Limoneira Company (NASDAQ:LMNR) Q3 2023 Earnings Call Transcript

Vincent Anderson: Sure. And then as I kind of think about the brokered fruit and the farm management services are obviously pretty new in terms of like a distinct operation within your company. But I would venture to guess as you model that out forward, you don’t have the same operating leverage as the owned asset base. But the margins on that, I would imagine, are probably looking pretty strong right out of the gate.

Harold Edwards: Margins are great. Our primary goal is to do the best job we can and do a good job in the eyes of our primary client right now Prudential and to secure that business for the coming year and coming years. And as we do that, then we’ll begin to spread our wings and seek new farms to provide those services for. We’ve begun the process of identifying potential areas for growth and potential farms and I think we have very pleased with the reception that we’ve received in the marketplace of potential targets to grow. But we’re proceeding cautiously as we’re kind of getting our arms around the true functionality as an operator in the farm management services space and want to just make sure that we walk before we start running. But I think the outlook is good and our ability for margin expansion in that side of the business we believe is excellent.

Vincent Anderson: Got you. And maybe just tying it all together. And this is extremely hypothetical, but just looking at the last couple of years and the disruptions this year again, is there a way to think about kind of the variable cost component of your owned and operated assets versus where you think you can take more of the service based revenue? Whether you want to call brokered fruit service or at the very least farm management service, and you separate those out and you come into another year where you have a weather disruption? Is there a model out there where you could walk away from ranches one year? Keep the trees healthy, but actually limit all of your downside to really just whatever sunk cost was there from the spring or whatever constitutes the spring for that region and just harvest returns on the service revenue and come back next year and actually limit downside in a scenario area like we’ve seen recently.

Harold Edwards: We studied that. It’s a great thought. But I think the reality is, though, that in order to stick with trees and farming, you need to keep farming them. And trees need attention, and they need fertilizer, and they need water, and they need pruning. And that’s what creates the opportunity to have harvestable fruit in the following year. The good news, we think, Vince, is that as we look at the areas where we’ve focused in on our own production and growth, we believe we’ve put ourselves in sort of an optimal position to achieve profitability. Because all of our District 2, our coastal assets are very close to our packing house here. Our logistics costs are lower. And so our cost to put up a packed carton of lemons that we produce on the coast here is much lower than what it had been up in the San Joaquin Valley or out in the desert.

And we believe that gives us probably our best shot at sustained profitability during these years of pressured lemon pricing. We believe that as we are able to realize higher lemon pricing and continue to grow that through grower partner third party fruit that will allow us to continue to drive our cost per cartons down and give us margin expansion opportunities as all that happens.

Operator: Our next question comes from Raj Sharma with B. Riley Securities.

Raj Sharma: Hi. Good afternoon. Thank you for taking my questions. I just wanted to understand, obviously the shortfall in lemons, and you’ve taken the guidance down, and I’m sorry if I missed the earlier part of the remarks. The reason, the core reason for that and can we — when does that sort of correct? And then also on the avocados that those were slightly trending, better than you had guided earlier.