Limoneira Company (LMNR) reported its fourth-quarter results on December 21. While the company comfortably surpassed the consensus revenue estimate, its loss per share came higher than analyst estimates. In this piece, I have discussed why it could be prudent to avoid the stock now.

For the fourth quarter, LMNR’s loss per share was $0.01 higher than the consensus estimate. On the other hand, its revenue beat analyst estimates by 9.6%. The company has a poor earnings history, having failed to surpass the consensus EPS estimates in three of the trailing four quarters.

During the fourth quarter, its agribusiness revenue included fresh lemon sales of $11.30 million. This was lower than the fresh lemon sales of $13.10 million in the prior-year quarter. Approximately 550,000 cartons of fresh lemons were sold during the quarter at an average price of $20.39 per carton, compared to 680,000 cartons sold at an average price per carton of $19.33 in the year-ago quarter.

The company witnessed softer pricing for lemons throughout the significant part of the year due to heavy rains in California from December until May, delaying a portion of its lemon harvest, and an industry wide pest issue that lowered the grade on certain fruit. However, there has been a recovery in prices for all grades and sizes since August, continuing throughout the fourth quarter.

Brokered lemons grew 13% year-over-year to $14.40 million. Its orange revenue was $1.9 million during the quarter, compared to $2.70 million in the year-ago quarter. Its farm management revenue came in at $5.40 million.

Approximately 69,000 cartons of oranges were sold during the quarter at an average price of $28.32 per carton, compared to 86,000 cartons sold at an average price per carton of $31.22 in the year-ago quarter. Total costs and expenses during the fourth quarter rose 23.1% year-over-year to $51.10 million.

The company expects fresh lemon volumes in fiscal 2024 to be in the range of 5 million and 5.5 million cartons, and avocado volumes are expected to be in the range of 7 million and 8 million pounds. Currently, LMNR has 700 acres of nonbearing lemons and avocados that are estimated to bear over the next four to five years.

LMNR’s President and CEO Harold Edwards said, “Heading into fiscal year 2024, we are committed to advancing our strategic shift and believe the actions taken this past year have set us up to improve margins in fiscal year 2024. We also anticipate selling the remaining two identified non-strategic assets this next fiscal year for an expected $50 million in proceeds.”

“While rising interest rates this past year caused a temporary slowdown in our Harvest at Limoneira project, we are encouraged to have seen sales pick back up at the end of the year with the remaining 121 residential units in Phase 1 of the project selling out at a 40% premium to lost sales at the inception of the project,” he added.

The stock has gained 57.2% year-to-date and 43.9% over the past year to close the last trading session at $19.19.

Here’s what could influence LMNR’s performance in the upcoming months:

Disappointing Financials

LMNR’s revenues from other operations for the fourth quarter ended October 31, 2023, declined 5.3% year-over-year to $1.35 million. Its adjusted EBITDA loss narrowed 65.6% over the prior-year quarter to $1.31 million. The company’s adjusted net loss narrowed 54.6% year-over-year to $2.59 million. Also, its adjusted loss per share came in at $0.15, narrowed 53.1% year-over-year.

Mixed Analyst Estimates

Analysts expect LMNR’s EPS for fiscal 2024 to decline 60% year-over-year to $0.20. On the other hand, its revenue for fiscal 2024 is expected to increase 8.9% year-over-year to $195.86 million. Its EPS and revenue for fiscal 2025 are expected to increase 170% and 19.8% year-over-year to $0.54 and $234.60 million, respectively.

Stretched Valuation

In terms of forward EV/EBIT, LMNR’s 56.65x is 270.4% higher than the 15.30x industry average. Likewise, its 1.76x forward Price/Sales is 51.5% higher than the 1.16x industry average. Its 2.06x forward EV/Sales is 22.9% higher than the 1.68x industry average.

Mixed Profitability

In terms of the trailing-12-month net income margin, LMNR’s 5.73% is 16.9% higher than the 4.90% industry average. Likewise, its 6.37% trailing-12-month Capex/Sales is 97.3% higher than the industry average of 3.23%.

On the other hand, LMNR’s 3.98% trailing-12-month gross profit margin is 88.3% lower than the 33.89% industry average. Likewise, its 5.31% trailing-12-month Return on Common Equity is 54.6% lower than the 11.68% industry average. Furthermore, the stock’s 0.50x trailing-12-month asset turnover ratio is 39.6% lower than the industry average of 0.84x.

Poor Historical Growth

LMNR’s Tang Book Value has grown at a negative 0.9% CAGR over the past three years. Its Total Assets have grown at a negative 8% CAGR over the past three years.

POWR Ratings Reflect Bleak Prospects

LMNR has an overall D rating, equating to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. LMNR has a D grade for Growth, which is in sync with its poor growth history. It has a D grade for Value, consistent with its stretched valuation.

LMNR is ranked #73 out of 79 stocks in the Food Makers industry. Click here to access LMNR’s Momentum, Stability, Sentiment, and Quality ratings.

Bottom Line

LMNR’s total costs and expenses showed an increase during the fourth quarter, which impacted margins. The company is undertaking several strategic initiatives, including the transition to an asset-light business model, the sale of non-strategic assets, and the reduction of debt, which are expected to improve margins in fiscal 2024.

The company believes that demand for lemons would be strong while the availability of the fruit would remain tight. This may boost the prices of lemons. However, as witnessed earlier, the company’s prospects may take a hit due to weather events or pest infestations. Moreover, a strong dollar and volatile foreign exchange rates impact its exports. These factors make it a highly risky business to invest in.

Moreover, given its stretched valuation and poor historical growth, it could be wise to avoid the stock now.

Stocks to Consider Instead of Limoneira Company (LMNR)

The odds of LMNR outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three A (Strong Buy) and B-rated (Buy) stocks from the Food Makers industry instead:

Sysco Corporation (SYY)

Lifeway Foods, Inc. (LWAY)

Toyo Suisan Kaisha, Ltd. (TSUKY)

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

LMNR shares were unchanged in premarket trading Friday. Year-to-date, LMNR has gained 59.45%, versus a 25.82% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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