SEABOARD CORP annual report, FY2021

Business context and reporting period

Seaboard Corporation’s Form 10-K covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. It is a diversified, global operator in pork production and processing, commodity trading and milling (CT&M), marine shipping, sugar and alcohol, and power generation. Seaboard also holds a 50% noncontrolling interest in turkey producer Butterball. The filing reports annual results; it does not provide a clear standalone fourth-quarter income statement.

Financial performance and liquidity

Amounts are in millions of dollars, except per-share data and percentages.

Metric	2021	2020
Net sales	$9,229	$7,126
Gross income	$818	$574
Operating income	$458	$245
Net earnings attributable to Seaboard	$570	$283
Earnings per common share	$490.36	$244.21
Cash from operating activities	$92	$291
Capital expenditures	$460	$259

Sales increased 29.5%; operating income rose 87%; attributable net earnings approximately doubled. Calculated gross margin was 8.9% versus 8.1%, operating margin 5.0% versus 3.4%, and net margin 6.2% versus 4.0%.
Net income included $133 million of other investment income, versus $84 million in 2020, and $16 million of foreign currency gains versus $31 million of losses. Income tax expense was $65 million versus $3 million.
Operating cash flow fell $199 million, principally from greater working-capital needs. Receivables increased to $762 million from $532 million and inventories to $1,663 million from $1,178 million. Operating cash flow less capital expenditures was negative $368 million.
Year-end cash and short-term investments totaled $1,491 million, down $50 million year over year. Current assets were $4,047 million and current liabilities $1,552 million. Management reported $558 million of available borrowing capacity.
Long-term debt was $717 million at face value, including a $677 million term loan due 2028; lines of credit outstanding were $516 million. Seaboard reported compliance with debt covenants. Annual dividends remained $9.00 per share.

Material changes versus the prior comparable period

Pork: Sales rose to $2,481 million from $1,941 million and operating income to $227 million from $131 million, mainly on higher pork prices and margins; higher feed and other costs partly offset gains.
CT&M: Sales rose to $5,154 million from $3,994 million, largely due to higher commodity prices. Operating income declined to $61 million from $118 million, reflecting derivative losses, impairment charges and higher expenses. Excluding marked-to-market adjustments, operating income was $68 million versus $103 million.
Marine: Sales increased to $1,396 million from $1,005 million and operating income to $197 million from $21 million, on stronger freight rates and cargo volumes; fuel, charter and terminal costs also increased.
Power: Operating results shifted to a $9 million loss from $3 million income, amid reduced generation, fuel constraints, maintenance and EDM III construction and installation costs.
Butterball/Turkey: Seaboard’s equity-method loss increased to $20 million from $10 million, with higher feed and labor costs and lower sales volumes.
Capital spending increased to $460 million from $259 million. The company repositioned its short-term investment portfolio to reduce equity price risk and help fund investment needs.

Outlook, risks and unusual items

Management expected Pork, CT&M (excluding derivative mark-to-market effects) and Marine to be profitable in 2022. It could not predict profitability for Sugar and Alcohol, Power or Butterball/Turkey.
Management budgeted approximately $700 million of 2022 capital expenditures, including $450 million for Pork and $200 million for Marine. Renewable diesel production and the new power barge EDM III were expected to begin commercial operations in 2022; start-up timing and capacity remain uncertain.
Major sensitivities include volatile commodity prices, feed and fuel costs, freight rates, labor availability and costs, foreign exchange and political conditions, and COVID-19-related disruption. Seaboard cited continuing labor shortages and higher production costs.
CT&M recorded $18 million of goodwill and property impairment charges related to planned dispositions of immaterial businesses; a separately disclosed $14 million impairment related primarily to foreign currency translation adjustments.
Pending matters include Cuban property-related Helms-Burton claims, pork antitrust litigation and Uruguay-related insolvency and creditor lawsuits. The company said it intends to defend the claims; outcomes and potential losses could not be reasonably estimated for several matters.
Other considerations include California Proposition 12 pork-sales requirements, effective January 1, 2022, with the company not expecting to meet the conditions until later in 2022; and federal biodiesel blender credits that were not permanent beyond 2022.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The audit identified sufficiency of audit evidence over geographically dispersed net sales as a critical audit matter, not a modification of the opinion.

Important facts for investors to verify

How much of 2021 earnings growth is repeatable, given the $133 million of investment income and the strong Marine and Pork results?
Whether working-capital requirements ease and operating cash flow recovers after the $199 million year-over-year decline.
Progress, costs, start-up timing and expected utilization of the renewable diesel facility and EDM III, alongside the planned 2022 capital program.
Exposure to commodity, fuel, freight, labor and foreign-exchange volatility, including CT&M derivative accounting and margin reversals.
Developments in the cited litigation, Proposition 12 compliance, and the availability or renewal of biodiesel incentives.
Ability to sustain dividends and meet financing needs under debt-agreement restrictions; approximately 77% of common stock was held by entities beneficially owned by the Bresky family.