Q2 2022 Limoneira Co Earnings Call
Greetings and welcome to the alumina era's second quarter of fiscal year 2022 financial results conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. As a reminder, this conference is being reported it is now my pleasure to introduce your host.
No one knows with ICR. Thank you you may begin.
Good afternoon, everyone and thank you for joining us preliminary second quarter fiscal year 2022 conference call.
On the call today are Harold Edwards, President and Chief Executive Officer, and Mark <unk>, Chief Financial Officer.
By now everyone should have access to the second quarter fiscal year 2022 earnings release, which went out today at approximately four P M Eastern time.
If you've not had a chance to view the release, it's available on the Investor Relations portion of the company's website at <unk> Dot com.
This call is being webcast and a replay will be available on <unk> web site as well before.
Before we begin we'd like to remind everyone that prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions but.
Such statements involve a number of known and unknown risks and uncertainties 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, Qs and 10-Ks filed with the SEC and those mentioned in the earnings release.
Except as required by law, we undertake no obligation to update any forward looking or other statements herein.
Whether result of new information future events or otherwise.
Yeah.
Please note that during today's call. We will also be discussing non-GAAP financial measures, including results adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of <unk> 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 adjusted basis.
Also within the company's earnings release and in today's prepared remarks. We include adjusted EBITDA, which is a non-GAAP financial measure a reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure is included in the company's 10-Q and press release, which have been posted to our website.
And with that it is my pleasure to turn the call over to the company's President and CEO , Mr. Harold Edwards.
Thanks, John and good afternoon, everyone, we achieved topline growth, 4% to $47 million and generated $5 $8 million of adjusted EBITDA in the second quarter.
Both was driven by higher avocado, orange and specialty citrus revenue.
Our avocado segment has continued to outperform expectations this fiscal year with pricing up 50% compared to last year Lemon pricing remained challenged in the second quarter as the domestic the almond market works through a surplus inventory. However, we were encouraged to see the lemon export markets begin to return to normal.
The top line improvement in the second quarter was partially offset by the cost side of our business as we and our industry.
To face rising labor costs, and higher packing and supplier costs.
Our company's 129 years old it over the past 20 years, we have made important strategic investments in our overall business to become a leading global producer packager and marketing of citrus leading to the creation of our one world of Citrus This new marketing plan combined with our recent investments have enabled us to increase.
Our revenue by over 200% from $54 million in 2010.
$166 million in fiscal year, 2021, which equates to an 11% CAGR.
Today, we have over 15400 acres of rich agricultural land real estate properties and water rights in California, Arizona, Chile, and Argentina, with a fair market value of over $600 million in todays market you had a book value of luminaire as balance sheet of 220 million.
Because many of these assets were acquired many years ago at a low basis.
Selective monetization of certain assets and luminaries portfolio going forward creates a tremendous value creation opportunity for our shareholders.
Based on this and in order to better leverage our leading global position and enhance shareholder value over six months ago, Our board of directors and management formulated a plan.
Updated priorities and objectives from the mirror to achieve in the coming years and certain metrics to measure our progress.
Our board's objectives are as follows number one to reduce debt and right size our balance sheet. We also reiterated today that we expect to receive approximately $95 million over the next five years from harvest didn't leave an era beginning this year.
In addition to harvest, we have identified over $100 million in assets that we will be monetizing or selling in the near term to streamline our operations.
Number two transitioning our one world of citrus to an asset lighter business model.
Order to unlock the value of our many assets and better leverage our leading global citrus position, we will be expanding our one world of citrus, while also strategically selling certain assets and streamlining our operations to dramatically increase our long term cash flow.
To accomplish this we will be increasing our focus on growth of the asset light model using more grow a partner in order to reduce the impact of pricing volatility and funding costs.
We will continue to develop best in class services to recruit additional growth partners.
We will also be Reconfiguring, our global Lemon packing network to better support our grower partners fruit.
This may include reducing certain orange and lemon acreage globally, while still increasing the packing and marketing of the food grown on these locations.
