Limoneira Co (LMNR) 2019 Q2 法說會逐字稿

Good day and welcome to the Limoneira 2Q '19 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to John Mills of ICR. Please go ahead.

Great. Thank you. Good afternoon, everyone, and thank you for joining us for Limoneira's Second Quarter Fiscal Year 2019 Conference Call.

On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Chief Financial Officer.

By now, everyone should have access to the second quarter fiscal year 2019 earnings release, which went out today at approximately 4:00 p.m. Eastern Time.

If you've 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.

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 and 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, whether as a result of new information, future events or otherwise.

Please note that during today's call, we will be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira's ongoing results of operations, particularly when comparing underlying results from period-to-period.

We have provided as much detail as possible on any items that are discussed on an adjusted basis. Also within the company's earnings release and in today's prepared remarks, we include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measures is included in the company's 10-Q and press release, which has been posted to the website.

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

Thanks, John, and good afternoon, everyone. On today's call, I'll begin with a brief review of our second quarter of 2019 results and provide an update on our progress across all of our business areas. Mark will then review the financial results in more detail, and I'll finish with our outlook for fiscal year 2019. After that, we will open up the call and take your questions.

We continue to expect to achieve record domestic and international fresh lemon volume in fiscal year 2019. However, the drop in fresh lemon pricing experienced in the first quarter continued throughout the second quarter and into the third quarter due to excessive rains in Southern California creating an overabundance of large fresh lemons from us as well as from the overall industry. This is driving down the price per carton, which is outlined in our pre-release a few weeks ago.

This unusual larger size fruit curve currently being harvested is expected to cycle through over the next 5 to 7 weeks with a normal size curve returning by the end of July. While the larger size fruit is currently selling for approximately $18 per carton, below our expected annual average carton price for fiscal year 2019, current market pricing for the smaller- and medium-sized fruit is selling for approximately $30 per carton, which is above our expected annual average carton price for fiscal year 2019.

The abundance of large fruit we have combined with the larger fruit the industry continues to sell has made our sell-through process slower than previously expected and our small- to medium-sized lemons are taking a few more weeks than expected to be in a position to be picked.

We also continue to see lower orange prices stretching into the third quarter, which is longer than we previously expected a few weeks ago. Mark will dive into the second quarter financials a little bit later in the call, but I wanted to lead with the current temperature of the lemon marketplace and our domestic fresh lemons as well as our current orange prices.

I'll now shift to discussing our business segments starting with a full review of our agribusiness. Over the past few years, we have made important investments that have positioned us for long-term growth. We've expanded our customer base to over 200 customers, increased distribution by leveraging our domestic and international marketing and sales channels, focused on trade marketing and consumer-facing strategies and increased our packing capacity. In addition, we've significantly reduced seasonality for our customers by sourcing citrus from different global locations giving us 365 days of fresh lemons.

More recently in an effort to reduce seasonality and as part of our One World of Citrus initiative, we completed a joint venture and land acquisition with FGF Trapani, FGF, a multi-generational family-owned citrus operation in Argentina.

FGF owns over 3,200 acres of lemons and oranges throughout Argentina. As part of the agreement, Limoneira has created a subsidiary in Argentina under the name Limoneira Argentina S.A.U. Limoneira Argentina and acquired 25% of the parcels of Finca Santa Clara approximately 1,200 acres of planted lemons upfront with an additional 25% to be acquired over a 3-year period. Limoneira Argentina and FGF's agreement will operate under the name Trapani Fresh with Limoneira Argentina as the managing partner responsible for all fresh fruit sales holding a 51% interest and FGF holding a 49% interest.

We expect this agreement to be slightly accretive for fiscal year 2019 as we work to complete the integration this year and expect more accretion in fiscal year 2020 when we will benefit from a full year of results.

Additionally, our 2 other acquisitions that we completed in fiscal year 2018, began contributing to our results during the second quarter and will continue to be important contributors to our results in the third quarter of this year.

Since we commissioned our new packinghouse in Santa Paula, we have doubled our annual packing capacity and have significantly increased the operating efficiency of our lemon packing operations.

Also, the acquisition we made last year of the packinghouse and related assets of Oxnard Lemon Associates, brings added packing capacity to handle third-party grower fruit.

We set an objective last year to recruit 500,000 cartons from new outside lemon growers and have surpassed that objective by securing over 700,000 cartons to date with another 500,000 fresh cartons expected by 2020.

