Limoneira (LMNR) Q3 2023 Earnings Call Transcript

Limoneira (LMNR 0.27%)
Q3 2023 Earnings Call
Sep 07, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Limoneira’s third quarter fiscal year 2023 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 recorded.

It is now my pleasure to introduce your host, John Mills, with ICR. Thank you. You may begin.

John Mills — Head of Investor Relations

Good afternoon, everyone, and thank you for joining us for Limoneira’s third quarter fiscal year 2023 conference call. On the call today are Harold Edwards, president and chief executive officer; and Mark Palamountain, chief financial officer. By now, everyone should have access to the third quarter fiscal year 2023 earnings release, which went out at approximately 4 p.m. today Eastern Time.

If you’ve not had a chance to read the release, it’s available on the investor relations portion of the company’s website at limoneira.com. This call is being webcast, and a replay will be available on Limoneira’s 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 in response to your questions. 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 can cause or contribute to such differences include risk factors in the company’s 10-Q and 10-K 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 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 believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira’s ongoing results of operations, particularly when comparing underlying results from period to period.

We’ve 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 today’s prepared remarks, we include adjusted EBITDA and adjusted diluted earnings per share, which are non-GAAP financial measures. A reconciliation of adjusted EBITDA and adjusted diluted EPS to the most directly comparable GAAP financial measures are included in the company’s press release, which has been posted to the website. And with that, it’s my pleasure to turn the call over to the company’s president and CEO, Mr.

Harold Edwards.

Harold Edwards — President and Chief Executive Officer

Thanks, John, and good afternoon, everyone. The success of our strategic shift toward an asset-lighter business model is evident in our third quarter results with brokered lemons and other lemon sales growing 76% year over year to $8.8 million and achieving farm management revenue of $5.4 million compared to no-farm management revenue last year. Additionally, we continue to make headway monetizing water assets with the recently announced water fallowing program in Yuma, Arizona for expected annual proceeds of $1.3 million. Over the past year, we have worked to identify and eliminate unproductive or unprofitable parts of our business, including the sale of nonstrategic assets, exiting farming operations in Cadiz, and terminating our long term pension plan, all of which we expect to dramatically improve our margins starting in fiscal year 2024 Overall, our third quarter results were impacted by lower lemon pricing and lower fresh utilization rates as a result of the heavy rains in California throughout December until May, which delayed a portion of our lemon harvest by two months and led to an industrywide pest issue that lowered the grade on certain fruit.

As a result, lemon pricing remained pressured throughout the quarter. However, as of the beginning of August, lemon pricing has steadily been increasing for all grades and sizes with prices up compared to the last few years and at the highest level since 2018. California lemon production traditionally sees a lull during the summer months and picks up around late August to early September when the desert region starts. However, this year, the start of the desert region is behind schedule, and the region is only expected to have limited picking through mid-September.

The size of the fruit is smaller, and picking hours will be limited due to heat and humidity. Altogether, production in the desert region is expected to be down about 15% from last year due to the impact of weather in combination with a portion of the acreage now being fallowed. Once the season has kicked off, lemon production in the desert region is expected to continue through the end of the calendar year. Also, since the beginning of August, the overall lemon market has shown an increase with prices being significantly higher for all grades and sizes.

Prices are substantially higher year over year, as well as compared to the beginning of summer. This is caused by the supply and demand curve being out of balance. On the supply side, the availability of fruit has been reduced. California and South American supply on the trees, in combination with remaining volumes in storage, is much less than the same time last year.

Weather events like flooding in Chile are having an impact on the quantity and quality of the lemon crop. Closer to the USA in Mexico, excessive heat in July impacted the grade and size of the fruit. Add to this a situation of good demand and prices will go up. We believe all of these factors position us very well for expected higher lemon pricing in fiscal year 2024.