In the coming years, we expect 30% of our London global supply chain to come from luminaire fruit and 70% to come from Golar partner free while maintaining our overall growth goals to put this in perspective today, 50% of our crude is produced on leaving their luminaire properties.
As an example last week, we announced our engagement with the human Mesa irrigation and drink drainage district in a two years following in forbearance program at the companies associated Citrus Packers ranch in Yuma, Arizona. The program targets 400 acres of Farmable land on the property over the duration of the.
The agreement.
<unk> in excess of 4200 acre feet of more than one 3 billion gallons annually of shave water that may be retained in lake Mead as Colorado River system Conservation water.
In addition to conserving natural water resources. The program converts previously unprofitable acreage to be profitable with an estimated annual savings of approximately $1 million.
As a reminder, our associated Citrus Packers ranch includes 1300 acres of land comprised of approximately 900 acres.
Didn't lemon orchards and 400 acres of other crops and facilities with access to the Colorado River for crop irrigation.
We cultivate harvest impact fleet for sale within the luminaire family of brands as well as third party contract partners.
Now with the sampling program in place, we will have 700 acres of productive lemons 400, Validators and 200 acres of other crops. We will continue to leverage our existing supply chain for the 700 acres of lemons and expect to add more partners in the desert area into our supply chain in the coming year.
This will result in more lemon volume than we previously generated.
This asset light model will enable us to achieve improvements in the following metrics. Our board is using to measure progress and position us to improve shareholder value.
The first is reduced investment way, yes outside of North America.
Generate more stable and higher growth EBITDA and earnings.
And lastly to improve our annual return on invested capital during the past 12 years as we grew our one world of citrus offering. He also made certain investments in assets that were embedded in this growth and the overall infrastructure and human error now will be focusing on monetizing certain of these assets that have increased in value over there.
Years, and this will dramatically improve our return on invested capital.
We expect to also leverage our leading avocado position by increasing avocado production in Ventura County, and exploring additional ways to participate in the packing marketing and so a lot of avocados as a complement to our one world of citrus.
Our fifth strategic objective is enhancing our ESG goals.
Even though that has a long history of sustainability practices and this is one of the reasons. Our company has enjoyed almost 130 years of giving back to the community.
We build housing for farm workers sponsored community programs reduce our carbon footprint with seven solar installations manage green waste with 28. The facility that was <unk> 200, plus tonnes per day of organic green waste minimize pesticides and we are a pioneer in water conservation.
However in order to ensure our language here for future generations, we are redoubling, our efforts on environmental social and governance standards.
We are increasing our focus on regenerative agricultural practices, including expanding our relationships with third party agronomists.
The enhanced and property nurture our soil and water conservation efforts.
Continuing to improve our digital information system to increase efficiencies across our supply chain.
This system will work in tandem with our agricultural practices by monitoring daily trio and circa identifying labor and distribution needs predicting the right time to harvest and match harvests.
Grades and sizes to meet global demand lastly, we are evolving our governance structure to ensure best practices.
We believe that this new strategic plan will result in an asset light business model dramatic debt reduction reduced volatility and an increase in EBITDA and earnings per share.
Higher return on invested capital increase in our quarterly dividend higher ESG scores expansion of global fruit packaged and marketed by women here and lastly, an increase in the growing packaging marketing and selling a lot of college.
We will update you on a regular basis regarding our progress and we believe we will be in a position to announce additional asset sales and streamlining of our business model in the coming quarters.
Our entire team and even areas. They are excited about our new strategic plan to realize the value of the many investments we have made over the past 20 years. This will dramatically improve our financial position and expand our one world of citrus opportunities, we have a deep history of being a leader in the citrus and avocado World and this new plan.
Yeah, and enhance the value of our company for all stakeholders.
I'll now turn the call over to Mark. Thank you Harold and good afternoon, everyone for the second quarter of fiscal year 2022, total net revenue was $46 $8 million compared to total net revenue of $45 1 million in the second quarter of the previous fiscal year.
Agribusiness revenue was $45 4 million compared to $44 million in the second quarter last year.
Other operations revenue was $1 $4 million compared to $1 $1 million in the second quarter of the previous fiscal year.
