Seaboard Corp. (SEB) is my largest holding and last week they announced earnings. It was surprisingly good considering the economic climate. As I wrote in my first SEB post, SEB is a conglomerate with business lines related to commodities. I own SEB because I believe it has good management and the management's interests are aligned with those of long-term shareholders.
The market feels that the world is in a slowdown mode and cyclical sectors such as commodities will lose revenue. To make things worse, we had a record drought in the US which raised corn prices. Corn is the largest component of pork feed. And pork is the largest SEB segment. All this meant I was expecting a bad quarter, but instead they managed to earn $61.92 per share. At this rate they would earn $250 for the year. That means they would have earned over $250 in each of the past three years, which gives them a average P/E of 9 over that time!
The table below breaks down the results in their various segments. The operating profit is revenue minus cost of sales minus administrative costs. It does not include taxes, interest, etc., nor does it include profits from investments. All amounts are thousands of dollars.
| Segment | Revenue | Op. profit |
|---|---|---|
| Pork | 413,077 | 29,863 |
| Commodity Trading and Milling | 675,649 | 16,662 |
| Marine | 242,330 | 13,006 |
| Sugar | 69,025 | 13,615 |
| Power | 75,778 | 18,649 |
| All Other | 3,557 | 93 |
| Total | 1,479,416 | 91,888 |
The table shows that SEB operates low margin businesses. If management makes some missteps, a segment could lose money. For example, the pork segment lost money in the years around 2008. Now pork profits are stable (quite a relief to me!). The marine segment impressed me because shipping is suffering a slowdown worldwide. In 2011, the power unit sold two power generating plants but has since built new plants and this segment has the best margins in the company. So from the quarterly numbers, I think management has managed well the margins in all segments.
If management can keep up this kind of earnings for several more quarters, I think SEB can break through $3000 for the first time. And don't forget, SEB adds $250 of equity every year.
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