Limoneira's CEO Discusses F3Q 2013 Results - Earnings Call Transcript

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 |  About: Limoneira (LMNR)
by: SA Transcripts

Limoneira (NASDAQ:LMNR)

F3Q 2013 Earnings Call

September 9, 2013 04:30 pm ET

Executives

Harold Edwards – President & Chief Executive Officer

Joe Rumley – Chief Financial Officer

John Mills – ICR (Investor Relations)

Analysts

Tony Brenner – Roth Capital Partners

Jonathan Feeney – Janney Montgomery Scott

Steven Martin – Slater Capital Management

Operator

Good day and welcome to the Limoneira F3Q 2013 Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir.

John Mills

Thank you. Good afternoon, everyone, and welcome to Limoneira’s F3Q 2013 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 had access to the F3Q 2013 earnings release which went out today at approximately 4:00 PM Eastern Time. If you’ve not had a chance to review the release it’s available on the Investor Relations portion of our website at www.limoneira.com. This call is being webcast and a replay will be available on Limoneira’s website as well at www.limoneira.com.

Before we begin we would like to remind everyone that our 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 can 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 factors detailed 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 measure 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.

Harold Edwards

Thank you, John. Good afternoon, everyone, and thank you for joining us. On today’s call I’ll begin with a brief overview of some financial highlights in F3Q and provide an update about our business progress and some of our growth opportunities. Joe will review the financial results for the quarter in more detail and I’ll then review our F2013 guidance and open the call for your questions.

We were very pleased to report a strong F3Q. We generated solid revenue, EBITDA and net income growth, reflecting our expanding agribusiness including year-over-year growth for lemons and avocados.

Total revenue increased 21% to $29.9 million, driven by agribusiness sales which increased 21% compared to Q3 last year. Our lemon operations continued to post strong growth in the quarter, underscoring our success with our direct lemon sales and marketing strategy; and we are reiterating our annual guidance for lemon sales.

Our avocado revenue also contributed to our agribusiness growth, increasing to $7.7 million compared to $5.5 million in the prior-year period, reflecting higher volume partially offset by lower prices. This quarter, which is the peak avocado harvest season, we found that the fruit did not size as large as was anticipated earlier in the year and as a result, we are reducing our previously-stated outlook for total avocado sales volume for the full fiscal year. I’ll give more detail on our guidance later in the call.

We generated $10.0 million in operating income, $10.6 million in EBITDA and earnings per share of $0.49 during F3Q. We also continued to strengthen our balance sheet in F3Q. Joe will discuss our balance sheet in more detail but there are a few points I would like to highlight. In F3Q we reduced our long-term debt by $12 million, and compared to year-end F2012 our long-term debt has been reduced by $41.5 million to $47.0 million. We used the net proceeds from our February, 2013, public offering combined with the cash generated by the sale of Calavo Growers’ stock and the sale of the HM East Ridge property to repay long-term debt.

A stronger balance sheet enhances our financial flexibility to make strategic investments into our business. As we have stated before, our long-term strategy includes opportunistically monetizing our assets which will enable us to continue to add quality, productive acreage to our agribusiness.

Along these lines earlier today we announced the acquisition of Associated Citrus Packers, or ACP, which consists of 1300 acres of agricultural property, primarily lemon orchards, in Yuma, Arizona. ACP will be a wholly owned subsidiary of Limoneira. As some of you may recall, last year we began procuring, packing and selling ACP’s lemons as well as other growers in Yuma. A total of 745,000 cartons of fresh lemons were sold during the period September 2012 to February 2013, including 355,000 cartons harvested by ACP.

The typical seasonality of lemon production in this region of Arizona is complimentary to the harvest and selling seasons for our California orchards. The high quality of the fruit that ACP added to our year-round supply chain has been instrumental to our packing and marketing operations’ growing success. The ability to provide our domestic and international customers lemons on a year-round basis is vital in today’s marketplace. Because the profit margins are higher for lemons grown on our own orchards compared to lemons that are procured from third-party growers, we expect that this acquisition will be accretive to our agribusiness’ operating profit in F4Q 2013 and F1Q 2014.

