Seneca Foods Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended October 2, 2021 (fiscal 2022). The filing compares the quarter with the three months ended September 26, 2020 and the six-month period with the six months ended September 26, 2020. Amounts below are in millions unless noted. The request metadata says “2020 Q2,” but the filing itself covers 2021 Q2.
Business context and results
Seneca produces and sells packaged fruits and vegetables, snack products, and other foods, including private-label and branded products. The business is seasonal: most vegetables are harvested and packed June through November, while sales typically peak in the second and third fiscal quarters.
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $372.3 | $390.3 | $607.3 | $678.5 |
| Operating income | $21.8 | $27.7 | $39.5 | $58.0 |
| Net earnings | $11.7 | $18.1 | $25.8 | $38.8 |
| Diluted EPS | $1.31 | $1.97 | $2.86 | $4.21 |
| Gross margin | 11.5% | 12.5% | 12.6% | 14.4% |
| Operating margin | 5.9% | 7.1% | 6.5% | 8.5% |
Quarterly sales declined 4.6%; six-month sales declined 10.5%. Management attributed the reductions primarily to lower volumes, including the comparison with exceptional pandemic pantry-loading demand in the prior year. Higher prices and improved sales mix partly offset lower volumes. Prepared-foods sales fell $24.1 million in the quarter and $48.4 million year to date following the sale and exit of that business. Frozen-vegetable sales increased in both comparisons.
Profitability declined alongside sales. Management cited inflation in steel, commodities, ingredients, packaging, and transportation, as well as higher LIFO inventory charges. The LIFO charge was $8.8 million for the quarter and $11.6 million for six months, compared with $2.5 million and $0.4 million, respectively, in the prior-year periods. Six-month results also included a $6.3 million impairment of an equity-method investment, which reduced its carrying value to zero; the quarter recorded a $7.6 million equity-investment loss.
Cash flow, liquidity and debt
- Six-month operating cash flow was a use of $50.0 million, versus $87.0 million provided in the prior-year period. Management cited working-capital movements, particularly inventory, receivables, and taxes, as well as lower earnings.
- Investing activities used $23.6 million, including $28.2 million of property and equipment additions. Financing activities provided $25.0 million, including net debt borrowing and $17.3 million of share repurchases.
- Cash declined from $59.8 million at March 31, 2021 to $11.3 million at October 2, 2021. Inventory was $608.2 million, up from $343.1 million at fiscal year-end, reflecting seasonal production and inventory levels.
- Working capital was $411.1 million and the current ratio was 2.10 at October 2, 2021. Total long-term debt, including its current portion, was $146.8 million. Revolver borrowings were $51.7 million; the seasonally adjusted facility permits maximum borrowings of $300 million or $400 million depending on the time of year and matures in 2026. The company reported compliance with its credit covenants.
- Operating and financing lease obligations were $42.8 million and $31.8 million, respectively. The filing does not provide a clear unused-revolver availability figure.
Outlook, risks and unusual items
No specific numerical earnings or sales guidance was provided. Management said demand remained strong and expected base-business sales to be in line with pre-pandemic levels, rather than the extraordinary pandemic-driven levels. It warned of continued input-cost inflation and identified risks including crop and weather conditions, raw-material and transportation costs, labor availability, supply-chain disruption, changing consumer demand, COVID-19 effects, interest rates, competition, and customer concentration.
COVID-19 had previously supported sales and operating results; the company said supply-chain disruption had been minimal to date but noted uncertainty around workforce effects and compliance costs from anticipated vaccination or testing requirements. Seasonal working-capital needs can fluctuate significantly. LIFO interim estimates depend on expected year-end inventory, yields, sales, and inflation and may change at year-end.
Other items included gains on asset sales and debt forgiveness partly offsetting early-retirement-plan and miscellaneous costs. On November 10, 2021, after quarter-end, the board appointed former CEO Kraig H. Kayser as a director and non-executive chair following the death of founder and chairman Arthur S. Wolcott. The company also reported it would cease qualifying as a smaller reporting company for fiscal 2023 quarterly reporting.
Most important facts for investors to verify
- Whether pricing and mix can continue to offset lower volumes and cost inflation, and how year-end LIFO estimates may affect margins.
- Inventory build, operating cash use, seasonal borrowing needs, and actual availability under the revolving credit facility.
- The implications of the investment impairment and the sources of future earnings after the prepared-foods exit.
- Labor, supply-chain, COVID-related compliance, crop-yield, and transportation-cost developments.
- Leadership and governance changes following the founder-chairman’s death, and the board’s oversight transition.