Seneca Foods Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2016, three months ended June 27, 2015; comparisons are with the three months ended June 28, 2014 unless noted. Amounts below are in millions except per-share data. Seneca produces and sells packaged fruits and vegetables, snack products, and products packed for General Mills Operations, LLC (GMOL).
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $226.3 | $240.0 |
| Operating income | $5.9 | $1.0 |
| Net earnings (loss) | $3.0 | $(0.1) |
| Basic / diluted EPS | $0.30 / $0.29 | $(0.01) / $(0.01) |
| Operating cash flow | $45.9 | $36.0 |
| Capital expenditures | $1.8 | $12.5 |
- Sales fell 5.7% ($13.8 million), as volume declined $16.6 million, partly offset by $2.8 million from higher prices and sales mix. Canned vegetables, frozen products, and fruit products declined.
- Gross margin improved to 9.1% from 7.1%; operating margin rose to 2.6% from 0.4%. Management cited higher net selling prices and a larger LIFO credit, partly offset by higher unit costs.
- The $1.6 million LIFO credit increased after-tax earnings by an estimated $1.1 million, versus a $0.3 million credit and $0.2 million after-tax benefit a year earlier.
- Operating cash flow increased $9.9 million. Cash declined $2.7 million to $7.9 million, following $46.9 million of financing outflows, including net long-term debt repayments and notes-payable repayments.
Balance sheet and liquidity
- At June 27, 2015, current assets were $564.3 million and current liabilities $129.2 million; working capital was $435.1 million and the current ratio 4.37.
- Total debt, including current maturities, was $237.9 million; long-term debt excluding current maturities was $235.3 million. The revolver balance was $197.4 million, at approximately 1.95% interest. The revolver matures July 20, 2016; borrowing limits were $300 million through July and $400 million from August through March.
- Inventory was $482.6 million, up $15.3 million year over year, principally due to higher raw materials and supplies. The company attributed the raw-material increase mainly to greater can and raw-steel quantities.
- Management said operating cash flow, revolver availability, and other financing sources should fund working capital, planned capital expenditures, and debt obligations for at least 12 months. The company reported compliance with its financial covenants.
Changes, outlook, and risks
- Management reported unfavorable excess moisture in some growing areas, reducing green bean yields and plant recovery rates and causing unfavorable manufacturing variances.
- Revenues are seasonal and typically higher in the second and third fiscal quarters; the first-quarter results are not necessarily indicative of full-year results. No numerical earnings or revenue guidance was provided.
- Fiscal 2016 pension benefit cost was $2.9 million versus $1.2 million a year earlier; the company contributed $0.6 million to the plan during the quarter.
- Unusual operating items included an $81,000 restructuring credit, a $200,000 reversal of a Proposition 65 litigation provision, a $60,000 reduction in an environmental accrual, and a $76,000 gain on asset sales. The prior-year quarter included a $250,000 environmental remediation charge.
- The Proposition 65 appeal was rejected in March 2015; the California Supreme Court denied further review on July 8, 2015, after quarter-end, effectively ending the action subject to procedural matters. The filing also cites ordinary-course legal proceedings whose outcomes or potential losses could not be estimated.
- Risks identified include crop and weather conditions, commodity and packaging costs and availability, transportation costs, customer concentration, competition, consumer preferences, product liability, regulation, financing availability, leverage, and interest-rate fluctuations. Management reported no material change in market-risk exposure or previously disclosed risk factors.
Important facts for investors to verify
- Whether subsequent crop conditions and green bean yields affect production costs, product availability, or margins.
- How much of the quarter’s margin and earnings improvement depended on the LIFO credit and other favorable or nonrecurring items.
- Seasonal inventory and borrowing needs, revolver availability and covenants, and refinancing plans ahead of the July 2026 maturity.
- Whether lower sales volumes persist and how pricing, product mix, and key-customer demand develop.
- Developments in pension costs, environmental matters, and any remaining legal proceedings.