Our avocado revenue in the third quarter of fiscal year 2023 was lower than the prior-year period with fewer pounds sold due primarily to the alternate bearing nature of the avocado tree, as well as lower prices per pound during this period compared to last year. The overall improvements we are making to our business as well — are well aligned with our strategic asset-lighter transition plan that we expect to be completed in the next nine months. We are working to pivot our business toward a model that will streamline our operations and sell nonstrategic assets, improve the consistency of our earnings, increase EBITDA and dividends per share, reduce debt, rightsize the balance sheet, and improve the return on invested capital. Debt less cash on hand as of July 31, 2023, was $30.2 million compared to $105 million at the end of fiscal year 2022.

The benefits of all these improvements will begin to be fully realized in fiscal year 2024. In addition, last quarter, we increased the value of assets for sale to approximately $180 million. And we have already closed on four of the six identified assets over the past 12 months for a total of $130 million in proceeds. We have $50 million of remaining assets identified that we plan to monetize over the next nine months.

Even after the recent nonstrategic asset sales, we continue to manage approximately 11,100 acres of land with approximately 21,000 acre feet of owned water usage and pumping rates. We recently announced that we entered into a second fallowing program with Yuma Mesa Irrigation and Drainage District and the United States Bureau of Reclamation that supersedes the initial program and will commit to fallow own land through at least calendar year 2025. We expect to receive approximately $1.3 million annually, paid in quarterly installments, for fallowing 581 acres out of our approximately 1,300 acres of farmland in Yuma, Arizona. Yuma Mesa Irrigation will refrain from diverting Colorado River water that otherwise would have been used to irrigate-fallowed lands so that the saved water may be retained in Lake Mead as Colorado River system conservation water, increasing the supply and elevation of Lake Mead and helping to avoid water shortages in Arizona and the lower basin.

We are finding great monetization opportunities for our water assets by either fallowing acreage, leasing pumping rights, or selling the water rights for significant appreciation over our investments. We believe this water monetization in Yuma, Arizona is just the beginning of additional future opportunities for our abundant water assets. We have spent many years striving to improve our stewardship of water on all of our properties, and this has enabled us to reduce our usage and increase our available water for future monetization opportunities. So, what is next for Limoneira now that we have a very strong balance sheet and a clear path to stronger EBITDA, cash flow, and earnings in fiscal year 2024? Over the next nine months, you could expect to see our continued transition to an asset-lighter business model and focus on the best use of our assets to enhance shareholder value.

We have dramatically decreased interest expense, removed our pension obligation, we’ll be receiving quarterly payments from the Yuma Irrigation District for our fallowing program, and we believe lemon pricing will continue to improve from the lows in the third quarter, positioning us very well for very strong improvements in fiscal year 2024. Our board and management team will continue to evaluate how to best leverage our expertise in farming management, packing, marketing, and distributing citrus, combined with our valuable portfolio of agricultural lands, real estate properties, and water rights in order to enhance long-term shareholder value. And with that, I’ll now turn the call over to Mark.

Mark Palamountain — Chief Financial Officer

Thank you, Harold, and good afternoon everyone. As a reminder, it is best to view our business on an annual net quarterly basis due to the seasonal nature of our business. Historically, our second and third quarters are the seasonally stronger quarters, while our first and fourth quarters are softer. For the third quarter of fiscal year 2023, total net revenue was $52.5 million compared to total net revenue of $58.9 million in the third quarter of the previous fiscal year.

Agribusiness revenue was $51.1 million compared to $57.6 million in the third quarter last year. Other operations revenue was $1.4 million compared to $1.3 million in the third quarter last year. Agribusiness revenue for the third quarter of fiscal year 2023 includes $24.2 million in fresh lemon sales compared to $27.8 million during the same period of fiscal year 2022. The year-over-year decline in fresh lemon revenue is a result of the excessive rainfall in California that Harold has mentioned, which delayed a portion of our lemon harvest by two months and led to an industrywide pest issue.

The rains caused an infestation of snails on the trees industrywide that lowered the grade on certain fruit. Our fresh utilization rate fell by 10% to 60% in the third quarter with a portion of the downgraded fruit sent to juice and other portion left unsellable. Approximately, 1.4 million cartons of fresh lemon were sold during the third quarter of fiscal year 2023 at a $17.92 net average price per carton compared to approximately 1.5 million cartons sold at an $18.39 average price per carton during the third quarter of fiscal year 2022. Lemon pricing through the first nine months of fiscal year 2023 remained challenging.

