Markets. (Operator Instructions).

Just a few follow-up questions on lemons. Obviously some better volume, some better pricing. What was the fresh utilization rate this year? I think last year you were at about 54% or something like that, pretty close to 54%. Was your utilization also higher this quarter year over year?

Joe, you want to field it?

Yes. The utilization last year was in the 70% to 80% range actually for a year. And usually it is best to look at utilization over an entire season because as the crop comes off early timing, different markets, pricing, how the fruit holds up, storage.

So we don't normally look at utilization on a quarterly basis, so we normally at look at it kind of over the course of a year in the entire season or harvest. So like I said, last year was probably in the 70% to 80% range, it was a good year.

This year early thinking might not be quite as good from a utilization standpoint, but it is too early to call it. It won't be drastically different but it likely will be less this year than last just by how tight the market was at times.

Okay, yes. I think the percentage that I read off was actually Limoneira's sales versus -- of the total versus third-party. So I was using the wrong percentage. And you say you did have -- so, when you look at the mix of your sales, Limoneira versus third-party, what was that ratio this quarter?

That was about 50% this quarter versus 46% same time last year. So a little more third-party fruit in the mix the first quarter versus the same time last year.

Okay. So I know that you don't release your actual volumes until you publish your Q, but would price have been the bigger determinant of the total revenue increase in the quarter? Versus volume?

Well this year it was (multiple speakers) quarter on quarter it was almost $1, $23.40 versus $22.46 last year.

Okay.

So the pricing is good. And actually it is interesting how last year's pricing went. It didn't start low obviously but it kind of started at a point and continued to rise. And this year it started at a little better place and we are thinking it might stay a little -- not have that same curve in the upward shift but stay relatively favorable, like we said, $24, kind of in that range during a good part of the year.

Okay, good. And have you seen any impact at all via the really strong dollar? I mean, it doesn't seem like the dollar has impacted your sales or your pricing as of yet. Any thoughts on what a strong dollar might do for you here?

Yes, we have not seen any impact. And I think it is just we are in a very fortunate place both with our avocados and our lemons in that we continue to experience a demand exceeds supply situation, which I think is what is holding the pricing up. We reported earlier about the impact of the port closures on our business.

And fortunately the lemons made it through that experience unscathed and we didn't miss a shipment. Especially as it related to our Japanese, our Korean and our Chinese markets. And we continue to watch the impact of the strength of the dollar there but so far we have been very, very fortunate and continue to see the orders, if anything, increasing right now.

Okay, yes, I was going to say it probably has to reflect a good supply/demand relationship because it would seem like it would be hard to hold it. If there were lemons for sale elsewhere I would assume that that would have had an impact. So it is probably a better supply/demand relationship.

And then just one other quick question, on East Area 1 and 2, obviously you have received entitlement for East Area 1. Do you still have entitlement risk for East Area 2 or is that also included in the total package for entitlement that you received on February 5 -- on the 17th?

Well, when we decide the fate of East Area 2, and what we did is we submitted to the city of Santa Paula two potential tract map options. One was for commercial office and the other was for big box commercial retail.

Okay.

And both were already approved. So essentially what will happen is once the fate of East Area 2 is determined then we will submit the finalized, if you will, the final tentative tract map in either commercial office or commercial retail.

But there won't be any commensurate EIR work that is necessary, that has all been approved. And there won't be any necessary development agreement because that has already been approved. It will just be for the approval of the tract maps. At that point, it's pretty straightforward with the approval and there is really no opposition that we are aware of to any of those plans.

Okay, okay. So essentially your entitlement risk for that is pretty much gone as well.

Yes.

Okay. Thank you, guys, I will get back in the queue.

Chris Krueger, Lake Street Capital Markets.

Just another question on the Gateway project. I know you said you hope to announce a development partner soon. Is there any kind of work you can do in advance of that to kind of get the ball rolling on the project as far as grading or street work or whatever it takes upfront?

Yes, in fact I wish you were going to -- we are at an investor conference right now, we will be presenting at the ROTH conference tomorrow. I wish you could see the presentation because we will update the presentation with pictures of some of that work that we are talking about.

But we have been removing rocks from the facility, from the bottom part of the project now for the better part of about six months. And as such have accelerated what will eventually be the grading of the project. This rock removal would have been necessary anyways and is necessary.

Before we received the entitlement from the vote two weeks ago we had to call it agricultural rock removal and now it's the preliminary grading. So that has given us a great jumpstart on the project. We are working 24/7 right now with that continued rock removal.

And as we announce our development partner in the coming weeks, following that announcement you will also see the phasing plans announced and the preliminary and first grading plans announced. And as such we will then be able to very clearly show on a map how the project will phase, the type of product that will be built first, and the preliminary infrastructure that will be put in representing the first phase of the development.

Okay. My next question is just any kind of overview or update on your other potential hidden assets whether it be the Windfall Farms, the vineyards or the water rights?

Joe, you want to do that?

The Windfall Farms we planted 100 acres of Cabernet last year and we have slated another 100 this year, so we are continuing to move forward on making that property a better performing property for us. So we are looking forward to seeing some early -- the first picks off of what we planted last year in 2018. So that is working well.

And water monetization, I wouldn't say there is anything concrete or specific I don't think, but we still are working with the water asset management group that we partnered with out in Yuma, Arizona. And water still is precious and the drought isn't over, so we think that that -- we always thought that probably had some lead-time to it. So that is probably one of those things that it will take some more patience before we start to see anything really start to move forward on some of those areas.

All right, thanks. That's all I've got.

Thanks, Chris. I just wanted to remind everybody that is listening that we will be presenting in California at this investor conference tomorrow at 2 PM. And from that point forward our updated investor presentation will be on our website effective from that point forward.

This does conclude today's question-and-answer session. At this time I would like to turn the conference back to Harold Edwards for any additional or closing remarks.

Thank you for your questions and interest in Limoneira. Tomorrow, as I mentioned before, we will be presenting at the ROTH conference and will be attending select investor events over the next several months. We hope to see many of you there. Thanks again and have a great day.

This does conclude the presentation. Thank you for your participation.