MERRIAM, KANSAS, U.S. — Seaboard Corp. sustained an operating loss of $2 million in its Commodity Trading and Milling (CT&M) segment during the second quarter ended June 30, which compared with income of $1 million in the same period of fiscal 2017.
Net sales for the segment totaled $890 million, up 27% from $701 million in the same period a year ago.
In the six months ended June 30, the company had operating income of $9 million in the segment, down from $18 million a year ago. First-half sales totaled $1.676 billion, up 17% from $1.428 billion.
Seaboard said the increase in sales for the three- and six-month periods primarily reflected higher volume of third-party and affiliate sales, including sales for Mimran, which was acquired in January, partially offset by lower third-party sales prices.
Seaboard said that if it had not applied mark-to-market accounting to its derivative instruments, operating income in the CT&M segment would have been higher by $18 million and $12 million for the three- and six-month periods of 2018, respectively.
“Operating income for this segment would not have changed for the three-month period of 2017, but operating income for this segment would have been $4 million lower for the six-month period of 2017,” Seaboard noted in an Aug. 8 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 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 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 $58 million in property, plant and equipment during the first half of fiscal 2018, of which $17 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.
Seaboard said in the filing it has budgeted capital expenditures totaling $184 million for the remainder of fiscal 2018, including $63 million for milling assets and other improvements to existing facilities and related equipment.
Overall, net income at Seaboard in the second quarter ended June 30 was $7 million, equal to $6.28 per share on the common stock, down 88% from $58 million, or $50.51 per share, in the same period a year ago. Net sales were $1.691 billion, up 19% from $1.422 billion.
In the first six months of fiscal 2018 net income totaled $39 million, or $33.03 per share, down from $143 million, or $122.35 per share, in the same period a year ago. Net sales totaled $3.270 billion, up 16% from $2.821 billion.