Seaboard Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended April 1, 2023, compared with the three months ended April 2, 2022. Dollar amounts are in millions unless otherwise stated. Seaboard operates across Pork, Commodity Trading & Milling (CT&M), Marine, Sugar and Alcohol, Power, and an equity-method Turkey investment.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $2,499 | $2,709 |
| Gross income | $34 | $236 |
| Operating income (loss) | $(63) | $146 |
| Net earnings (loss) attributable to Seaboard | $(16) | $103 |
| Earnings (loss) per share | $(13.78) | $89.28 |
| Cash from operating activities | $93 | $106 |
| Capital expenditures | $111 | $161 |
- Revenue fell $210 million, or about 8%. Gross margin declined to about 1.4% from 8.7%; operating margin was about negative 2.5% versus positive 5.4%.
- Other income was $50 million, compared with a $27 million loss in Q1 2022. It included $27 million of other investment income, versus a $65 million loss a year earlier. Income from affiliates was $26 million.
- Cash and cash equivalents were $84 million and short-term investments $1,213 million at quarter-end, totaling about $1.30 billion. Available borrowing capacity was $864 million. Management reported additional net working capital of $1.1 billion.
- Current liabilities were $1.45 billion and current assets $3.87 billion. Lines of credit totaled $459 million outstanding; long-term debt, net of current maturities and costs, was $699 million. Seaboard reported compliance with debt covenants. The weighted average rate on lines of credit was 7.24%.
- Operating cash flow decreased $13 million year over year. Working-capital changes provided $185 million, partly offsetting a $198 million decline in net earnings adjusted for non-cash items. Cash and cash equivalents declined $115 million during the quarter.
Material changes and segment results
- Pork: Operating loss was $212 million versus $27 million of income. Lower pork selling prices, higher hog and feed costs, and a $53 million non-cash inventory valuation adjustment were key pressures. The segment recorded $10 million of affiliate income. Pork sales were nearly flat, partly supported by renewable diesel operations.
- CT&M: Sales fell $226 million, mainly due to lower commodity volumes amid increased competition. Operating income was $43 million versus $12 million; excluding derivative mark-to-market adjustments, it was $36 million versus $30 million. Affiliate results shifted to an $8 million loss from $5 million of income.
- Marine: Sales decreased $18 million and operating income fell to $96 million from $113 million, amid cargo volumes down approximately 17%, partly offset by higher average freight rates.
- Sugar and Alcohol: Sales rose to $38 million from $31 million and operating income to $6 million from $2 million, mainly on higher sugar and alcohol prices and improved sugar margins.
- Power: Sales increased to $52 million from $18 million and operating income was $10 million versus a $5 million loss, principally reflecting the EDM III facility, which began operating in June 2022.
- Turkey affiliate: Income from affiliates was $25 million versus $16 million. Butterball reported Q1 sales of $408 million and net income of $48 million.
Outlook, risks and unusual items
- Management expects the Pork segment to be unprofitable for the remainder of 2023. It anticipates positive operating income for CT&M excluding derivative mark-to-market effects; Marine to remain profitable but below prior-year operating income; and Sugar and Alcohol, Power, and Turkey to be profitable. Management emphasized uncertainty in commodity prices, feed costs, freight rates, fuel costs, demand, and foreign exchange rates.
- Management budgeted approximately $595 million of capital expenditures for the remainder of 2023, primarily including Pork biogas projects, breeding-herd replacement and Marine vessel installments. It expects to fund spending with cash, short-term investments, and borrowing capacity.
- The quarter’s operating loss was heavily affected by Pork’s weak margins and the $53 million inventory valuation adjustment. Management cited commodity-market volatility and softer global demand. Derivative fair-value movements can affect reported earnings because the instruments are not designated for hedge accounting.
- Seaboard amended its committed credit facility, increasing capacity from $250 million to $450 million; the facility matures March 28, 2025 and is secured by certain short-term investments.
- A Helms-Burton Act litigation settlement was reached for an immaterial amount, contingent on court approval of an agreed motion. Pork price-fixing litigation classes were certified; the company says loss probability and potential exposure cannot currently be estimated and an adverse outcome could be material. Other disclosed matters include pork compensation antitrust litigation and Cereoil/Nolston-related proceedings, with potential exposures described but outcomes uncertain.
- Management said liquidity and borrowing resources are adequate for existing operations and known expansion plans, while noting that future financing availability and terms are not assured. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether Pork pricing, feed costs, and inventory valuation pressures improve or worsen, and how actual results compare with management’s expectation of continued segment losses.
- CT&M volumes and margins, Marine cargo volumes and freight rates, and the durability of Power’s contribution from EDM III.
- Short-term investment portfolio composition, valuation volatility, and the relationship between investment gains and reported earnings.
- Execution and funding of the planned $595 million remainder-of-year capital program, including project timing and returns.
- Developments in pork antitrust and other litigation, including the Helms-Burton settlement condition and any emergence of estimable loss exposure.