We began F2013 with approximately 800 acres or 12% more agricultural acreage compared to last year, and now with the acquisition of ACP we have over 9500 acres of owned or leased land, 7000 of which are productive agricultural properties.

In July we announced that we entered into a long-term lease agreement with Cadiz, Inc. to develop new lemon orchards on Cadiz’s agricultural property in eastern San Bernardino County, California. Under the terms of the agreement, Limoneira has secured the right to plant up to 1280 acres of lemons over the next five years at the Cadiz Ranch operations in the Cadiz Valley. This agreement allows us to leverage our core competencies and to partner with Cadiz to support them in their commitment to sustainable agriculture in their local community. We expect to begin generating revenue from the first phase of 320 acres of lemons in 2018.

This is another transition that serves as an example of the opportunities for us to expand our agribusiness over the long term. We are the largest vertically-integrated supplier in lemons in the United States and one of the largest growers of avocados in the US, which allows us to be a unique partner to anyone – from a public company such as Cadiz to a smaller-scale farmer who owns productive agricultural land but is looking for a succession plan for his business.

In addition to growth through acquisition we’re also focused on expanding our agribusiness organically. We continue to increase our agribusiness customer base both domestically and internationally, and we remain pleased with the success of our direct sales and marketing strategy for lemons which has now been in place and going strong for almost three years.

Turning to the rental segment of our business, in June 2013 we announced that we plan to build 71 agricultural workforce housing units in Santa Paula, California, that will be available for rent to local agricultural workers and Limoneira employees. Our rental business is a steady and predictable revenue stream that provides us with a dependable source of annual cash flow.

In addition it provides us with a unique ability to offer housing to agricultural workers and our employees, which in turn helps provide us with a consistent source of labor that is core to the success of our agribusiness. We estimate that the total cost of the development of these new housing units will be approximately $8.5 million and will be completed and available for rent during F2014. When fully occupied, annual rental revenue from the additional housing units is anticipated to be approximately $850,000 to $900,000. Last fiscal year our total rental revenue was $4 million.

Moving to our real estate development segment, with the annexations of East Areas 1 and 2 into the City of Santa Paula earlier this year, we are focused on moving forward with the development phase of these projects. We are tract-mapping East Area 1 for development and plan to apply for infrastructure building permits in the very near future. In total, the plans for these projects consist of 550 acres for a community of residential units, commercial and light industrial properties, comprising up to 1500 residential units, 560,000 square feet of commercial space, and 150,000 square feet of light industrial space.

We estimate that the residential component represents approximately 25% of all single family homes, townhomes and condominiums that are currently in construction, planned or approved in the entire county of Ventura. The project will benefit from the land’s highly desirable location, which is just 14 miles from the Pacific Coast and 65 files north of Los Angeles, and easily accessible to several major highways.

Over the past few months we have had various discussions with developers and homebuilders and continue to evaluate our alternatives to move the project forward. We believe we are on track to break ground next year which should position the project to begin home sales in 2015. As the development progresses we believe Limoneira will benefit from the significant cash flow generated by the project. Over time we expect to invest this cash flow into expanding our agribusiness and selected rental operations as well as to increase our dividends to enhance our shareholder value.

With our unique and diverse business model we are continually evaluating new ways to leverage our assets, our experience, and deep understanding of our market to drive sales growth and profitability. We recently announced the appointment of Mark Palamountain as Director of Business Development and Business Integration. Mark previously served as the Director of our Energy, Waste and Water Projects and was instrumental in the development of Limoneira’s solar installation, one of the largest private solar facilities in California. We believe that Mark’s experience and insight will be instrumental as we work to identify, pursue and integrate new business units, revenue streams and growth opportunities into our business model.

With our expanding agribusiness and the building momentum of our real estate development business, this is a very exciting time for Limoneira. We believe that we have the foundation in place for solid results for years to come. Before I turn the call over to Joe I’d like to highlight a few aspects of our business that provide us with distinct growth and cash flow opportunities, both over the short term and the long term.

