Limoneira reports a fall of 25% in revenue in the third quarter

Key Points

• Limoneira (NASDAQ:LMNR) reported a strong year-over-year decline in revenue, with sales falling 25% for the third quarter of fiscal year 2025.

• Adjusted diluted earnings per share fell from $0.42 to ($0.02), reflecting a significant deterioration in profitability.

• The administration reiterated its annual volume projections for lemons and avocados despite the challenging quarterly results.

Limoneira, an important producer of lemons and avocados and real estate developer, published its results for the third fiscal quarter of 2025 on September 9. The company reported a decline in revenue, a decrease in earnings, and lower cash levels compared to the previous year. These results reflect the ongoing pressure on its core agricultural business and highlight a growing reliance on the real estate sector to maintain its liquidity. Although management reaffirmed its confidence in long-term strategies, including a pending partnership with Sunkist and development projects, the quarter showed clear operational and financial challenges.

Business and priorities of Limoneira

Limoneira operates in two main businesses: the cultivation and marketing of fresh fruit, and real estate development on its extensive properties. Its primary crops are lemons and avocados, while it also produces oranges and grapes for wine. Its agricultural lands cover thousands of acres, primarily in California and Arizona, with some international expansion in Chile and Argentina.

In recent years, the company has changed its focus. Management is working to improve margins on fruit sales, expand avocado production, and unlock value from its real estate projects. Strategic priorities include effective water management, diversification of agricultural production, and selling or developing land to generate cash.

Quarterly Review: Notable Trends and Developments

The quarter marked a sharp deterioration in Limoneira's core operations. The decline in revenue was driven by decreased sales of lemons and avocados, with agricultural business revenue falling by 25.7%. Profitability indicators also worsened. Adjusted earnings per share plummeted into negative territory, and adjusted EBITDA, a measure of operating cash flow, collapsed by more than 75% year-on-year.

Lemon sales, the main business of Limoneira, experienced pressures in both volume and prices. Revenue from packaged fresh lemons fell by 7.8%, while sales of intermediate and processed lemons dropped even more drastically. The price per box of lemons decreased by approximately 8% compared to the same period last year. Management explained that lemons were kept in storage to seek more favorable prices at the end of the quarter, but this approach did not prevent margin loss.

Avocado revenues, which come from fresh fruit sales, plummeted nearly 39% compared to the previous year. This was primarily due to a lower harvest volume, as Limoneira produced approximately 5.65 million pounds compared to 8.86 million the previous year. This reduction was consistent with the company's warning about the cycles of avocado trees, known as “alternate production years,” where they naturally produce less fruit in alternating seasons.

It seems quite suspicious to me that the company continues to maintain its annual projections after such a disastrous quarter. Can they really recover those losses in the last quarter? I have my doubts.

The company is moving forward with plans to merge its citrus sales and marketing operations with Sunkist Growers. This strategic move is expected to generate $5 million in annual savings and adjusted EBITDA benefits starting from fiscal year 2026. However, the financial benefits will not materialize until the next fiscal year, not in the current results.

With profitability under pressure and cash usage on the rise, investors should keep an eye on several factors in the coming quarters, including real cost savings and cash inflows from planned strategic partnerships and real estate asset sales. Rising levels of debt have reduced financial flexibility, making successful farming operations and timely real estate monetization critical, especially given the significant cash outflows this year.

Personally, I would not invest in this company until I see a clear stabilization in its core business. The increasing reliance on real estate income to offset agricultural losses does not seem to me to be a sustainable long-term strategy.