However, we were encouraged beginning in the in August to see a steady recovery in price for all grades and sizes, and prices are now sitting highest level since 2018. Brokered lemons and other lemons sales were $8.8 million and $5 million, respectively, in the third quarter of fiscal years 2023 and 2022, representing 76% growth year over year. The company recognized $3.5 million of avocado revenue in the third quarter of fiscal year 2023 compared to $12.6 million in the third quarter of fiscal year 2022. Approximately 2.8 million pounds of avocados were sold in aggregate during the third quarter of fiscal year 2023 at a $0.99 average price per pound compared to 5.7 million pounds sold at a $2.21 average price per pound during the third quarter of fiscal year 2022.

The California avocado crop typically experiences alternating years of high and low production due to plant physiology. Additionally, we were dealing with an oversupplied avocado market exacerbated by a lot of fruit coming in from Mexico and Peru that put pressure on the price of avocados in the third quarter. The company recognized $1.3 million of orange revenue in the third quarter of fiscal year 2023 compared to $3.7 million in the third quarter of fiscal year 2022. Approximately 71,000 cartons of oranges were sold during the third quarter of fiscal year 2023 at an $18.17 average price per carton, compared to approximately 209,000 cartons sold at a $17.88 average price per carton during the third quarter of fiscal year 2022.

Specialty citrus and other revenue was $1.9 million in the third quarter of fiscal year 2023 compared to $1.1 million in the third quarter of fiscal year 2022. As a reminder, we sold almost all of our orange and specialty citrus acreage in the Northern Properties transaction during the first quarter of fiscal year 2023. Total costs and expenses for the third quarter of fiscal year 2023 were $54 million compared to $47.9 million in the third quarter of last year. The increase of $6.1 million was primarily due to increases in growing and packing costs, partially offset by decreases in our third-party grower and supplier costs and depreciation and amortization.

We faced challenging labor costs in our packing house this past quarter, exacerbated by the lower volumes of cartons being processed. Operating loss for the third quarter of fiscal year 2023 was $1.5 million compared to operating income of $11.1 million in the third quarter of the previous fiscal year, primarily due to lower avocado volume and pricing. Net loss applicable to common stock after preferred dividends for the third quarter of fiscal year 2023 was $1.3 million compared to net income applicable to common stock of $7.3 million in the third quarter of fiscal year 2022. Net loss per diluted share for the third quarter of fiscal year 2023 was $0.07 compared to net income per diluted share of $0.40 for the same period of fiscal year 2022.

Adjusted net income for diluted EPS for the third quarter of fiscal year 2023 was $400,000 compared to $7.9 million in the same period of fiscal year 2022. Adjusted net income per diluted share for the third quarter of fiscal year 2023 was $0.02 compared to adjusted net income per diluted share of $0.43 for the third quarter of fiscal year 2022. A reconciliation of net loss or income attributable to Limoneira Company to adjusted net loss per income for diluted EPS is provided at the end of our earnings release. Adjusted EBITDA was $2.8 million in the third quarter of fiscal year 2023 compared to $14.8 million in the same period of fiscal year 2022.

A reconciliation of net loss or income attributable to Limoneira company to adjusted EBITDA is also provided at the end of our earnings release. Turning now to our balance sheet and liquidity. At the beginning of the year, we sold our Northern Properties, which resulted in total net proceeds of $98.4 million. The proceeds were used to pay down all of our domestic debt, except the AgWest Farm Credit $40 million nonrevolving line of credit, which has a fixed interest rate of 3.57% until July 1st of 2025.

Long-term debt as of July 31, 2023 was $40.7 million compared to $104.1 million at the end of fiscal year 2022. Debt levels, as of July 31st, 2023, minus $11 million of cash on hand, resulted in a net debt position of $30.2 million at quarter-end. As a reminder, we have $50 million of remaining nonstrategic assets for monetization over the next nine months and expect their sales, combined with improving EBITDA, will result in the opportunity to have no debt and a cash position on our balance sheet by this time next year. Now, I’d like to turn the call back over to Harold to discuss our updated fiscal year 2023 outlook and longer-term growth pipeline.