First is the growing awareness among consumers of farm fresh to family table for traceability and quality that provides us long-term growth opportunities within our diverse agricultural product offerings, both domestically and internationally. Our customers know Limoneira’s commitment to product safety and sustainable farming practices.

We are able to leverage our status as a low-cost producer and one of the largest direct marketers of lemons in the United States. We are positioned to capitalize on growing global demand for avocados and lemons. We generate steady cash flow from rental properties and we will continue to strategically add rental properties, such as the announcement I discussed earlier in my remarks.

We are positioned to potentially generate significant cash flows from the sale of our extensive Southern California real estate holdings that are uniquely situated for residential and commercial real estate development. We expect to utilize proceeds from the sale of Southern California real estate to purchase a deep pipeline of lower cost per acre agricultural land with productivity and cash flows similar to our existing agricultural properties.

We are able to leverage our sustainability-focused investments in solar energy, water management and environmental stewardship. And lastly, there are very high barriers to entry in the Southern California agribusiness industry due to a number of factors including high land prices and a rigorous regulatory environment. We believe that our uniquely positioned holdings and our leading position in the fruit and citrus industry provide us a significant competitive advantage.

In summary, we believe we have a very strong foundation to our business and are positioned to deliver solid financial results for the full year of F2013. We have momentum due to our expanding agribusiness and we are making progress towards unlocking the tremendous value we have in our real estate development holdings. And with that I’d like to turn the call now over to Joe Rumley to discuss our F3Q financial results.

Joe Rumley

Thank you, Harold. Good afternoon, everyone. For F3Q ended July 31, 2013, revenue was $29.9 million compared to revenue of $24.7 million in F3Q of the previous year. Agribusiness revenue increased 21% to $28.6 million compared to $23.7 million in F3Q last year. Rental operations revenue was $1.1 million in F3Q compared to $1.0 million in F3Q last year. Real estate development revenue was $239,000 compared to $74,000 in F3Q last year.

Our F3Q 2013 agribusiness revenue includes $19.9 million in lemon sales compared to $15.5 million of lemon sales during the same period of F2012, reflecting a larger number of cartons of fresh lemons sold as well as a higher average price per carton. Sales of lemon byproducts were similar compared to the same period last year.

Avocado revenue increased to $7.7 million compared to $5.5 million during the same period of the previous fiscal year, reflecting increased volume partially offset by a lower average price per pound. We recognized $1.5 million of orange revenue in F3Q 2013, compared to $2.5 million of orange revenue in the same period of F2012. The decrease reflects lower volume as well as lower prices as a result of smaller fruit sizes due to lower annual rainfall in F2013 compared to F2012.

Citrus revenues and other crop revenues were $296,000 in F3Q 2013 compared to $617,000 in F3Q 2012. Nine months’ year-to-date orange revenue was $1.8 million greater than the same period of F2012, reflecting sales from the Sheldon Ranch lease, and specialty citrus revenue was $211,000 over last year.

Turning to costs and expenses, for F3Q 2013 we incurred $20.0 million of costs and expenses compared to $17.0 million in F3Q last year. The year-over-year increase in operating expenses primarily reflects increased agribusiness costs associated with higher fruit production and sales for this segment.

Our packing cost increase was primarily attributable to higher volume of fresh lemons packed and sold compared to the same period of F2012. We packed and sold 937,000 cartons in F3Q 2013 compared to 794,000 cartons in the same period last year, or an 18% increase. Third-party grower costs increased in F3Q 2013 compared to the same quarter last year due to an increase in the cost of lemons procured from third-party growers.

Operating income for F3Q 2013 was $10.0 million compared to $7.7 million in F3Q 2012. The increase in operating income is mainly a reflection of an increase in agribusiness production as well as our ability to leverage our operating expenses across higher sales volume. EBITDA was $10.6 million in F3Q 2013 compared to $8.2 million in the same period of F2012. There’s a reconciliation of EBITDA to GAAP net income provided in the earnings release.

Interest expense was zero in F3Q 2013 due to repayment of long-term debt made with proceeds of our February, 2013, public offering of common stock and the proceeds from the sale of 165,000 shares of Calavo Growers as well as the sale of the East Ridge property earlier in the year. All interest incurred during F3Q 2013 was capitalized on non-bearing orchards, real estate development projects and significant construction and progress. In F3Q 2012 interest expense was $148,000.

