Limoneira Company (LMNR) Earnings Call Transcript & Summary

Hi, I'm Harold Edwards. I'm the President and CEO of the Limoneira Company. We're proudly celebrating our 133rd year of operation at Limoneira this year. The company is going through a significant amount of change. The company has made it its business to evolve with a rapidly changing world. As the world grappled with the global pandemic, Limoneira struggled with the lemon business. We realized we needed to change to address the realities that faced us with the oversupply of lemons in the world. We'd also experienced significant amounts of inflation across all parts of our business. The toll it took on the financial performance of the company was significant. In 2023, the Board of Directors and Limoneira Company came together and we created a road map. We identified nonstrategic and non-core assets that we would divest and monetize to help us strengthen our balance sheet to be able to achieve financial success, not only for today, but also for the sustainable future. All retailers throughout the United States and throughout the world wanted a one-stop shop in their purchase of the entire citrus category. We realized that going back into the Sunkist network was the right move for us. It opened the door to new retail customers as well as providing us access to the best and largest customers in the food service industry. We could not be more proud to be back within the Sunkist growing cooperative.

When I think about Limoneira coming back into Sunkist, the first thought that crosses your mind is the emotional one. It's one of the founders coming back in that was with us in 1893 when we started this thing. But then as you think more practically from an operation standpoint, whether it's the Limoneira customers, the Sunkist customers, whether it's the way that the growers' fruit can be sold to a broader base in both cases, as we consider the external part and how much value that's created, and then think about the sales teams coming back together, the operations guys learning from each other, I don't think we've even scratched the surface yet. I don't think there's a person I found yet, whether it's in the broader industry or inside this building, that doesn't think this is a wonderful thing for both organizations.

As we have transitioned back into the Sunkist marketing agreement, we have been able to refocus our energy on the foundation and core aspects of our business, consistency of high-quality lemons while achieving greater utilization at a lower cost. This renewed focus is enabling us to drive operational efficiencies throughout the supply chain, maximizing returns and strengthening our packing margins. Being part of the Sunkist system has significantly reduced price pressures. We are extremely optimistic about the value that will be unlocked as we continue to capitalize on our shared passion for excellence.

We think about the mutual benefit of Limoneira coming back into the Sunkist system. I think it's simple. It's more important today than ever that you have collaboration and consolidation. I think we have the opportunity to be a better supplier to our customers, a better custodian to our growers, and support a more efficient supply chain. We're thrilled, and all of our growers are for Limoneira to be back in the Sunkist family.

Technology is very important to us here at Limoneira.

A piece of technology that we're using is drones. With the imaging drone, we can see real-time data of tree health, stress, and acreage status. The spray drones allow us to act on that data. That accuracy and that precision you don't have with regular conventional methods. We reduce fuel. We reduce water consumption and chemical products. We can do more acreage than the heavy equipment in less time. So we reduce labor costs too. We reduce the operational risk by taking out the people from the field. Technology made us more agile. Now we're acquiring data and using that data to be a step ahead of the problems and that's really important when you're farming.

We want to be as perfect as we can. Autonomy is one of those pillars that is going to help us get there.

One of the things that autonomy brings is reduced costs for the precious skilled labor that we have trouble finding these days. But there are a lot of other benefits, fuel reduction, more efficient equipment use, worker health and safety benefits. You're not on dangerous equipment operating in trees and obstacles. You can operate entire fleets of vehicles from the comfort of your pickup truck or other safe environments. We continue to push the envelope to really help growers be a lot more efficient, save money, be safer, and get the job done better and more efficiently so that we can have a healthy and prosperous future.

Having a visual of your farm, especially when you're farming at a large scale is key because you don't have the capacity to look at every tree. Technologies like SeeTree has helped us a lot in the past few years to really know the state of our plantations. We know that the apple industry is very advanced in trellis farming and robotic harvest. So we thought why don't we do lemons on trellises. We decided to do an experimental block of about 2 acres. We've had great results. The normal density of an acre is about 120 trees. Over here we have 850-some trees per acre. We've put a lot of effort into learning how to do trellises. Is probably going to be the future of how we plant.

Another area of excitement for the company is the expansion of our organic recycling business in partnership with Agromin.

Agromin is the largest organics recycler in the state of California. We recycle about 1.2 million tons a year of organic waste for over 200 cities and counties in California. We have the most experience on how to manage organics and transform them into compost, renewable energy, organic fertilizers, and feed. And we are about to embark on a very large project with Limoneira, which would expand that facility to 70 acres, which would make it the only commercial compost center in Ventura County.

We were successful in obtaining a conditional use permit to process 290,000 tons of organic waste annually. This is significant because it's been mandated that up to 75% of all the green waste that goes to landfills needs to be diverted to reduce the amount of methane that's produced. We take the green waste and we bring it into our facility to process that into a highly valuable agronomic mulch. The operation itself is under construction today and should be fully operational by 2027.

