Seaboard Corp: Form 10-Q for the period ended Mar 29, 2025

This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard’s consolidated financial statements and the accompanying notes included in this quarterly report on Form 10-Q and within Seaboard’s 2024 10-K. Certain statements in this report contain forward-looking statements. See the section entitled “Forward-looking Statements” for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

LIQUIDITY AND CAPITAL RESOURCES

The primary objectives of Seaboard’s financing strategy are to effectively manage financial risks, ensure efficient liquidity for daily global operations and maintain balance sheet strength. Seaboard’s principal funding sources are generated from operating activities, short-term investments and borrowings from revolving lines of credit and term loans. Seaboard’s cash requirements include funding for working capital, capital expenditures, strategic investments and other needs. Seaboard evaluates its overall liquidity at least on a quarterly basis, and management believes Seaboard’s combination of internally-generated cash, liquidity and borrowing capabilities will be adequate to meet all short-term and long-term commitments.

As of March 29, 2025, Seaboard had cash and short-term investments of nearly $1.1 billion and total net working capital of $1 billion. Of the total cash and short-term investments balance, $90 million was held by foreign subsidiaries. Seaboard considers substantially all foreign profits permanently reinvested in its foreign operations, except for previously-taxed undistributed earnings of Seaboard Marine. For all other foreign subsidiaries, Seaboard intends to continue permanently reinvesting their funds outside the U.S. as they continue to demonstrate no need to repatriate them to fund Seaboard’s U.S. operations for the foreseeable future. Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation of these funds to the U.S. as determination of the tax is not practical due to the complexity of the multi-jurisdictional tax environment in which Seaboard operates.

The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.

During the first quarter of 2025, Seaboard entered into a collateralized uncommitted line of credit agreement with up to $100 million of borrowing availability that is secured by certain eligible accounts receivable and matures on March 14, 2026. Also, Seaboard reduced its borrowing capacity under the committed line of credit from $450 million to $300 million and extended the maturity date to March 23, 2026. See Note 4 to the condensed consolidated financial statements for more discussion. Seaboard will continue to evaluate opportunities to access efficient financing in the markets where it operates, leveraging low-cost funding to support its operations.

Seaboard had long-term debt of $1.0 billion as of March 29, 2025, which included a Term Loan due 2033 of $963 million. Current maturities of long-term debt were $11 million as of March 29, 2025.

Cash Flows

Cash used in operating activities was $20 million for the first quarter of 2025, compared to cash provided by operating activities of $19 million for 2024. The change in operating activities cash flows was due to less cash generated from working capital of $115 million, partially offset by an increase in net earnings, adjusted for non-cash items, of $65 million. The decrease in cash generated from working capital was primarily inventory-related due to timing of sales and inventory purchases in Seaboard’s CT&M segment. This segment primarily handles large shipments of grain and the associated timing of deliveries can result in significant working capital fluctuations across periods.

Cash used in investing activities was $55 million for the first quarter of 2025, compared to $113 million for 2024. During the three months ended March 29, 2025, Seaboard invested $109 million in property, plant and equipment, of which $74 million was in the Marine segment, consisting primarily of installment payments on vessels under construction. The payments for these vessels are made in accordance with milestones achieved throughout construction. One new dual-fueled vessel was completed and delivered during the first quarter of 2025, and five others are expected to be completed and delivered during the remainder of 2025. Cash flows from investing activities for short-term investments are part of

Seaboard’s overall liquidity management strategy. Short-term investment purchases are a result of the investment of excess cash, asset allocation from the active management of the portfolio and re-investment of matured securities.

Cash provided by financing activities was $62 million for the first quarter of 2025, compared to $119 million for 2024. Cash flows from financing activities primarily include draws and repayments under committed and uncommitted revolving facilities held with financial institutions across multiple jurisdictions and currencies. The daily needs for working capital primarily influence changes in Seaboard’s borrowing balances.

Capital Expenditures and Other Cash Requirements

For the remainder of 2025, management has budgeted capital expenditures totaling approximately $451 million. The Marine segment planned expenditures include primarily installment payments on vessels under construction. The Pork segment planned expenditures are primarily for normal replacement of breeding herd and other investments. Management anticipates paying for these capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity. There are no material updates to our obligations as discussed in the 2024 10-K.