Non-cash fair value adjustments on interest rates swap resulted in income of $269,000 in F3Q 2013 compared to $172,000 in the same period last year. Net income applicable to common stock after preferred dividends from F3Q 2013 was $6.5 million compared to net income applicable to common stock of $5.0 million in F3Q the prior year.

Earnings per diluted share for F3Q 2013 were $0.49 on approximately 13.3 million weighted average diluted common shares outstanding, compared to $0.45 on approximately $11.2 million weighted average diluted common shares outstanding last year. The year-over-year increase in shares outstanding is due to the February, 2013, public offering of common stock.

Turning to our balance sheet we continued to improve the strength of our balance sheet in F3Q 2013. During the quarter we reduced our long-term debt by $11.7 million compared to long-term debt at the end of F2Q this year; and compared to the year-end F2012 our long-term debt has been reduced by $41.5 million. During the nine months ended July 31, 2013, we generated cash flow from operating activities of $5.1 million compared to $4.5 million for the same period last year.

We used the net proceeds from our February public offering to pay down debt. In addition, we previously announced the sale of 165,000 shares of Calavo Growers’ stock in April, 2013, and the HM East Ridge LLC property sale in June, 2013. These sales generated net cash of $4.8 million and $5.7 million respectively which was also used to pay down long-term debt. This is consistent with our goals of strategically monetizing assets to increase our financial flexibility to capitalize on future agribusiness acquisition opportunities and invest in real estate development projects.

Now I’d like to turn the call back to Harold to discuss our F2013 guidance.

Harold Edwards

Thanks, Joe. We are updating our previously-stated guidance for F2013. We continue to expect revenue and operating profit as well as EBITDA and net income will grow in F2013, primarily driven by our agribusiness segment related to increased lemon and avocado volume and the operating results from the Sheldon Ranch.

For the fiscal year ending October 31, 2013, we also continue to expect to sell between 3.0 million and 3.2 million cartons of lemons representing approximately a 25% increase over F2012. As the peak of the avocado harvest was processed during F3Q 2013, we found that the fruit did not size as large as was anticipated earlier in the year. Accordingly we now expect to sell approximately 15 million pounds of avocados compared to our previous estimate of between 17 million and 19 million pounds.

We sold approximately 12 million pounds of avocados in 2012. In addition, we estimate that the average price per pound of avocados will be approximately $0.70 for F2013 compared to our estimate earlier in the year of approximately $0.57 per pound. Accordingly with lower production but higher prices, avocado revenue should be similar to our earlier estimate for the year. We believe that lemon and avocado prices will be less in F2013 compared to F2012 due to higher industry production.

In closing, we believe we are very well positioned to achieve strong growth in F2013 and look forward to reporting to you on our progress during our F4Q conference call. And with that I’d like to now open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) And we’ll go to our first question from Tony Brenner with Roth Capital Partners.

Tony Brenner – Roth Capital Partners

Thank you. I have three questions. First of all, how many shares were included in the Associated acquisition?

Joe Rumley

705,000 shares unregistered, just for information.

Tony Brenner – Roth Capital Partners

Okay. And Harold, do you have a pound forecast for F2014 for lemon and avocado?

Harold Edwards

Not yet, Tony. We’re getting close to that but we’ll put that out there in the coming months. But it’s still a little too early to make that call. Just generally I’d like to say that it looks like we have a fairly decent avocado crop and it looks like a comparable lemon crop, but it’s a little too early to give guidance on volume at this point.

Tony Brenner – Roth Capital Partners

Okay. So we’re looking at lower prices, higher production and that should work out to a slight increase in ag revenues overall?

Harold Edwards

For F2014?

Tony Brenner – Roth Capital Partners

For F2014.

Joe Rumley

I think it’s just too early as Harold mentioned but we’re looking for F2014 to be a pretty decent year. It’s just too early to get more specific than that.

