Q4 2020 Limoneira Co Earnings Call
Greetings and welcome to the Luminaire, a fourth quarter's 2020 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn.
The conference over to your host John Mills.
Thank you good afternoon, everyone and thank you for joining us for lean and errors fourth quarter fiscal year 2020 conference call on.
On the call today are Harold Edwards, President and Chief Executive Officer, and Mark dollar amount and Chief Financial Officer.
By now everyone should have access to the fourth quarter fiscal year 2020 earnings release, which went out today and approximately four PM eastern time.
If you have not had a chance to view the release its available on the Investor relations portion of the company's website.
At Lehman era Dot com.
This call is being webcast and a replay will be available on limoneiras website as well.
Before we begin we'd like to remind everyone that prepared remarks contain forward looking statements and management may make additional forward looking statements and response to your questions such statements involve a number of known and unknown risks and uncertainties and many of which are outside the company's control and could cause its future results performance or achievements to differ significantly from the.
Results performance or achievements expressed or implied by such forward looking statements important factors that could cause or contribute to such differences include risks detailed in the company's 10-Q's, and 10-K filed with the FCC and those mentioned and the earnings release, except as required by law, we undertake no obligation to update and.
The forward looking or other statements herein, whether a result of new information future events or otherwise. Please note that during today's call, we will be discussing non-GAAP financial measures, including results on an adjusted basis we.
We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneiras ongoing results of operations, particularly when comparing underlying results from period to period.
We have provided as much detail as possible on any items that are discussed on an adjusted basis.
Also within the company's earnings release and in todays prepared remarks. We include adjusted EBITDA, which is a non-GAAP financial measure for reconciliation of adjusted EBITDA to those most directly comparable GAAP financial measures is included in the company's 10-K and press release, which we have which have been posted to our web site.
And with that it's my pleasure to turn the call over to the company's President and CEO Mr. Harold Edwards.
Thanks, John and good afternoon, everyone.
During fiscal 2020, we made important strides in many areas of our overall business. Despite the dramatic effect. The COVID-19 pandemic had on our food service business we.
We achieved record domestic lemon volume and our real estate development harvest at Limoneira exceeded our expectations domestic.
Domestic lemon volume was up due to our expanded focus and grocery retail as consumers continue to dine at home instead of food service venues COVID-19 has affected our citrus businesses since March and this continued during our seasonally soft fiscal fourth quarter of 2020.
Pricing improved in the beginning of the fourth quarter. However, this was short lived as reduced exports to Asia affected pricing in the back half of the quarter and continues to affect pricing and the first fiscal quarter of 2021 in.
In addition, higher than normal wins, and our coastal properties affected our lemon utilization during the fourth quarter.
Even despite these challenges we continue to be a leader and foodservice and exports and are well positioned once dining out improves from Cove and 19 vaccine distribution.
I will now discuss each of our businesses each of our business divisions performance for the fourth quarter, starting with our agribusiness agribusiness revenue was $28.6 million compared to $35.3 million and the fourth quarter of last fiscal year fresh lemon and Orange revenues were down due to free.
And service closures and lower export demand, which resulted in lower average per carton prices.
We recognized a 500000 dollar of avocado revenue and the fourth quarter of fiscal year 2020, compared to $2.3 million and the same period last fiscal year.
The year over year decrease in avocado revenue was due to the receipt of crop insurance proceeds in the fourth quarter of 2019.
Turning now to our real estate development segment, we have now closed 350 for lots since inception, including 140 for new lot closings in fiscal 2020, and Lenovo are one of our primary builders recently announced they expect additional lot closings of 76 reps residential units.
By the end of June 2021.
Based on the stronger than expected homebuilding results throughout fiscal year 2020, we now have annual visibility on the expected $80 million of cash distributions from harvest at Limoneira. During the next six years beginning in fiscal year 2022.
You will notice in our earnings release, we have provided a chart outlining our annually expected cash distributions during the next six years.
The expected cash distributions do not include the potential upside from increased density and housing at harvest as well as the potential opportunity of a medical campus and our east area. Two development, we expect to be in a position to provide greater transparency on those opportunities later this year.