We now have over 9,700 planted agricultural acres, of which approximately 1,200 acres are currently nonbearing lemons, but estimated to be -- become full bearing over the next 4 years.

Beginning in 2020, we expect 300 acres to be full bearing with an additional 900 acres to be full bearing by 2023.

Beyond these 1,200 acres, we have plans to plant an additional 500 acres of lemons in the next 2 years and believe this additional acreage will increase our global lemon supply by approximately 30% from our current level of 900,000 cartons to 1.3 million additional fresh cartons as the nonbearing and planned acreage become productive. In addition, we expect to have a steady increase in third-party grower fruit.

Turning now to our real estate development segment, I'm happy to report the partnership between Limoneira and the Lewis Group of Companies for the development of Harvest at Limoneira is on track. Phase 1 site improvements have been substantially completed and the joint venture has received lot deposits from Lennar and KB Home in fiscal year 2018. Initial lot sales representing 174 residential units closed in February and March of this year, and we announced a partnership with another national homebuilder for an additional 63 lots, which are expected to close in the fourth quarter of fiscal year 2019.

We reported a $2.3 million net equity earnings from the project in the second quarter due to the recent lot closings and expected additional equity earnings over the course of fiscal year 2019. At the end of February, Lennar and KB Home broke ground and expect homes to become available by late spring of this year. Longer term, we are projecting approximately $100 million in cash flow from the Harvest at Limoneira project over the next 6 to 9 years, which is expected to include 1,500 homes.

In summary, while our year-to-date fiscal year 2019 results have been affected by unforeseen weather conditions, it is a temporary hurdle and does not diminish the inroads we have made to position us for solid growth and improved profitability in the coming years.

And with that, I'll now turn the call over to Mark.

Thank you, Harold, and good afternoon, everyone. Before I discuss the second quarter in more detail, I would like to first reiterate for those new to Limoneira, that due to the seasonal nature of our business, our revenue is driven by varying harvest periods from year-to-year and therefore, we believe it is best to view our business on an annual, not quarterly basis.

Now moving on to the numbers. For the second quarter of fiscal year 2019, total net revenue was $42 million compared to total net revenue of $43.1 million in the second quarter of the previous fiscal year. The year-over-year decline was due to our agribusiness segment. Agribusiness revenue decreased to $40.8 million compared to $41.9 million in the second quarter of last year. Rental operation revenue for the second quarter of fiscal year 2019 was $1.2 million compared to $1.3 million in the second quarter of the previous fiscal year. And there were no real estate development revenues in the second quarter of fiscal year 2019 or 2018.

Agribusiness revenue for the second quarter of fiscal year 2019 includes $36.4 million in lemon sales compared to $33.6 million of lemon sales during the same period of fiscal year 2018, with the increase the result of higher volume of lemon byproducts partially offset by lower prices of large lemons.

As Harold said earlier in the call, the lower pricing was due to excessive rains we experienced during the first and second quarters of fiscal year 2019, which led to a surplus of large fresh lemons into the market ultimately driving the price per carton down.

Approximately 1.3 million cartons of fresh lemons were sold during the second quarter of fiscal year 2019 at an average of $20.26 per carton compared to approximately 1.157 million cartons sold at an average of $23.42 price per carton during the second quarter of fiscal year 2018.

As anticipated, we recognized minimal avocado revenue of $0.5 million in the quarter of fiscal year 2019 compared to the same period last year of $900,000 due to the excessive heat we experienced late in the third quarter of last year. And as we have previously stated, we expect minimal contribution this fiscal year from avocados but expect to be fully back to our normal production capacity in fiscal year 2020.

The company recognized $2 million of orange revenue in the second quarter of fiscal year 2019 compared to $5.2 million in the same period of fiscal year 2018, due to unfavorable weather conditions for oranges resulting in lower volume and pricing in the quarter. Approximately 361,000 cartons of oranges were sold during the second quarter of fiscal year 2019 at an average of $5.52 price per carton compared to approximately 471,000 cartons sold at an average of $11.09 per carton during the second quarter of fiscal year 2018.

As Harold mentioned, we continue to see lower orange prices as we enter the third quarter. Specialty citrus and other crop revenues were $1.9 million in the second quarter of fiscal year 2019 compared to $2.1 million in the second quarter of fiscal year 2018.