Harold Edwards — President and Chief Executive Officer

Based on the comments I made earlier about our lemons in the desert region, we now expect fresh lemon volumes to be in the range of 4.7 million to 5 million cartons for fiscal year 2023 compared to previous guidance of 5 million to 5.4 million cartons. We achieved avocado volume of 3.8 million pounds in fiscal year 2023 compared to previous guidance of 3 million to 4 million pounds. Based on our asset-lighter model transition, we expect to generate an additional $50 million of asset sales during the next nine months. We continue to expect to receive total proceeds of $115 million from Harvest at Limoneira and east area to spread out over seven fiscal years with approximately $8 million received in fiscal year 2022.

We have 700 acres of nonbearing lemons and avocados estimated to become full bearing over the next four to five years, which we expect will enable strong organic growth in the coming years. The company also expects to have a steady increase in third-party grower fruit. And with that, I’d like to open up the call to your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our next question comes from Ben Bienvenu with Stephens. Please proceed with your question.

Ben Bienvenu — Stephens, Inc. — Analyst

Hey, good afternoon. Thanks for taking my questions, guys.

Harold Edwards — President and Chief Executive Officer

Hey, Ben.

Mark Palamountain — Chief Financial Officer

Hey, Ben.

Ben Bienvenu — Stephens, Inc. — Analyst

So, I want to ask, you alluded to materially higher margins and profitability in fiscal ’24 and recognizing that it might be premature to fully flesh out what that means. Can you talk a little bit about — you know, as we think about the full year for 2024, are the improvements that you guys are putting in place and the asset monetization and restructuring of the business that you’re delivering against — is that going to be something that ramps and contribution through 2024? Or will it give us what should be a full picture of the new margin profile of this?

Harold Edwards — President and Chief Executive Officer

Yeah, so I think, Ben, that there’s a couple of things that we tried to signal that we can point out specifically that should really begin to be felt beginning in the fourth quarter but with the full annual impact in fiscal year ’24. So, the first obvious one is the significant reduction in interest expense from carrying a much lighter debt load. The second is — was the payoff of our pension plan, which was costing us running through the P&L approximately $1 million annually. The fallowing program in Yuma, Arizona has actually turned that sort of area, even with lower-priced lemons, into now a profitable situation where because of the logistics costs and the low pricing environment, we’d been experiencing losses in that part of our production area.

One of the biggest changes that we’ve made and which will significantly benefit us will be the elimination of our Cadiz farming operations, which, because of inflation and very high logistics costs in a much lower lemon pricing environment, was costing us a significant amount of cash annually, but also was leading to operational loss, which are now eliminated because we’ve terminated those operations. And finally, the growth of our agency business and the growth of our grower partner business and then the continued growth now of our farm management services business with our Northern California assets, the combination of all of those things, put us into great position to create low levels of profitability. But then, if you combine those with higher lemon prices — and while it’s too — it’s premature to give specific guidance on avocado volumes, preliminary estimates seem to be significantly higher than this year. We believe the combination of all of those things put us into a great position to get back to really good levels of profitability in 2024.

Ben Bienvenu — Stephens, Inc. — Analyst

OK, great. And you noted your — you’ve made significant headway on asset monetization. You quantified the remaining assets to be sold. Have you seen any impact to the value of potential asset sales as a result of interest rates increasing? And where does that you know stack rank as, you know, either an impediment or risk as you think about completing the asset monetization program?

Harold Edwards — President and Chief Executive Officer

Yeah, that’s a great question. We were really worried about that as we watched interest rates increase. But I would say that, fortunately, we believe that the remaining assets that we’re focusing on, which specifically are vineyard in Paso Robles and then our production assets in Chile, we have been very pleased that we have not seen any significant deterioration or destruction in values or pricing there. We’ve had good interest in those assets, and we’re optimistic that we believe we cannot only complete transaction, but we believe we can complete them within the value ranges that we’ve signaled.