Harold Edwards

Actually maybe one thing I would mention is that a lot of the way that the year shapes up, speaking specifically about lemons, is the strength of the sales pricing going into the year. And at this point we can see the end of F4Q and the beginning of F1Q. We’re coming into next fiscal year which begins November 1st with much higher sales prices in our lemon business than we did in prior years, and I think that should give us a chance to have a better opportunity to have higher pricing in lemons for next year.

We do know that there were severe freezes in the Southern Hemisphere in Argentina and Chile earlier this year and we also know that heavy rains in Mexico have slowed down the lemon supply and imports from Mexico. So consequently we continue to enjoy very strong pricing in F4Q which I think sets us up potentially for stronger prices in lemons next year. The other thing I can comment on avocados is that we know for a fact the California industry of avocados has much lower total production in F2014 than we’re experiencing in F2013. And we also know that Mexico’s crop is comparable. So with that being said we believe we should experience much higher avocado pricing in F2014 as well.

Tony Brenner – Roth Capital Partners

Okay. And lastly, regarding your real estate operations nothing has been finalized yet as to the form of either your Santa Maria or these [3001 properties] might take in terms of whether you’ll simply develop land or form joint ventures, or what do we have to look forward to for F2014?

Harold Edwards

So nothing to officially report other than to say that discussions with developers and builders are ongoing. Our discussions remain very positive and we believe we are nearing some very major announcements related to the development certainly of our Santa Paula properties. And Santa Maria discussions are ongoing. Values continue to strengthen but nothing to report at this time. But I think just the way we feel about the way the markets are behaving and the continued limitations on supply of residential, buildable lots that we believe an announcement is forthcoming.

Tony Brenner – Roth Capital Partners

Would any form of these agreements result in significant revenues in F2014 or are we looking further, the following year for the significant ramp up?

Harold Edwards

No, I think potentially we could see the beginning of revenues just based on deal structure where the first tranche of land might actually generate some sales value for us and potential profitability. So I just throw that out as potential. I think that really the majority of the earnings should begin in F2015.

Joe Rumley

That’s when we’re currently thinking based on our current estimates of when we’d start to actually see home sales, but as Harold said there could be some structuring. It just depends on the form that the agreements, whatever we end up doing might generate some cash in F2014. But home sales are looking more like the F2015 timeframe.

Tony Brenner – Roth Capital Partners

Thank you.

Operator

(Operator instructions.) And we’ll now move to Jonathan Feeney with Janney.

[technical difficulties]

Jonathan Feeney – Janney Montgomery Scott

Okay, I’ll do the best I can with one question and if you can’t hear me cut me off and talk to a more worthy questioner. On the avocado forecast for next year you said (inaudible) production dramatically down. Is that just in line with the sort of historical ups and downs with the biology of the crop or is there any sort of special information you’re talking about as far as the size of the avocado crop for next year?

Harold Edwards

No, I think at least at this point it’s sort of due to the physiology of the alternate-bearing nature of crop sizes. You know, we’re still waiting for the industry to come out with the official estimate on the total California crop but this year I think we’re going to kind of come in at around 400 million where next year you’re looking at 325 million to 3.50 million pounds type of thing. And actually this year might have even been higher, more towards 500 million, so a dramatic drop off in the total size of the crop.

That being said, it looks like again, a little too premature to actually count it but the bloom and the set which has taken hold and is on the tree for next year for us appears to still be pretty heavy. So you know, I guess it could set itself up to be a really good situation with a bigger than normal sort of down-year crop for us into an overall smaller California crop which really should help strengthen prices. So when those two factors sort of come together like that it really bodes well for future profitability. And next year I think we’re cautiously optimistic but it looks like there’s a good chance it could be a great avocado year for us.

Jonathan Feeney – Janney Montgomery Scott

Thanks, Harold. And you said $0.70 a pound for the full year F2013?

Harold Edwards

That’s right, versus our original estimate of $0.57.

Jonathan Feeney – Janney Montgomery Scott

Right. But you also said in the release that year-to-date is $0.75 a pound, so does that mean we’re going to average $0.55 for F4Q?

