Seaboard Corporation — Q3 2022 Form 10-Q
Business context and period. Seaboard is a diversified company with Pork, Commodity Trading and Milling (CT&M), Marine, Sugar and Alcohol, Power, and Turkey operations. The quarter ended October 1, 2022; year-to-date figures cover nine months. Dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2,895 | $2,276 | $8,577 | $6,765 |
| Gross income | $247 | $200 | $764 | $631 |
| Operating income | $155 | $112 | $493 | $369 |
| Net earnings attributable to Seaboard | $146 | $94 | $357 | $449 |
| Earnings per share | $125.78 | $81.50 | $307.55 | $387.09 |
| Cash from operating activities | — | $377 | $96 |
- Sales rose 27% in the quarter and 27% year to date; operating income increased 38% and 34%, respectively. Gross margin was approximately 8.5% for Q3 and 8.9% year to date, compared with 8.8% and 9.3% in 2021.
- Quarterly net earnings improved, but year-to-date earnings fell 20%. Other investment losses were $64 in Q3 and $291 year to date, versus losses of $9 and income of $108 in the comparable 2021 periods. These results primarily reflected investment mark-to-market movements; the year-to-date amount also included a $46 solar-investment charge.
- Marine operating income rose to $155 in Q3 and $423 year to date, driven mainly by higher freight rates. Pork reported operating losses of $51 and $23, compared with income of $52 and $242 in 2021, reflecting weaker hog and pork margins and higher feed and processing costs. CT&M, Power, and Turkey affiliate income also improved year to date.
Liquidity, debt and investment
- At October 1, 2022, cash and cash equivalents were $70 and short-term investments were $1,023, down a combined $398 from year-end 2021. Management reported nearly $1.1 billion of cash and short-term investments, $1.3 billion of additional net working capital, and $604 of available borrowing capacity.
- Current lines of credit totaled $490 outstanding; long-term debt had a $711 face value ($703 carrying value). The Term Loan due 2028 was $672, with a 4.74% interest rate. The weighted-average rate on outstanding lines of credit was 6.19%, up from 2.71% at year-end. The company reported compliance with debt covenants.
- Operating cash flow was $377, compared with $96 in the prior-year period. Capital expenditures were $367; investing cash flow was negative $325. Cash declined $5 during the nine months, while cash plus short-term investments decreased substantially, reflecting investment liquidation for working capital and capital spending and investment valuation declines.
- Capital spending for the remainder of 2022 was budgeted at approximately $245. Marine contracted for three additional dual-fuel ships estimated at $62 each; all six ships under construction are expected to be completed in 2024–2025. Q3 Pork acquired hog farms and inventory for $58.
Outlook, risks and notable items
- Management expected Pork to remain unprofitable for the rest of 2022; it anticipated positive operating income for CT&M excluding derivative mark-to-market effects, and profitability for Marine, Power, and Turkey. It could not predict Sugar and Alcohol profitability. Management cautioned that commodity prices, volumes, freight and fuel costs, foreign exchange, and derivative valuations make results uncertain.
- The renewable diesel plant in Hugoton began commercial operations in Q3. A $46 federal investment tax credit related to a Guam solar project affected the nine-month tax rate; the associated investment charge was recorded in other investment loss and offset by the tax benefit.
- Material contingencies include Helms-Burton litigation, pork antitrust cases, and Cereoil/Nolston proceedings in Uruguay. Seaboard said it could not estimate the probability or range of potential loss for key proceedings. In the Seaboard Marine Helms-Burton case, judgment was entered for the company, but plaintiffs appealed; the related Seaboard Corporation suit was stayed pending that appeal.
- Derivative fair-value changes are recognized in earnings rather than hedge accounting, which can cause period-to-period volatility. Management said market-risk exposure had not materially changed since year-end 2021. No material risk-factor changes were reported.
Investor verification priorities
- Review the causes and potential persistence of investment losses and the sensitivity of reported earnings to market valuations.
- Track Pork margins, inventory valuation adjustments, feed and hog costs, and the ramp-up of renewable diesel operations.
- Assess Marine freight-rate sustainability, vessel construction commitments, capital-spending plans, and funding needs.
- Monitor liquidity and borrowing costs, including short-term investment values, line availability, and variable-rate debt exposure.
- Follow the status and any updated loss assessments for the disclosed litigation and contingencies.