Limoneira Co (LMNR) CEO Harold Edwards on Q4 2019 Results - Earnings Call Transcript

Jan. 13, 2020 8:26 PM ETLimoneira Company (LMNR)
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Limoneira Co (NASDAQ:LMNR) Q4 2019 Earnings Conference Call January 13, 2019 4:30 PM ET

Company Participants

John Mills - ICR

Harold Edwards - President, CEO & Director

Mark Palamountain - CFO, Treasurer & Corporate Secretary

Conference Call Participants

Benjamin Klieve - National Securities Corporation

Vincent Anderson - Stifel, Nicolaus & Company

Eric Larson - The Buckingham Research Group

Benjamin Bienvenu - Stephens Inc.


Good day, and welcome to the Limoneira Fourth Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir.

John Mills

Great. Thank you. Good afternoon, everyone, and thank you for joining us for fourth 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 fourth 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 view the release, it's available on the Investor Relations portion of the company's website at This call is being webcast and a replay will be available on Limoneira's website as well.

Before we begin, we'd 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 included 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 the information, future events or otherwise.

Please note that during today's call, we will 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 details 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 included 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-K 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.

Harold Edwards

Thanks, John, and good afternoon, everyone. On today's call, I will provide a brief overview of our operational results in fiscal 2019 and an update on our progress across all of our business areas as we enter fiscal year 2020. Mark will then review the financial results in more detail, and I will finish with our reiterated outlook for fiscal year 2020. After that, we will open up the call and take your questions.

We achieved record revenue in fiscal 2019. However, uncontrollable weather events affected lemon and orange pricing and fresh utilization throughout the year and dramatically reduced our avocado crop for fiscal year 2019. Our lemon volume was very strong in fiscal year 2019 as we grew a record tree crop. Unfortunately, due to the lower fresh utilization rate for part of the year and lower pricing due to sizing of fruit, our record volumes did not translate into our expected bottom line profits. It is important to point out that the weather events that affected the overall lemon and orange industry throughout the year offset the fact that we increased our market share.

Also, the overall lemon industry continues to expand globally, and we fully expect that to continue for many years to come. As we enter fiscal year 2020, pricing per carton has improved, and our fresh utilization rates have now increased back to a range of 70% to 75% from a low of 50% in the third quarter last year.

We experienced strong winds during the first quarter on our ranches in Southern California, and this could affect the grade of a portion of our lemons, which could negatively impact the overall grade of lemons we harvest later this year. Even with this effect, we believe we will see prices increase over last year.

I am pleased that with the temporary challenges we faced in fiscal year 2019, we still were able to generate positive adjusted EBITDA, closed a strategic acquisition, and are very well-positioned to continue our market share growth and return to strong adjusted EBITDA results in fiscal year 2020.

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 us positioned for long-term growth and improved efficiencies. We've expanded our customer base to over 250 customers, including leading restaurants and grocery store chains. We've been able to achieve this expansion by leveraging our domestic and international marketing and sales channels, focusing more on trade marketing and consumer-facing strategies and utilizing our increased 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 lemon supply.

A great example of this global expansion is the joint venture we closed this year. In May of 2019, we acquired a 51% interest in a joint venture, Trapani Fresh, formed with FGF Trapani, a multi-generational family-owned citrus operation in Argentina.

Also, in fiscal year 2019, we surpassed our new carton goal by securing over 700,000 cartons with another 500,000 fresh cartons expected by the end of 2020. We now have over 9,700 planted agricultural acres, of which approximately 1,200 acres are currently nonbearing lemons, but estimated to become full bearing over the next 4 years.

In 2020, we expect 300 acres of these acres to be full bearing with an additional 300 acres to be full bearing by 2021 and the remaining 600 to become full bearing by 2023. Beyond these 1,200 acres, we have plans to plant an additional 250 acres of lemons in the next 2 years and believe this additional acreage will increase our domestic supply of Limoneira-owned lemons by approximately 50% 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 to avocados. In fiscal year 2019, our production was down due to the previously announced extreme heat that affected production. As expected, we recognized minimal avocado revenue in 2019 but we'll be back to normal production in fiscal year 2020.

