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Seaboard Corporation - Partnership Opportunity in Successful Business

March 07, 2012 | About:
go_loe

go_loe

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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

(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
*Includes the sale of business of 52.9M

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.

About the author:

go_loe
I am an investor searching and analyzing investments following value oriented principles.

Rating: 3.5/5 (13 votes)

Comments

batbeer2
Batbeer2 premium member - 2 years ago
Thanks, Seaboard is an interesting idea. The price has come down a bit.

IMO a company that is able to consistently compound tangible book value per share at double digit rates does not deserve to trade at (or near) 1x book.

HaoJiang
HaoJiang - 2 years ago
By the number they look good, but I came across this article when reading about its history. The aspect of hog processing being a tough business that needs local subsidy doesn't bother me as much as the corporate governance aspect. And the company may well have improved that aspect as well since the son took over. Just wonder if there's anecdotal evidence.

http://www.time.com/time/magazine/article/0,9171,1101981130-140572,00.html

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