Sweet Future

By Chief Executive Harold Edwards’ own admission, Limoneira Co. has seen good and bad years, depending on the weather. What Edwards could not anticipate as he appeared as keynote speaker at California Lutheran University Corporate Leaders Breakfast in Ventura and led the first-quarter conference call in early March was that his company was on the brink of weathering a different kind of storm — the global coronavirus outbreak. Based in Santa Paula since its 1893 founding, Limoneira, an international producer of lemons, avocados, oranges, specialty citrus and other crops, has a portfolio of 15,700 acres of agricultural land, real estate properties and water rights located in the states of California and Arizona and in the countries of Chile and Argentina. In late March, Limoneira began to respond directly to the coronavirus outbreak. With people staying at home, Limoneira has unfurled its Fresh Focus Lemon delivery program for consumer and workers. Several weeks prior, the publicly traded company delivered the company’s long-term plans via Edwards’ March 6 Cal Lutheran presentation and its quarterly earnings conference call. Housing venture The biggest transformation on the horizon for Limoneira is a huge housing project promising 1,500 residential units. The development has emerged as a large driver of Limoneira’s long-term stock. In 2015, after years of development on the project named Harvest at Limoneira, the citrus grower finally found the right partner in Inland Empire home builder Lewis Group of Cos. Phase one – with 632 residential units – broke ground in November 2017. Move-ins began last year, with the first lot sale closing on Aug. 29. The project is due to culminate in 2027. In 2008, the venture — in which Limoneira reportedly has invested $60 million and will total $225 million after roads, sewers and utilities are upgraded —earned an 83 percent approval from voters, according to Edwards. “Everybody in Santa Paula works for Limoneira so you can see why we won the vote,” he joked at his Ventura speech. Built on Limoneira-owned land, Harvest is a development that, at first glance, is exactly what Ventura County voters didn’t want when they passed SOAR (Save Open Space and Agricultural Resources) — a series of initiatives requiring a general vote before agricultural land or open space can be rezoned for development — in 1995. “Advocates for SOAR are very adamant it’s not a no-growth policy,” said Matthew Fienup, executive director of California Lutheran University’s Center for Economic Research and Forecasting. “The meat of SOAR is that it requires voter approval of urban expansion.” Working with Santa Paula’s civic leaders, the company revised its plans and modified its development agreement across many years and was able to build consensus despite some challenges. “I am certainly bullish on the Harvest project in Santa Paula and on Limoneira’s efforts to increase housing in our region,” Fienup told the Business Journal. “I regard Limoneira as a great steward of the region’s agricultural legacy, the region’s economy and the character of our community.” But Fienup stops short of characterizing Harvest a victory over SOAR. “Important background is that when SOAR was originally adopted, Santa Paula placed its growth boundary well inside the existing sphere of influence (SOI),” Fienup said. “Most cities placed their growth boundary on the existing SOI line. Subsequent ballot measures pushed the Santa Paula boundary out to the SOI, bringing Santa Paula’s growth restrictions in line with the other cities. And then SOAR advocates worked with (Local Agency Formation Commission) and got Santa Paula’s SOI moved inward! This had the effect of subjecting lots of additional land to a county-wide vote before new residential construction can happen.” Long term, the company expects an additional $80 million in cash flow from the Harvest at Limoneira over the next six to nine years. For the fiscal first quarter, total net revenue was $41.7 million compared to total net revenue of $42 million in the first quarter of the previous fiscal year. The decrease was the result of lower fruit prices partially offset by an increase in the volume of fresh lemons. “As we expected, avocados, oranges and specialty citrus were all up year-over-year,” Edwards reported in the March 11 call. “We sold approximately 125,000 pounds of avocados during the first quarter of fiscal year 2020 compared to minimal pounds in 2019. We also achieved $2.3 million dollars of orange revenue in the first quarter of fiscal year 2020 compared to $900,000 in the same period last year.” The company lost $8.5 million in the first quarter. Shares closed April 8 at $13.01, down 31 percent since the beginning of the year. Recent movements During the fourth quarter of 2019, Limoneira sold non-core real estate asset the Terraces at Pacific Crest, a 112-unit townhome development on 8 acres in Santa Maria for $2.9 million. That transaction closed Oct. 4 and the company recorded a gain of approximately $400,000 that Edwards, at the time, said would go toward paying down debt and reinvestment in core agribusiness. In January, Limoneira also signed up as a promotional partner for Lemonade Day, a national youth entrepreneurship program that teaches kids how to launch a lemonade stand, to deepen its community ties while promoting brand awareness. The citrus producer will convert a school bus into the LemonMobile, to visit key markets, and recruited Healthy Grocery Girl website founder Megan Roosevelt as spokeswoman and recipe author. At the time of the earnings call, Edwards said it was too early to tell the toll of coronavirus on operations as Stephens Analyst Pooran Sharma inquired about the avocado crop. “We’ve seen no COVID impact for our avocados,” Edwards responded. “We believe we have a crop somewhere between 4 million to 6 million pounds, 5 million pounds at the midpoint. The very pleasant surprise is it was anticipated that Mexico would have a very, very large crop and that the importation of Mexican avocados would create a much more oversupplied situation which would have a negative impact on pricing. That has not played out. Mexico has been very slow to import. We’ve heard the Mexican fruit has been smaller, so they’re leaving it on their trees longer to get size. That has created some great pricing opportunities for us.” Limoneira’s first couple of hundred thousand pounds hit the market at about a $1.30 to $1.80, and as the majority of avocados will ship by early July, Edwards remained optimistic that the prices will hold up and “’will exceed our plan for avocados for the year,” he said. International sales had already been tracking well below last year in Mexico, Turkey and Spain. Lake Street Capital Markets analyst Chris Krueger asked what percent sales goes into Asian countries affected by coronavirus. Edwards said typically about 30 to 35 percent. Edwards added that it was too early to comment on the company’s three wine grapes harvests across 320 acres. “It’s probably safe for us to anticipate somewhere on the order of 4 tons to 6 tons per the acre, about 80 percent of all of what will be produced, assuming we can produce them into the specifications that were provided to us by the wineries that we’ve got these contracts with. About 80 percent are contracts that average somewhere between $1,200 and $1,300 a ton.” Krueger also inquired about potential coronavirus impact on real estate assets. “The activity and the pace of visits for the new homes at Harvest at Limoneira are at the highest level we’ve seen since inception,” Edwards said. “And we believe it’s because of these historically low interest rates and mortgage rates right now. But since the beginning of the year, we’ve been averaging somewhere between four to five home sales (a week).”