Turning now to our real estate development segment. I'm happy to report that 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 ventures received lot deposits from Lennar and KB Homes in fiscal year 2018. Initial lot sales representing 210 residential units closed in fiscal 2019, and we recently closed an additional 33 in the first quarter of fiscal year 2020. 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 addition, during the fourth quarter, we announced the sale of a multiuse facility consisting of a retail convenience store, gas station, carwash, and quick-serve restaurant located in Santa Paula, California. The transaction closed on August 30, 2019, and we received approximately $4 million in net proceeds and recorded a gain of approximately $600,000 in the fourth quarter.

Lastly, in October of 2019, we sold The Terraces at Pacific Crest for approximately $3 million. We received net proceeds of $2.9 million and recognized a gain of approximately $400,000 in the fourth quarter.

In summary, while our full year fiscal 2019 results were 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.

Mark Palamountain

Thank you, Harold, and good afternoon, everyone. I will discuss some of the details of our financial results for the fourth quarter and full year ended October 31, 2019. I'd like to reiterate to everyone that due to the seasonal nature of our business, revenue is driven by varying harvest periods from year-to-year, and therefore, we believe it is prudent to view our business on an annual basis, not a quarterly basis. Historically, our first and fourth quarters are the seasonally softer quarters, while our second and third quarters are stronger.

For the fourth quarter of fiscal year 2019, total net revenue was $36.5 million compared to total net revenue of $14.7 million in the fourth quarter of the previous fiscal year. Agribusiness revenue was $35.3 million compared to $13.5 million in the fourth quarter last year. The increase was primarily due to higher lemon volume offset by lower fresh lemon prices and lower fresh utilization. Rental operations revenue was $1.2 million in fiscal year 2019, similar to the fourth quarter of last year.

Agribusiness revenue for the fourth quarter of fiscal year 2019 includes $17 million of fresh lemon sales compared to $7.1 million of fresh lemon sales during the same period of fiscal year 2018. The increase resulted from higher lemon volume offset by lower fresh lemon prices and lower fresh utilization. Approximately 793,000 cartons of fresh lemons were sold during the fourth quarter of fiscal year 2019 at a $21.46 average price per carton, compared to approximately 239,000 cartons sold at a $29.71 average price per carton during the fourth quarter of fiscal year 2018. Additionally, brokered and other lemon sales increased approximately $7 million in the fourth quarter of fiscal year 2019, primarily as a result of adopting new revenue recognition standards.

As anticipated, the company recognized $2.3 million of revenue from our avocado insurance payment related to the excessive heat in the summer of 2018 that dramatically effected avocado production in fiscal 2019 compared to minimal revenue in the fourth quarter of last fiscal year.

The company recognized $2.1 million of orange revenue in the fourth quarter of fiscal year 2019 compared to $300,000 in the same period of fiscal year 2018, primarily attributable to a $1.4 million increase in brokered oranges sold under the new revenue recognition standards.

Specialty citrus and other crop revenues were $2.1 million in the fourth quarter of fiscal year 2019 compared to $1.4 million in the fourth quarter of fiscal year 2018. The increase was primarily due to increased wine grape and pistachio revenues.

Total cost and expenses for the fourth quarter of fiscal year 2019 increased to $40.1 million compared to $24.3 million in the fourth quarter of last fiscal year. The fourth quarter of fiscal year 2019 increase in operating expenses was primarily attributable to increases in agribusiness costs and expenses due to increased volume of third-party grower lemons packed and sold and increased selling, general and administrative costs due to the acquisition of Trapani Fresh. Costs associated with the company's agribusiness include packing cost, harvest cost, growing cost, cost related to the fruit procured and sold for third-party growers and depreciation expense.

Operating loss for the fourth quarter of fiscal year 2019 was $3.6 million compared to a loss of $9.6 million in the fourth quarter of the previous fiscal year. Net loss applicable to common stock after preferred dividends for the fourth quarter of fiscal year 2019 was $3.2 million and compares to a net loss of $3.4 million in the fourth quarter of fiscal year 2018.

Net loss per diluted share for the fourth quarter of fiscal 2019 was $0.18 and $0.19 for fiscal year 2018. Excluding the noncash unrealized gain on stock and Calavo growers, equity in earnings of Limoneira Lewis Community Builders and a gain on sale of property assets for the fourth quarter of fiscal year 2019, adjusted net loss applicable to common stock was $4.2 million or $0.24 per diluted share compared to fourth quarter of fiscal year 2018 net loss of $5.3 million or $0.30 per diluted share, which excludes the $4.2 million realized gain on the stock in Calavo and $1.6 million noncash impairment of Santa Maria real estate assets.