Joe Rumley

No, that’s just how the numbers work in the last month of the harvest, what they tend to be. So between clean-up and all the (inaudible) it tends to kind of slip up in the end. So $0.70, $0.75, around there.

Jonathan Feeney – Janney Montgomery Scott

Right, I’ve got you. Of course, silly me, right, it’s not a straight line. Okay great, just one other question on the Associated Citrus Packers. It’s interesting – are there other areas outside of… I understood the whole lemon development, lemon agricultural properties you’ve been targeting to be mainly in Solara County, central California. Are there other pockets outside of say this in Yuma, Arizona, where you’d be targeting for potential agricultural properties to buy and to maintain your production with some of the ongoing real estate development going on and you’d sort of maintain volumes?

Harold Edwards

So we’ve been eyeing this area for a long time, Jonathan, and really if you go down and you pull a map, you go all the way down in the California Desert really starting in the Imperial Valley and the Coachella Valley, so the Palm Springs area and Indio; and then you move east. You find yourself all the way over just above the Mexican border into Yuma, Arizona. And that whole area is actually a pretty robust citrus producing area, and we like that. We believe that’s a very complimentary area because that’s the lemon that actually starts harvest in August and can be carried all the way to February – which if you go and look at the profile of our other properties it’s very complimentary in that we really have never had any self-owned production in that timeframe.

That being said, though, the one sort of risk of this area is that we go head-to-head with very cheap Mexican production typically in any given year. And so as a result we typically expect that because you’re growing in the desert the production of these properties tends to be really about a third of what we’re able to produce per acre on the coast and about half of what we’re able to produce up in the San Joaquin Valley. So because of the challenged production levels and then often the pressure of the pricing that we get by competing against Mexico our net returns per acre are tempered down to... We’re really targeting to achieve operating profits in the $1500 to $2000 range.

So the opportunity to return on capital in this area is not as great unless we’re able to get great purchase opportunities, which we believe we just did with Associated Citrus Packers. So aside from the complimentary part of this and the seasonality of this acquisition , which by the way it’s very complimentary and will set up the value of our District 1 and our District 2 fruit in a much better way because it will all be our fruit – this area is typically more challenged to be able to achieve the profit levels that we see in the San Joaquin Valley or here along the coast.

Jonathan Feeney – Janney Montgomery Scott

So that explains the value differential but it looks like you acquired this property on a per acre basis a lot lower than what you typically talked about for target prices.

Harold Edwards

Exactly. And so as a result you’ll also see lower production levels and lower overall profitability, but we still fully expect it to be accretive and extremely additive to our year-round supply of lemons for our customers.

Jonathan Feeney – Janney Montgomery Scott

It looks that way, great. Well thanks, that’s all I had, guys. I appreciate it.

Harold Edwards

Thanks, Jonathan.

Operator

And we’ll move to our next question. We’ll go to Steven Martin with Slater Capital Management.

Steven Martin – Slater Capital Management

A couple of questions. Your utilization rate on lemons, did it improve? I guess utilization is my word; you have a different phrase for it.

Harold Edwards

So the way we talk about utilization, Steve, is whatever the tree produces, how much of that we’re able to take fresh versus take to products. And so our fresh utilization has increased significantly across all our production and this year should come in pretty close to 80%.

Steven Martin – Slater Capital Management

And what was it when you were part of the co-op?

Harold Edwards

Well, in 2009 it was 50%.

Steven Martin – Slater Capital Management

And what would be a good target, because I recognize that you can’t physically get to 100%.

Harold Edwards

Yeah, physiologically we’re kind of right where we need to be. We are pretty much selling everything fresh that we’re able to sell fresh based on what the tree can actually deliver now.

Steven Martin – Slater Capital Management

Gotcha.

Harold Edwards

And remember, that changes every year based on what’s gone on with the weather and what the tree is doing.

Steven Martin – Slater Capital Management

Right. And the Yuma property, if you had owned that – and I know you’re not ready to project out for F2014 – but if you had owned Yuma for the full year this year, based on what they produced – what would have been the revenue or profit differential to you?

