Commodity price fluctuations drag down Seaboard milling results

by Eric Schroeder
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Seaboard Milling
Molino 3 Castillos, a Seaboard Milling investment in Cartagena, Colombia.
 
MERRIAM, KANSAS, U.S. — Seaboard Corp. sustained a loss of $13 million in its Commodity Trading and Milling (CT&M) segment during the third quarter ended Oct. 1, which compared with a loss of $5 million in the same period a year ago.

Net sales for the segment during the third quarter were $673 million, down 11% from $756 million in the same period of last year. The decrease primarily reflected lower sales prices, resulting from lower commodity prices and the mix of products sold, partially offset by higher volumes in corn and soybeans, the company said.

For the nine months ended Oct. 1, operating income was $15 million, which compared with $7 million in the same period a year ago. Net sales totaled $2.089 billion, down from $2.355 billion.

“Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates, and the current volatility in the commodity markets, management is unable to predict future sales and operating results for this segment,” Seaboard noted in a Nov. 2 filing with the U.S. Securities and Exchange Commission. “However, management anticipates positive operating income for this segment for the remainder of 2016, 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 $23 million and $10 million for the three- and nine-month periods of 2016, respectively, and would have been higher by $3 million for the three-month period of 2015 and lower by $3 million for the nine-month period of 2015. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these transactions as hedges for accounting purposes.”

In the filing, Seaboard said it invested $128 million in property, plant and equipment during the third quarter, of which $34 million was for the CT&M segment.

“Of the Commodity Trading and Milling segment expenditures, $29 million was for the construction of two dry bulk vessels, of which both were delivered and then sold and leased back by Seaboard, at book value of $44 million each during the first quarter of 2016,” the company said.

Seaboard also said in the filing it has budgeted capital expenditures totaling $58 million for the remainder of 2016.

“The Commodity Trading and Milling segment plans to spend $12 million primarily for milling assets in Zambia and other improvements to existing facilities and related equipment,” Seaboard said.

Overall, net income at Seaboard in the third quarter totaled $75 million, equal to $64.42 per share on the common stock, up from $3 million, or $2.59 per share, in the same period a year ago. Net sales were $1.330 billion, down from $1.411 billion. For the nine months ended Oct. 1, net income was $209 million, or $178.67 per share, up from $68 million, or $57.73 per share, in the same period a year ago. Net sales for the nine months totaled $4.006 billion, down from $4.291 billion. 
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