Adjusted EBITDA was a loss of $2.1 million in the fourth quarter of fiscal year 2019 compared to a loss of $1.2 million in the same period of fiscal year 2018. A reconciliation of adjusted EBITDA to net income is provided at the end of this release.

For the fiscal year ended October 31, 2019, revenue increased to $171.4 million compared to $129.4 million for the fiscal year ended October 31, 2018. Operating loss for the fiscal year 2019 was $5.5 million compared to an operating income of $9.5 million for the fiscal year 2018. Net loss applicable to common stock after preferred dividends was $6.4 million for the fiscal year 2019 compared to a net income of $19.7 million for the fiscal year 2018. Net loss per diluted share for the fiscal year 2019 was $0.37 compared to a net income per diluted share of $1.25 for the fiscal year 2018. Excluding the gain on asset sales of $1.1 million, $2.1 million noncash unrealized loss on stock in Calavo and $2.9 million in equity earnings of Limoneira Lewis Community Builders for the fiscal year 2019, adjusted net loss applicable to common stock was $7.8 million or $0.45 per share. This compares to adjusted net income of $7.9 million or $0.50 per diluted share for the same period in fiscal year 2018, which excludes a $10.3 million or $0.63 per diluted share noncash onetime tax benefits associated with the decrease in its deferred tax liability during the first quarter of fiscal year 2018, a $4.2 million gain from the sale of Calavo Growers stock and a $1.6 million or $0.07 per diluted share noncash impairment of Santa Maria real estate assets during the fourth quarter of fiscal year 2018. Per share data is based on approximately 17.6 million and 16.2 million shares, respectively, weighted average diluted common shares outstanding.

Adjusted EBITDA for the fiscal year 2019 was $1.9 million compared to $23.4 million in the same period last year. A reconciliation of adjusted EBITDA to net income is provided at the end of this release.

Before I hand the call back over to Harold, a few comments on our balance sheet. Long-term debt as of October 31, 2019, was $105.9 million compared to $77 million at the end of fiscal year 2018. We expect to be free cash flow breakeven in 2020.

Now I would like to turn the call back to Harold to discuss our fiscal year 2020 outlook.

Harold Edwards

Thank you, Mark. We achieved a number of goals this year, but the weather had an adverse effect on our bottom line in our three main crops of lemons, avocados and oranges, which hasn't happened to our company in over 30 years. For the full year of fiscal year 2019, we grew a record tree crop with our lemons. Based on the organic lemon growth, we are projecting for fiscal year 2020 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 2020 guidance. In order to simplify our guidance and use metrics that we believe will help you better understand how the operational assets of our company are performing, we are providing adjusted EBITDA guidance and lemon volume guidance by cartons and will not be providing earnings per share guidance going forward. We believe adjusted EBITDA can facilitate a more complete analysis and greater transparency into our ongoing results of operations and remove certain noncash items that could -- that can create fluctuations in its earnings per share.

Excluding the noncash mark-to-market on stock in Calavo and equity in earnings from Harvest at Limoneira, adjusted EBITDA for fiscal year 2020 is expected to be in the range of $22 million to $26 million. For fiscal year 2020, we believe our domestic and international affiliates are expecting to sell 7.5 million to 9.5 million cartons of fresh lemons globally. Included in the global cartons estimates are 5 million to 6 million cartons the company expects to sell domestically.

Looking beyond 2020, we expect approximately $100 million in cash flow from Harvest at Limoneira over the 6- to 9-year life of that project. The company expects a full-year benefit from the Argentina joint venture formed with FGF Trapani and land acquisition in fiscal year 2020.

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

Question-and-Answer Session


[Operator Instructions]. We'll take our first question from Ben Bienvenu with Stephens Inc.

Benjamin Bienvenu

I want to start and ask about the carton guidance. The global guidance of 7.5 million to 9.5 million and the domestic guidance of 5 million to 6 million, that's a bit wider range than we've seen historically. I'm just curious, the elements within that guidance that drive variability from one end to the other. And then, Harold, you mentioned comments I think briefly on wins in the first quarter. Any comments you could make that would help fill in and provide color on that will be helpful as it relates to the full year, things that you have visibility at this point.