Agribusiness revenue for the second quarter of fiscal year, 2022 includes $27 $3 million in fresh lemon sales compared to $28 $7 million in the same period of fiscal year 2020, what a.
Approximately 1.552 million cartons of fresh lemons were sold during the second quarter of fiscal year 2022 at a $17 57 average price per carton compared to approximately $1 million 528000 cartons sold than the $18 79.
Average price per carton during the second quarter of fiscal year 2021.
Lemon pricing has remained challenging for the first half of fiscal year 2022, as we dealt with adverse weather on the east coast as well as the emergence of the Omnipod Berry, creating an oversupply of lemons in the marketplace.
We are seeing the lemon export market to begin to return to normal leverage levels. However is expected to be a slower recovery and so while we expect improvement in the second half of this year is still expected to be down year over year.
The company recognized $2 $7 million of brokered fruit and other lemon sales in the second quarter of fiscal year 2022, compared to $2 3 million in the same period last year.
The company recognized $3 $6 million of avocado revenue in the second quarter of fiscal year 2022, compared to $2 7 million in the same period last fiscal year.
Approximately $1 million 877000 pounds of avocados were sold during the second quarter of fiscal year 2022 at a $1 90, <unk> average price per pound compared to approximately $2 million 142000 pounds sold at a $1 26 and average price per pad.
During the second quarter of fiscal year 2021.
The company recognized $2 $6 million of Orange revenue in the second quarter of fiscal year 2022, compared to $1 4 million in the same period of fiscal year 2021.
Approximately 328000 cartons of oranges were sold during the second quarter of fiscal year 2022 at a $7 98 at average price per carton compared to approximately 154000 cartons sold at a $9 12 average price per carton in the prior year period.
Specialty citrus and other crop revenues was one $4 million in the second quarter of fiscal year 2022, compared to $1 $2 million in the second quarter of fiscal year 2021.
Total costs and expenses for the second quarter of fiscal year, 2022 were $44 $1 million compared to $42 $7 million in the second quarter of last fiscal year.
The increase in operating costs was primarily attributable to the company's agribusiness associated with an increase in packing and growing cost partially offset by decreases in third party grower and supplier cost in the second quarter of fiscal year 2022.
Operating income for the second quarter of fiscal year 2022 increased to $2 7 million.
Compared to operating income of $2 4 million in the second quarter of the previous fiscal year.
Net income applicable to common stock after preferred dividends for the second quarter of fiscal year 2022, with $1 4 million compared to a net income of $1 8 million in the second quarter of fiscal year 2021.
Net income per diluted share for the second quarter of fiscal year 2022 was eight cents compared to a net income per diluted share of <unk> 10.
For the same period of fiscal year 2021.
Adjusted net income applicable to common stock for the second quarter of fiscal year, 2022 was $1 7 million compared to net income of $1 $8 million in the same period of fiscal year 2021.
Adjusted net income per diluted share was <unk> 10 for the second quarter of fiscal year 2022 and 2021.
A reconciliation of net income to adjusted net income is provided at the end of our earnings release.
Adjusted EBITDA was $5 8 million in the second quarter of fiscal year 2022, compared to $6 million in the same period of fiscal year 2021, a reconciliation of net income to adjusted EBITDA is provided at the end of our earnings release.
Now turning to our balance sheet and liquidity long term debt as of April 32022 was $135 $6 million compared to $134 million at the end of fiscal year 2021.
We believe the level of debt will decrease throughout fiscal 2022 due to expected cash flow from our agriculture and real estate businesses.
Now I'd like to turn the call back over to Harold to discuss our fiscal year 2022 outlook and longer term growth pipeline.
Thanks, Mark as we all know the COVID-19 pandemic continues to affect our foodservice business and industry logistics on a global basis. However, due to our diversified group business, we expect to achieve stronger topline growth in the third quarter compared to our second quarter and improve EBITDA.
We are beginning to experience improved demand domestically, but we expect lemon pricing to remain pressured this fiscal year until we see the Asian export markets fully open again.
