Seaboard Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY2022. Seaboard is a diversified, commodity-sensitive operator in pork, agricultural trading and milling, marine shipping, sugar and alcohol, power, and turkey through its equity-method investment in Butterball.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $9.562 billion | $11.243 billion |
| Gross income / gross margin | $316 million / 3.3% | $1.030 billion / 9.2% |
| Operating income (loss) / margin | $(87) million / (0.9)% | $657 million / 5.8% |
| Net earnings attributable to Seaboard | $226 million | $580 million |
| Operating cash flow | $710 million | $676 million |
| Capital expenditures | $506 million | $474 million |
- Despite an operating loss, Seaboard reported $107 million of pretax earnings and $227 million of net earnings. Results included $194 million of total other income, including $85 million of investment income, and a $120 million income-tax benefit.
- Cash and short-term investments totaled approximately $1.029 billion at year-end, down $256 million year over year. Management reported $1.0 billion of additional working capital and $1.071 billion of available borrowing capacity under credit lines.
- Long-term debt was approximately $1.0 billion, including a $973 million variable-rate term loan at 7.08% at year-end. Current maturities were $11 million. Lines of credit drawn were $255 million; total debt and drawn lines should be considered alongside liquidity and capital commitments.
- Annual dividends were $9.00 per share, paid as four quarterly payments of $2.25. Debt agreements limit dividend payments.
Material changes and segment performance
- Sales fell $1.681 billion, or about 15%, from FY2022. The largest declines were CT&M, down $1.151 billion, principally from lower commodity prices and volumes, and Marine, down $544 million, amid lower cargo volumes and freight rates.
- Operating income declined $744 million. Pork operating loss widened to $528 million from $96 million, reflecting weaker pork and market-hog margins and higher production costs, including feed. Marine operating income fell to $228 million from $591 million as demand, cargo volumes and freight rates receded.
- CT&M operating income was $145 million versus $151 million; income from its affiliates shifted to an $18 million loss from $21 million of income. Power operating income improved to $71 million from $14 million, and Sugar and Alcohol rose to $18 million from $11 million. Butterball-related income from affiliates was $87 million versus $103 million.
- Interest expense increased to $58 million from $40 million, principally due to higher rates; interest income rose to $62 million from $32 million. Other investment income improved by $324 million year over year, primarily due to unrealized gains on short-term investments and a prior-year investment charge.
Liquidity, investment and unusual items
- Operating cash flow increased $34 million. Working-capital changes provided $526 million, while net earnings adjusted for non-cash items declined $642 million; dividends received from affiliates increased $77 million, primarily due to Butterball distributions.
- FY2023 capital expenditures were $506 million, including $361 million in Pork and $121 million in Marine. Management budgeted approximately $555 million for FY2024, including $293 million in Pork and $206 million in Marine. Eight dual-fuel vessels are under construction; three are expected to be completed in 2024 and five in 2025.
- In October 2023, Seaboard repurchased 189,724 shares from entities affiliated with the Bresky family for $600 million, or $3,162.50 per share. The filing states the price was discounted to specified recent trading-price measures, the transaction was approved by a special committee of independent directors, and there is no ongoing repurchase program.
- Seaboard refinanced its term loan in November 2023, replacing a $700 million loan due 2028 with a $975 million loan due 2033. It received $307 million net of certain costs. The loan has quarterly principal amortization and customary covenants.
Outlook, risks and contingencies
- Management anticipated Pork profitability near break-even in 2024; first-quarter renewable-diesel operating income was expected to be affected by maintenance and repairs continuing into early 2024. The renewable-diesel facility has had operational issues since startup.
- Management expected positive CT&M operating income in 2024 excluding mark-to-market adjustments, and expected Marine, Power and Turkey to be profitable. It was uncertain whether Sugar and Alcohol would be profitable. Seaboard does not provide consolidated earnings guidance in the cited filing.
- Key sensitivities include commodity and feed prices, freight rates and charter costs, fuel costs, foreign exchange, interest rates, weather and animal disease, labor availability, and political, regulatory and collection risks in international markets. Seaboard’s commodity derivatives are generally not designated for hedge accounting, which can create earnings volatility.
- Renewable biogas projects require further investment; most sites were under construction at year-end and only a few were operating. Production ramp-up, returns and tax credits may fall short of expectations. Federal blender’s credits were available through 2024; the replacement clean-fuel credit applies to qualifying fuel produced and sold in 2025–2027 and may be lower or not renewed.
- Material litigation remains, including pork price-fixing cases and disputes related to Cereoil and Nolston in Uruguay. Seaboard says it cannot estimate reasonably possible losses above accrued amounts. The filing also describes a Helms-Burton appeal; an earlier proposed settlement became ineffective after the court declined to vacate its judgment.
- Other commitments include approximately $2.344 billion of non-cancelable commitments, $800 million of long-term purchase commitments, and an unfunded pension status of $78 million. These amounts have differing timing and accounting treatment. Management considers liquidity adequate for existing operations and currently known expansion plans.
Most important facts for investors to verify
- Whether Pork margins recover and the renewable-diesel plant achieves consistent operations after the planned repairs.
- Whether Marine volumes and freight rates stabilize, and whether vessel construction stays on schedule and within expected costs.
- How much reported earnings depend on investment mark-to-market gains, tax credits and other non-operating items, versus recurring segment performance and cash generation.
- Debt-service capacity and covenant headroom after the refinancing and $600 million affiliate share repurchase; also assess the liquidity impact of planned capex and contractual commitments.
- Developments, potential exposure and settlement outcomes in the outstanding litigation, particularly pork antitrust and Uruguay-related matters.
- Progress and expected returns from renewable natural gas projects, including the assumptions behind production ramp-up and tax credits.