Harold Edwards

Yes, I'd be happy to, Ben. So the tree crops across each of the districts domestically, so D3 in the desert, D1 up in the San Joaquin Valley, and D2 on the California Coast, are essentially the same as the prior year, not significantly more fruit. Last year as we made comments to -- it was a record tree crop year. This year seems to be a similar year. At this point with -- we've returned back to a normal distribution of size and grades, which bodes very well for our ability to market and sell high levels of fresh utilization, which was our primary challenge last year. With that said, we believe though, that as we've engaged in more food service contract sales, we'll see the crops from District 1 and District 2, which is basically the spring and the summer crops, begin to move forward which may have an impact of selling smaller, greener fruit, which is great from a fresh sales perspective but could influence the volume that we sell and meaning that we would sell fewer fresh cartons, but typically that is associated with higher pricing opportunities for us. So that's the reason we stretched out the range, it's because we think the tree crop is there, we feel very confident that we'll have at or normal fresh utilization rates. But if our Harvest strategy brings more fruit off earlier, we could see fewer cartons going out at this point, higher pricing than we initially thought. So, it's that volume-price relationship that we play with every day as we sort of view what Mother Nature is giving us on our trees.

Benjamin Bienvenu

Okay, that's great. And then maybe just following on there. You mentioned high wins in the quarter-to-date period. What visibility do you have at this point and just any elaboration if you can on that? If not, we're happy to wait until next quarter to get a state of the union.

Harold Edwards

We won't know for sure until we get to the next quarter, but every year in the early fall season into the early winter season, we experience, we can experience strong Santa Ana winds and this year was no exception. We had a number of high wind events and typically what that does, Ben, is that will often challenge the quality of the fruit, and what might normally be sold as a number 1 grade, fancy grade at a high price, now may, because it has scarring, the fruit may be scarred, it may be downgraded to a choice grade or in the most extreme cases, a standard grade.

And the reason we mentioned it is because typically, that'll manifest itself in pricing due to unfavorable product mixes because we'll have more choice fruit than fancy fruit. So, we mentioned the wind events just as a sort of a caution to potential pricing. At this point, we don't have enough visibility to say one way or the other that our pricing will be challenged because of that quality, but because of the wind, we've had significant wind events, we wanted to get it out there. So that in the event if we saw a higher percentage of choice for standard fruit sales which brought our overall pricing down, we'll be able to point to that.

Benjamin Bienvenu

Okay, great. Mark, you made some comments about the balance sheet towards the end of the prepared remarks. I'm curious, can you help us think about how you think about the balance sheet today and whether you think it gives you the flexibility to continue to be acquisitive. You guys have been opportunistic historically on M&A and have made some great deals. So just curious to get a sense of how calibrated you are this year for pursuing continued opportunistic M&A versus deleveraging the balance sheet.

Mark Palamountain

Yes, sure. And that's a great question, Ben. I think typically we like to look at, on an EBITDA perspective, sort of 3 to 5, 4 times we’re comfortable with, and obviously right now we're on the higher end of that. Right out in front of us, we do see cash flows from Harvest coming, which will be at the end of '21 and '22, so kind of not there yet. I think, from an acquisition perspective or CapEx as well, they were -- we're going to be on hold for the moment. We've made a few acquisitions obviously in the last few years, which we're digesting well. I think the South America stuff will be sort of the next focus of the leg for CapEx, specifically into Chile. We've started on plans of looking at building, basically replicating what we did in Santa Paula in the packinghouse and putting more money down there and doubling the production over the next 5 to 7 years. So that probably won't take place until later this year to beginning of next year is my take, just -- we want to get this year out in front of us. We obviously had the year we had last year and so building up the coffers I think is a good idea for us and any opportunistic sale we have of real estate assets that are around, we are continuing to look at. So, we definitely are very balance sheet focused and it will be a priority this year, to manage that.


We'll now take our next question from Vincent Anderson with Stifel.

Vincent Anderson

I was hoping you could give us a little bit more detail on what your assumptions are for non-U.S. lemon sales this year. I mean it looks like you have some interesting opportunities with Europe, expected to be off in terms of production and then any update on your Asian customer portfolio growth. Just trying to see that priority in the guidance, sort how much could just be from incremental upside.