Ben Bienvenu — Stephens, Inc. — Analyst

OK, great. And one more, if I could ask, we asked about this last quarter, would you characterize — in terms of monetizing your water rights, is fallowing still your preferred mechanism? And how should we think about kind of the calculus that you go through as you think about, “OK, if we’re signing up for a multiyear program fallowing versus the potential fundamentals that you might see in a geography,” how do you think through that thought process and weigh the cost benefit analysis of engaging in a fallowing program?

Mark Palamountain — Chief Financial Officer

Yeah, that’s a great question. And fundamentally, we believe in that our land and water assets will continue to go up. So, owning those long term, I think, is the smart thing for us to do. It really depends on regions as we’ve always talked about is water scarcity creates water value.

Now, in California, we had a year of rain and so that’s going to be determined. But really in the desert, specifically, it’s fundamental that growing deserts or lemon in the sand in the desert really doesn’t make a lot of sense relative to the other regions around the world and in California that can do that. So, if we can fallow half or even all of it, we’re very optimistic to think that, you know, acreage that was losing, you know, probably a few thousand dollars an acre over the last few years now is basically coupon. And the remaining acres that we have is all newer plantings, more dense plantings, which gives us the better ability to achieve profitability and lower cost.

And so — but the real impediment there specific to the desert is the transportation, and I don’t think any of us see transportation going down. So, if we see that opportunity for a long-term fallow program which would potentially be 25, 30 years at double or more of the current rates, that’s very attractive. And, you know, you create an $8 million coupon and then find new sources, whether it’s Coachella or Mexico or the Southern Hemisphere, that’s kind of how we walk through that. And so, you know, and just one other comment on where we are here in District 2, it’s similar — this is a — this is our — our homeland.

And, you know, we believe in holding on to our assets and increasing value. But there will be one-off opportunities to lease water whether that’s to the communities around us or other farmers. Not quite like a fallowing, just year-on-year programs in that way.

Ben Bienvenu — Stephens, Inc. — Analyst

OK, that’s great. Thanks so much.

Harold Edwards — President and Chief Executive Officer

It’s been.

Operator

Thank you. Our next question comes from Ben Klieve with Lake Street Capital Markets. Please proceed with your question.

Ben Klieve — Lake Street Capital Markets — Analyst

All right, thanks for taking my questions. A few for you guys. First of all, on lemon pricing, you talked about kind of how optimistic you are about pricing conditions today. If you gave — if you quantified that, I missed it in your comments, can you talk about the pricing that you’re seeing in the market today, seeing that it’s the highest it’s been since 2018?

Mark Palamountain — Chief Financial Officer

Sure. You bet. So, as we know — so this is sort of the slow period for us. Fundamentally, in California, the crop is moved away from District 2, and there’s a little bit of gap between now and the desert.

And the way that the fruit profile worked at the end of District 2, a lot of that fruit went to juice or was unsellable as we noted about 40% of that. So, there was a major — a gap in that supply. So, prices, well, they look bad from a mix perspective. The prices were in the low to mid 20s sort of in July.

Now, we’re seeing prices as supply even dips further between $35 and $40 for some mix. And so, you know, it always has to do with how much do you have of anything which is nobody has all the supply at the moment. But we’re about to come into supply from the desert in the next month and a half and then the winter crop. And historically, as we’ve seen a higher base price, we see much less of a dip.

And so, for example, this year’s price over last year’s average, if you just put the mix together is $4 to $5 higher than the last two years or even three years, closer to where we were in 2018. So, it gives us some optimism that the supply is imbalanced, that people are going to move through the crops in an efficient way, which will help maintain those elevated prices going forward.

Ben Klieve — Lake Street Capital Markets — Analyst

Yeah, optimism, I’d say so. That’s great to hear. Perfect. I’d like to transition to your comments on your farm management practices.

First question, is the $5 million that you recognize, is that entirely associated with farm management for the Northern Properties divestiture that you had? Or was a portion of that from farms elsewhere?

Mark Palamountain — Chief Financial Officer

It’s primarily due to the Northern Properties, Prudential. We have another property here, Del Mar, that we’re doing farm management that we’re the general partner for. But it’s a fraction of that. So, primarily, just the northern part now.

And as we secure that into next year, we’ll look to get more growers in all those regions.