We continue to expect fresh lemon volumes to be in the range of $4 5 million to 5 million cartons for fiscal year 2022, and we expect strong profitable avocado demand to continue into the third quarter of fiscal year 2022, We also expect volumes to be in the six to 7 million pounds.
Range for fiscal year 2022.
We continued to expand our product offerings in fiscal year 2022 by marketing another producers oranges and specialty citrus. They are one world of Citrus program we.
We have a growing list of customers that enjoy our ability to provide all of their citrus needs for one single supplier and by increasing our oranges and specialty citrus offerings, we will be able to attract even more customers we.
We continue to expect to receive $95 million from harvest at <unk>. During the next five fiscal years beginning in fiscal year 2022. Currently we are in negotiations of phase two which represents 554 residential lots.
The breakdown of annual cash flow is expected from harvest at <unk> is as follows fiscal.
Fiscal year 2022 is expected to generate $8 million of cash to meet many of our fiscal year 2023 is expected to generate $15 million fiscal year 2024 is expected to generate $27 million fiscal year, 2025, and is expected to generate $30 million and fiscal year.
Our 2026 is expected to generate $15 million. These expectations from harvest do not include the potential opportunity of a medical campus and our east area two development.
Now I will open the call to your questions operator.
At this time will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two.
From the queue for participants using speaker equipment may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Our first question comes from the line of.
With Stephens you May proceed with your question.
Hey, Hey, this is Jack Hardin subbing in for Ben.
The name.
Hey, Jack Hey, Jeff Hello.
So I wanted to ask about the expanded strategic scope of Oneworld citrus.
I know you identified $100 million in assets to be sold in the near term.
Any sense of how much of the 600 million you would like to monetize overall and maybe if you could provide some additional color on how you would deploy that capital.
Yes be glad you. So we went through a rigorous review of the assets that are involved in the one world of Citrus business model with our board and developed collaboratively a strategic plan back in February that was unanimously approved by the board and then.
Our task at the management level to provide the board with a road map for the expansion of the asset lighter model that includes over $100 million of.
Non core assets to be divested.
Some of those assets or specific assets.
In areas, where our returns on invested capital historically have not been achieving the desired levels that we wanted to have and we see it yet we've seen those assets appreciate the land and the water significantly over time so for us.
Some of our own acreage.
To be able to divest that too interested financial parties that would allow us to continue to market and sell the fruit by running that fruit to our packing marketing and sales program is specifically, what we're talking about and.
While we don't have necessarily the.
Could you talk about the specific assets that we're working on.
There is there are assets in each of the growing district areas in district, one district to district, three that will be potentially in our packages of assets that we're going to run a process too.
To try to try to monetize.
Awesome. Thank you so much that's it from us.
Yeah.
Our next question comes from the line of.
Gerry Sweeney with Roth Capital you May proceed with your question.
Hey, Harold and Mark Thanks for taking my call.
Hey, Greg.
Just staying on the asset divestitures.
And maybe realignment.
Most of the assets you know domestic or are you looking at making any changes on the international side.
So.
So Jerry as you know, we also own assets in Argentina.
Argentina and in Chile.
In Argentina, our desire is to.
Opportunistically transition the business there into more of an agency approach, where we represent other shippers.
Fruit.
And work on.
On the potential divestiture of our owned acreage in Argentina for political risk reasons.
And in Chile.
Our thoughts are to monetize a percentage.
Our production, but then to convert that capital in Chile into the development of a new packinghouse and the new packing operation very similar to what we did in Santa Paula.
Got it and I'm speaking of it that was sort of my next question was.
You kind of alluded to that.
In the prepared remarks was.
Maybe some other investments is that packing facility in Chile. The one is that are you looking at one facility in terms of packing houses.
Or will there be others, and then secondarily are there other sort of value enhancing.
Investments you can make as well to sort of support this asset light model.
Yes, so we own a packing house and a majority interest in a packing marketing and selling company call with solid packings in Chile, and the and our Packinghouse currently has a capacity of about 1 million cartons, but based on our relationships with.
Certain farm managers.
We have somewhere between four to 5 million cartons identified of lemon throughput that need a home from our packing marketing and sales.