Harold Edwards

Yes, great question, Vince. This year, we're very optimistic from a customer perspective on being able to move a very high percentage of the crop from around the world into the Southeast Asian markets. With that said, though, those markets are heavily driven by quality. And so if we're able to harvest a higher percentage of fancy fruit, that fruit typically commands premium pricing in the Japanese, Korean, and other Southeast Asian tiger countries. But if we're not able to come up with a high percentage of fancy fruit, then typically the choice grades will stay closer to home domestically. If we are able to achieve what we think directionally are estimates of fancy grade production in District 1 and District 2 for the remainder of the year, then we should be about 30% of our total crop exported into the Southeast Asian markets. If we don't get that quality, then we would sort of bring that down more to a 25% export opportunity. Right now, we're seeing very strong export movement. We're seeing excellent quality coming from the field and sort of as anticipated product mixes and grade mixes between fancy choice and standard grades. So at least to this point, we seem to be on track with our plan and on track to achieve the volume targets that we made, as baked into the guidance that we gave on an EBITDA perspective is an assumed lemon price of $22.50 a carton.

Vincent Anderson

So now that we're entering -- in the next few years, we'll see a pretty steady stream of new acres coming on. Can you just go back and remind us of, one, the timing difference between when you stop capitalizing new acreage expense and when the trees actually hit full fresh for yields and how that kind of shapes up from an operating leverage perspective and that 2 to 3 years of acres first coming online, so to speak?

Mark Palamountain

Sure, absolutely. So typically, it takes seven years for a tree what we'll call full production. From a financial perspective, we capitalize those that we call full bearing in the fifth year. So 4 years of capitalization of expense. And so over that period of time, it's once we get to that fifth year, we'll call it, we're about 65% to 70% of what we think full production is. And then anywhere between the 7th and 10th year, we'll get to what we'll call 100% and that's different obviously in different regions in the coast, it's different than in the desert, which is lower, et cetera. And so from -- and looking at that from the 900,000, to 1.2 million carton, I'd like to think about our cost as approximately $16 to $17 per carton depending on region and so we look at a price now of $22.50, we're looking at about $6 to $7 profit a carton. In the prior years, sometimes that gets as high as 12%, 14%. It just depends on the pricing environment. So you did ask 1 million cartons and you're -- that's your additional operating income that you should expect to see from those acres.

Vincent Anderson

Great. And just to sneak in one more here, market question. I was hoping you could comment on the depressed fancy premium that at least we're observing in mainly the midsize lemon grades. It looks like they're at really decade lows. I'm not sure if that's Mexican fruit improving in quality or a shift in market preference, but just curious on your thoughts there, whether it's sustainable, if it stays low like this, how do you optimize your marketing around those kinds of conditions?

Harold Edwards

So the main thing that hit us last year and you'll remember this very well, Vince, was beginning right about now, the Spanish crop was 1.5x of normal crop. And with the surplus production, much of that fruit found its way into the East Coast markets at very, very low pricing. And from a grade perspective, it was all choice. There were some fancy, but it was mostly choice grade fruit. And that was really what put the beginning of the pricing pressure on the overall markets. This year, the Spanish crop is down. The Egyptian crop is down and the Turkish crop is down. So there's going to be a little bit less export pressure or imported fruit pressure in the East Coast markets. Now that's not to say there aren't other lemons coming from other places into those markets, but it's not as crowded this year as it was last year, and so we believe that, that will give us a good opportunity to ship in at fairly decent pricing into those markets.

We, as I've mentioned in earlier discussions, we've moved to higher percentages of contractual business, with both our foodservice customers and our retail customers at good pricing levels, and that's fantastic because it gives us a great steady idea of fruit flow we can have if we're able to put the boxes up based on our partnership with Mother Nature. So that's -- we've got the table set to have a pretty good year from a utilization perspective, and we think that pricing assumption that we've sort of put in there is achievable. But we'll just have to continue to report on it as we go through the year based on our experience of what Mother Nature provides to us from a grade and size perspective, but also how the markets respond also to the competitive pressure of imported fruits from other places.


[Operator Instructions]. We'll hear from Eric Larson with Buckingham Research.

Eric Larson

So I think this might come out in the 10-K, but what was your average selling price for fresh lemons in 2019, Harold?