Ben Klieve — Lake Street Capital Markets — Analyst

OK, great. And the magnitude of that was more than I certainly was expecting. Was the magnitude of that surprising to you? Or was that about in line with your expectations going into the period?

Mark Palamountain — Chief Financial Officer

It was actually a little bit above. And so, we get 8 to 10% margins on that business. And what that specific situation is they wanted to do some more improvements, different pruning fertilization programs, and actually do some plantings planning. So, it’s just a bit more effort than we had budgeted in there and so, therefore, the more revenue.

Ben Klieve — Lake Street Capital Markets — Analyst

Got it, got it, very good. And last question for me, given all the various global supply dynamics that you outlined, does that have any impact on your expectations for sourcing third-party fruit in 2024?

Harold Edwards — President and Chief Executive Officer

We have laid out relatively I believe achievable growth targets. We certainly have been pleased with the reception from third-party growers and handlers who are willing to let us handle their fruit. So, you know, I believe our expected growth is in the, call it, 10% to 20% of total volume range, which we think we can manage relatively effectively. So, I really don’t see — we’re not concerned about being able to access the fruit.

And it seems like our supply chains are absorbing these sales nicely. And so, we’re pretty confident in our ability to successfully grow that side of the business.

Ben Klieve — Lake Street Capital Markets — Analyst

Great, great, very good. All right, well, thanks for taking my questions. That does it for me. I’ll get back in line.

Mark Palamountain — Chief Financial Officer

Thank you, Ben.

Harold Edwards — President and Chief Executive Officer

Thanks, Ben.

Operator

Thank you. Our next question comes from Vincent Anderson with Stifel. Please proceed with your question.

Vincent Anderson — Stifel Financial Corp. — Analyst

Yeah, thanks. Good afternoon, guys.

Harold Edwards — President and Chief Executive Officer

Hi, Vince.

Vincent Anderson — Stifel Financial Corp. — Analyst

Hey. So, I was curious, where did you pick up or have you been picking up the majority of your brokered fruit gains just in terms of origin and destination?

Harold Edwards — President and Chief Executive Officer

So —

Vincent Anderson — Stifel Financial Corp. — Analyst

[Inaudible] the U.S. but —

Harold Edwards — President and Chief Executive Officer

Yeah. Yes, so it all primarily comes here, but most of it is from Argentina, Mexico, and Chile.

Vincent Anderson — Stifel Financial Corp. — Analyst

OK, and — all right, well, that’s good to hear on Mexico because I was going to follow that up with — I know you probably can’t comment on just how the discussions with the board have been going with regard to some of the longer-term investments, like the South American pack house. But as you’ve ramped up brokered fruit and just given the importance of Mexico to the U.S. market, you know, has anything you’ve seen with your activities there may be started to shift your view of where you’d want to prioritize?

Harold Edwards — President and Chief Executive Officer

We have — we’ve always sort of plugged part of the season with Mexican fruit because that is sort of the best supply source for a period of the year. I think we mentioned earlier in our comments that Mexico got hit by some severe heat which compromised some of the quality and the availability of some of that Mexican fruit. In the long term and as we go forward, I think we’ll continue to operate with co-packers and source fruit out of Mexico. The situation in Argentina relatively is unchanged.

It remains a good source of fruit for us to broker and to manage. But — and we continue to be bullish on our stated transition goal of pivoting from being most juicer of Chilean lemons into being more of a packer market or seller of Chilean fruit. So I think our long term view is, is unchanged and it’ll just — we’ll just continue moving down the road of our — our stated roadmap of asset monetization, which will then free up capital we hope in Chile, which will allow us to then begin construction on a packing house and put ourselves into position to become a packer, marketer, seller out of Chile versus more of a producer in Chile.

Vincent Anderson — Stifel Financial Corp. — Analyst

Sure, sure. And then as I kind of think about the brokered fruit, the farm management services are obviously pretty new in terms of like a distinct operation within your company. But I would venture to guess, as you model that out forward, you don’t have the same operating leverage as, you know, the owned asset base. But the margins on that, I would imagine, are probably looking pretty strong right out of the gate.