Total costs and expenses for the second quarter of fiscal year 2019 were $43 million compared to $33.8 million in the second quarter of last fiscal year. The increase in operating expenses was primarily attributable to increases in agribusiness and SG&A costs.

Costs associated with agribusiness include packing costs, harvest costs, growing costs, and costs related to fruit procured and sold for third-party growers and depreciation expense.

Operating loss for the second quarter of fiscal year 2019 was $1 million compared to an operating income of $9.4 million in the second quarter of the previous fiscal year. Other expense and income is comprised primarily of $3.6 million of mark-to-market unrealized gain on marketable securities.

Also, interest is capitalized on real estate development projects and significant construction in progress, while using the weighted average interest rate during the fiscal year. We capitalized $2.4 million of interest in fiscal year 2018. It is important to note that most interest capitalization on real estate development projects is now discontinued beginning in February or the first month of our second quarter because under the equity method of accounting used for the Limoneira Lewis joint venture, interest capitalization ceased upon the commencement of lot sales in February. This will have an approximate $400,000 effect per quarter on interest expense or approximately $0.05 per share fiscal year 2019 impact, which is already included in our guidance.

We realized approximately $2.3 million in net equity earnings from Harvest at Limoneira during the second quarter and our expected additional equity earnings during the remainder of fiscal year 2019.

Net income applicable to common stock after preferred dividends for the second quarter of fiscal year 2019 was $2.7 million and compares to $6.5 million in the second quarter of fiscal year 2018.

Excluding the noncash unrealized gain from Calavo shares and equity earnings from Harvest at Limoneira, adjusted net loss applicable to common stock was $1.6 million for the second quarter of fiscal year 2019 compared to a net income of $6.6 million for the same period last year.

As a reminder, due to new accounting rules, we must mark-to-market our shareholdings of Calavo Growers on a quarterly basis.

Net income per diluted share for the second quarter of fiscal year 2019 was $0.15 compared to a net income per diluted share of $0.44 for the same period of fiscal year 2018 based on weighted average diluted common shares outstanding of approximately 18.2 million shares and 15 million shares, respectively.

Excluding the unrealized gain from Calavo shares and equity earnings from Harvest at Limoneira, adjusted net loss per diluted share for the second quarter of fiscal year 2019 was $0.09 compared to net income per diluted share of $0.44 for the same period in fiscal year 2018.

Adjusted EBITDA was $800,000 in the second quarter of fiscal year 2019 compared to $11 million in the same period for fiscal year 2018. Adjusted EBITDA excludes the quarterly mark-to-market noncash effect of Calavo shares and equity earnings from Harvest at Limoneira.

For the 6 months ended April 30, 2019, revenue was $84.1 million compared to $74.7 million in the same period last year. Operating loss for the first 6 months of fiscal year 2019 was $4 million compared to an operating income of $7.6 million in the same period last year. Excluding the noncash $300,000 unrealized loss on stock in Calavo and $2.3 million of equity earnings of LLC for the 6 months of fiscal year 2019, adjusted net loss applicable to common stock was $3.6 million compared to adjusted net income of $5.2 million for the same period in fiscal year 2018.

Before I hand the call back over to Harold, a few comments on our balance sheet. Our long-term debt as of April 30, 2019, was $93.7 million compared to $77 million at the end of fiscal year 2018.

Now I would like to turn the call back to Harold to discuss our fiscal year 2019 outlook.

Thank you, Mark. We expect our agribusiness to continue to benefit from the more efficient infrastructure we have in place as we were able to build revenue through expansion of our in-house citrus orchards as well as growth in third-party volumes that we pack and market and additional future strategic acquisitions. Based on the organic lemon growth we are projecting for next year as well as the expected rebound in avocado revenue and the fact that all of our recent acquisitions will have been online for a full year, we remain excited about the long-term growth of our company.

Turning to our fiscal year 2019 guidance. As I said at the beginning of today's call, we expect the pricing pressure on oversized lemons to abate by the end of July. However, the size of our fruit and timing of new fruit on our trees is hard to predict and this is the reason why we are widening the guidance range for the year.

For fiscal 2019, Limoneira and our international affiliates are reiterating volume expectations and continuing -- and continue to expect to sell between 8.4 million to 9 million cartons of fresh lemons globally. This includes 5.2 million to 5.5 million cartons of fresh domestic lemons. Throughout the first 6 months of fiscal year 2019, we sold 2.6 million domestic cartons at an average price of $22.26 a carton.