RESULTS OF OPERATIONS

Seaboard’s operations are heavily commodity-driven and financial performance for certain subsidiaries is very cyclical based on respective global commodity markets and trends in economic activity. Subsequent to the first quarter of 2025 period end, the U.S. government has imposed, and is considering imposing, additional tariffs and trade restrictions on certain goods. In response to these actions, certain countries have imposed, or are considering imposing, tariffs on certain goods produced in the U.S. Such activity has resulted in volatile commodity markets and uncertain global economic conditions which directly negatively impact some segments and indirectly other segments. The risk of additional tariffs, trade restrictions by the U.S. and other countries, and the status of certain trade agreements is uncertain and continues to evolve. Seaboard cannot be certain of the outcome, which could adversely impact its financial condition and results of operations. See Item 1A. Risk Factors for further discussion.

Net Sales

Net sales for the three-month period of 2025 increased $125 million compared to the same period in 2024. The increase primarily reflected higher sales of $71 million in the Marine segment due to higher voyage revenue, $35 million in the CT&M segment driven by higher volumes of commodities sold and $34 million in the Liquid Fuels segment from increased volumes of fuel and environmental credits sold. See the net sales discussion by reportable segment below for more details.

Operating Income (Loss)

Operating income increased $58 million for the three-month period of 2025 compared to the same period in 2024. The change primarily reflected an increase of $42 million in Marine segment operating income due to higher voyage revenue, and $23 million in both the CT&M and Liquid Fuels segments driven primarily by mark-to-market adjustments on derivative contracts and higher margins on products sold, respectively. The increases were partially offset by a $32 million decrease in Pork segment operating income due to lower margins of pork products and market hogs sold. See the operating income discussion by reportable segment below for more details.

Income Tax Expense

Seaboard computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusts for discrete items recorded during the period. The effective tax rate for the three-month period of 2025 increased compared to the three-month period of 2024 primarily as a result of a decrease in the amount of investment tax credits generated and the impact of incremental Pillar Two taxes. The Organization for Economic Cooperation released Pillar Two as part of its Base Erosion and Profit Shifting initiative to ensure large multinational companies pay a minimum level of tax on the income arising in each jurisdiction where they operate. The adoption and effective dates of these rules vary by country and the rules include some temporary safe harbors. Several countries in which Seaboard operates enacted Pillar Two laws in 2024, and additional countries in which Seaboard has material operations, including the Isle of Man and The Bahamas, adopted Pillar Two rules effective in 2025. These jurisdictions had effective tax rates that were lower than 15% prior to implementing the new rules. Seaboard will continue to monitor legislative developments related to Pillar Two in the countries in which it operates and the potential impact on future results.

Segment Results

See Note 7 to the condensed consolidated financial statements for a reconciliation of net sales and operating income (loss) by reportable segment to consolidated net sales and consolidated operating income (loss), respectively.

Pork Segment

The decrease in net sales for the three-month period of 2025 compared to 2024 was driven by lower volumes of market hogs and pork products sold, primarily due to timing of deliveries to the processing plants, which each decreased sales $18 million, partially offset by higher selling prices.

The decrease in operating income for the three-month period of 2025 compared to 2024 reflected lower margins on pork products and market hogs sold, due to favorable adjustments to the lower of cost and net realizable value inventory reserve during the first quarter of 2024 with no adjustments in 2025, and an increase in legal claims expense. With improved pork prices and lower grain commodity costs, the inventory reserve decreased $39 million during the first quarter of 2024. This decrease in operating income was partially offset by lower feed costs of $57 million due to price and volume. Based on current uncertainties with tariffs, and as it is difficult to predict market prices for pork products, including the indirect impact of tariffs, management is uncertain whether the Pork segment will be profitable for the remainder of 2025. In April 2025, in response to U.S.-issued trade tariffs, China issued a series of escalating retaliatory tariffs on U.S. products, including pork. China has historically been an outlet for certain of Seaboard’s pork products, and represented 3% of this segment’s total sales for the year ended December 31, 2024. Additionally, the future remains uncertain with respect to tariffs that could originate in other pork export destinations. See Item 1A. Risk Factors for further discussion of risks associated with tariffs.

CT&M Segment

Net sales increased for the three-month period of 2025 compared to 2024, primarily due to higher volumes of commodities sold, which increased sales $180 million, partially offset by lower average sales prices, which decreased sales $145 million. Sales prices for many of Seaboard’s products are directly affected by both domestic and worldwide supply and demand for commodities and competing products, all of which are determined by constantly changing market forces.