Harold Edwards — President and Chief Executive Officer

Margins are great. You know, our primary goal is to do the best job we can and do a good job in the eyes of our primary client right now, Prudential, and to secure that business for the coming year and coming years. And as we do that, then we’ll begin to spread our wings and seek new farms to provide those services for. We’ve begun the process of identifying potential areas for growth and potential farms.

And I think I’ve been very pleased with the reception that we’ve received in the marketplace of potential targets to grow. So — but we’re proceeding cautiously as we’re kind of getting our arms around, you know the true functionality as an operator in the farm management services space and want to just make sure that we walk before we start running. But I think the outlook is good, and our ability for margin expansion in that side of the business, we believe, is excellent.

Vincent Anderson — Stifel Financial Corp. — Analyst

Gotcha. And maybe just tying it all together, and this is, you know, extremely hypothetical, but just looking at the last couple of years and, you know, the disruptions this year again, is there a way to think about kind of your — the variable cost component of your owned and operated assets versus where you think you can take more of the service-based revenue, whether you want to call brokered fruit service or, at the very least, farm management service. As you separate those out and you come into another year where you have a weather disruption, is there a model out there where you could walk away from ranches one year, keep the trees healthy, but actually limit all of your downside to really just whatever sunk cost was there from the spring, or the — whatever constitutes the spring for that region, and just harvest, you know, returns on the service revenue and come back next year and actually limit downside in a scenario like we’ve seen recently?

Harold Edwards — President and Chief Executive Officer

We — we studied that. It’s a great thought that — I think the reality is, though, that, you know, in order to stick with trees and farming, you need to keep farming them. And, you know, trees need attention, and they need fertilizer, and they need water, and they need pruning. And that’s what creates the opportunity to have harvestable fruit in the following year.

The good news, we think, Vince, is that as we look at the areas where we’ve focused in on our own production and growth, you know, we believe we’ve put ourselves in sort of an optimal position to achieve profitability because all of our District 2, our coastal assets, are very close to our packing house here. Our logistics costs are lower. And so, our cost to put up a packed carton of lemons that we produce in the — on the coast here is much lower than what it had been up in the San Joaquin Valley or out in the desert. And we believe that gives us a probably our best shot at sustained profitability during these years of pressured lemon pricing.

We believe that as we are able to realize higher lemon pricing and continue to grow that through grower partner third-party fruit, that will allow us to continue to drive our cost per cartons down and give us margin expansion opportunities as all that happens.

Vincent Anderson — Stifel Financial Corp. — Analyst

OK, that makes sense. Thanks. Thanks for humoring me on that one.

Harold Edwards — President and Chief Executive Officer

Great. Thanks, Vince.

Operator

Thank you. Next question comes from Raj Sharma with B. Riley Securities. Please proceed with your question.

Raj Sharma — B. Riley Financial — Analyst

Hi. Good afternoon. Thank you for taking my questions. I just wanted to understand the — you know, obviously, the shortfall in lemons is — and you’ve taken the guidance down, and I’m sorry if I missed the earlier part of the remarks.

The reason — the core reason for that. And can we — when does that sort of correct? And then, also, on the avocados, those were slightly trending better than you had guided earlier.

Harold Edwards — President and Chief Executive Officer

Yeah, so we’re sort of midstream in the fourth quarter now. The reason we brought the total volume of lemons down was because of the low fresh utilization that we achieved in the third quarter. A year ago, we were 75% fresh utilization. Because of the challenges with quality and some of the delays from the rainfall, we actually experienced utilization in the third quarter of about 60%.

And so, that’s really what — so basically, you had the same amount of fruit that came off the trees, but only 60% made their way into the fresh box. And so, that really had the big negative impact on volume for the year, which is why we brought our estimates for the year down. As we look forward into 2024, we see significantly higher opportunities for growth in terms of total volume and — on both lemons and avocado. So, I think you’ll see significant growth of our own production, but also the production of our grower partners on the lemon side of the business and then significantly higher avocado volume.

Because as we talk about the alternate bearing nature of avocado production, next year should be an up year. And as we’re out there looking at the trees and how many pieces are hanging on the trees, I think we’re pleased with what we see for next year.