The company is currently experiencing price fluctuations based on size of fresh lemons between $18 and $30 a carton.

For each movement of $0.50 per annual carton of fresh lemons in fiscal year 2019, it equates to an approximate $1 million change in adjusted EBITDA and $0.04 a share change in adjusted earnings per share.

We continue to expect to sell approximately 1.7 million pounds to 2 million pounds of avocados at approximately $1.20 per pound, which is an off-year due to the heat we experienced last year. Offsetting this temporary event, we will benefit from crop insurance for approximately $2.5 million that will be calculated on actual avocado harvest in fiscal year 2019. We expect to receive the crop insurance payment in the fourth quarter of this year, and we expect strong production next year.

For fiscal year 2019, the current unfavorable domestic conditions for oranges has resulted in significantly lower-than-expected pricing in the orange market, and we expected continued low orange prices into the third quarter.

The company expects operating income for fiscal year 2019 to be approximately $7.5 million to $12.5 million compared to previous expectations of $14.5 million to $17.5 million. Fiscal year 2019 adjusted EBITDA is expected to be in the range of $17 million to $22 million. The company now expects fiscal year 2019 earnings per share to be in the range of $0.33 per share to $0.53 per diluted share with an estimated 18.4 million diluted shares outstanding.

Adjusted earnings per diluted share is expected to be in the range of $0.25 a share to $0.45 a share.

Adjusted EPS guidance for fiscal year 2019 does not include any potential equity earnings from benefit from the Harvest at Limoneira project and does not include the potential impact of mark-to-market changes in the value of its 250,000 shares of Calavo Growers' common stock.

In addition, not included in adjusted earnings per share is the second quarter fiscal year 2019 benefit of $2.3 million of equity earnings from its real estate development Harvest at Limoneira.

Regarding the timing of revenue for the back half of fiscal year 2019, because of the lemons staying on trees longer than previously expected, some of the previously expected third quarter revenue will be recognized in the fourth quarter. Based on this, we expect the third and fourth quarter to be profitable compared to the normal fourth quarter loss it has historically had due to seasonality.

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

(Operator Instructions) And we'll take our first question today from Ben Bienvenu with Stephens.

I appreciate all the color and the sensitivities. I want to ask, I think -- and hopefully I didn't overlook this, but just based on the sensitivities that you provided, I'm kind of shaking out to -- for an average lemon price for the full year, sales price of around $20. Am I doing that math correctly, I think, versus your $24 per carton prior assumption?

And then I wanted to ask, is the impact on pricing, it sounds like it's 100% just weather-driven. It's shifted both the mix of the size of fruit in the market as well as the pricing disparities across the sizes of fruit. Is there anything from a supply perspective that's going on that's also influencing price on the competition side? It doesn't sound like it -- I just want to be clear that it's all weather.

Yes. So 90% of the challenge is because of the excessive rains that we experienced which caused everybody in the industry in the coastal lemon production to experience excessive sizing. Really -- and the reason for that impact is for 6 to 8 weeks, it kept all of us out of the groves and we were unable to harvest so that by the time that the weather had cleared up and we were able to get in to harvest, across the industry, everybody had large fruit.

So we typically talk about those 8 different sizes and 3 different grades. Over 80% of all the fruit that was coming in not only for Limoneira but for everybody in the industry, was really 3 sizes. So 115s up and bigger fruit and that's really what has created this sort of anomaly of an overabundance of the large supply of fruit. There was more Spanish imported fruit on the East Coast markets for longer this year than we'd seen in the past, which did create some pricing challenges for us just because of the oversupply in the total market. But that doesn't explain the dramatic decrease in pricing, it's predominantly driven by the weather.

And back to your comment about your average for the year, our models for the year have us at $22 per carton, not $20, but the difference would be your assumption of size curve recovery and we're still believing that sort of mid-July to late July, you'll begin to see us moving back towards a more "normal" size curve and allow us to hit some of those markets, some of that medium- to smaller-sized fruit, which as we mentioned in the call are all priced at north of $30 a carton, and that's what will really get us back up into the $22 range. Year-to-date, through 6 months that we've reported, we're at $22.50 a carton average.

