U.S.: Limoneira closes in on new Chilean acquisitions

November 09 , 2015

U.S.-headquartered citrus group Limoneira Company (NASDAQ: LMNR) is looking to expand its operations in Chile, buying in where some agricultural investors are looking for to exit.

In August last year the company made its first investment in foreign operations after buying a stake in a northern Chilean citrus packhouse.

Limoneira CEO Harold Edwards

Limoneira CEO Harold Edwards

Limoneira spent US$1.75 million on a 35% stake in La Serena-based packer Rosales, which sells produce to Asian, European and local markets.

The group’s CEO Harold Edwards recently told www.freshfruitportal.com the company was ‘very close’ to announcing new acquisitions in the South American country.

“The logic behind that [minority interest investment] was so we could start handling the fruit that was going through the packing house, to really understand where the high quality orchards were,” he said at the Produce Marketing Association (PMA) Fresh Summit, held in Atlanta, Georgia.

“Then once we found out, we worked our way back, started meeting some of the principals, and some of them are owned by large investment funds that want an exit.

“So we want to position ourselves to be some of that exit, and we’re in the process of negotiating right now.”

He said the new acquisitions may not involve total land ownership, but Limoneira would still own a piece of equity in Chilean production, using the same business model as in the U.S.

Edwards mentioned Chile was an attractive place to invest for several key reasons.

“Chile has a very stable banking environment, it’s a very politically stable country, inflation’s in check, although labor’s a big issue there, as it is all over the world, and water is a concern.”

Boosting profits

Future Chilean production would then complement the company’s supplies from the three California growing regions of Ventura, Santa Barbara and Tulare counties, as well as Yuma, Arizona.

The company’s expansion is by no means limited to Chile, as over the last couple of years several acquisitions have been made across those U.S. two states as well, including the purchase of two citrus orchards in the San Joaquin Valley this year.

Edwards explained many of these recent purchases had been intended mainly to increase profit margins rather than fruit volumes.

“Right now our average selling price for a 40-pound carton is US$29-30, and with all investments we’ve made in supply chain and packing, we put out a 40 pound box today for US$12-13 a carton, so that’s massive markets,” he said.

“If we look at outside growers, where we just represent the growers and market their fruit, we made somewhere between US$1 and $2 a carton.”

He said while selling fruit from third-party growers was not as profitable, it did give the company the opportunity to go out and find full-bearing acres.

“We then purchase those acres, and then incorporate them into our integrated supply chain, not at US$2 margin, but at today’s US$20 margin.”

Edwards added that over recent years, after its packhouse capacity had been maxed out, the company had set its sights on trying to acquire some of those high-quality third-party growers to turn an almost instant profit.

“It’s been super exciting,” he said.

“We have invested US$75 million worth of capital buying these ranches and making these investments, of which 40% are producing today, while 60% is new orchard replanting, real estate development – things that are not performing yet, but about to perform in next one, two or three years.

“So what you’re going to see is a lot of capital that’s gone out and all of a sudden the profitability of the company is going to start going up as we’re going to start to see the benefits of those investments.

“So we’re not going to flood the market or put more lemons out there, we’re just going to try to control more lemons.”

He also highlighted Limoneira’s entire market share was relatively small, with the company only supplying 2 million cartons of the 30 million consumed annually in the U.S.

Demand trumps the dollar

He added lemon demand both globally and in the U.S. had been rising at around 10-12% annually for the last three years, having been relatively flat over the previous decades.

Demand has been so strong, in fact, that Limoneira’s shipments to the key export region of Southeast Asia have been largely unaffected by the strong U.S. dollar.

“About 30% of what we produce has gone into export markets, and all currencies have been devalued, for real or artificial reasons,” Edwards said.

“So you’d assume their purchasing power isn’t as great and we’d see a drop in demand, but there’s no direct substitution, at least in Southeast Asia.

“Today it [the currency valuation] hasn’t really hit us because most of our volume is going to that market.”

Key markets for Limoneira in the region include the Philippines, Malaysia, Thailand, Japan, and South Korea, with Edwards highlighting while there were no shipments to the latter 10 years ago, it was now a big market.

He also mentioned there had been a ‘huge increase’ in demand in China.

Exports to Western Europe had been more affected by the currency valuations, but Edwards said that market was a very small part of the business today, partly due to the heavy citrus volumes originating from Argentina, Chile, South Africa and Spain.

However, he said the company’s vision is to expand there in the future.

Photo: www.shutterstock.com



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