Business Overview: Seaboard Corporation (Seaboard) and its subsidiaries is a diversified international agribusiness and transportation company. In the U.S., Seaboard is primarily engaged in pork production and processing, and ocean transportation. Overseas, Seaboard is primarily engaged in commodity merchandising, grain processing, sugar production and electric power generation. Seaboard also has an interest in turkey operations in the U.S. As of Dec. 31, 2010, Seaboard had six operating segments: pork, commodity trading and milling, marine, and other businesses (sugar, alcohol, power production and processing of jalapeño peppers). On Dec. 6, 2010, the company acquired a 50% interest in Butterball LLC.
Business divisions:
Pork Division
Commodity Trading and Milling Division (34% assets associated to this division)
Marine Division
Turkey production - Butterball LLC (50% Ownership)
Other Divisions:
Sugar & Alcohol production in Argentina - 250,000 metric tons of sugar and 15 million gallons of alcohol. Owns land of 60,000 hectares which is used for Sugar cane production.
Power production – 38MW – Argentina, Independent power producer –Dominican republic
*Includes the sale of business of 52.9M
Processes jalapeño peppers at its plant in Honduras
Selected financials for the whole business:
Balance Sheet
Valuation:
Market cap: approximately $2.2 billion
Enterprise value: approximately $1.9 billion
Price/Earnings: 6.5
ROE: approximately 15%
Price/Book value: approximately 1
Management:
Management owns more than 70% of company. In the above numbers alone, we can be reasonably confident that they are utilizing the assets in a productive manner. Mr. Steven J. Bresky has been chairman of the board, president and chief executive officer of Seaboard Corporation since July 2006. He has been working for Seaboard for 30 years, including acting as president of Seaboard Corporation and as president of Seaboard's Overseas Division. They have been opportunistic and buying back shares when they go below book value. They have increased their book value 15% per year for the last 10 years.
Risks:
* Commodity business – No branding power; price increases of input commodities may not be passed on to the customers immediately.
* Policies/unrest in many of the foreign countries in which they do business, such as Argentina, Dominican Republic, Honduras, etc.
* Environmental liabilities
The reason opportunity exists:
* Shares traded (very illiquid at approximately 750 per day) are very low in volume.
* No analyst coverage and no earnings estimates given by management (both yearly or quarterly)
Conclusion:
It’s a good business, has capable management (owns 70% of the company which is aligned with shareholder interests) and shares are trading for a very cheap valuation. It is a commodity business, which does not have branding/pricing power, but has a strategic vision & cost structure. The company has assets worth US$3 billion and makes more than US$300 million per year (more than 10% return on total capital) while keeping $400 million in cash, marketable securities and negligible debt. It is trading for around book value and less than that at times. Investors purchasing at these prices will be rewarded in the long run. They have excellent potential in terms of ongoing demand and assets utilization. It is very cheap absolutely and relative to its peers.
Disclosure: I own the shares of this company.
Business divisions:
Pork Division
| (Dollars in millions) | 2011 | 2010 | 2009 |
| Net sales | 1,745 | 1,388 | 1,065 |
| Operating income (loss) | 259 | 213 | -15 |
Commodity Trading and Milling Division (34% assets associated to this division)
| (Dollars in millions) | 2011 | 2010 | 2009 |
| Net sales | 2,690 | 1,809 | 1,532 |
| Operating income as reported | 43 | 34 | 25 |
| Less mark-to-market adjustments | -16.6 | 17.2 | 14.5 |
| Operating income excluding mark-to-market adjustments | 27 | 52 | 39 |
| Income from affiliates | 13 | 21 | 19 |
Marine Division
| (Dollars in millions) | 2011 | 2010 | 2009 |
| Net sales | 929 | 854 | 738 |
| Operating income (loss) | -4 | 48 | 24 |
Turkey production - Butterball LLC (50% Ownership)
| (Dollars in millions) | 2011 | 2010 |
| Income (loss) from affiliate | 13 | -1 |
Other Divisions:
Sugar & Alcohol production in Argentina - 250,000 metric tons of sugar and 15 million gallons of alcohol. Owns land of 60,000 hectares which is used for Sugar cane production.
| (Dollars in millions) | 2011 | 2010 | 2009 |
| Net sales | 260 | 196 | 143 |
| Operating income (loss) | 65 | 32 | -1 |
| Income from affiliates | 0 | 1 | 1 |
Power production – 38MW – Argentina, Independent power producer –Dominican republic
| (Dollars in millions) | 2011 | 2010 | 2009 |
| Net sales | 111 | 124 | 107 |
| Operating income | 61* | 13 | 8 |
Processes jalapeño peppers at its plant in Honduras
Selected financials for the whole business:
Balance Sheet
| (Thousands of dollars) | 2011 | 2010 | |
| Cash and cash equivalents | 71510 | 41124 | |
| Short-term investments | 323,256 | 332,205 | |
| Total Assets | 3,006,728 | 2,734,086 | |
| Long-term debt | 116,367 | 91,407 | |
| Total equity | 2,079,467 | 1,778,249 | |
| Income Statement: | |||
| (Thousands of dollars) | 2011 | 2010 | 2009 |
| Total net sales | 5,746,902 | 4,385,702 | 3,601,308 |
| Operating income | 407,204 | 321,066 | 23,723 |
| Net earnings | 343,557 | 283,012 | 91,517 |
| Shares outstanding | 1,214,934 | 1,224,092 | 1,237,452 |
| Cash flow Statement | |||
| (Thousands of dollars) | 2011 | 2010 | 2009 |
| Net cash from operations | 219,996 | 339,812 | 246,357 |
| Capital expenditures | 183,748 | 103,336 | 54,276 |
Valuation:
Market cap: approximately $2.2 billion
Enterprise value: approximately $1.9 billion
Price/Earnings: 6.5
ROE: approximately 15%
Price/Book value: approximately 1
Management:
Management owns more than 70% of company. In the above numbers alone, we can be reasonably confident that they are utilizing the assets in a productive manner. Mr. Steven J. Bresky has been chairman of the board, president and chief executive officer of Seaboard Corporation since July 2006. He has been working for Seaboard for 30 years, including acting as president of Seaboard Corporation and as president of Seaboard's Overseas Division. They have been opportunistic and buying back shares when they go below book value. They have increased their book value 15% per year for the last 10 years.
Risks:
* Commodity business – No branding power; price increases of input commodities may not be passed on to the customers immediately.
* Policies/unrest in many of the foreign countries in which they do business, such as Argentina, Dominican Republic, Honduras, etc.
* Environmental liabilities
The reason opportunity exists:
* Shares traded (very illiquid at approximately 750 per day) are very low in volume.
* No analyst coverage and no earnings estimates given by management (both yearly or quarterly)
Conclusion:
It’s a good business, has capable management (owns 70% of the company which is aligned with shareholder interests) and shares are trading for a very cheap valuation. It is a commodity business, which does not have branding/pricing power, but has a strategic vision & cost structure. The company has assets worth US$3 billion and makes more than US$300 million per year (more than 10% return on total capital) while keeping $400 million in cash, marketable securities and negligible debt. It is trading for around book value and less than that at times. Investors purchasing at these prices will be rewarded in the long run. They have excellent potential in terms of ongoing demand and assets utilization. It is very cheap absolutely and relative to its peers.
Disclosure: I own the shares of this company.
