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SEABOARD CORPORATION

(SEB)
  Report
Delayed Quote. Delayed Nyse - 05/07 08:00:00 pm
3736.88 USD   -1.29%
05/08FACTBOX-History of shutdowns on top U.S. fuel pipeline
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SEABOARD : DE/ Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/04/2021 | 04:24pm EDT

LIQUIDITY AND CAPITAL RESOURCES

Management believes Seaboard's combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations. Management intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, utilizing existing liquidity, available borrowing capacity and other financing alternatives. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard's financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous.

Liquidity includes cash and cash equivalents, short-term investments and availability under revolving credit facilities. As of April 3, 2021, Seaboard had cash and short-term investments of $1.4 billion and additional total net working capital of $979 million. Also, Seaboard had uncommitted lines of credit available totaling $398 million and committed lines of credit available totaling $350 million as of April 3, 2021.

As of April 3, 2021, $52 million of the $1.4 billion of cash and short-term investments were held by Seaboard's foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. Seaboard intends to continue permanently reinvesting the majority of these funds outside the U.S. as current plans do not demonstrate a need to repatriate them to fund Seaboard's U.S. operations. For any planned repatriation to the U.S., Seaboard would record applicable deferred taxes for state or foreign withholding taxes.

Cash Flows

Cash and short-term investments as of April 3, 2021 decreased $92 million to $1.4 billion from December 31, 2020. The decrease was primarily the result of the liquidation of short-term investments for working capital needs. Cash from operating activities decreased $44 million for the three-month period of 2021 compared to the same period in 2020 primarily due to uses of cash for working capital, partially offset by higher adjusted earnings.

During the three months ended April 3, 2021, Seaboard invested $96 million in property, plant and equipment, of which $78 million was in the Pork segment. The Pork segment expenditures were primarily for the construction of the renewable diesel plant in Hugoton, Kansas. For the remainder of 2021, management has budgeted capital expenditures totaling approximately $455 million. The Pork segment budgeted approximately $365 million primarily for modifications to convert the Hugoton, Kansas plant to a renewable diesel plant, with operations expected to begin in 2022, and other new investments, including a fuel storage and distribution facility and biogas recovery.

During the three months ended April 3, 2021, Seaboard repaid foreign subsidiary debt related to a 2018 acquisition of $46 million upon its maturity. The primary debt outstanding is a Term Loan due in 2028 with a balance of $683 million as of April 3, 2021.

RESULTS OF OPERATIONS

Net sales for the three-month period of 2021 increased $376 million over the same period in 2020. The increase primarily reflected higher sales prices and volumes of certain commodities in the CT&M segment, higher prices for pork products, market hogs and biodiesel sold in the Pork segment and higher cargo volumes in the Marine segment.

Operating income increased $29 million for the three-month period of 2021 compared to the same period in 2020. The increase primarily reflected higher margins on pork product sales in the Pork segment and higher cargo sales and lower fuel and other voyage costs in the Marine segment, partially offset by derivative contract losses in the CT&M segment.

Seaboard's operations have been impacted by the COVID-19 pandemic; however, Seaboard has seen improvements in its financial results since the most dramatic impact in the second quarter of 2020 when the onset of the pandemic began. Seaboard continues to encounter challenges with labor and has partially-staffed shifts; impacts from commodity market volatility; and certain product sales not yet at pre-COVID levels. The near and long-term impacts of the COVID-19 pandemic on Seaboard's operations and the global economy are unknown and impossible to predict with any level of certainty. Other than capital market volatility on short-term investments, the effects of the COVID-19 pandemic were not significant on a consolidated or segment basis to Seaboard's first quarter results of prior year.

                                       16

Pork Segment



                                Three Months Ended
                             April 3,       March 28,
(Millions of dollars)          2021            2020
Net sales                    $     565      $      455
Operating income             $      61      $       32
Income from affiliates       $       4      $        1


Net sales for the Pork segment increased $110 million for the three-month period of 2021 compared to the same period in 2020. The increase was primarily the result of higher prices of pork products, market hogs and biodiesel sold.

