Seneca Foods Corporation (NASDAQ:SENEA) is a leading provider of packaged fruits and vegetables, with a diverse portfolio of well-known brands and a strong presence across the United States. The company's operations span 26 facilities in eight states, supporting its production and distribution of canned vegetables, frozen vegetables, jarred fruit, and other food products.
Business Overview
Seneca Foods' principal products are sold nationwide through major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores, and dollar stores. The company also supplies its products to food service distributors, restaurant chains, industrial markets, other food packagers, export customers in approximately 60 countries, and federal, state, and local governments for school and other food programs.
Financials
In the latest fiscal year ended March 31, 2023, Seneca Foods reported annual net income of $63,318,000 and annual revenue of $1,458,603,000. However, the company faced challenges in its operating cash flow, which was -$82,963,000, and free cash flow, which was -$119,600,000 for the same period.
For the nine months ended December 30, 2023, Seneca Foods reported net sales of $1,150,620,000, a decrease of 2.4% compared to the prior-year period. This decline was primarily driven by lower sales volumes, which had an unfavorable impact of $105.6 million, partially offset by higher selling prices and favorable product mix, contributing $77.9 million in favorability.
The company's canned vegetables segment, which accounted for 82.8% of net sales in the nine-month period, saw a $23.8 million decrease in net sales compared to the prior-year period. Similarly, the frozen vegetables and fruit products segments experienced declines of $1.5 million and $4.1 million, respectively. The snack products segment remained relatively consistent, with a $0.8 million increase in net sales.
Seneca Foods' gross margin for the nine months ended December 30, 2023, was 14.6%, compared to 10.0% in the prior-year period. This improvement was primarily due to a decrease in the company's LIFO charge, which was $19.6 million in the current period compared to $79.3 million in the prior-year period.
The company's selling, general, and administrative (SG&A) costs as a percentage of net sales increased to 5.5% in the nine-month period, compared to 5.1% in the prior-year period. This increase was largely due to the fixed nature of certain expenses within the SG&A category, as well as routine increases in labor costs due to annual cost of living wage adjustments.
Seneca Foods' operating income for the nine months ended December 30, 2023, was $104,683,000, compared to $58,249,000 in the prior-year period. This improvement was driven by the decrease in the LIFO charge, which more than offset the slight decline in net sales.
The company's net earnings for the nine months ended December 30, 2023, were $65,565,000, compared to $42,288,000 in the prior-year period. Seneca Foods' effective tax rate for the nine-month period was 23.8%, compared to 23.5% in the prior-year period.
Liquidity
Seneca Foods' balance sheet remains strong, with a current ratio of 4.81 as of December 30, 2023, compared to 3.62 as of December 31, 2022. The company's long-term debt, less the current portion, was $611,349,000 as of December 30, 2023, compared to $399,948,000 as of December 31, 2022.
The company's liquidity position is supported by its revolving credit facility, which had $258,108,000 in outstanding borrowings as of December 30, 2023, compared to $313,808,000 as of December 31, 2022. Seneca Foods' weighted average interest rate on the revolving credit facility was 6.70% as of December 30, 2023, compared to 5.85% as of December 31, 2022.
Recent Developments
In November 2023, Seneca Foods executed an Asset Purchase Agreement and associated License Agreement with B&G Foods, Inc. to acquire certain assets related to the Green Giant® shelf-stable vegetable product line. The preliminary purchase price was approximately $55.6 million in cash, which was funded from borrowings under the company's revolving credit facility.
Risks and Challenges
Looking ahead, Seneca Foods continues to navigate the challenges posed by material cost inflation, supply chain disruptions, and labor shortages. The company is actively implementing cost-saving measures and working to pass on higher input costs to its customers through price increases. However, the company's ability to fully offset these inflationary pressures may be limited by competitive pressures and the timing of price adjustments.
Outlook
Despite the ongoing headwinds, Seneca Foods remains focused on leveraging its diversified product portfolio, strong brand recognition, and extensive distribution network to maintain its position as a leading provider of packaged fruits and vegetables in the United States. The company's recent acquisition of the Green Giant® shelf-stable vegetable product line is expected to further strengthen its market presence and diversify its revenue streams.
Conclusion
Investors should closely monitor Seneca Foods' ability to navigate the current inflationary environment, manage its liquidity and debt levels, and execute on its strategic initiatives to drive long-term growth and profitability. The company's performance will be heavily influenced by its success in passing on cost increases, managing its supply chain, and maintaining its competitive edge in the highly competitive packaged food industry.