Harold Edwards

Here’s the way to kind of think about that, Steve. So every year is different, and remember I made some comments earlier that the starting point of lemon pricing last year was much lower than we’re seeing this year, which is much higher. So it’s not really fair to compare what happened last year to this year, but we still believe we can put that carton up for $12 a carton and we’re kind of going into a period where today we’re seeing Applebee’s… Joe?

Joe Rumley

$20.

Harold Edwards

We’re averaging about $20 right now. So we’re sort of starting with an $8 per carton profit margin this year versus last year that might have been $3.

Joe Rumley

Yeah, it was around $15 a carton.

Steven Martin – Slater Capital Management

Right, but last year you did some of their marketing for them so some of that you would have captured already.

Harold Edwards

Yeah, so we actually averaged between $0.50 and $0.75 per carton for the services we provided for them last year.

Steven Martin – Slater Capital Management

So instead of $5 you would capture $4 – you’d capture an incremental $4.00 or $4.25. I’m sorry, instead of $8.00 you’d capture an incremental $7.00, $7.25.

Harold Edwards

But we had to give it back to them because it was still their fruit. So we captured $0.50 to $0.75, we gave $4.00 back to them. This year we should capture about $8.00 a carton. So I think the way to think about it, and I think we’re almost ready to sort of lay this out, but we believe that this should be accretive to us to the tune of $0.03 to $0.04 a share.

Steven Martin – Slater Capital Management

Alright. You and I will have to go through that math later, I don’t want to tie anybody up.

Harold Edwards

I’d be happy to walk you through it.

Steven Martin – Slater Capital Management

Okay. If the avocado sizing, and I heard that the sizing wasn’t great this year – given your abundance of water isn’t there a way to make up for the shortage of rainfall?

Harold Edwards

No. I wish there was. You know, the tree does funny thing based on whether God turns the water on or whether we turn the water on and it really prefers God’s water and we’re kind of not in control of that. So we water very, very heavily to the tune of about 2.0 acre-feet per acre to 2.5 acre-feet per acre, which is a lot of water. But the tree just physiologically responds differently when it’s a natural rainfall event versus when you have to use water to irrigate. We’re still trying to figure that one out.

Steven Martin – Slater Capital Management

Got it. When you look at acreage and you’ve got a lot of sources of incremental acreage starting with the farm you bought last year… You know, there’s acreage coming on in different stages, and the Yuma acreage you just bought and acreage you’ve planted. Is there a way for you to give us a multi-year projection on acreage?

Harold Edwards

I think so, Steve, and we’re actually working on coming up with that data that we’ll put on the websites to give investors an idea of what percentage of our acres are bearing and what percentage are nonbearing but on their way to becoming bearing. And I think it’ll give everybody a clear view of what to expect in terms of what the trees are actually doing. And you and I have discussed this in the past and I think it’s an excellent thing that we can provide that will help give greater clarity across all the things that we produce as it relates to future crop sizes.

Steven Martin – Slater Capital Management

And I have a couple more questions, but if there’s someone else in the queue you can go to them and then I’ll beep back in.

Operator

And there are no other questions at this time.

Steven Martin – Slater Capital Management

Then I’ll keep going. If you don’t mind I’ll ask a couple more. The unregistered stock, what are the restrictions or the registration rights on that?

Joe Rumley

There aren’t any registration rights. It’s 144 stock which basically has to be held for a six-month period assuming nothing else transpires. That’s typically your main requirement, is after six months somebody in the position of unregistered stock can sell it after that period of time.

Steven Martin – Slater Capital Management

And are any of the people involved coming on the Board or would any of the people involved become restricted persons just by virtue of their position?

Joe Rumley

No. Many of these people including the former owners and people who ran the business and the previous CFO, Mark Spencer, I see you saw some comments from him in the press release. They’re staying with the business. Certainly we’re happy about that. They will help us transition. They obviously know their property better than we do at this point, so they’re going to be around for a while and help us. But nobody has planned to be on the Board or have an Officer position. They’ll be very helpful and useful employees at the company though.