That's great. Really, really helpful. And then I guess, following up on the change in lemon sizes that you're selling. There's also, I think, as I understand it, a knock-on effect of changing the percentage of fruit that goes to the juice market. As you get back towards normalized distribution of sizes within your groves that you're selling, is it right to think that your distribution of fresh versus juice mix should improve? And how sensitive is your gross profit to that juicing versus fresh percentage on lemons?

Yes. So exactly what you said will play out. And the buildup of large sizing, it has sort of the triple-negative impact, where the first negative impact is the overabundance of fruit in the marketplace of a same size creates an oversupply condition and depresses price. So that's the first negative thing. And so the next negative thing is because of the excessive buildup of inventories of the big fruit, judgment calls begin to be made based on the ability to sell all of that inventory. And so more and more elimination after the storage has taken place -- takes place and that really begins to affect our fresh utilization where more of that fruit gets diverted out of inventory into the juice markets, which are, as we've discussed in the past, far less valuable than if we're able to sell them fresh. The average juice market today is about...

$185 today.

$185 a ton, which if you go through and do the math, equates to about $3.50 a fresh carton equivalent. So that obviously is a negative impact. And the final negative impact of this situation also is if you think about all the costs that we have into that fruit that comes through, the whole system goes down in the inventory and then is waiting there to get sold fresh. If it actually gets diverted into the juice market, it gets diverted with all that cost into it as well and that creates cost increases for us as well.

So it's the triple negative, which really hits in these situations and that should all begin to repair itself as we move through this big fruit and we return to a much more normal manifest of 8 different sizes and 3 different grades. And when that's happening, based on the experience we've had in prior years, we've seen our fresh utilization trend more around 80%, whereas with this buildup of big fruit during this time period, we've seen that sort of trending more at 50% to 60%, which has had the negative impact not only in cost but also then profitability.

Okay, great. That's really helpful. The last question I have is on the avocado business. Obviously, depressed this year, but it seems like next year should be substantially better. Can you just talk about what is kind of a normal volume in an on-year type of cycle for you guys? And then to what degree -- is there any additional bounce back when there's been weather that's impacted the physiology of the plant as well on top of the kind of -- on your -- off your typical cycle that we see?

Yes, the silver lining of the trees dropping all their fruit last July was that the trees are in perfect position to bloom and set this year. And most of the trees' energy will be going into that setting fruit mode. And so preliminary observations are for a very, very large crop for next year. Now it's way too early to say that because we've got a ways to go from where we are now with the fruit that's actually set and the fruit that will actually make it to the point of harvest. However, initial indications are very strong and look fantastic. And so we, as a producer, tried to sort of make it our goals to get our average production per acre up to somewhere around 10,000 pounds an acre. And so we produce on, Mark, 750 acres now.

A little bit more, yes.

A little bit more. Call -- so let's say...

700 or 800.

Yes. So let's say it's 800. So we would hope to be directionally in the 8 million pound to 10 million pound range for next year. Obviously, when that happens, you tend to depress the price a little bit. However, that dramatic swing in volume from this year to next year should have a very positive impact on the financial results for the company next year.

Next, we'll hear from Vincent Anderson with Stifel.

So I know Mexico gets all the headlines on tariffs. But you mentioned Spanish lemons being up pretty significantly. And we have a trade bill out there that's going to, in theory, retaliate against the Airbus issues with the WTO. It's not a huge share of the market, but do Spanish lemons fill any kind of specific niche in the U.S. fresh market that if those tariffs stay in place or go through I should say that you would have some incremental positive in terms of your marketing abilities there? Or is it just going to be the incremental loss of supply that benefits you?

Vince, I think that it's probably going to have a negligible impact. What we saw this year with -- if you go back to the summer of 2018, so last year, when we were enjoying these tremendously high FOBs caused by general shortages around the world of lemon supplies, the Spanish saw those markets and really targeted this market for a much longer time period this year because they believed that they'd see similar prices coming into the summer markets. Obviously, we haven't seen those this year and so neither have they. And so they've been in the market, but my guess is if you slap a tariff on that supply, that fruit will not find its way back to the U.S. market. So net-net, I think it will have a positive impact, but just based on the pricing that they've received year-to-date, my guess is that they would scale back their supplies for next year anyway.

Okay. And I want to stick with Mexico then and on the topic of imports. I know they're just heating up seasonally, but they've been tracking well above average. Would you attribute that to the same considerations that you have for Spain in terms of chasing price?

