When Life Gives You Lemons, Make Limoneira


"Girl Holding Lemons" - William-Adolphe Bouguereau, 1899  (the literal-minded William-Adolphe adopted a quite straightforward approach to painting titles)

“Girl Holding Lemons” – William-Adolphe Bouguereau, 1899 (William-Adolphe was nothing if not literal-minded when naming his paintings)

Sometimes nothing will do but a little spritz of lemon:  on fried catfish, in a summer salad, or whiskey sours.

What’s iced tea without a slice or two of lemony goodness? Or a nice meal without a cordial of Limoncello, for that matter.

Most everyone likes lemons, compared to say, vegetables.   In summertime, you can’t hardly give away the zucchini you grew in the backyard.  Lemonade is good, lima beans bad.  And about the only way Mom can get Junior to finish that limp squash casserole is to forget about it and fix herself a(nother) vodka gimlet (*).

“I believe when life gives you lemons, you should make lemonade…and try to find someone whose life has given them vodka, and have a party.”  Ron White

Given the ubiquitous nature of lemons in our food and mixed drinks, one would think that sitting on a few thousand acres of lemon and avocado orchards might be the equivalent of an agricultural gold mine.

You could make thousands, millions even.

And in the case of Limoneira Company (NASDAQ: LMNR), they  do make a million or two.

LMNR sits on 8,246 acres of lemon (and avocado) groves. In 2012, it managed to squeeze $4.96 million net income from those lemon orchards, out of $66 million gross revenue.  Trailing twelve month (TTM) net margin of almost 14%. Fat stacks, yo!

That 5 million net works out to $605 per acre, almost double the margin at the prototypical 1,200-acre Iowa farm.

And 2013 is shaping up to be the best year yet:

Screen Shot 2013-12-07 at 2.09.49 PM

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( screen shots brazenly lifted from MSN Money )

LMNR has already made more money in three quarters of 2013 than all of last year. A profitable small-cap company, a low share float, growing revenues, and even a tiny dividend.   Plenty of assets.  All with a refreshing lemony taste.  Zesty!

There, how hard can it be to make money farming? What’s not to like?  Well, a few things, as it turns out.

Risks and Downsides

 “When life gives you lemons, squirt someone in the eye.” Cathy Guisewite

To start with, there’s that wacky price-to-earnings ratio of well over 62.  That’s tech company territory,  almost like Adobe Systems or the Twitter.  OK, let’s be charitable and skip that.  P/E is not always the best way to evaluate non-traditional small-cap outliers like a lemon company.

Long-term debt is another problem. LMNR has been shaving it down on the strength of a good fiscal 2013, but as of last quarter, there were still buttloads of it, about $48 million (but offset only by the liquidation value of the property).  That’s a TON of debt for mildly profitable company, with indifferent cash flow and little cash on hand.

And orcharding carries a higher risk profile that standard farmland or annual row crops. To paraphrase from the 2012 annual report of Gladstone Land (NASDAQ: LAND, more on them later), permanent crops like lemon groves:

  1. involve more risk than annual row crops because permanent crops require more time and capital to plant
  2. Might be subject to losses from drought, flooding, fire or disease.  In that case, there would generally be significant time and capital needed to return the land to production because a tree or vine may take years to grow before bearing fruit (e.g. you’re screwed).
  3. Permanent crop farmland also prevents the farmer from being able to rotate crop types to keep up with changing market conditions or changes to the weather or soil.

OK, that’s enough, getting a little depressed.

Actually, LMNR has been around just about forever – since 1893, according to their website – and does quite a bit more than grow lemons.  A goodly portion of its acreage is in avocados, and it does other “specialty citrus” and other California-adapted produce. It packs produce, and also does real estate.

Goofing a little on its Google Finance blurb:

Limoneira Company is an agribusiness and real estate development company. The Company’s operations consist of fruit production, sales and marketing, real estate development and capital investment activities (ed:  Well, which is it? Make a decision what you want to be when you grow up). The Company has three business segments: agribusiness, rental operations and real estate development (ed: four areas of operations, but only three business segments.  Good, one less Senior Vice President on the overhead). Its agribusiness segment generates the majority of its revenue from its farming and lemon packing and sales operations (ed:  this VP should have biggest corner office, but probably doesn’t); its rental operations segment generates revenue from its housing, organic recycling and commercial and leased land operations (ed: organic recycling?  A sop to West Coast environmentalists:  surplus lemon peel is turned into organic zest and donated to disadvantaged minority cupcake bakers); and its real estate development segment primarily generates revenues from the sale of real estate development projects (ed: translation:  turning marginally profitable citrus groves into densely developed plots of McMansions). In April 2012, the Company purchased a citrus orchard (ed:  future suburban subdivision).

The editorial comments might be a little unfair.  Limoneira has shown remarkably longevity, and will no doubt keep farming lemons and avocados, and maybe even get more profitable still with a mix of California real estate speculation.   But its present and future are not compelling enough to invest in.

How we got to this article

First of all, the title. It’s mildly clever, and will probably show well on the Twitter.   Surfed a bit on Google Finance looking for food companies to invest in, came across LMNR, and out popped the title idea.

Second, a web search on exactly how profitable, productive or scalable farming can be, at both ends of the barbell.  There’s lots of discussion on the intarwebz on the purported profitability and productivity of a small organic family farm, versus large monocrop industrialized agriculture.

At first glance, it doesn’t seem to compute that an operation like LMNR, producing as it does high-value products like lemons and avocados nets only twice as much per acre as a corn-and-soybean operation ($605 vs. $300).  A small organic produce farm can produce way, way more than that.

But there are limitations.

Limitations as in the size of this post.  Well over 1,300 words, according to WordPress, and my blogging muscles are tired.  Tune in next time, and we’ll talk about second-tier food distribution, Gladstone Land and its juicy dividend, and exactly how much one can expect to make by pulling up stakes and going back to the land.   Thousands and thousands. Hundreds, even, if you don’t watch your pennies.

Until then, we leave you with this:

“When life gives you lemons, don’t make lemonade. Make life take the lemons back! Get mad! I don’t want your D*** lemons, what the h*** am I supposed to do with these? Demand to see life’s manager! Make life rue the day it thought it could give Cave Johnson lemons! Do you know who I am? I’m the man who’s gonna burn your house down! With the lemons! I’m gonna get my engineers to invent a combustible lemon that burns your house down!” ― J.K. Simmons

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  1. As Spock would say, ‘fascinating’! Never knew lemonade could be so profitable!
    Moneycone recently posted..10 Questions You Must Answer To Stay On Top Of Your Portfolio


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