Seaboard Corporation — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. Seaboard is a diversified global company operating in pork, commodity trading and milling (CT&M), marine transportation, sugar and alcohol, and power, with an equity-method investment in turkey producer Butterball.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $7.126 billion | $6.840 billion |
| Operating income | $245 million | $110 million |
| Net earnings attributable to Seaboard | $283 million | $287 million |
| Basic EPS | $244.21 | $246.62 |
| Operating cash flow | $291 million | $171 million |
| Capital expenditures | $259 million | $349 million |
| Cash and short-term investments | $1.541 billion | $1.559 billion |
| Total assets | $6.399 billion | $6.349 billion |
| Total long-term debt at face value | $763 million | $793 million |
- Gross margin was approximately 8.1% and operating margin approximately 3.4% in 2020, compared with approximately 6.5% and 1.6%, respectively, in 2019. Net margin was approximately 4.0%, versus 4.2%.
- Cash from operations rose $120 million, primarily on higher adjusted earnings, partly offset by working-capital uses. Cash and short-term investments declined $18 million, mainly reflecting capital expenditures and debt repayments.
- At year-end, current assets were $3.354 billion and current liabilities $1.076 billion. The company reported $737 million of additional total working capital. It had $806 million of available borrowing capacity and approximately $1.3 billion of additional debt capacity under covenants.
- Debt figures require distinction: $763 million was long-term debt at face value, while the balance sheet also showed $222 million drawn on lines of credit. Seaboard reported $19 million of interest expense, down from $36 million.
- Other investment income was $84 million, down from $225 million in 2019, primarily due to mark-to-market movements in investments. This, along with a $31 million foreign-currency loss, helped offset the improvement in operating income.
Changes versus the prior year
- Sales increased 4.2%, led by higher CT&M commodity volumes and prices and higher Pork volumes. Operating income increased $135 million, while net earnings declined $4 million.
- Pork operating income increased to $131 million from $60 million, reflecting lower derivative losses, better pork margins, lower feed and third-party hog costs, and federal biodiesel blender’s credits. CT&M operating income rose to $118 million from $62 million; results included $20 million of derivative mark-to-market gains.
- Marine operating income improved to $21 million from $4 million despite lower sales, helped by reduced fuel, voyage and terminal costs. Sugar and Alcohol moved to $2 million of operating income from a $16 million loss.
- Power operating income fell to $3 million from $27 million on lower spot prices and generation. The Turkey segment’s equity-method loss narrowed to $10 million from $21 million.
- The filing retrospectively changed Pork inventory accounting from LIFO to FIFO. For 2020, FIFO increased reported operating income by $60 million and net earnings by $44 million versus LIFO; prior periods were also adjusted.
Outlook, risks and notable items
- Management described COVID-19 disruption to foodservice demand, cargo volumes, staffing and operating conditions, with improvement in the third and fourth quarters. The duration and financial effects remained uncertain.
- Management budgeted approximately $456 million of 2021 capital expenditures, including $340 million for Pork. Renewable diesel operations at the Kansas facility were expected to begin in 2022; the 2021 budget included approximately $173 million to complete its conversion. A new Dominican Republic power barge was expected to begin operating by the end of 2021.
- Management anticipated positive 2021 operating income for CT&M, excluding derivative mark-to-market effects, and for Marine. It could not predict 2021 profitability for Pork, Sugar and Alcohol, Power or Turkey. Pork costs were expected to rise with grain prices.
- Key exposures include commodity and feed price volatility, derivatives not designated as accounting hedges, foreign exchange and political risk, shipping fuel and charter costs, labor availability, and dependence on key facilities and suppliers. Argentina’s highly inflationary accounting and currency volatility remain relevant to Sugar and Alcohol.
- California Proposition 12 could require additional pork-production investment or restrict sales; California represented approximately 9% of Pork’s direct sales in 2020, excluding indirect sales. The law’s constitutionality was being challenged.
- Pending matters include pork antitrust class actions and Uruguay litigation related to Cereoil and Nolston. Management said loss likelihood and amounts could not be reasonably determined for the identified suits; potential amounts described in the filing include $22 million and $23 million for the Cereoil claims and $14 million for Nolston, subject to possible changes and offsets.
- In July 2020, CEO and Chairman Steven J. Bresky died. Robert L. Steer became President and CEO, Ellen S. Bresky became Chairwoman, and David H. Rankin became CFO in December. Approximately 77% of common stock was held by entities beneficially owned by the Bresky family.
- Seaboard paid $9.00 per share in dividends for 2020. Its share repurchase program expired October 31, 2020. The company reported unqualified audit opinions and effective internal control over financial reporting.
Investor verification priorities
- Reconcile reported earnings with investment mark-to-market results, derivative effects and the retrospective FIFO inventory change.
- Review 2021 capital-spending execution, funding needs, renewable diesel completion costs and the new power barge schedule.
- Track Pork feed and hog costs, Proposition 12 compliance exposure, and the continuation and amount of biodiesel blender’s credits.
- Assess litigation developments and any change in the currently unquantified potential losses, including overlapping Uruguay claims.
- Monitor liquidity and the maturity or renewal of credit facilities, foreign subsidiary debt repayment, and dividend capacity under debt covenants.