Diversified agribusiness and real estate investment company Limoneira (NASDAQ: LMNR) reports fiscal second-quarter 2019 earnings after the close of trading on June 10. Last quarter's positive report was undermined by an interim earnings revision to full-year guidance, which the company issued on May 13.
Weather-related issues are threatening to take the zest out of the company's fiscal 2019 earnings. Will the second quarter ease investor concerns? Below are three keys to the upcoming report that will have a bearing on the company's share price post-release.
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1) Lemon harvest volume versus pricing
In the full-year business update and earnings-revision document released in May, Limoneira observed that heavy rains created an excess of large fresh lemons, which is pressuring lemon pricing. The company reiterated that it intends to sell 8.4 million-9 million lemon cartons globally during the fiscal year. But it's refraining from projecting per-carton pricing for international sales.
For the roughly 2 million cartons of fresh domestic lemons Limoneira expects to sell, the company has reduced the average anticipated selling price from $26 to $24. In addition, the overabundant rains have pushed the lemon harvest into the third quarter of the year. For shareholders, this means that there might be scant data on actual international lemon selling prices this quarter.
But an interim warning issued less than one month before the second-quarter report indicates that most of the bad news is likely out and is already priced into Limoneira shares. The revised lemon-harvest expectations have pushed management's fiscal 2019 adjusted EBITDA forecast to a range of $23.5 million-$27.5 million, against an earlier band of between $28 million and $32 million.
Bear in mind, however, that both lemon-harvest volume and the revised EBITDA target are expected to break records for Limoneira this year. So despite revenue compression due to the weather, the fiscal year should still be a successful one for the California-based agribusiness. And even at lower carton prices, a true bumper crop of lemons with outsized volume may push final EBITDA a bit higher than the newly revised range indicates.
2) "Harvest at Limoneira" real estate sales
Last quarter, the company announced that it closed on 174 lot sales in its residential real estate project, "Harvest at Limoneira." This multiyear project has the ability to smooth out some of the weather-related vagaries of the lemon, avocado, and orange harvests of the past few quarters. In its interim business update, Limoneira disclosed that Harvest at Limoneira will contribute equity earnings of $2.3 million to the company's books in the fiscal second quarter, although no further equity contribution is forecast for the remainder of the year.
However, management may provide a forecast of future lot sales this quarter, along with equity recognition time frames, now that the development has matured. Shareholders will look for information on the next phase of this project in the June 10 release.
3) Update on a strategic joint venture
On May 30, Limoneira announced that it had completed the formation of a strategic joint venture and related land-acquisition transaction with family-owned Argentinean citrus operation FGF Trapani. Through the joint venture, Limoneira has acquired a 25% interest in 1,200 acres of planted lemons and will acquire an additional 25% stake in the plantation over the next three years.
Limoneira holds a 51% interest in the joint venture and also acts as the managing partner, responsible for all fresh fruit sales, while FGF Trapani will retain ownership and control of juice processing facilities and operations.
While Limoneira has indicated that the new partnership will be accretive to the company's fiscal 2019 earnings, it hasn't yet provided any concrete guidance on revenue or the venture's effect on earnings per share. Thus, the lemon-plantation transaction isn't yet factored into management's earnings guidance -- or investor expectations. This is yet another puzzle piece that could positively affect prospects for Limoneira's shares as we head into the back half of the fiscal year.
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