Operating income for the Pork segment increased $29 million for the three-month period of 2021 compared to the same period in 2020. The increase was primarily due to higher margins on pork product sales and market hogs, partially offset by higher costs for feed. Management is unable to predict market prices for pork products, the cost of feed or third-party hogs or the prices of biodiesel or the ongoing impacts of the COVID-19 pandemic for future periods; however, management anticipates this segment will be profitable for the remainder of 2021. The uncertainties and the volatility of the commodity grain markets could have a significant impact on profitability.

CT&M Segment



                                                             Three Months Ended
                                                          April 3,        March 28,
(Millions of dollars)                                       2021            2020
Net sales                                                $     1,151     $       914
Operating income as reported                             $        16     $        30
Mark-to-market adjustments                                        11             (5)

Operating income excluding mark-to-market adjustments $ 27 $ 25 Income from affiliates

                                   $         6     $         1


Net sales for the CT&M segment increased $237 million for the three-month period of 2021 compared to the same period in 2020. The increase primarily reflected higher sales prices and volumes of certain commodities to third-party customers and, to a lesser extent, higher commodity prices to affiliates, partially offset by lower volumes to affiliates.

Operating income for this segment decreased $14 million for the three-month period of 2021 compared to the same period in 2020. The decrease primarily reflected derivative contract losses related to mark-to-market adjustments, partially offset by higher margins on third-party sales. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates, the volatility in the commodity markets and the ongoing impacts of the COVID-19 pandemic, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment for the remainder of 2021, excluding the effects of marking to market derivative contracts.

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been higher by $11 million and lower by $5 million for the three-month period of 2021 and 2020, respectively. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts and anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these transactions as hedges for accounting purposes. Accordingly, while the changes in value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As products are delivered to customers, these existing mark-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time, and these mark-to-market adjustments could reverse in 2021. Management believes eliminating these mark-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.

                                       17

Marine Segment



                              Three Months Ended
                           April 3,       March 28,
(Millions of dollars)        2021            2020
Net sales                  $     300      $      269
Operating income (loss)    $      21      $      (6)
Income from affiliates     $       1      $        1

Net sales for the Marine segment increased $31 million for the three-month period of 2021 compared to the same period in 2020. The increase was primarily the result of higher cargo volumes.

Operating income for this segment increased $27 million for the three-month period of 2021 compared to the same period in 2020. The increase was primarily the result of higher sales and lower fuel costs, partially offset by higher terminal and intermodal trucking costs related to the increase in cargo volumes. Management cannot predict changes in fuel costs or other voyage costs, including charter hire costs, cargo volumes and cargo rates, or the ongoing impacts of the COVID-19 pandemic for future periods; however, management anticipates this segment will be profitable for the remainder of 2021.


Sugar and Alcohol Segment



                               Three Months Ended
                            April 3,       March 28,
(Millions of dollars)         2021            2020
Net sales                  $       26      $       22
Operating income (loss)    $        1      $      (1)
Income from affiliates     $        -      $        -

Net sales for the Sugar and Alcohol segment increased $4 million for the three-month period of 2021 compared to the same period in 2020. The increase primarily reflected higher volumes of sugar and alcohol sold, partially offset by lower prices of sugar and alcohol. Sugar and alcohol sales are denominated in Argentine pesos, and an increase in local sales prices may be offset by exchange rate changes in the Argentine peso against the U.S. dollar.

Operating income for the Sugar and Alcohol segment increased $2 million for the three-month period of 2021 compared to the same period in 2020. The increase primarily reflected higher margins on alcohol due to lower production costs, partially offset by lower margins on sugar due to higher production costs and lower prices. Management cannot predict local sugar and alcohol prices, the volatility in the currency exchange rate or the ongoing impacts of the COVID-19 pandemic for future periods. Based on these conditions, management cannot predict if this segment will be profitable for the remainder of 2021.

