An old name popped up on my radar yesterday, California citrus company Limoneira (LMNR) . I'd parted ways with the stock back in late 2019 in the mid-$18 range after owning it for several years, and had not looked back. I just re-read that column, and chuckled at my reasoning for selling: it was out of "sheer boredom". That's quite a statement for a value investor, we tend to be extremely patient by nature, but there are limits. In LMNR's case, the company has had a mini-cult following among deep value investors over the years, those who have seen a potential big payday for the company's water rights and land holdings.
What caught my eye Tuesday was LMNR's preliminary third quarter results, and the market's reaction. The company reported preliminary revenue of $49 million, down 8.6% year/year, but more importantly, below consensus estimates of $57.7 million. Consensus earnings estimates for the quarter are 39 cents, and it's pretty clear that the company will miss that mark when it reports final Q3 results. The company reported that sales of lemons fell from 1.4 million cartons last year to 1.1 million. Shares fell 3% in the regular trading session, and were down 10% after hours.
At year-end, LMNR owned 13,800 acres (that's about 21.5 square miles). Included in those land holdings were 6,000 acres of lemons, 1400 acres of oranges, 900 acres of avocados, and 900 acres of specialty citrus and other crops. The company is in the process of monetizing its Harvest at Limoneira real estate project, and has closed on a total of 556 lots, including 92 in the third quarter. The company expects to reap $80 million in distributions from the project over a six-year period beginning in 2022.
Total California water rights are approximately 17,000 acre-feet, including 8600 acre-feet of adjudicated rights in the Santa Paula Basin and Fillmore Basin. In Yuma, Arizona, the company has access to 11,700 acre-feet of water from the Colorado River.
Owning LMNR when I did was a bit like watching paint dry, or the grass grow. I came to the conclusion that on paper it was potentially worth a great deal more than the share price. But that's the trap that we deep value investors sometimes fall into. In order for the "value" to be realized, assets need to be monetized. That can take a long time, if it ever happens. I don't mind having a few names in the portfolio that fit that MO, but have become more cognizant of the realities, and having too much capital tied up in these situations.
When I see a name like LMNR take it on the chin, I do wonder about re-engaging. However, this is not based on the pipe dream of water asset/land monetization, but whether shares get cheap enough as an operating company. If the market overreacts to the downside - and that's in the eye of the beholder - I'd be inclined to consider taking another run.