I think so. I think that's exactly what -- what happens. It's interesting because the world is becoming sort of a case where markets are being understood, the logistical cost to deliver into markets are being understood, much more visibly and clearly and pricing equilibrium is being established much more regularly now. So everybody has sort of a memory of where the markets have come from. But at the same time, if markets are dramatically different, the fruit tends to move and have options to move to different locations based on highest pricing available at the time.

Got it. And then just lastly, at this rate, could we expect the market for smaller-sized lemons to stay tight through this year and into next year? Or are your observations of what's coming out of Mexico, are they going to have enough small-sized fruit to fill that supply?

That's a really insightful question because that's the big thing that we're waiting to see is what's the quality and what's the size curve coming out of Mexico look like. Typically, the Mexican quality has always been somewhat challenged compared to California production, and there are specific markets that buy that fruit and there are specific markets that don't buy that fruit. But that being said, we'll all be watching their size curves and see what kind of impact it has on the smaller and the medium-sized fruit markets just to see if there is a depressing impact or whether these markets remain strong.

(Operator Instructions) We'll now hear from Gerry Sweeney with ROTH Capital.

I wanted to talk a little bit -- the costs were up significantly. And I know there's also a split between the third-party packing costs because you had to acquire the cartons. Was that predominantly the driver in increased costs year-over-year? Or was there something else?

There was a little bit more of storage as well in moving -- fruit movement around given that we had larger sizes and a slower sell-through process. We had to rent excess bins and things like that that were traditionally not normal for the period. And so there was just a little bit of incremental costs there that we would expect to go away.

And also, what was the split between Limoneira lemons and third party?

For what time period? In the second quarter, Gerry?

Yes.

I'll get that number to you. I think it's about 40%, 42%, but on our next call, I'll get that for you.

And just anecdotally, because I don't have the specific number in front of me, but it seems to me that there is more lemon -- there was a bigger percentage of outside grower fruit coming in than Limoneira fruit and there's more Limoneira fruit coming towards the back half, which gives us more reason for optimism because obviously, that's more profitable than the outside grower fruit.

Yes. At the end of the year, we expect to be about 35% for Limoneira fruit and 65% for the outside.

Okay. That's what I was going to ask next. And I suppose, I mean, the cost being up it sounded like -- it feels like it was much more weighted to third party. And then the crop insurance. Did you say it was $2.5 million or $2.6 million? And is that included in guidance? And is that taxed? How do we look at that?

Yes. So that's -- it's approximately $2.5 million and it's based on what we actually harvest and there's a guarantee of pounds at price from that. So we'll know that number in the middle of July, but we won't recognize it until the fourth quarter which is when we will receive payment.

And one other note just to make, we did not change our guidance on avocado pricing. We kept it at $1.20, but the avocado markets are considerably stronger than that. So we do believe there will be a little bit of upside in the avocado number. We just haven't -- we haven't gone through a lot of effort to change it because it's not material at this point to us, but we do believe that we'll come in with a higher average price per pound than the $1.20 that we've guided to.

Got it. And the final question. Obviously, the Limoneira Lemons much higher gross profit margin, but gross profit dollar and it can be a significant mover in terms of revenue and gross profit dollars. But what's the cost of getting that land up and full bearing? Have you borne the majority of that cost? I know, what was it, 1,200 acres, 300 coming on next year and then some more coming the year after, but then you have additional 500 acres? Any thoughts on that?

Yes. So typically, the cost per acre is about $9,000, which is spread over basically 4 years. You start with your planting cost and then you capitalize your cultural cost for those periods of times. And as lemons get a little bit bigger, they require more fertilizer pruning and whatnot. And so $9,000 is basically the total number, which we would absorb. And so for the 1,200 acres, that's in full swing right now in different phases. So those 300 that will come on over time have a different cost per acre associated to it, but -- and in the end, it adds up to that $9,000 at the end of year 4.

Got it. And then those -- what about new -- $9,000 even for, we'll say, those 500 acres that I assume are fallow right now, that's from start to finish so you have an additional 500 coming on?

Right, yes.

Eric Larson with Buckingham Research Group has our next question.

It sounds like converting lemons to lemonade sometimes in excess doesn't work too well?

Right. Let's take that saying in the other direction.

Yes, exactly. Well, maybe you should own a retail lemonade brand and you can capture that cost-benefit. No, I'm just teasing, of course. I want to focus on oranges. I think last year, Harold, I mean, oranges were I think -- they were big for you and obviously, they've kind of turned just the opposite. Could you give us a little more flavor on the orange business? And that business should come back for you. It's just amazing that all 3 of your major businesses here and agribusiness are going south at the same time. So give us a little more clarity on the orange side as well and that's a weather impact, I think, as well.