Our company now has over 15000 acres of Prime agricultural land 550 acres of residential housing we are selling many additional non agricultural assets, we expect to monetize and the future and over 28000 acre feet of water assets. We're also opportunistically real.
Purchasing stock we continue to be very good stewards of these assets and believe our company will continue to reward long term shareholders for many years to come.
As we look into 2021, we are very well positioned to realize strong revenue from oranges, and avocados and expected improvement in lemon pricing once the co bit 19 vaccine allows restaurants and bars to reopen.
We believe we will be even better position for long term growth. Thanks to our grocery and club expansion. During this pandemic. We're encouraged by the domestic increase and fresh lemon volume in fiscal year 2020, and look forward to updating you on our agribusiness and real estate progress in the coming months and with that I'll now turn the.
Call over to Mark. Thank you Harold and good afternoon, everybody as a reminder to everyone listening due to the seasonal nature of our business revenue is driven by varying harvest periods from year to year and therefore, it is best to view our business on an annual not quarterly basis.
Historically, our first and fourth quarters are the seasonally softer quarters, while our second and third quarters are stronger.
For the fourth quarter of fiscal year 2020, total net revenue was $29.8 million compared to total net revenue of $36.5 million and the fourth quarter of the previous fiscal year.
Agribusiness revenue was $28.6 million compared to $35.3 million and the fourth quarter last year other.
Other operations revenue was relatively flat at $1.1 million.
Agribusiness revenue for the fourth quarter of fiscal year, 2020 includes $13.3 million and fresh lemon sales compared to $17 million of fresh lemon sales during the same period of fiscal year 2019.
Pricing was lower than expected during the back half of the quarter due to COVID-19 pandemic related foodservice closures, reducing the demand for fresh lemons with reduced exports to Asia due to the pandemic and.
Approximately 787000 cartons of fresh lemons were sold during the fourth quarter of fiscal year 2020 at a $17 per average price per carton compared to approximately 793000 cartons sold at day 21 dollar and 46 cents average price per carton during the fourth quarter of fish.
Full year 2019.
The company recognized $500000 of avocado revenue and the fourth quarter of fiscal year 2020, compared to $2.3 million and the same period last fiscal year approximately 500000 pounds of avocados were sold during the fourth quarter of fiscal year 2020 at a 99 cent average price.
Per pound compared to no avocados sold during the prior year period, the year over year decline and avocado revenue was due to receipt of crop insurance proceeds and the fourth quarter of 2019, the company recognized $500000 of Orange revenue and the fourth quarter of fiscal year 2020 compared to.
$2.1 million and the same period of fiscal year 2019 attributable to lower brokered fruit sales speech.
Specialty citrus and other crop revenue were $2 million and the fourth quarter of fiscal year 2020, compared to $2.1 million and the fourth quarter of fiscal year 2019.
Total cost and expenses for the fourth quarter of fiscal year, 2020 was $39.3 million compared to $40.1 million and the fourth quarter of last fiscal year.
The fourth quarter of fiscal year, 2020 experienced a decrease in agribusiness costs and selling general and administrative expenses, partially offset by a decrease and gains from asset disposals.
Costs associated with the company's agribusiness include packing cost harvest costs growing costs costs related to free procured from third party growers and depreciation and amortization expense.
Operating loss for the fourth quarter of fiscal year, 2020 was $9.5 million compared to operating loss of $3.6 million and the fourth quarter of the previous fiscal year.
Net loss applicable to common stock after preferred dividends for the fourth quarter of fiscal year, 2020, with $7.6 million compared to a net loss of $3.2 million and the fourth quarter of fiscal year 2019, net loss per diluted share for the fourth quarter of fiscal year 2020.
It was 43 cents compared to a net loss per diluted share of 18 cents for fiscal year 2019.
Adjusted EBITDA was a loss of $6.6 million and the fourth quarter of fiscal year 2020, compared to a loss of $2.1 million and the same period of fiscal year 2019.
A reconciliation of adjusted EBITDA to net income is provided at the end of our earnings release.