Operating income increased for the three-month period of 2025 compared to 2024, primarily due to an increase of $38 million in mark-to-market gains on derivative contracts, partially offset by lower margins on certain commodities sold. While management anticipates positive operating income, excluding the effects of mark-to-market adjustments, for this segment for the remainder of 2025, it is difficult to predict worldwide commodity price fluctuations and the uncertain political and economic conditions in the countries in which this segment operates.

Marine Segment

The increase in net sales for the three-month period of 2025 compared to 2024 was primarily due to a 12% increase in cargo volumes and an 8% increase in average freight rates. The increase in average freight rates was partially driven by an increase in refrigerated cargo, which earns higher rates.

The increase in operating income for the three-month period of 2025 compared to 2024 was primarily the result of higher voyage revenue, partially offset by higher voyage-related costs, such as stevedoring costs primarily due to higher cargo volumes. Many of this segment’s costs are variable in nature and the overall expense amounts will fluctuate as volumes increase or decrease. While management anticipates this segment will be profitable for the remainder of 2025, it is difficult to predict changes in fuel costs or other voyage costs, cargo volumes or cargo rates for future periods. In April 2025, the Office of the U.S. Trade Representative (“USTR”) issued a Notice of Action finalizing fees for Chinese-built vessels and Chinese-owned and operated ships for U.S. port calls. Due to certain fee exemptions, including an exemption based on vessel capacity, management believes the Notice of Action will not have any material adverse impact on the Marine segment’s results. See Item 1A. Risk Factors for further discussion of USTR’s Notice of Action.

Liquid Fuels Segment

The increase in net sales for the three-month period of 2025 compared to 2024 reflected an increase in the price and volume of fuel sold of $20 million and $19 million, respectively. Fuel production increased due to consistent production at the renewable diesel plant during the first quarter of 2025 compared to no operations during the first quarter of 2024 due to repairs and maintenance. Environmental credits sold increased sales $25 million due to higher volumes of credits, partially offset by decreases in credit prices reducing sales $11 million. Also, sales decreased $19 million related to federal blender’s credits received in the first quarter of 2024 compared to none in 2025. With the passing of the Inflation Reduction Act of 2022, the federal blender’s credit expired December 31, 2024 and was replaced by a new clean fuel production tax credit that is recorded as a reduction to cost of sales.

The decrease in operating loss for the three-month period of 2025 compared to 2024 primarily reflected an increase in sales, partially offset by higher costs associated with more production and, to a lesser extent, less income received on production tax credits as compared to the federal blender’s credits. The production tax credit value varies based on the greenhouse gas emissions factor of fuel produced and the value is less than the federal blender’s credit on a per-gallon basis. While management anticipates this segment will be near break-even for the remainder of 2025, it is difficult to predict market prices for biodiesel, renewable diesel, environmental credits, production tax credits or the cost of feedstocks for future periods. This segment’s renewable diesel plant is expected to undergo regularly scheduled maintenance in the second quarter of 2025 and anticipates no production for approximately one month.

Power Segment

The increase in net sales for the three-month period of 2025 compared to 2024 reflected primarily more power generation due to less maintenance performed on the units.

Operating income remained flat for the three-month period of 2025 compared to 2024, as the increase in net sales was offset by higher fuel costs due to an increase in volumes. While management anticipates this segment will be profitable for the remainder of 2025, it is difficult to predict fuel costs or the extent that spot market rates will fluctuate compared to fuel costs or other power producers for future periods.

Turkey Segment

The Turkey segment represents Seaboard’s non-controlling 52.5% investment in Butterball, LLC (“Butterball”) which is accounted for using the equity method. The decrease in Butterball’s net income was primarily the result of a 9% increase in production and plant costs due to bird health issues. Sales were relatively flat with increased volumes being offset by a decrease in selling prices. Turkey commodity markets continued to strengthen through the quarter. During the first quarter of 2025, Butterball closed a further-processing plant in Jonesboro, Arkansas. The closure did not have a material impact on results during the first quarter of 2025, and it is not anticipated to have a material impact on future results. While management anticipates this segment will be profitable for the remainder of 2025, it is difficult to predict market prices for turkey products or the cost of feed for future periods.