Perspective.
So we see a great opportunity to expand our were solid packing operation to build the packing house with a four to 5 million carton annual capacity to take advantage of that throughput, but then as a great way for us to grow the asset lighter model of our one world of citrus.
And one more thing to add there so on the domestic Brian we're going to see opportunities in our packinghouse, there's just tremendous growth in volume and bagging. These days for retail. So we're gonna add a number of bagging machines to our packing house and then as we pay down debt to what we think are sufficient levels. We're also going to redeploy capital.
Into up to 500 acres of avocados and explore other opportunities in the food chain there.
Got you on the avocado side.
Would you do any packing on that front or would you just.
Use that sell at and just two.
Other third party packagers.
So so right now we.
Are we see a great opportunity with our land and water assets in <unk>.
<unk> county to reduce our own lemon production because fundamentally there is an oversupply in that part of California and during that season, and then convert that acreage into the expansion of avocado production by somewhere between.
<unk> 250 to 500 additional acres of additional production.
And then with the with the significant growth in volume to then explore the potential of entering the packing marketing and selling of avocados.
By potentially being acquisitive.
Got you.
Switching gears.
I'm not sure if there's other people in line.
Real quick just on the.
Real estate side.
The medical campus and additional sort of acres south it looks like there is going to be doing on the real estate separate from harvest that luminaire, that's going to be a little bit different sort of structure in terms of cash flow. I mean is that a direct sale of land and you get the cash upfront not necessarily like a joint venture where you had to develop and build the land and get the cash flow.
Just.
And that's.
That's exactly right Gerry.
<unk>.
We entered a letter of intent with a developer who in return has also developed a.
A letter of intent, which is about to be formalized with the healthcare agency of Ventura County, which is the public hospital system in Ventura County.
And the idea is that the.
The land so there's there's a upwards of 50 bed hospital that is envisioned on five acres and a 150000 square foot outpatient medical office building, which is on five acres.
<unk>.
When it's when it's ready to break ground than luminaire I will sell that land. So that 10 acres to the developer now we envision that that monetization for luminaire will be an all cash outright sale. The terms have been already negotiated and we would expect that to take place in 2023.
In addition to that we also have another two and a half acres that's contiguous to that.
We're currently negotiating with a hotel on an outright land sale as well to serve as a complement not only to the harvest that leave in a residential component, but also to the medical campus component. The last piece to that is that that will leave 20 acres.
In the east area to area.
And we're currently.
Under discussions with the Ventura Community College district to potentially sell 10 to 20 acres to them and if we were successful doing that.
That will complete all of east area. Two so it's exciting to see the momentum and progress and we begin we expect to begin to see the monetization of that next year in 2023.
Gotcha.
Hi, I appreciate I'll jump I'll jump back in line.
Our next question comes from the line of Ben.
Clean with Lake Street Capital markets. You May proceed with your question.
Alright, Thanks for taking my questions here first I have a question on the on the on the.
The monetization of the water rights that you announced last week and touched on here on the call today.
Curious the million dollar of improved operating profit that you are looking for here from that.
That announcement can you kind of outline the how you get to that number.
From the perspective of you know.
Of of increased cash flow due to do.
Due to the water rights being divested versus savings on.
Operator operating savings.
Given that those acres are not going to be productive anymore.
Yeah sure. Thanks.
Thanks for the question so really the way we are looking at that as over the past three or four years that acreage that was specified for the following program, which was very tired and old lemons are typical lemon only last 2025 years of inventory and you're in the Uma Desert area and so as we saw this program come out it was.
$1000, an acre a losing proposition.
And because specifically, it's just not not that much fruit being produced as they get older and then the trucking costs and shipping costs getting Halloween Santa Paula just made it more difficult and so that $1000. An acre then then flipped over to a $600000 benefit from the <unk> program. So basically just looking at.
About $1 million.
Turnaround from where it was in the money, losing position to then having no input costs and getting $600000 for the program.
Got it got it that's really helpful. And so then I guess a follow up question on that as you know at the end of two years here you're going to set.