Harold Edwards

I think it was $21, I think.

Eric Larson

And then I -- I just wanted to -- just confirming this, and I think you just said that directionally, you think it could be as much as $22.50 per carton next year. Is that correct?

Harold Edwards

Yes. So the assumption we made that we gave, was sort of a midpoint of $22.50.

Mark just showed me. It was $21.46 in 2019, was average selling price per carton.

Eric Larson

And if you could very quickly, give us a -- just a little kind of a checklist. What would be the things that would move that price up? And what could potentially be the factors that move the price down?

Mark Palamountain

Okay, so there's several dynamics to that, and the answers are, we can make something that is seemingly simple very complicated. But included in this list of what can drive it up are market opportunities where demand exceeds supply, which typically gives us pricing opportunity. So that's the first thing. [Indiscernible] very heavily is if your percentage of higher grade fruit based on what they tree produces is greater than your expectation and we'd be selling more fancy fruit, which typically commands a higher price than our choice grade fruit or our standard grade fruit.

Conversely, what can drive the price down is when you have supply exceeds demand situations in markets, and that typically takes pricing. In essence, it's a commodity and the commodity impact is lower pricing in that event. But also consistent with the grade situation, if you have a lower percentage of fancy grade and a higher percentage of standard grade or choice grade, that from a product mix perspective of what we sell, can take its toll and have a pretty significant impact on pricing.

Anecdotally, what I can tell you right now, Eric, is that the domestic market is experiencing a kind of steady flow of what we assumed was a utilization of fancy grade and choice grade. Pricing is somewhere between $20 and $22 a carton domestically, and the export markets are $24 a carton and the impact of all of that is sort of keeping us pretty close to that $22 to $23 a carton range right now. Now as we look forward into the year, that will continue to change. We believe that, that gives us -- is going to give us an opportunity to see price increase opportunities, but we'll just have to report on it as we go quarter-to-quarter, based on the realities again of what our trees actually give us versus what the market wants.

Eric Larson

Yes. No, I was just trying -- last year was such an unusual year. I was just trying to get -- I understand kind the supply/demand side on each end of the positive and negative side. I was just trying to get a feel for exactly the things that may or may not repeat themselves next year that could give either some upside in the pricing or potential downside in that pricing. So we can talk a little bit more about that off-line, but the other question that I have is, you had 50% -- roughly 50% utilization, I believe, for the full year. I know that was kind of the fourth quarter. Is that the right assumption to make? And should we be thinking kind of the 70% to 80% utilization for next year? Is that how we should look at it?

Harold Edwards

Yes. So actually what happened, Eric, last year was District 3, which we started the year with in the desert, had normal and actually excellent utilization rates. We came in at 75% to 80% fresh utilization in the desert and then the crop shift up into the valley and up until 2 weeks until the end of the season, we were having normal utilization levels, call it 70% to 73% fresh utilization, and then it started to rain. And then it is started to rain. And as the rains impacted our ability to harvest in the valley and then also in the coast, we were unable to get into harvest for 8 weeks, so that by the time we and everybody else in the industry got in to actually harvest, what actually came off the trees we're 3 sizes sized instead of 7 sizes or 8 sizes, and it was all big fruit. And 50% of that fruit, which was in storage, became unsellable fresh, and we were forced to send it to the juice plant. That's when the utilization dropped to 50%, just during that time period. For the full year of our fresh utilization -- for the full year our fresh utilization was 63%, driven by the weighted average of -- that the inputs of that. This coming year, we anticipate -- our models are calling for a fresh utilization of 75% and at this time, I think that's achievable.

Eric Larson

Okay. Yes, that makes sense. I just wasn't sure -- yes. That 63% was really the figure that I was sort of looking for. And then, you've talked about avocados and what that might be. Could there be upside to that? I mean, obviously, what's very unusual about last year is that you got hit by all 3 of your major ag products, lemons, avocados and oranges, and it seems like you should have a fairly good run rate looking forward to this upcoming year, that at least if some, if not all of -- maybe 2 or 3, if not all 3 of those factors turn for you. Is that a fair way to kind of characterize your $22 million to $26 million adjusted EBITDA guidance?