As of March 29, 2025 and December 31, 2024, Butterball had total assets of $1.2 billion and $1.1 billion, respectively. Butterball’s summarized income statement information was as follows:

CRITICAL ACCOUNTING ESTIMATES

The preparation of Seaboard’s condensed consolidated financial statements requires Seaboard to make estimates, judgments, and assumptions. A summary of significant accounting policies and critical accounting estimates is included in Seaboard’s 2024 10-K. Other than the update to significant accounting polices discussed in Note 1 to the condensed consolidated financial statements, there were no other changes to significant accounting policies or critical accounting estimates during the three months ended March 29, 2025.

Seaboard is exposed to various types of market risks in its day-to-day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates, interest rates and equity prices. Occasionally, Seaboard utilizes derivative instruments to manage these overall market risks. The nature of Seaboard’s market risk exposure related to these items has not changed materially since December 31, 2024. See Note 5 to the condensed consolidated financial statements for further discussion of market risk exposure.

Evaluation of Disclosure Controls and Procedures — Seaboard’s management evaluated, under the direction of the Chief Executive and Chief Financial Officers, the effectiveness of Seaboard’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 29, 2025. Based upon and as of the date of that evaluation, Seaboard’s Chief Executive and Chief Financial Officers concluded that Seaboard’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports it files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Due to these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions.

Change in Internal Control Over Financial Reporting — There have been no changes in Seaboard’s internal control over financial reporting required by Exchange Act Rule 13a-15(f) that occurred during the fiscal quarter ended March 29, 2025, that have materially affected, or are reasonably likely to materially affect, Seaboard’s internal control over financial reporting.

Except for the updates to risk factors set forth below, there have been no material changes in the risk factors as previously disclosed in Seaboard’s 2024 10-K.

Operational Risks

(1) Changes in and Uncertainty of U.S. Trade Policy and the Impact of Any Tariffs, Trade Sanctions or Similar Government Actions Could Adversely Impact Seaboard’s Business. The U.S. has recently instituted certain changes, and has proposed additional changes, in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., and other government regulations affecting trade between the U.S. and other countries where Seaboard conducts business. Global trade disruption, significant introductions of trade barriers and bilateral trade frictions, or countermeasures imposed in response to such government actions, have and could further i) reduce Seaboard’s ability to sell products in certain markets or worst-case globally, ii) increase the costs for Seaboard’s materials and equipment, or iii) lower overall revenues and margins, any of which could have a material adverse impact on Seaboard’s business and financial condition. Specifically, certain previously exported products for Seaboard Foods may have to be rendered in the U.S. if other markets cannot be identified, which would negatively impact margins further. Changes in tariffs and trade restrictions can be, and have been, announced with little or no advance notice, and are difficult to predict, which makes the associated risks difficult to anticipate and mitigate, if even possible. If Seaboard is unable to navigate further changes in U.S. or international trade policy, it could have a material adverse impact on Seaboard’s business and financial condition. Furthermore, sustained uncertainty about, or worsening of, current global economic conditions and further tariffs and escalations of tensions between the U.S. and its trading partners could result in a global economic slowdown and long-term changes to global trade.

Legal and Regulatory Risks

(2) U.S. Government Actions Targeting China’s Maritime, Logistics and Shipbuilding Sectors and Imposition of Fees on Chinese Vessels Could Adversely Impact Seaboard’s Business. On April 17, 2025, the USTR issued a Notice of Action under Section 301 of the Trade Act of 1974 “to restore American shipbuilding” including a phased set of targeted measures in response to China’s efforts to dominate the maritime, logistics and shipbuilding sectors. These measures include service-based fees on vessels operated or built in China, imposed on a per-voyage and per-tonnage basis, set to begin after an initial 180-day grace period and escalate over time. Although all of Seaboard’s owned and under-construction vessels are exempt from the final regulations due to capacity size, among other exemptions, retaliatory actions by China or other countries could indirectly impact port-related costs. Higher shipping costs incurred by vessel operators may be passed on to customers resulting in increased product costs for Seaboard. Also, increases in and volatility of costs to import or export will likely impact global commodity market prices. The USTR has proposed additional trade restrictions, which could cause further cost increases and price volatility. These additional fees and proposed trade restrictions could have a material adverse impact on Seaboard’s business and financial condition.