You're effectively going to have completely followed land and then make a decision on whether to replant with why Missouri plant with another.
You know another crop or divested or sit on it and continue to monetize the water rights is that does that kind of the the different calculation that youre looking at right now for two years out for that plant.
We actually that's a great question. So we actually believe that the situation on the Colorado River is dire and if you. If you read about what's happening with Lake Powell and Lake need add storage facilities for west Western water. The situation is really bad and so.
As a result, we expect that this following program will just become more and more lucrative over a period of time, because the agencies that govern the river and the requirement to divert more and more water away from agriculture and into <unk>.
Storage for residential urban use.
Is this is going to happen and so what we fully expect to happen at the end of the following program is that there will be a new sampling program that will be put in place at significantly higher values. So really the way we're thinking about that asset in Arizona is more as a long term water monetization opportunity.
And less as a place where we're going to predict produce reliable.
Supplies of lemons were going to from a supply chain perspective begin to pivot some of the supply chain.
To the West I guess into the Coachella Valley, where theres still quite a bit of.
Young production and high quality production, but still hang onto our Yuma investments, but focused on the monetization of that water.
Got it got it very interesting in that it's a.
It's pretty impossible to be optimistic about the outlook for water throughout the Colorado River system, sorry, I hear you loud and clear there.
On on the web.
Women market side I I wholly appreciate the you know the broad comments around your approach to kind of.
Move from a more vertically integrated business to one where you're more of a processor in market or a third party fruit. My question. Though is you know given the challenge that you guys have observed now for four years in this market can you talk about.
The farmers that youre going to be sourcing from here in an increasing manner via this business model I mean, what what is the state of the London market and note that the average farmer and you know how much pressure do you see on this business here over the long term that could potentially impact your efforts to be a marketer of a fruit.
You know really challenged environment.
No. That's a great question and that's sort of at the at the essence of our shift in our strategy.
So the answer to your question is different in each of the growing regions. So in youre, not youre going to see because of the water situation youre going to see a natural reduction in production there because of the following programs and just the lack of access to water at your irrigate trees. So that's going to reduce the supply.
And from that that area, but the other thing that we're observing just by following local nurseries is that theres, an awful lot of new plantings and young plantings in the in the district three region in the Coachella Valley and so we are already in discussions with a number of high quality citrus producers were very.
Committed to growing in that region, who are looking forward to our marketing approach and focusing on higher fresh utilization rates and and good returns to keep them profitable versus our competition. So that's the desert in the San Joaquin Valley. We've also observed significant plantings of young trees.
So it will be coming online. So there is an awful lot of opportunity to source new growers in the San Joaquin Valley and finally, the dynamic that's driving the shift to more lemon plantings on the coast in district, two is with the curtailment of access to water in certain areas in Ventura County.
We're seeing growers, who used to have access to a lot of water were able to successfully rolled crop how their water rationing and cut way back and so it takes a lot less water to grow our lemon tree than it does to produce a number.
Turns of produce in vegetables, and even strawberries or or different types of berries. So we're seeing a significantly.
A larger amount of of <unk>.
<unk> plantings going into Ventura County than we would've thought now the dynamic with that increase in young trees and production.
As you were saying is the pressure from three really bad years, because of oversupply and low pricing some caused because of COVID-19 and some costs because of systemic over planting around the world. So that diamond dynamic will be very interesting to follow but where we're very bullish on the opportunity to.
Access new Golar partners and continue to grow that part of our business.
Okay.
That's really interesting.
Yeah, there's plenty going on there it's getting good good to hear your thoughts though.
There's plenty more to ask that's probably a good place to leave it I. Appreciate you guys, taking my questions and I'll get back in queue.
Thanks, Mike.
As a reminder, if you would like to ask a question.
Star one on your telephone keypad, one mom like Molly poll for questions.
Our next question comes from the line of Eric Larson with Seaport Research you May proceed with your question.
Yeah, Hi, guys. Thanks for taking my question.
So my first one my first one guys is what was your first utilization in the quarter.
I see the thresholds were off a little bit obviously pricing was not fun. So what was the utilization and we were able to get good sites. Good market sizing, we're not sizing issues per se maybe in the corner.