Harold Edwards

Yes, Eric. That's exactly right. We've never seen all 3 of the crops fail at the same time, and that's kind of what we experienced in 2019. For directional guidance in avocados, we believe there's a 4 million to 6 million pound crop hanging on the trees. And the pricing, if you follow the avocado space, the pricing's uncertain, so our models were built with $1 a pound. And at this point, markets are stronger than that, but there's an awfully large crop as you know in Mexico and also in Peru that will find its way into these markets, that my guess is will put downward pressure on the pricing. So we'll just have to see. We're often running with oranges right now, and we're getting normal export movement whereas last year, we got no export movement. Pricing has been somewhat of a challenge, but we believe we're still on track to hit our orange numbers. And then so far through this operating year, through this limited amount of time, we're on track with utilization and movement of our lemons as well. So we feel like we're off to a good start. But we're cautiously optimistic as we go forward.


We'll now take our next question from Ben Klieve with National Securities.

Benjamin Klieve

Just a couple of big picture ones from me, here. First of all, with regards to the weather. You kind of alluded to this year with the prior caller, but with regards to the rain, I'm wondering if you can kind of classify where the fields stand today, relative to where they were last year. It's been a wet winter out in California, but it sounds like from your perspective, it's a different wet, and that the wet weather this year is good and not going to inhibit your harvest at this point that you can tell. Can you kind of update us on kind of how the weather has been thus far this year and compare to where you stood last year?

Harold Edwards

Yes. Definitely. The rainfall last year, which came in at pretty close to 30 inches, and a normal year for us in Ventura Country, would be somewhere directionally 17 inches. So almost of a 2X of a normal rainfall. It was a godsend from a perspective of sort of putting an end to a 7-year prolonged drought. It helped to replenish our aquifers. It was just a great thing all around, except just the timing of the rain events kept us all in the industry from getting in the harvest fruit for 8 weeks. This year, we're off to a great start with rainfall as well. I think we're somewhere around 8 inches of rain, something like that, so far. The intervals between rain events and then dry periods have been just about perfect and ideal so far. So absolutely no negative impact on harvests, no negative impact on fruit quality so far this year. And is really setting itself up to be more of what we would consider a more of a normal situation in a normal year. Now that said, we really have to keep our eye on weather events all the way through the end of March, and that would really be where the big impacts could continue to be. So -- but as we look forward with the limited amount of visibility we have today, things are looking pretty good.

Benjamin Klieve

Okay, perfect. Good to hear it. Always good when Mother Nature cooperates. One other question for you, with regards to Harvest at Limoneira. I understand that kind of sizable cash flows aren't necessarily expected to come during your fiscal 2020. But I'm wondering if you can kind of provide us with kind of some milestone that you're looking out at, over the next 12 months. And when do you think you may have visibility of really that cash flow really being tangible? Is that something you think we're going to hear more about over the next 12 months? Or do you think it's going to be potentially beyond that?

Harold Edwards

Yes, Ben. So I think from the cash flow perspective there at Harvest, we'll have a better idea towards the end of this year '20. Originally, in our models, which we started about 3 years ago, before we started building, it was going to be in '21, but I think as sales are progressing through, taking a more conservative approach to that and will be in '22, will be that first lumpy cash flow opportunity to the tune of $20 million, is roughly sort of how that looks. Over -- between now and then, I think we're just going to have to see how the sales are going. Sales right now are -- we're doing anywhere between 1 or 2 homes a week. So it's relatively close to plan. This all is -- the slower season typically, and so we do expect our next phase to where we're out for bid right now, our next set of lots. And so I would say it's moving according to plan.

Just a comment from the equity earnings perspective. I think as we talk about lumpy cash, earnings should be relatively stable year-over-year if we're selling the amount of lots per plan to get to that 1,500 units. And so as similar to last year where we had approximately $3 million of equity earnings, we expect to have that timing on a quarter-to-quarter basis and how that goes because most of it, that gears towards the end there, half of the calendar year, so we'll just have to see. But generally, that's how that should flow.


Thank you. And that does conclude the question-and-answer session. I would now like to hand the conference back over to Mr. Edwards for any additional or closing remarks.

Harold Edwards

Thank you for your questions and interest in Limoneira. As a reminder, we are presenting at the ICR conference tomorrow and look forward to seeing many of you there. Thank you again, and have a great day.


Thank you. That does conclude today's conference. Thank you all for your participation. You may now disconnect.

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