Raj Sharma — B. Riley Financial — Analyst

Got it. That’s very helpful. And then, just, you know, your plans on the expansion, a big part of the expansion of the One World of Citrus, can you just kind of touch upon again your goals around that? You know, I know you stated your goals around — in that business at the investor day. But also, how do you measure progress, or what does progress look like and how’s it going?

Harold Edwards — President and Chief Executive Officer

Yeah, so, well, this year was a little bit of a setback because of the utilization. I think we’d sort of projected getting to 5.2 million cartons this year, and it looks like it’s going to come in closer to 4.8 domestically. I think we’re right on track with our Chilean production, and then we’re at or above our projections with the agency fruit. As we look to next year, we’d hope to be in that, you know, 5.2 million to 5.5 million range of cartons of lemons that we would produce in combination with our grower partners.

Chile next year should be —

Mark Palamountain — Chief Financial Officer

About 1.8 million to 2 million, somewhere in that range.

Harold Edwards — President and Chief Executive Officer

1.8 million to 2 million cartons. And then, the balance of the gross should be the agency fruit. So, aside from the utilization setback this year, we’re actually on track with our forecasts and our targets for growing the grower partner side of our business and third-party grower fruit. So, that seems to be right on track.

So, I believe that if we’re able to execute on fresh utilization levels above 70% next year, which, you know, our target is 75%, we should be right on track to be right where we had communicated at the investor day presentations. And as Mark alluded to earlier, we are optimistic that we’ll see higher pricing, which should then give us much greater opportunity for greater profits and EBITDA creation next year.

Raj Sharma — B. Riley Financial — Analyst

Thank you. That’s very helpful. Just lastly, you touched upon the progress in Chile. And Chile contributes a huge number — a pretty sizable number of your improvement in bottom-line EBITDA.

How is that going? And how do we make progress there?

Harold Edwards — President and Chief Executive Officer

Right. Yeah, so the way to kind of follow progress there will be an announcement at some point of the successful monetization of our production assets and then the utilization of the capital that we’re able to achieve in that monetization process to begin construction and the development of a new packing house. And so, the next thing that we’ll want to — you’ll want to see is us reporting on our successful sale of our production assets, as well as then guidance on the timeframe of the construction project of our new packing facility in Chile.

Raj Sharma — B. Riley Financial — Analyst

Right. And does the production from or, you know, volume from Chile, does that get impacted at all by the bottlenecks, Panama Canal or —

Harold Edwards — President and Chief Executive Officer

No, we haven’t had really any issues. Right now, the ships come up. They usually take a stop in Mexico and come up from the west. So, everything from that perspective is we have not had any supply chain issues or shipping issues so far this year.

Raj Sharma — B. Riley Financial — Analyst

Got it. And then, just finally, any updates on the two more — the asset sales? Is there a timeline there?

Harold Edwards — President and Chief Executive Officer

Yeah, so — right, so we’re continuing to run — we’re running a process for both the Chilean assets, as well as our Windfall Farms vineyard. And I would say we’re probably mid process with both of those assets. We’ve been pleased with the interest in all of those assets. And so, we’re just at the point now where we’re getting our arms around potential opportunities, which we look forward to taking to our board to discuss.

And I think we’re probably six months away from any announcements on the monetization of both those —

Mark Palamountain — Chief Financial Officer

Six to nine.

Harold Edwards — President and Chief Executive Officer

Six to nine months on both those projects.

Raj Sharma — B. Riley Financial — Analyst

Got it. Thank you. Super helpful. I’ll take this offline.

Thank you.

Harold Edwards — President and Chief Executive Officer

Thank you, Raj.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to Harold Edwards for closing comments.

Harold Edwards — President and Chief Executive Officer

Thank you for your questions and for your interest in Limoneira. Have a great day.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

John Mills — Head of Investor Relations

Harold Edwards — President and Chief Executive Officer

Mark Palamountain — Chief Financial Officer

Ben Bienvenu — Stephens, Inc. — Analyst

Ben Klieve — Lake Street Capital Markets — Analyst

Vincent Anderson — Stifel Financial Corp. — Analyst

Raj Sharma — B. Riley Financial — Analyst

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