Saturday, May 18, 2013

Seaboard First Quarter Earnings $47 per Share

Seaboard Corp reported earnings of of $47 per share, which is a 21% drop yoy. However, Seaboard Corp is a diversified agriculture company with five main segments. So, to understand the company, one should break down the operating results by segments. I decided to analyse the segments by detail.

The following table shows the most recent quarter's results, as well as that of the same quarter a year ago. And it shows the yearly results for the last three years.

Segment Q1 2013Q1 2012201220112010
Commodity Revenue800.8724.53023.52689.81808.9
Sugar Revenue66.2 73.6 288.3 259.8 196

Total quarterly revenue was up indicating the company is growing and/or higher prices for commodities. However, profits are down due to the Pork and Commodities Segments.

Pork Segment

Looking at the Pork Segment, the company indicated corn (feed) prices were higher yoy. This may explain the lower margin. Pork cost is very dependent on corn prices. The following table shows the pork and corn price indices over the same periods. Unfortunately, in Q1 2013, the price of pork dropped at the same time that the price of corn rose. But good news is coming, the good rainy season we have now will mean corn prices will drop in the coming summer and fall. So, I anticipate the Pork Segment's profits to rise.

Commodity Trading and Milling Segment

The biggest subsidiary is the Commodity Trading and Milling Segment which is like a middle man for wheat, corn, soy and etc. Commodities for this segment are generally higher than last year, however the profits are down. That is troubling. In the report, the company states

...The decrease primarily reflects lower margins on commodity trading sales to third parties and non-consolidated affiliates, especially on sales of wheat and corn. The decrease is primarily the result of unfavorable market conditions and certain inventory positions negatively impacted by the decrease in commodity prices in the first quarter of 2013 compared to favorable market conditions and certain inventory positions positively impacted in 2012 from increasing commodity prices.

which seems to indicate that commodities purchased in Q4 2012 were sold in Q1 2013 as commodity prices dropped. Indeed, wheat prices dropped 20% from Q4 2012 to Q1 2013. Similarly, corn prices dropped 15% over the same period.

Management said in the report it cannot predict the results from this Segment for this year. Most of this Segment is in less predictable foreign countries.

Sugar Segment

The following chart shows the price of sugar. The results of the Sugar Segment follows sugar prices. Unfortunately, sugar prices were down in the quarter.

Other Segments

The Marine and Power Segments shouldn't be the main sources of income for Seaboard, although a newly introduced power facility did help in the quarter. In addition, their 50% interest in Butterball suffered a $5 million loss, versus a $8.9 mil gain in the same quarter a year ago.

So overall, the first quarter has been a disappointing start. But even if all other Segments run at the current rate, and pork prices rise and corn prices fall, the company could still earn more than $200 per share.

Seaboard is my largest holding and I bought this stock many times at below $2000 per share. Now the stock trades at $2700. My estimated intrinsic value is also about $2700. So, I may reduce my holding soon as I feel it is fully valued.

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