Seaboard Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended July 2, 2022; comparisons are with the corresponding 2021 periods unless noted. Dollar amounts are in millions, except per-share data.
Business context and financial performance
Seaboard operates across Pork, Commodity Trading and Milling (CT&M), Marine, Sugar and Alcohol, Power, and Turkey (Butterball affiliate). Results reflect a mix of commodity trading, food production, ocean transportation, and energy operations.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $2,973 | $2,430 | $5,682 | $4,489 |
| Gross income | $281 | $253 | $517 | $431 |
| Operating income | $192 | $165 | $338 | $257 |
| Net earnings attributable to Seaboard | $108 | $176 | $211 | $355 |
| Earnings per share | $92.53 | $151.56 | $181.81 | $305.59 |
| Cash from operating activities | Not provided by quarter | $117 | $(68) |
Derived gross margin was approximately 9.5% in Q2 2022 versus 10.4% in Q2 2021; operating margin was 6.5% versus 6.8%, and net margin was 3.6% versus 7.2%. For the six-month periods, gross margin was approximately 9.1% versus 9.6%, operating margin 6.0% versus 5.7%, and net margin 3.7% versus 7.9%.
Liquidity, debt, and cash flow
- At July 2, cash and cash equivalents were $95 and short-term investments were $1,101, totaling approximately $1.2 billion. Cash and short-term investments together were down $295 from year-end 2021, partly due to working capital and capital spending needs and lower investment valuations.
- Available borrowing capacity under committed and uncommitted lines was $547, after $554 drawn against $1,101 of total capacity. The weighted-average rate on outstanding lines was 3.65%, up from 2.71% at year-end.
- Long-term debt, net of current maturities and costs, was $704; total debt at face value was $712. The $674 Term Loan due 2028 carried a 3.29% rate. Seaboard reported compliance with debt covenants.
- Six-month operating cash flow was $117, versus cash used of $68 in 2021. Capital expenditures were $273, including $145 in Pork and $109 in Marine. Management budgeted approximately $435 of further capital expenditures for the rest of 2022.
- Current assets were $4,141 and current liabilities $1,757. Management stated available liquidity and borrowing resources were adequate for existing operations and currently known expansion plans.
Material changes and segment results
- Sales rose $543 in Q2 and $1.2 billion for the six-month period. Management attributed the increase mainly to higher CT&M commodity prices and volumes, higher Marine freight rates, and the commencement of a second Power barge.
- Operating income rose $27 in Q2 and $81 year to date, primarily on stronger Marine results, partly offset by lower Pork margins. Marine operating income was $155 in Q2 and $268 for six months, compared with $32 and $53, respectively, in 2021, reflecting strong freight rates and demand.
- Pork operating income fell to $1 in Q2 from $129 and to $28 for six months from $190. Higher feed and processing costs, weaker pork and hog margins, and biodiesel-related derivative losses were key factors. Management could not predict whether Pork would be profitable for the remainder of 2022.
- CT&M sales increased to $1,711 in Q2 and $3,281 for six months. Reported operating income was $30 and $42; excluding mark-to-market adjustments, it was $39 and $69. Management anticipated positive remainder-of-year operating income excluding those adjustments, while noting substantial commodity and country risks.
- Butterball affiliate income improved to $11 in Q2 and $27 for six months, from losses of $4 and $9. Butterball’s higher selling prices helped, partly offset by lower volumes and higher costs.
- Power operating results improved with both barges operating and higher spot rates; management expected the segment to be profitable for the remainder of 2022. Sugar and Alcohol results remained subject to local pricing and currency uncertainty.
Outlook, unusual items, and risks
- The filing provides no consolidated earnings or revenue guidance. Management’s segment outlooks were mixed: it expected positive results in Marine, Power, CT&M excluding mark-to-market effects, and Turkey, but could not predict profitability for Pork or Sugar and Alcohol.
- Other investment loss was $162 in Q2 and $227 for six months, versus income of $46 and $117 in the comparable periods. The filing cites market-related investment valuation changes and a $46 charge for a solar project; the solar charge was offset by federal investment tax credits recorded as an income tax benefit. The project commitment was $52, of which $10 was funded in Q2, with the remaining $42 expected to be funded in Q3.
- Trading securities still held at period-end had unrealized losses of $110 for Q2 and $150 for six months. Because derivative changes are not accounted for using hedge accounting, mark-to-market movements can create earnings volatility.
- Management planned additional Pork biogas and replacement-herd investments, and Marine vessel construction payments, including for vessels expected to be completed in 2024. It was also exploring a sale or relocation of the older EDM II Power barge.
- Material litigation includes Helms-Burton Act claims concerning the Port of Mariel, pork antitrust proceedings, and Cereoil/Nolston-related claims in Uruguay and the U.S. Seaboard disputes the allegations; it stated that outcomes and potential losses could not be reasonably estimated for several matters. An adverse outcome could be material.
- Other stated exposures include commodity and feed prices, fuel and freight costs, foreign currency, interest rates, equity-market volatility, and international operating conditions. The company reported no material change in risk factors from its 2021 Form 10-K and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Marine freight rates and margins remain strong, and whether higher voyage costs erode gains.
- Whether Pork margins recover from higher feed and processing costs and derivative losses.
- The drivers and future reversals, if any, of investment and derivative mark-to-market losses.
- Execution, funding, and expected returns for the planned capital expenditures and solar investment, including the tax-credit treatment.
- Liquidity and borrowing capacity after planned capital spending, and the effect of rising interest rates on debt costs.
- Developments in the disclosed litigation, for which potential losses are uncertain and in some cases not estimable.