Power Segment



                              Three Months Ended
                           April 3,       March 28,
(Millions of dollars)        2021            2020
Net sales                  $      13      $       17
Operating income (loss)    $     (2)      $        2
Income from affiliates     $       -      $        -

Net sales for the Power segment decreased $4 million for the three-month period of 2021 compared to the same period in 2020. The decrease reflected lower power generation, partially offset by higher spot market rates as a result of higher fuel prices. Dispatch to the local power grid is done on the basis of a merit list with lower cost power plants dispatched before those with higher costs.

Operating income for the Power segment decreased $4 million for the three-month period of 2021 compared to the same period in 2020. The decrease was primarily due to lower revenues. Management cannot predict fuel costs, the extent that spot market rates will fluctuate compared to fuel costs or other power producers, or the ongoing impacts of the COVID-19 pandemic for future periods. Based on these conditions and plans for the interconnection of the existing barge at a new site related to the arrival of the new barge, management expects this segment will not be profitable for the remainder of 2021. The new barge arrived in early May 2021 and testing and commissioning has commenced. Commercial operations


                                       18

for the new barge are anticipated to begin later this year and management
continues to explore strategic alternatives for the existing barge, including
selling or relocating.

Turkey Segment



                            Three Months Ended
                         April 3,       March 28,
(Millions of dollars)      2021            2020
Loss from affiliates     $     (5)      $      (7)

The Turkey segment, accounted for using the equity method, represents Seaboard's investment in Butterball, LLC. The decrease in loss from affiliates for the three-month period of 2021 compared to the same period in 2020 was primarily the result of lower interest costs, partially offset by higher feed and plant production costs. Sales volumes increased, and to a lesser extent, prices, though the decrease in value-added product sales contributed to a weaker sales mix with lower margins. Management is unable to predict market prices for turkey products, the cost of feed or the ongoing impacts of the COVID-19 pandemic for future periods. Based on these conditions, management cannot predict if this segment will be profitable for the remainder of 2021. The uncertainties and the volatility of the commodity grain markets could have a significant impact on profitability.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $14 million for the three-month period of 2021 compared to the same period in 2020 primarily as a result of higher costs related to Seaboard's deferred compensation program. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recorded in other investment income (loss).

Interest Expense

Interest expense decreased $15 million for the three-month period of 2021 compared to the same period in 2020 primarily related to lower interest rates on outstanding debt and mark-to-market fluctuations on interest rate swap agreements.

Other Investment Income (Loss), Net

Other investment income (loss), net increased $296 million for the three-month period of 2021 compared to the same period in 2020 primarily due to mark-to-market fluctuations on short-term investments.

Foreign Currency Gains (Losses), Net

Foreign currency gains (losses), net increased $20 million for the three-month period of 2021 compared to the same period in 2020 primarily due to fluctuations in the South African rand and the euro among fluctuations of other currency exchange rates in several foreign countries.

Income Tax Benefit (Expense)

The effective tax rate for the three-month period of 2021 was lower than the three-month period of 2020 primarily due to pre-tax income in 2021 versus pre-tax loss in 2020 and the associated impact from tax credits. Tax credits decrease the income tax expense in a pre-tax income year resulting in a lower effective tax rate and increase the income tax benefit in a pre-tax loss year resulting in a higher effective tax rate.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2020 7 126 M - -
Net income 2020 283 M - -
Net cash 2020 40,0 M - -
P/E ratio 2020 12,4x
Yield 2020 0,30%
Capitalization 4 394 M 4 394 M -
EV / Sales 2019 0,72x
EV / Sales 2020 0,49x
Nbr of Employees 13 100
Free-Float 19,9%
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Managers and Directors
NameTitle
Robert L. Steer President & Chief Executive Officer
David H. Rankin Chief Financial Officer & Executive Vice President
Ellen S. Bresky Chairman
James L. Gutsch Senior Vice President-Engineering
David A. Adamsen Independent Director
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