Seaboard milling income slides in fiscal 2017

by Eric Schroeder
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MERRIAM, KANSAS, U.S. — Seaboard Corp. posted operating income of $25 million in its Commodity Trading and Milling (CT&M) segment during the fiscal year ended Dec. 31, 2017, down 35% from $38 million in fiscal 2016.

Net sales for the segment during fiscal 2017 totaled $2.945 billion, up 6% from $2.778 billion in the same period a year ago. The increase primarily reflected higher sales prices for wheat sales to third parties and higher volumes of sales to affiliates and third parties, partially offset by lower corn and soybean meal sales prices and volumes to third parties.

“Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been lower by $4 million in 2017, remained the same in 2016 and been lower by $5 million in 2015,” Seaboard noted in a Feb. 21 filing with the U.S. Securities and Exchange Commission. “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. 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 therefore, these mark-to-market adjustments could reverse in fiscal 2018. 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.”

In the filing, Seaboard said it invested $173 million in property, plant and equipment during fiscal 2017, of which $15 million was for the CT&M segment. Seaboard said the CT&M investment primarily was of a normal recurring nature and included replacements of machinery and equipment, and general facility modernizations and upgrades.

During 2017, Seaboard’s CT&M segment acquired a pulse and grain elevator in Canada for total cash consideration of $14 million. This business, which complements an existing CT&M business in Canada, is expected to increase the trade volumes of pulses, which include commodities of beans, peas and lentils. The company also invested an additional $7 million in a grain trading and poultry business in Morocco.

On Jan. 5, the CT&M segment completed the acquisition of Groupe Mimran, including three flour mills in Senegal and Ivory Coast having a combined capacity of approximately 2,750 tonnes a day, and a trading business located in Monaco that is expected to increase Seaboard’s annual grain trading volume by approximately 900,000 tonnes. The purchase price was $375 million, plus an earn-out between zero and $48 million, using the exchange rate in effect at closing.

Seaboard also said in the filing it has budgeted capital expenditures totaling $271 million for fiscal 2018.

“The CT&M segment budgeted $48 million primarily for milling assets and other improvements to existing facilities and related equipment,” Seaboard said.

Overall, net income at Seaboard in the fiscal year ended Dec. 31, 2017, was $247 million, equal to $211.01 per share on the common stock, down from $312 million, or $266.50 per share, in the same period a year ago. Net sales were $5.809 billion, up 8% from $5.379 billion.