For the fiscal year ended October 31, 2020 revenue was $164.6 million compared to $171.4 million and the fiscal year and ended October 31 2019.
Operating loss for the fiscal year, 2020 was $19 million compared to an operating loss of $5.5 million for the fiscal year 2019, net loss applicable to common stock after preferred dividends was $16.9 million for the fiscal year 2020, compared to a net loss of six per.
By $4 million for the fiscal year 2019 net.
Net loss per diluted share for the fiscal year 2020 was 96 cents compared to a net loss per diluted share of 37 cents for the fiscal year 2019.
Excluding the loss on stock and Calavo non cash equity and earnings of Limoneira Lewis community builders, LLC and loss on asset disposals for the fiscal year 2020, adjusted net loss applicable to common stock was $12.2 million compared to adjusted net loss of $7.8 million for the for.
Fiscal year 2019, adjusted net loss per diluted share was 69 cents compared to adjusted net loss per diluted share of 45 cents for the fiscal year 2019 based on approximately 17.6 million weighted average diluted common shares outstanding for both years.
Adjusted EBITDA for the fiscal year 2020 was a loss of $6.7 million compared to income of $1.9 million for the fiscal year 2019.
A reconciliation of adjusted EBITDA to net income is provided at the end of this release.
Turning now to our balance sheet and liquidity long term debt as of October 31, 2020 was $122.6 million compared to $105.9 million at the end of fiscal year 2019.
During the fiscal year 2020 company received a $1.9 million income tax benefit from the cares Act and applied for $6.7 million of federal and state income tax refunds. The company has received $800000 of these refunds in October of 2020 and $5 million and.
Sen of 2020.
On March 12, 2020, the board approved a share repurchase programming authorizing the ability to repurchase up to $10 million of its outstanding shares of common stock through March of 2021 day.
During the quarter ended October 31, 2020, we repurchased 208877 shares for approximately $2.9 million and in fiscal year 2020, repurchased 250977 shares for approximately $3.5 million and.
As of October 31, 2020, the remaining authorization under this program is approximately $6.5 million now I'd like to turn the call back to Harold to discuss our fiscal year 2021 outlook and longer term growth pipeline. Thank.
Thank you Mark the recent increase and the co at 19 pandemic affected our domestic and export pricing during the back half of the fourth quarter of fiscal year 2020, and we expect it to continue to create uncertainty on global pricing for the near term until this uncertainty dissipates, we're not going to.
Provide guidance regarding our lemon volume right now.
Offsetting some of this and uncertainty we do expect to generate strong orange and avocado revenue in fiscal year 2021 based on early market factors and initial crop indicators. We also have an additional 1200 acres of nonbearing lemons estimated to become full bearing over the next for years, which will enable us.
To achieve strong organic growth for many years to come the company expects 200 of the 1200 acres to become full bearing in fiscal year 2021 beyond. These 1200 acres, we intend to plant an additional 250 acres of lemons and the next two years that we believe will further build on.
Long term pipeline of productive acreage, we anticipate this additional acreage will increase domestic supply of lemons from our 2020 level by approximately 50% or about 900000 to 1.3 million additional fresh cartons as the nonbearing and planned acreage becomes productive.
Yes.
We also expect to have a steady increase in third party grower fruit.
Also due to more clarity and the development of harvest at Limoneira. We believe we will generate cash distributions from harvest as follows fiscal.
Fiscal year 2021 is expected to be neutral fiscal 2022 is expected to generate $3 million of cash flow Limoneira fiscal year 2023 is expected to generate $15 million fiscal year 2020 for is expected to generate $27 million fiscal year 2025 and.
It is expected to generate $25 million and 2026 is expected to generate $10 million. This will be about $80 million of cash back to Lehman era in the next six years. These expectations from harvest do not include the potential upside from increased density in the housing and harvest as well as the per.
Potential opportunity of a medical campus in our east area. Two development, we expect to be in a position to provide for greater transparency on these opportunities later this year.
And with that I'd like to open the call up to your questions operator.
At this time and we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is and the question for queue. You May Press star two if youd like to receive your questions from the queue for participate speaker equipment and may be necessary to pick up your handset before pressing star keys.
