LMNR - Limoneira

I have added a lot of shares of LMNR at $13 and below over the past month averaging down from purchases made at $15. The shares have been worse than dead money despite the company sitting on a trove of valuable land and water assets that are worth more than twice its current market value. LMNR’s core agriculture business had destroyed value mostly due to weak lemon pricing but also partly due to lack of creativity and management acumen.

The recent announcement that the company will move to sell its lemons through Sunkist begs the question why did they ever leave and try to do it on their own? Perhaps Sunkist is now a lot better than it once was due to new customers such as Cane’s and Chick fil A, but either way, the broker model the company discussed over the past year has been a failure.

There are many other examples of poor decisions by a mgmt team that is unable to really articulate its key business drivers. Some examples are as follows:

1. Projecting significant water monetizations in California that have never materialized aside from a few tiny deals.

2. Chile expansion turned to exit - 18 months ago, mgmt. was talking about expanding in Chile where they were losing money and clearly were not operating as a strong local player. Luckily once Peter Nolan joined the board and took a sizable stake they pivoted and are now selling the Chilean operations

3. The worst example of incompetence revolves around its avocado production guidance. 2024 was a banner year with 15.1M pounds of production. Mgmt made it clear production would oscillate on a biennial up and down nature due to plant physiology. 2025 production fell to 7.1M pounds. Based on what mgmt was communicating, the market was expecting that 2026 would be a strong year comparable to 2024 but instead production will fall further to 5-6M pounds. Honestly, both another investor and I could not get a straight answer as to what happened. Based on my own research, it seems that 2024 was such a bumper crop that the trees were so depleted of carbohydrate reserves that it will take multiple years for them to be as productive. Whatever the reason is, as is typical of this mgmt, they have not owned up to the miscommunication and what happened with 2026 being so bad. They have simply shifted the goal post and pivoted to talking about all the additional production in the future from the new acreage they have planted. They tried to sweep the awful communication under the rug.

4. Q4 featured a big jump in expenses over 2024 without any warning or guidance. During the conference call, mgmt predictably tried to gloss over the jump as transition expenses and other miscellaneous issues. They cited tree removal costs to expand avocado production as one large cost. Why was this never mentioned in the past? They cited an electrical issue that damaged their refrigeration leading to a loss which will be reimbursed by insurance but failed to quantify it. They also cited other Sunkist transitional related expenses which were not broken out at all. In fact, the CFO seemed to have little grasp of details.

5. For 2026 mgmt cited dramatic cost improvement in the business but all we know is $10M in G&A costs will be cut. What is the expected cost structure next year? They could not articulate any of this and basically guided to $5M EBITDA improvement early in the year and now $10M reduction in costs. Given how bad this year was we have no idea what the number we should be using as the base for this $5M improvement.

6. 2025 cash burn - one reason for the cash burn was the cap ex this year presumably on expanding avocado production, but we don’t know how much of the cash burn was due to this pivot.

7. Colorado Water rights - They talked about a conference in Vegas that addressed water rights on the Colorado river but then said they didn’t have anyone at that meeting, so they weren’t specific as to what was actually discussed. This was another careless comment that was unnerving.

8. Farm Management Business - this was another example of a business they thought would be a profitability driver that is now gone.

9. Limco del Mar - One of the huge value drivers going forward is converting the 220 acres in Limco del Mar to residential land. They have started the lengthy process to get this done. I imagine this is where having the CEO who comes from a long tradition of local Ventura County farmers is a major strength. The timeline given was vague without even any “ballpark” estimates on timing.

One is left to wonder why I am still involved with this business other than sunk cost fallacy reasoning. I have thought long about whether the above reasons indicate that the value here is unlikely to ever be realized due to incompetence, but I have come to the conclusion that the risk/reward from current levels is too favorable to sell. 2026 should be a transitional year with better profitability due to better lemon pricing and lower cost structure. Meanwhile further asset monetization with the wine acreage sale along with sales of Argentina land should allow the company to pay down most of its debt. 2027 hopefully will see the avocado operations add significantly to earnings and Harvest will throw off increasing amounts of cash. 2026 should also see Colorado water monetization come through.

There are a lot of value drivers coming and the shares are as depressed as they have ever been. This is why I have added and will likely add further. The risk for permanent capital loss here is extremely low and the upside is 2-3x over 3 years.

Let’s hope the board is watching and Peter Nolan shows his PE chops and holds mgmt accountable going forward.