Seaboard Corporation — Form 10-Q Summary
Business context and period: The filing covers the 13-week second quarter and six months ended July 1, 2023, compared with periods ended July 2, 2022. Seaboard operates in Pork, Commodity Trading and Milling (CT&M), Marine, Sugar and Alcohol, and Power; its Turkey segment reflects its equity-method investment in Butterball. Results are unaudited.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $2.393 billion | $2.973 billion | $4.892 billion | $5.682 billion |
| Gross income | $96 million | $281 million | $130 million | $517 million |
| Operating income (loss) | $(4) million | $192 million | $(67) million | $338 million |
| Net earnings attributable to Seaboard | $52 million | $108 million | $36 million | $211 million |
| Earnings per share | $44.80 | $92.53 | $31.01 | $181.81 |
| Operating cash flow | Not separately reported for the quarter | $204 million | $117 million |
Gross margin was approximately 4.0% in Q2 and 2.7% for the first half, versus 9.5% and 9.1% in the comparable 2022 periods. Operating margin was approximately negative 0.2% and negative 1.4%, versus 6.5% and 5.9%. Net margin was approximately 2.2% and 0.7%, versus 3.6% and 3.7%. Percentages are calculated from reported figures.
Q2 other investment income was $23 million, compared with a $162 million loss a year earlier; first-half investment income was $50 million versus a $227 million loss. The filing attributes the improvement primarily to unrealized mark-to-market gains on short-term investments. Higher interest rates contributed to interest expense rising to $20 million for Q2 and $32 million for the first half, from $12 million and $10 million, respectively. Income tax benefits were $4 million for Q2 and $1 million for the first half.
Liquidity, debt and cash flow
- At July 1, 2023, cash and cash equivalents were $68 million and short-term investments were $1.225 billion. Management reported nearly $1.3 billion in combined cash and short-term investments, $1.1 billion of additional net working capital, and $874 million of available line-of-credit borrowing capacity.
- Lines of credit totaled $444 million outstanding; long-term debt, less current maturities and unamortized costs, was $698 million. The term loan due 2028 had a $667 million balance. The weighted-average line-of-credit rate was 7.08%; the term-loan rate was 6.83%. Seaboard reported compliance with restrictive debt covenants.
- First-half operating cash flow was $204 million, including $410 million of positive working-capital changes, despite lower net earnings adjusted for noncash items. Investing cash flow was $(282) million, including $219 million of capital expenditures and net purchases of short-term investments. Financing cash flow was $(51) million. Cash declined by $131 million from year-end 2022.
- Management budgeted approximately $390 million of capital expenditures for the rest of 2023. It also disclosed contracts for two dual-fueled vessels, estimated at $49 million each, expected to be completed in late 2025.
Material changes and segment performance
Revenue fell $580 million in Q2 and $790 million in the first half, while operating income declined $196 million and $405 million, respectively. Management cited softer global demand, commodity-market volatility, lower CT&M volumes and prices, lower Marine cargo volumes and freight rates, and weaker Pork pricing alongside higher hog costs.
- Pork: Operating losses were $104 million for Q2 and $316 million for the first half, versus income of $1 million and $28 million. Lower pork selling prices and higher hog costs drove the decline. Management expects the segment to remain unprofitable for the rest of 2023.
- CT&M: Q2 operating income was $17 million versus $30 million; first-half income was $60 million versus $42 million. Excluding derivative mark-to-market adjustments, operating income was $31 million and $67 million, respectively. Management anticipates positive operating income for the rest of 2023 excluding those adjustments, but says commodity and political conditions limit forecasting.
- Marine: Q2 and first-half operating income declined to $60 million and $156 million, from $155 million and $268 million. Cargo volumes fell approximately 26% and 21%, respectively. Management expects the segment to remain profitable in the rest of 2023, but below prior-year operating income.
- Sugar and Alcohol: Operating income rose to $3 million for Q2 and $9 million for the first half. Management expects continued profitability in 2023.
- Power: Operating income rose to $22 million for Q2 and $32 million for the first half, principally due to EDM III generation. Management expects continued profitability; it is exploring strategic alternatives for EDM II.
- Turkey/Butterball: Seaboard’s equity-method income increased to $16 million for Q2 and $41 million for the first half. Management expects the segment to remain profitable, while noting uncertainty in turkey prices and feed costs.
Outlook, risks and unusual items
- After quarter-end, the Bresky Group, affiliated with Seaboard’s chairwoman and other family members, proposed that Seaboard repurchase at least $600 million of their shares at a mutually agreed price. The proposal is nonbinding; an independent special committee is evaluating it. Any transaction could affect liquidity, and the filing gives no settled price or terms.
- Commodity prices, hog and feed costs, freight rates and volumes, fuel and interest rates, foreign exchange, and global demand remain significant sources of uncertainty. Derivatives are not designated for hedge accounting, so fair-value changes may affect reported earnings before related transactions are realized.
- Seaboard recognized an approximately $10 million expense for a proposed settlement with the pork direct-purchaser class, subject to court approval. Other purchaser-class and opt-out claims remain unresolved; the company says potential losses cannot currently be estimated.
- The proposed settlement in the Helms-Burton cases became ineffective after the Florida court denied a motion to vacate the judgment for Seaboard Marine; the appeal continues. Seaboard also disclosed Uruguay Cereoil and Nolston claims and a remaining U.S. promissory-estoppel claim; outcomes are uncertain and potential exposure is not clearly quantifiable.
- California Proposition 12 became enforceable July 1, 2023. The filing notes that sales into California and Massachusetts accounted for approximately 5% of Seaboard’s direct sales in 2022, in addition to indirect sales; compliance requirements could raise costs or affect market access.
- Management stated that existing liquidity and borrowing resources are adequate for current operations and known expansion plans, while cautioning that financing availability and terms are not assured. No consolidated full-year earnings guidance is provided.
Key investor verification points
- Track Pork margins and hog/feed costs against management’s expectation of continued losses for the remainder of 2023.
- Assess whether CT&M and other segments’ reported earnings are materially affected by derivative and investment mark-to-market movements.
- Monitor the Bresky Group proposal, including any final terms, financing approach, and effect on liquidity and share ownership.
- Review court approval and opt-outs for the approximately $10 million pork settlement, and developments in remaining litigation.
- Compare planned capital spending, vessel commitments, and borrowing needs with cash, investment balances, and available credit.