Great question, Eric So it was it was a really good quarter.
Seasonally the the majority of the fruit that was produced and sourced came from the San Joaquin Valley.
One area.
And we finalize the district fund crop at a little over 78% fresh utilization and an average return per band of about $165, a bed, which was very competitive.
But when you take the combination of a great grow return per been times the amount of fruit that we sold it drove a much higher profitability back to the acre for our grower partners. Then then was able to be provided by our competition.
Got it okay. So we're probably no three or four weeks away from home kind of the traditional seasonal influx of fruit from Peru.
What does what are the what does the import situation look like this year from Peru.
Yes, so so Peru, certainly Italian avocados, Eric Yeah, Yeah, yeah. So.
So that's a that's a great question and I appreciate it coming from you because I know you follow the avocado handlers as well. So this has been an extraordinary avocado year end season for us as producers because it's the first time in 20 years that I've been involved with our business.
The pendulum of leverage has swung from a handler back to the producers because as you know dramatic shortages that are coming out of Mexico, and the ability to have a pretty good size early in California, and it's led to dramatically higher.
Turns coming back to our California fruit.
So we expect that part to end, though when that Peruvian fruit starts to pour in and the first boats or on the water right. Now so we expect that season to really get going.
In the very near term and as producers in California, we have our foot on the gas with our picking strategy to try to get all of our fruit off.
As quickly as we can and try to be done with our harvests and our marketing by the beginning of July .
Okay Wow, that's a that's a pretty fast time frame.
Didn't you have a little bit of delayed harvest in.
Avocado was a year ago, so that would that make your third quarter better than fourth quarter for volumes.
And Mike I might be messing up my my timeframe here.
We're pretty close so the timing will be pretty close to last year the calculus as it.
Working on the crop is how much risk do you assume by holding your your avocados on the tree and letting them size naturally and then juxtaposing that against what we think the future returns are going to be as a lot of the imported imported fruit from Mexico, Peru come into the market.
To influence that pricing.
What happened last year as we held I think mark 1 million pounds towards the later later this year because the pricing is so high we're going to try to get that fruit off the tree and into the market as soon as we can so.
Right now we're we have a we have an opportunity from a revenue perspective, hitting nine to 10 of $10 million at this point it out because if we if we play this right. So we're really going after it just because of the extraordinary pricing, we're seeing right now in the market.
Well excellent okay. So.
Kind of back to some of the questions that youre talking about your kind of your strategic asset sales.
You identified 100 million of potential sale of values. So first question is number one is that an after tax value.
Number two.
Can you give us a little better feel for the timeframe on that and then number three.
Is it I think this question was probably asked and maybe I missed the real answer on it but is this isn't limited to only 100 million or do you have other sort of underperforming ror, you see land and assets that could come out on top of that $100 million.
All great questions. So first as far as the $100 million and thinking about the basis of the stuff that we've identified so far there's about $30 million of gain.
What we see from that.
We've got a number of offsets already.
And also we've got about $15 million to $16 million of Nols on the books.
I'm not sure if we've talked about it in prior calls, but we also are in the process of terminating our pension.
Which has an <unk> on the books there.
And Theres a number of other.
Offsets that debt for that $100 million.
He almost completely shelter that from tax and so.
I think the next part of your question as time frame.
Sometime in the next 12 to 24 months, we see as a high probability.
We are working hard on it now and there is there is.
Currently a process on some of the some of the assets and so.
We're pretty optimistic that this is going to happen in a in a orderly quick fashion.
And.
The third was the third part would you repeat it again.
Yeah, well the third part is.
You've you've identified 100 million of.
Right now and have the schools publicly here.
$100 million of of low return more strategic divestiture assets is it limited to that or do you have.
Is there isn't a longer runway on lower ROI see assets that you would be willing to divest and what is your hurdle rate for Oh I see.
Great question, the last part of it we think it's somewhere around 10%.
But we'll we're still kind of formulating that internally.