One moment, please while we poll for questions.
Our first question comes from Ben the Ingenue Steve.
Stevens.
And Harold and Mark how are you.
Ive and event.
Thanks for the additional color around the harvest.
I wanted to ask as it relates to the projected distributions that you gave and the comments that you made around the potential hospital development and east area too.
And is the the east area two projects solely a function of that potential hospital development or could you per could you build out that.
Part of real estate ownership parcel as well.
Exclusive of the hospital opportunity and if you did.
Would that impact, but projected distributions that you've laid out here.
From you carrying a one.
For the net saw payout or distribution.
Certainly saw all I'll answer the last part of the question for so this is all incremental above the the the comments we made about the distributions from harvest. So this is on top of that so essentially the the east area. Two property is 30 38 acres and.
It has been zoned and was historically zoned and and targeted to become complementary commercial property for the residential piece and harvest.
And with the changes that were all observing in retail and big box retail.
The.
Likelihood of seeing that property convert into a retail development.
Has decreased significantly since we first began the project the city of Santa Paula was looking forward to receiving tax benefits sales tax benefits from that retail so they actually approached us on converting the focus into us.
Solving a problem that the community has and that they have a community based hospital, which is today based upon on a on the hill and downtown Santa Paula and for seismic reasons it needs to be completely rebuilt by the year 2030 day.
They have a they.
They were approached by the Ventura County Health Care agency about debt that currently operates our hospital about the potential of relocating the hospital and and developing medical office that what how is three of the existing clinics at the healthcare agency runs and town to a new medical office.
This building and then complement that with a skilled nursing facility and then eventually assisted living and.
And so theres a vision for that campus and there is a demand for that campus and so limoneira has.
Made a non binding commitment to work very closely with the developer and the healthcare agency and structuring a transaction, where limoneira would sell the sell the ground to the developer who would then build the buildings and that would eventually become a hospital and medical office build.
That I just laid out but also complimentary commercial and high density multifamily housing and then there's there's also some recent commentary from the county and the the local press that we can we can show you just really really highlights their intent to make this project work. So it's it's pretty exciting opportunity.
Okay. Okay. Great. So this is east area. One if you if you do begin to develop each area too and the JV needs cash maybe these numbers change, but that's all incremental relative to this is that if I'd just still your comments down.
Yes, exactly so so the east area too.
Most likely Easter.
<unk> two has nothing to do with the partnership in harvest and so it's for.
Today, it's 39 acres of.
Commercially zoned property owned by the Lehman era company that most likely the way, we would transact that development would be to actually sell the land and monetize it upfront that would bring incremental benefits back to luminaire.
Okay, that's great color and this is the knife update thanks on.
On the the pricing and <unk> and and Harold your commentary around export market market's continuing to impact from the first quarter.
Two questions. One is the export market impact also is it is that.
<unk> to the Covid recovery globally, more broadly and then to the.
Your realized price and the fourth quarter for lemons relative to kind of the market price per se choice. One for teens is uhm was that a function of the wins impact that you mentioned and will that have any residual impact as we head into 2021.
Those are great questions. So the export markets will be just tied directly to the.
And I assume the distribution of the vaccine and the reopening of foodservice venues restaurants and bars around the world and towards the beginning of the first quarter. We saw export markets begin to reappear reappear and for a period of time, we were doing.
Most pre COVID-19 levels of shipments to our Japanese and to our Korean partners, but towards the for the second half second part of the first of the first quarter of this year, we've seen those pull back again, so just like we're reading about around the world and around the United States. You are seeing situations of opening and then re clothes.
And opening and re closing, which which gives us a moment to pause about sort of how how to predict the rest of the year.
With that being said, though the.
And the winds that were mentioned and our earlier remarks did have a negative impact on pricing. This.
This season as we start this new year, we have a much better distribution of grades throughout each of the growing districts and district, three district, one and district too and a much higher percentage of first grade fruit. So we expect that that will have a very positive impact on overall pricing and fiscal year 2021.
Okay. Thank you very much best of luck gas.