No, happy to Eric and that's exactly it. If you look at the first 6 months of fiscal year '18 versus fiscal year '19, the biggest driver of the miss has been the oranges and it has the least visibility. So yes, lemons are off and lemon pricing is off, but the real impact and -- of the biggest part of the miss is because of the oranges. And so oranges, it turns out are -- were a victim of our friend mother nature, again, but in the -- almost the opposite of the lemons. So we had an unseasonably warm summer that came into an unseasonably cool or so warm fall and coming into winter. And then the -- for the winter harvest of the navel oranges, the fruit never sized.

And so 2 things, 1, the fruit harvest was much later because the season was warmer than normal and the fruit was maturing at a lot slower pace, but it just never sized. So at the beginning of the year, we saw an excellent set on the trees and then we had the experience of 2018, which was a strong set and the opportunity to see pricing like we'd seen the year before. So we were very bullish in our estimates and our guidance.

And the exact opposite happened. We did get the production numbers, but essentially what happened, Eric, is the market was significantly oversupplied with predominantly small fruit and that little bit of overproduction and oversupply and the lack of size in the market and the lack of size in the market meant that the fruit couldn't find its way to the much more valuable export markets that we just received literally 50% of the price per carton that we received in 2018. And the result was in our own internal models, a $4 million to $5 million operating profit negative swing from, I think, Mark original estimates at $4 million of operating profit and now we're guiding to...

It'd be a slight loss...

To a slight loss.

At this point with 20% of the crop to go.

And so, yes, it's -- we do live to fight another day and next year will be another year and we fully expect that to snap back. But we certainly don't anticipate a situation where you have your avocados, your lemons and your oranges all struggling at the same time.

Yes. So it's -- I don't think I can remember the last fiscal year that you ever had where all 3 kind of went negative all at the same time. I mean, it's probably been a long time.

It has. And so this is my 16th year as the CEO and I've seen it one other time, but not to this level of severity for all 3.

Yes. Okay. And then, to the Harvest, just for a minute. I believe I think I know the answer to this. Your equity income, that's just an accounting requirement probably based upon percentage of completion I'm guessing. There isn't any positive cash coming from that yet though right, that comes maybe 2 or 3 or 4 quarters later?

Yes, that's correct. So we recorded $2.3 million of equity earnings in the partnership and it has different waterfalls as more lots sales go. But if you recall, we're still sort of in the infrastructure phase where we have a revolving $45 million line of credit. So that basically accordioned in and out as these lot sales start until we get substantially complete with the major infrastructure of the roads. And so that looks like about 2021. So in 2 years, we'll see our first real meaningful cash flow, cash from it.

And just order of magnitude...

Can I -- go ahead, sorry.

I was just going to say order of magnitude is something like maybe neutral cash outflow-inflow in 2019, maybe a $1 million of cash inflow distributed in 2020. And again, order of magnitude $15 million to $20 million coming back and if everything goes on track in 2021 as Mark was just suggesting. So it will be lumpy, but it'll be significant at the tail end of the infrastructure projects.

Yes. And what I assume obviously you're still building infrastructure. There's cash going out. That loan is getting bigger, but as proceeds come in, the first payment -- the first orders of payment go to get rid of the loan, right, and then once the loan becomes a 0 proposition then this cash starts getting distributed to the partners.

Yes, that's it. And so as it comes in, it's paying that loan down. I'm not worried about the balance now. I'm not sure what it is right now, but anyway it will accordion out based on the next sort of tranche of infrastructure investments. But as we get to the tail end of those infrastructure investments, there will be a lot more houses then that will -- or lots that will sell to the homebuilders that then will retire the note down to 0 and then the rest will then be distributable cash.

Right. Got it. That's what I thought it was. So this was just an accounting issue. There is no cash yet to the companies. You've got to get a little ways further down the road for that.

That's correct.

That's it.

That will conclude today's question-and-answer session. At this time, I would like to turn the conference over to Harold Edwards for closing remarks.

Thank you for your questions and interest in Limoneira. We look forward to updating you again in September on our third quarter call. Thank you, again, and have a great day.

That will conclude today's conference call. Thank you for your participation.