One of the challenges of many of the investments that we've made over the years, Eric and you. Appreciate this is is that when you make an investment in land and water, which fundamentally is appreciating you got a lot of capital tied up there which.
You don't really realize the full benefit of the return on invested capital to you divest that land and the water.
Primarily our game plan has not been to divest land and water, except after kind of looking at at the inventory of some of the assets. We've seen an opportunity to do that so and I think very very profitably, but also a very beneficially because in some of these some of these situations the assets had been performed.
<unk> sub optimally.
Or are sort of right on the cusp of getting significant additional investment into them. So it's the right time to begin to make these transitions, but the first part of your question is.
We identified $100 million of opportunity, but let's just say there is a significantly greater amount that we're working on and maybe maybe maybe twice that.
It will it will really just come down to what the market will bear and our success in finding willing buyers for those assets that are that are being marketed right now.
Our weighted average cost of capital is somewhere just below 6% at this point. We are as you know we've been at LIBOR, plus 150 borrower for a long time and as we see these rates going up which is obviously part of part of the debt pay down program.
But the goal would be to get obviously above 6%, so you that destroy value and somewhere towards Ted as a hurdle.
Okay no. That's it thank you Mark I appreciate that.
That clarity.
The final question I have a few guys is this is really no.
Just kind of your thoughts about California the drought.
Brian No political prune and Youre not in the pruned business. So.
What I.
Yeah.
I've been watching the water levels are more power I mean, it's just pretty serious stuff.
And we're starting to see water rationing, and California, et cetera, et cetera, I know you guys have tremendous water rights et cetera, but.
How does how does all of this is going to play out in California, Agriculture, I'm not talking just you I'm talking almonds.
Now almost are very water in terms of yeah.
Are they going to get the water down from Northern California, Southern California to make all of them and I guess I'm just really curious.
On the California drought and how.
Your perspective on it.
Well, thank you, Eric and I'll try to give you sort of are.
Thoughts on it so.
We've been we've been we've been around for 130 years, and we've been monitoring the cycles in weather and in in rainfall and snow pack for 130 years, we've seen prolonged periods of drought and we've seen prolonged periods of wet.
Obviously right now the West coast is in a prolonged period of drought.
What makes what makes the situation really kind of scary right. Now is that you've got politicians that are willing to sacrifice productive farmland to save fish and the environmental agenda and then obviously the the urban urban agenda.
So the requirement to provide fresh water for urban centers, so, it's making it tougher and tougher as farmers for us to reliably count on.
The politicians to protect our water in our water rates, especially are repairing rates that come from the snow pack and the snow melt and the Sierra Nevada Mountains.
These are very low.
Snow pack this year and so the allocation of water. It went down to historically low levels. This year and that's what's putting all the pressure on the northern California assets. This year now we believe that our assets are in pretty good shape and we are affirming in areas where.
We have some of the first access to the groundwater in our groundwater pumping, but also typically very reliable supplies of repairing rights through that through the canals and that the repair in ditches that come out of the rivers and so we believe long term we're in good shape, but this year.
It has been an especially challenging year not only for us but for everybody in the San Joaquin Valley.
The further west you go in the San Joaquin Valley, the less water there is to the point, where many producers have no access to water, so you're going to see quite a bit of the agriculture start coming out in the valley, what's going on in in Arizona.
<unk> got a liver that's not necessarily driven by drought, that's driven more by systemic over allocation of that water. Although it is influenced by the drought and the snowpack in the in the Rocky Mountains.
That situation is different than what's going on in California.
Yes.
To complete the story quickly.
The water at the water rights that we have from groundwater pumping in Ventura County in Southern California are very strong and we have we have very deep aqua <unk> that can sustain us through these times of low rainfall and challenge rainfall.
I assure you I share your concern, but at the same time, it's I think that's the right way to summarize it is it's going to get more and more dynamic.
And it's going to create opportunities, but there will be winners and there will be losers as it relates to access to water.
Okay, great. Thanks, guys.
All of which are based on the comments.
Yeah.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Harold Edwards for closing remarks.
Thank you operator, and thank you for all your questions and your interest in luminaire have a great day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of you.
Yeah.
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