Great. Thanks, Ben.
And our next question comes from Jerry Sweeney with Roth capital.
Good morning.
I'm, sorry, and good afternoon, and thanks for taking my call from Nigeria.
And I wanted to pick a little deeper.
Just on supply and demand, obviously export and for service or headwinds.
But.
Thank the deeper question I wanted to get at would be.
Is there an oversupply of planting for acreage today even.
If there's headwinds and export for service decline.
Rectify themselves and.
In other words even.
If we get past Covid.
Is there a chance of these record volume continuing and.
Price compression.
So that's a great question, Jerry and certainly.
With the impact that we have today of Covid related foodservice closures.
It's.
It is it is oversupplied once we get COVID-19 behind us and we can get back to the emerging market development and growth of those markets and consumption and demand growth. We believe that were properly supplied the part of that question that is is somewhat complicated is.
Because of the different growing regions and the timing of the production in those areas there will be times, when we're oversupplied and times when we're we're properly supplied and and on a global basis and times when we're even under supplied so really looking at the seasonality.
Of the production.
The age of the blocks and the productivity and then looking forward at the plantings that are out there the non bearing acreage that's coming online, but then anticipating the acreage it's going to come out.
Producers have a tendency to if you go. So this this is the second year and a row of California, Lemon production that has not been profitable for lemon producers and California. So we're beginning to see that some of that acreage pull out. We also know that Argentina has a it's it's projected to have a 30 per.
Percent decrease and it's total production of fresh lemons. This this coming year due to a drought that they've experienced there.
So there are factors out there on a global basis that gives us reason to believe that once we get beyond COVID-19 and once we get back to pre COVID-19 demand levels, and we returned to global consumption and demand growth that were that were properly supplied but but it's a great question.
And when we look at the total acreage that are planted right now there's about two or three months that looked like towards the back half of the summer that are oversupplied and we'll just have to continue to monitor that as the economy recovers and as restaurants and bars reopen around the world.
Got it and.
And do you expand production globally.
South from.
American production.
Is there and ability to <unk>.
Stores from 11th and maybe even out from your your shipping and and exporting activities too maybe balance out from a that.
Unevenness.
So the really great part about our Chilean investments is that almost all of that production can be consumed.
Normally profitably.
And within the Chilean market. So it does not necessarily have defined and export home Argentina is different they don't have the consumption for and or nor the demand to absorb that but but to go back to Argentina production.
A lot of that eight a lot of that acreage and a lot of that production targets the European markets and that gives us a great purge valve and the in the.
And the situation when the United States is oversupplied or there's just.
There's too much fruit and the market. So we're constantly looking at global markets and the best opportunities from each of the production sources to find out what the optimal way to move that fruit around is to maximize its values and Gerry is an example, now we we're actually X porting.
Starting here pretty soon into for importing into Chile, where there summertime lemon and starts to fall off they start seeing better prices and and we're able to send some of our.
Choices, and and and lemons down that way, so kind of it works both ways.
Got it thanks.
And that's it for me I appreciate it and I appreciate that and clarity harvest and I'm, an error and the cash.
Great. Thank you for Jerry.
And our next question is from Vince and Anderson with stifle.
Yeah. Thanks.
And.
And it's.
Okay.
So I appreciate you confirming the drought and Argentina and.
And might be prosecuted.
So one R U and you escaped for that or is that impacting your production as well and then you talked about a year being and important exit bounds, but.
Emergency and regain access to the European.
Mark you down.
So the first part of your question about the about our production. So the great news for us for Argentina is that all.
Our primary production is north of to come on and took him and is the province, where the majority of lemons are produced that is the area. That's experiencing that is significant drought and so that area is up to 30% off but we're actually producing in the province of who who <unk>, which is the furthest northern.
Most province, and the country of Argentina, and we have not been impacted by the drought and our production actually looks to be up and this coming year. So we believe that's a very good that's a very good thing and when we talk about the European.
Market really central and Eastern Europe is where we move most of our fruit today. So we're we're able to move that through even though there are issues today and as you mentioned in Western Europe.
