Seaboard Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021; comparative period ended March 28, 2020. Amounts below are in millions of dollars, except per-share data. Seaboard operates across Pork, Commodity Trading & Milling (CT&M), Marine, Sugar and Alcohol, Power, and Turkey.
Financial results and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $2,059 | $1,683 |
| Gross income | $178 | $135 |
| Operating income | $92 | $63 |
| Other investment income (loss), net | $71 | $(225) |
| Net earnings (loss) | $179 | $(103) |
| Earnings (loss) per share | $154.03 | $(88.73) |
| Cash from operating activities | $(150) | $(106) |
- Sales rose 22%; operating income increased 46%. Gross margin was approximately 8.6% versus 8.0%, and operating margin approximately 4.5% versus 3.7%.
- The earnings swing chiefly reflected investment performance: short-term investment mark-to-market gains were $65 million in Q1 2021 versus losses of $236 million in Q1 2020. The filing reports total other investment income (loss) of $71 million versus a loss of $225 million.
- Operating cash outflow widened by $44 million, primarily because of working-capital needs, including increases in receivables and inventory. Capital expenditures were $96 million; operating cash flow less capital expenditures was approximately $(246) million.
- At April 3, cash and cash equivalents were $65 million and short-term investments were $1.384 billion. Current assets were $3.611 billion and current liabilities $1.183 billion. Cash and short-term investments together were approximately $1.449 billion.
- Debt included $346 million drawn on uncommitted lines and $713 million of long-term debt at face value, including current maturities. No committed lines were drawn. Seaboard reported $398 million of uncommitted and $350 million of committed lines available; it was in compliance with debt covenants.
- Quarterly dividends were $2.25 per share, or $3 million in total. No shares were repurchased in the quarter.
Material changes and segment results
- Management attributed higher sales to stronger prices and volumes in CT&M, higher prices for pork products, market hogs and biodiesel, and increased Marine cargo volumes.
- Pork operating income increased to $61 million from $32 million, mainly on improved margins for pork products and market hogs, partly offset by higher feed costs.
- CT&M operating income as reported fell to $16 million from $30 million, primarily due to derivative mark-to-market effects. Excluding those adjustments, it was $27 million versus $25 million.
- Marine moved to $21 million of operating income from a $6 million loss, reflecting higher cargo sales and lower fuel costs, partly offset by higher terminal and trucking costs.
- Power reported a $2 million operating loss versus $2 million of income, reflecting lower generation and revenues. The Turkey equity-method loss narrowed to $5 million from $7 million; Butterball reported an operating loss of $16 million versus $7 million.
- Interest expense was $10 million in Q1 2021; the comparative statement presents a $5 million credit. Management said the year-over-year decrease reflected lower borrowing rates and interest-rate-swap mark-to-market fluctuations.
Outlook, risks and unusual items
- Management expects Pork and Marine to be profitable for the remainder of 2021. It expects positive CT&M operating income excluding derivative mark-to-market effects, but cannot predict reported results amid commodity and market volatility. Management expects Power to be unprofitable for the remainder of 2021; profitability for Sugar and Alcohol and Turkey is uncertain.
- Remaining 2021 capital expenditures were budgeted at approximately $455 million, including about $365 million for Pork. Spending includes converting the Hugoton, Kansas facility to renewable diesel, with operations expected to begin in 2022, as well as other investments. The new power barge arrived in early May; commercial operations were anticipated later in 2021.
- Management said liquidity and borrowing capacity were adequate for existing operations and currently known expansion plans, while noting financing availability and terms depend on market and company conditions. It intends to continue evaluating expansion opportunities.
- COVID-19 effects remained uncertain. The company cited labor constraints and partially staffed shifts, commodity volatility, and some product sales below pre-pandemic levels.
- Market exposures include commodities, foreign exchange, interest rates and equity prices. Derivatives are not designated for hedge accounting, so their fair-value changes can affect earnings in periods that differ from the related business transactions.
- Pending legal matters include pork antitrust litigation and Uruguay bankruptcy-related claims involving Cereoil and Nolston. Seaboard stated that outcomes and potential losses cannot presently be determined; disclosed potential claim amounts include $22 million, $23 million based on Cereoil bankruptcy schedules, and $14 million based on Nolston schedules, with possible additional expenses. A creditor also threatened a U.S. claim of approximately $10 million plus interest. Seaboard intends to defend the matters.
- The 2020 comparative period and other prior-period figures reflect the retrospective change from LIFO to FIFO inventory accounting. Management reported no material change in risk factors from its 2020 Form 10-K.
Key facts investors should verify
- How much of reported earnings and future results depends on short-term investment valuations and other mark-to-market movements.
- Whether working-capital outflows persist and how the planned capital program is funded alongside debt and liquidity needs.
- Progress, cost and timing for the renewable-diesel conversion and new power barge commercial operations.
- Realized Pork, CT&M and Marine margins, including commodity, feed, freight, fuel and derivative effects.
- Developments in the antitrust and Uruguay legal proceedings, for which potential outcomes remain uncertain.