Seneca Foods Corporation — Form 10-Q Summary
Period clarification: The supplied filing covers the quarter ended June 27, 2020, Seneca’s first quarter of fiscal 2021—not 2019 Q1. Comparatives are for the quarter ended June 29, 2019. Unaudited; amounts below are U.S. dollars.
Business context and reporting period
Seneca produces and sells packaged fruits and vegetables, snack chips, and prepared foods through retail, foodservice, industrial, export, and government channels. Its products include canned, frozen, and bottled produce. Harvesting is seasonal, primarily June through November; sales are typically higher in fiscal Q2 and Q3, with Q3 usually the peak retail quarter.
Financial performance and condition
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $288.2 million | $264.9 million |
| Operating income | $30.3 million | $2.9 million |
| Net earnings | $20.7 million | $1.1 million |
| Basic / diluted EPS | $2.26 / $2.24 | $0.12 / $0.12 |
| Cash provided by operations | $100.3 million | $28.8 million |
| Capital expenditures | $19.2 million | $9.8 million |
- Sales rose 8.8% ($23.2 million), primarily from higher selling prices and sales mix (+$25.4 million), partly offset by lower volume (-$2.2 million). Canned vegetable sales increased $33.8 million; prepared foods declined $5.6 million.
- Gross margin improved to 16.9% from 7.2%; operating margin was 10.5% versus 1.1%. Management attributed the gross-margin improvement primarily to higher prices. A $2.1 million LIFO credit benefited the quarter, compared with a $3.2 million LIFO charge in the prior-year quarter; the filing estimates the respective after-tax EPS effects on net earnings at +$1.6 million and -$2.4 million.
- Cash provided by operations increased $71.5 million year over year, with major contributions from receivables, earnings, taxes, and accounts payable/accruals. Cash increased $0.9 million during the quarter to $11.6 million. Investing used $18.3 million and financing used $81.1 million.
- At June 27, 2020, working capital was $346.1 million and the current ratio was 2.95, versus $441.8 million and 3.91 at June 29, 2019. Inventory was $423.8 million, down $69.7 million year over year.
- Long-term debt, including current maturities, was $145.0 million, down from $246.7 million a year earlier. Revolver borrowings were $34.4 million at a 1.75% rate; average first-quarter revolver borrowings were $57.3 million versus $134.1 million. Operating and finance lease liabilities totaled approximately $88.8 million.
- Pension liabilities were $79.3 million, compared with $18.0 million a year earlier and $75.7 million at March 31, 2020. Accumulated other comprehensive loss was $79.2 million, versus $18.3 million a year earlier.
Material changes, outlook, and risks
- Management linked elevated sales in March through June 2020 to COVID-19 pantry loading. It said those sales reduced average revolver borrowing needs. The filing cautions that interim results are not necessarily indicative of full-year results.
- Operating results also reflect substantially lower restructuring charges ($0.3 million versus $4.8 million) and different asset-sale items. The prior-year quarter included a $4.1 million gain on a partial Midwest plant sale; the current quarter included a $0.5 million gain on unused assets and a $0.4 million loss on disposal of equipment.
- Seneca recorded $0.7 million of loss from an equity investment in the current quarter; none was reported in the comparator. Interest expense declined to $1.7 million from $3.4 million, reflecting lower borrowings and higher sales.
- The company said cash flows, revolver availability, and other financing sources should provide adequate funds for working capital, planned capital expenditures, and debt obligations for at least 12 months. It was in compliance with financial covenants at quarter-end. The $300 million revolver capacity applicable April through July matures July 5, 2021; capacity increases to $400 million from August through March.
- No numerical earnings or sales guidance was provided. Principal disclosed risks include commodity and packaging costs and availability, weather and crop yields, transportation costs, financing and leverage, COVID-19-related facility issues, interest and foreign-exchange rates, competition, customer concentration, regulation, and changing consumer preferences.
- Other items: $12.0 million of non-operating Midwest assets were classified as held for sale. The prior sale of the Modesto facility was treated as discontinued operations. Disclosure controls were reported effective; management reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether pantry-loading demand and stronger pricing persist, and how they affect subsequent-quarter sales, margins, and inventory.
- The composition and drivers of the large year-over-year difference in pension liabilities and accumulated other comprehensive loss.
- The extent to which first-quarter earnings depended on the LIFO credit, and how cost changes affect future margins.
- Revolver renewal or replacement plans ahead of its July 2021 maturity, seasonal borrowing needs, and ongoing covenant compliance.
- Progress and financial effects of plant closures, held-for-sale assets, and restructuring activity.