Perfect. Thank you.
And then.
And to kind of throw worst case scenario on foodservice demand this year.
Maybe if you could talk about how you doing the fourth quarter and in terms of any more and grocery sales, obviously bigger X for quarters.
A day, but but if we see and slow recovery and foodservice one how can 2021 and work versus 2021st utilization rate just from the progress you've made there and how flexible can you be this year in terms of wedding fruit signs up a bit more dependent shrinker.
No that's a great question and so.
The thing that that really.
Hit us the hardest last year in 2020 was the oversupply of of of the second grade the choice lemons, which predominantly fine and just say mostly find this way into food service.
So what a couple of things that are good news for us coming into 2021, our first first of all last year because of the heavy winds that we mentioned the percentage of first grade fancy fruit fell to 20% or normally that would be around 40% to 50% and.
And 2021, we're back to normal and we're sort of in that 40 to 50 per cent of first grade fruit, which means that if we can get the proper sizing on that fruit will.
And we will be much easier for us to move into retail customers.
And and at higher value so that that's a great thing for us this year.
Other thing that happened to us last year as we came into March April May and June.
Which is our district two coastal coastal craft, we have a we had a situation where are juice partner. So if we can't sell it fresh we sell that we sell the balance of that production two for juice and products are juice.
Partner.
Had.
A a a market outlet that was predominantly foodservice and so when that when that juice partner was unable to sell the majority of what we were taking them. They closed that plant, we pivoted over to sell it to another plant and.
And that was.
Supplied by our competitor and.
And we were shut out of that and so the reality for us on the utilization was was very negative because we lost that juice outlet for a period of time that has now been completely restored as our juice partner has been able to find outlets at retail that have been would that have been great. So India.
And that we don't get the food service business back as quickly as we'd like this next year or pivot over to retail our partnership with a juicer that has retail outlets for the juice.
<unk> much better for our total utilization and this next year and and we've made great progress with specific retail customers.
Costco being the biggest success for us.
Picking up a big part of the National business for Cosco, but also HEB and Texas and wait for and on the East Coast.
One risk factor that will 0.2, though is that California is well below throughout the state it's normal levels of rainfall and the rainfall is what we depend on to get proper sizing of our fruit throughout each of our growing areas and if we if we don't get the rain and we don't get the size.
It'll be difficult for us to move the crop and and orderly way because there's only so much market for the for that smaller pieces of fruit. So our strategy is to actually stretch our seasons out to give the the trees and greater chance for growing the.
The normal sizes normal sizes that we sell and the grades that we want to sell to the market and while that may add a little bit more cost and it will give us a much better opportunity to have the sizes that the that the market and the customers one.
And as it is for.
Perfect. Thank you.
And you kind of quid housekeeping question.
Those those 200 acres for bringing on here it looks like you might be net income against some old acres are pulling and if so.
And are measurable net fresh harmed impact that we should be modeling to work for it.
And it kind of just be negligible first years.
So what so there's a lot of moving pieces that are part of that the answer to that question, but the way to think about it Vince's district, three what is 30% lower in total total tree crop for the industry and for us.
District, one where we are now up and the San Joaquin Valley is 15% lower than it was a year ago for everybody and us but.
The acreage that's coming on line is up and district, one so our total sales and district, one should be should be about the same.
Because of that because of those 200 acres of fruit that are now the trees and are now bearing and then and then as we come down to district too on the coast. It's still a little too early to talk about the crop size, we still don't see enough of it to know so our assumption is that it's going to be similar to last year and only with.
A higher percentage of fancy grade fruit, because we we are able to see that coming online now so just come and it'll come down to the size and.
And if we can get that ray and and get that exercise.
That'll be the difference maker and really given us volume volume confidence later and the year.
Excellent and.
And what this year.
Thanks for <unk>.
And our next question is from Ben Cleave with National Securities Corporation.
Alright, Thanks for taking my questions first one here and Harold you kind of alluded to this and your prior answer but I'm wondering if you can elaborate a bit more on how you are looking at managing inventory and coming months and quarters and the event that the foodservice industry really does pick up.