We also applied for a grant through California to help us build this $35 million project and we were awarded $10 million from the state of California. Agromin is building more compost centers throughout the state to help meet that state's mandate of 100 facilities. So it's about $2.4 billion of new infrastructure that has to be built. So we're excited to be part of that expansion and Limoneira is excited to be partnered with us to scale our model up across the whole state of California.

We're very excited to be one of the main players in production of avocados in the United States. We presently have about 1,600 acres of avocados. Our goal is to have 2,000 acres in the next year. We are already seeing great results in our new plantations. One of the most exciting things about the avocado production and the years to come is a total change in terms of productivity on a per-acre base. The average in California is about 6,000 pounds to the acre. What we can expect with the new densities, the new setup of our plantations, the way that we can assist this plantations. That's how we're going to get to 15,000 pounds on a per-acre base and that's what we can expect.

I been working with the Limoneira Company on the harvest project since the inception back in the planning days of 2004, has been very good for both the city and Limoneira. Phase 1 is completely sold out, 707 units. Phase 2 has been sold to Lennar Home Building. They have 554 homes to be built. Phase 1 of the 38-acre sports park is complete. Phase 2, which includes some additional sports fields and some recreational areas, is planned on being completed by spring of 2027. The Santa Paula Street Bridge is under construction and should be completed by April of 2027.

We're very pleased with the results from the harvest community. We've had a strong response from the public and we're hearing that they like the houses, but even more they like the community and the lifestyle that we're delivering. We're also getting very good feedback from the city of Santa Paula. They like that we're bringing in new residents who support their shopping, that we're bringing in trails, parks, and a bridge to be built. Overall, the response has been great.

The city of Ventura and Ventura County has a severe housing shortage that's leading to housing affordability problems throughout the county. The Limco Del Mar property is a large infill development site surrounded by existing neighborhoods that offers the potential to add a large number of single-family homes to the city of Ventura. We've worked with the Limoneira Company on a number of master planning projects over the last 20 years.

We're very pleased to join them in engaging the city and community of Ventura in imagining some of the possibilities for the Limco Del Mar properties. This process overall will take several years. If approved, the proposal would be put on the ballot for a vote. Any increase in the amount of housing will provide an opportunity to expand the city's housing supply with new single-family neighborhoods over the next decade or more.

The number one demographic leaving the county are young people ages 19 to 45. And what that means is that we're losing our workforce. We're losing kids in our schools. The number one reason people are leaving is the cost of housing to build housing and the scale we need. It takes developers who really and truly drive community buy-in and we've seen that with Limoneira. When you look at the Limco site in East Ventura, I have all the confidence that Limoneira will again drive a process that is collaborative, that engages the community, and at the end of the day really delivers the housing this community so desperately needs.

The reality of water is that without it, we wouldn't be able to produce the agricultural products that we produce throughout California and Arizona. The sustainability of that resource is critical for our ongoing operations. However, we do have an opportunity to monetize conserved water. The Limoneira company is pleased to own Class 3 Colorado River water rights in Yuma, Arizona. As a result, the company's in perfect position to take advantage of very valuable fallowing programs. We will actually get paid to not use the water. We also have water rights and ownership in the adjudicated Santa Paula Basin. We've successfully monetized a small portion of the conserved water rights, but we'll continue to focus on finding opportunities to monetize the conserved water that we've been able to generate in the Santa Paula Basin.

Approximately 20 years ago, we started a plan to update our water system that for 100 years has been operating on a gravity basis. The idea was to upgrade our system to a pressurized system that would benefit all farmers and irrigators in the valley.

A pressurized pipeline for irrigation is going to be a game changer to us. Water is a key element for agricultural production. The reason why this is so important is because we're going to be able now to deliver the exact amount of water that our crops need. We will be able to control cost.

We anticipate the growers will be able to cut their overall water use by 30%.

This year further strengthened our foundation as an avocado and lemon producer and as a lemon packer. With disciplined financial decisions and a clear long-term strategy, we are building a more focused and efficient company for the future.

At the center of everything we do are our people, our team. It's their commitment, their experience, their integrity. That's what turns our everyday strategy into results.

We have to be very competitive in the products that we put out in the market. We are committed to be that company that is very effective, that is very diligent, that will continue to be and positioned in the market today.

This is an exciting time for Limoneira. The pivot that the company has made with its new strategic direction, with its return to Sunkist, the expansion of its organic recycling business and its expansion of avocados has put the company into a trajectory of growth that we're excited to experience while we continue to realize the benefits of our Harvest at Limoneira residential master plan community development project, our efforts to entitle the Limco Del Mar property, and finally the opportunistic modernization of our conserved water rights. In combination, the value that will be created from each of these activities will be significant, and I couldn't be more proud of the Limoneira team. We're excited to see the beginnings of these results appear in 2026 and beyond.