Harold Edwards

Steve, one thing to maybe mention that is really interesting and I think really important to highlight about this transaction is that the profile of the principles of the Associated Citrus Packers group were, these were generational family farmers that pooled their interests three generations ago to manage through the economies of scale of creating an ongoing viable business unit. As they looked at their collective futures they concluded that they really needed to be tied into a global supply chain and they also concluded that there was a lack of succession for their generational family farms.

We were very fortunate that they were structured as a C corporation which really facilitated the stock-for-stock transaction that allowed their original basis and their ownership in their original properties to be transferred in as the basis of ownership of now Limoneira common stock. And the event was an untaxed event, and the tax related to the differential between the basis and the value of the Limoneira common stock is carried over to them on our balance sheet now as a deferred tax.

It provides liquidity for any of their family members that want to exit – they’ll bear the burden of their own taxes; but it also allows the people who want to continue with the business, which is as I understand it, Joe, is most of them, to stick around as happy shareholders of Limoneira in what I think is a very tax-effective transaction.

Steven Martin – Slater Capital Management

So what you’re telling us is even though there’s only a six-month restriction you don’t expect a whole lot of that stock to come dribbling into the market.

Harold Edwards

I don’t, I don’t think it will. And the other point of walking you through that is I also believe part of our story is, and this is the story of my family’s agricultural business merging together with the company, with the Teague McKevett Corporation, with the Michaels family, with the Sheldon Ranches. We’ve identified approximately $250 million of potential acquisitions just in the state of California – actually I guess California and Arizona – which are very, very consistent with this type of an acquisition.

And while we believe that these take a long time and these are generational family farms, so the sellers aren’t necessarily standing on the street corner looking to sell their properties, we do believe that with each successful transaction just like the ACP transaction, it builds confidence and really helps us with momentum in future acquisitions. And so we’re extremely pleased with the way the ACP deal was done and we do believe it will accelerate future transactions also that will be sort of put together using both stock and cash.

Joe Rumley

Another thing just to think about with the ACP shareholders is like Harold was just saying, in the story of how Limoneira came to be there’s quite a few ACP shareholders so that there’s no one or small group that necessarily owns a lot of shares. I mean there are but the officers, the president, they own the bulk but there isn’t a huge bloc in the 705 that could go away immediately most likely. And it was very much their desire to have this be tax-efficient for them – otherwise they might have pursued some sort of cash transaction but that would have been much more tax deficient, less efficient because they would have paid the tax immediately. So there’s no indication that we know of today that they would look to bail out in six months or so.

Steven Martin – Slater Capital Management

Okay. One last one: any progress on Windfall?

Harold Edwards

We’ve had significant progress. One of the, probably the big story up in the Paso Robles wine area is the continued scarcity of water, and a map just recently came out that showed the areas of concern. And if I was able to share with you that map and you could visually look at it together with us right now you’d see a little finger that’s carved out of the entire Paso Robles area that’s basically the whole area around where Windfall is. So as the rest of Paso Robles continues to be challenged with water we’re very fortunate to have an ample supply and source of water, and that bodes very, very well for the future planting of the property. And so it’s in our view that within the next few months, probably beginning in December, we’ll begin to plant the first hundred acres of wine grapes on the property.

Joe Rumley

And we’re going to do that on our own balance sheet and real estate under our own auspices.

Harold Edwards

Yes.

Steven Martin – Slater Capital Management

Okay. And land as I understand it, vineyard land out there has increased dramatically as well.

Harold Edwards

And we believe that because of the increased scarcity of water around the property in addition to our now development of the vineyards on the property, that the 10-acre parcels of which there’s 76 on that property will continue to become more and more valuable as you look to subdivide the property into the future. So we believe it’s strategically the right move to begin to develop the property and to set up future lot split and lot separation for value into the future.

Steven Martin – Slater Capital Management

Okay, that’s another one we’ll have to discuss at a later date. Thanks a lot.

Joe Rumley

Thank you, Steve.

Operator

And with no other questions I’ll turn the call back over to management.

Harold Edwards

Great. Thank you for your questions and interest in Limoneira. Over the next several months we’ll be attending select investor events and we hope to see many of you there. Thank you again and I hope everybody has a great day.

Operator

And this does conclude today’s conference. Thank you for your participation.

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