And what extent are you going to kind of.
Lately for it on the trees for a bit longer Lee fruit and it's already been processed for a little bit longer with the hope of getting better pricing as foodservice opens up or is that really not something that you are going to mess around with too much.
Oh, that's a great question and and that is sort of the nature of our of our business. So the sales team have done a really good job getting in front of what we see from each of our growing districts and what we know we have and what we think we have and setting up contracts with retail customers.
That are allowing us to sort of anticipate demand and anticipate sales and I guess the good news is is because we are behind and rainfall and the fruit is growing more slowly we're inventory and a lot of these a lot of this fruit just on the tree naturally and letting mother nature do her thing.
<unk> and not having to pull it off the tree and and put it into storage, which creates more risk because if you put it and storage you lose a customer or unable to sell. It then you have to get the dump it or send it to the juice plant at much lower values. So so our strategy is just to keep monitoring on a day to day basis, and weekly and monthly the sizing and Ah.
Fruit and then let mother nature determine when the optimal time for us to harvest and.
And and really do a as good a job as we think we can keeping it out of our cold storage because once you've put all the cost into that fruit and you put it into into storage. If you aren't able to sell it it's the double negative of getting much lower value because it goes to the juice plant, but also you've got all the cost and that fruit, whereas.
If we knew later on and the season that we weren't going to be able to find a home for that fruit, we won't put the costs it but will actually just send it straight to the to the juice plant and the combination of all those things have a huge factor and what we call. Our fresh utilization are net results of fresh utilization in 2020.
Where 60% and it was really just because in the in the summer months, which is worthy March April may so spring and summer when Covid impacted us so negatively and then we had that juice plant challenge.
We suffered much lower utilization and then we would have anticipated. So as we look forward on a go forward basis into 2021, and we know that we're going to be challenged at some level with the closure of foodservice. So we're pivoting to retail and working as as.
Diligently as we can to find export market opportunities for a lot of that fruit, while Meanwhile, focusing and on the type of quick serve restaurants that are still doing pretty good business with their drive throughs and their takeout and really attacking that part of the market and the combination of all of those things should improve our fresh utilization.
And should overall improve our pricing.
We're being careful with guidance just because we're just unsure the magnitude of the of the demand and demand reduction because of food service and export and also how quickly or slowly will see the return and foodservice business.
Got it got it very interesting.
Tricky tricky to navigate but that's luck as you do so.
My other question here.
Is regarding water rights and I'm, hoping you can just kind of provide a general update on how you are looking at water rights over the next year and in particular and the context of like you said, a dry year, so foreign and California, and even drive per year, and the Colorado River Basin.
Does the current weather impact how you are thinking about those at all.
And any updates from a big picture and be appreciated.
Happy to talk about water and I think the thing that has happened since the last time, we spoke is that water became.
A future a futures market has been developed.
And the capital markets for water and water is now beginning to be actively publicly traded which is which is interesting.
So as as your question sort of implied as as their scarcity. There also becomes more value with water and water rights and so as it relates to all of our all of our assets and our deployment of of water.
Our primary focus right now is using the majority of our water assets to basic.
Basically monetize our agricultural production and to support our agricultural operations with that being said, though as you.
Go around the portfolio of investments that we have and the land and water that we that we have access to.
We do have surplus water and in certain areas and one area of value, where we're working very hard to find ways to monetize that water is our class III, Colorado River water rights, we have a partnership with a.
A.
Private equity group that has a water focus on monetizing those those assets.
Nothing to really report in terms of being able to speak specifically about any transactions that relates to that 12000 acre feet of water that we have but we are working to try to find potential buyers of that water and to structure. The monetization of those water rights as it.
Relates to our Santa Paula Basin pumping rights.
Now those those.
Those pumping rights are being used for for our farming operations, but there's also a demand and supply imbalance, where there's there's more demand and supply of that water and eventually some of that will begin to monetize we just haven't we haven't found the right time to do that is now but.
And we're exploring those opportunities and.
Waiting to put the first transactions on the board at this point, though we don't have anything that's imminent. So as it relates to 2021, we're probably not going to experience.
Much water monetization other than providing surplus pumping rights that will sell agriculturally, but won't have a significant financial return in 2021.
As it relates to monetizing some of those assets and those water rates.
Got it perfect.
Perfect and I appreciate the color on both of those I think that does it for me, that's a lot coming up here and coming quarters, and I'll jump back and Q.
And thank you.
And our next question comes from Mark Smith with Lake Street capital markets.
Hi, guys.
First question for me is just any other insight into change and consumer trends within grocery retail and Additionally, you already talked about some of the new partners that you added during the quarter and and.
Anybody else to maybe discuss or kind of your long term prospects with some of these new partners.
We tried to alluded and the in the comments that we made earlier, but the I guess the exciting thing that we're experiencing is where.
Pre COVID-19, we were 70% sales too foodservice customers and 30% to retail and when Covid hit we were forced to pivot over to retail and so that's sort of translating to approximately 50 50, and we've made some great progress with some great new retail customers and we're seeing.
And much stronger demand at retail.
Once Covid hit then we saw pre Covid and so I guess the hope that we have is is as as our sales team is out there with sort of uncertainty about total foodservice demand. There's a much stronger focus on retail penetration and there's some really exciting new accounts that the sales team have have contracted and set up some some some.
Business for the coming months with some new customers for us, but I guess that the.
The the hope here and it's more of what we suspect we suspect that as restaurants and bars and foodservice grabbed.
Gradually begins to recover based on vaccination and and restaurants and bars reopening around the country that will see continued high levels of demand at retail, but also now and new new found demand at foodservice as it begins to recover and that total demand and total.
And will actually be up once we get past the pandemic and that's sort of that's what we're that's what we're anticipating coming just because of the way that consumers are behaving today doing a lot more and home cooking and shopping at grocery stores and Mark if I might add our thesis of still chasing after qasr's and fresh lemon.
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We're very focused on that obviously that gets our lowest grade throught the highest possible value. So our one of our bigger customer and raising caines. The chicken QSS are out of the south expanding and I think there are over 500 stores now and we pick up one or two more of those that were focused on it really helps with that balance.
That lower grade multiple sized fruit, so again that'll that'll be a focus for us.
Okay.
Oh and the other question for me is just really looking at the profitability.
Can you talk about labor pressure as you look at this new year.
And anything else that you seen maybe impacting costs and then really just how we improve the profitability here, especially if we stay and environment with low commodity prices.
Yeah, the biggest impact to our profitability and it's the second year and a robot for completely different reasons. We've been challenged is our fresh utilization if we're able to produce a normal percentage of first grade fruit and have good demand for that first grade fruit find good.
Demand for the second grade fruit and sell the third grade for it at a percentage that would allow us to get our fresh utilization above 70%, which by the way historically was always what we did then.
Then that drives our costs down to a level to restore significant profitability. We spent a lot of time talking about demand destruction because of the pandemic and.
And and and the loss of food service and then the oversupply that that's created and then the commodity impact on total pricing has been very negative, but we believe that with the pivot to retail our ability to have a much higher percentage of first grade for.
Route that we will probably find ourselves and call. It and this is speculative, but a 20 dollar average price per carton worst case, if we.
If we sort of see this slow recovery of foodservice and with foodservice.
Coming back, but if we could get utilization back to the 70% to 75% level given the realities of our of our cost environment, we should be able to return our costs to call at $15, a carton and restore profitability and that's that's the laser beam focus that we have right now and.
And through the first almost first quarter of the year, we're achieving those levels and the real challenge for us is going to come and when we see the big volumes and the big shipment months of March April and May, but if we can get through those months with above 70% fresh utilization then we will restore the profitability of the.
Business and drive the costs down to a level that will allow us to achieve good profitability.
Okay, great. Thank you.
Ladies and gentlemen, and we've reached and question and answer session on like to turn the call back over to Mister Harold Edwards closing remarks. Thank you.
Thank you and thank you for your questions and your interest and leaving error and have a great day.
And.
This concludes tonight's webinar you may disconnecting lines at this time. Thank you for your participation and have a good evening.