Seneca(SENEB) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's unaudited financials show a significant inventory-driven increase in assets and liabilities, with higher sales but slightly lower net earnings year-over-year Condensed Consolidated Balance Sheets Balance Sheet Items | Balance Sheet Items | Dec 31, 2022 ($ thousands) | Mar 31, 2022 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,304,844 | $947,030 | +37.8% | | Total Current Assets | $893,818 | $555,442 | +60.9% | | Inventories | $780,457 | $410,331 | +90.2% | | Total Liabilities | $719,765 | $363,193 | +98.2% | | Long-term debt, less current portion | $399,948 | $109,624 | +264.8% | | Total Stockholders' Equity | $585,079 | $583,837 | +0.2% | - The significant increase in total assets and liabilities is primarily due to a 90.2% rise in inventories and a corresponding increase in long-term debt to finance working capital needs[10] Condensed Consolidated Statements of Net Earnings Three Months Ended | Metric | Three Months Ended Dec 31, 2022 ($ thousands) | Three Months Ended Jan 1, 2022 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $473,254 | $445,593 | +6.2% | | Operating Income | $29,817 | $23,664 | +26.0% | | Net Earnings | $21,054 | $18,664 | +12.8% | | Diluted EPS | $2.74 | $2.14 | +28.0% | Nine Months Ended | Metric | Nine Months Ended Dec 31, 2022 ($ thousands) | Nine Months Ended Jan 1, 2022 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,178,289 | $1,052,891 | +11.9% | | Operating Income | $58,249 | $63,210 | -7.8% | | Net Earnings | $42,288 | $44,454 | -4.9% | | Diluted EPS | $5.31 | $4.98 | +6.6% | Condensed Consolidated Statements of Cash Flows Cash Flow Activity (Nine Months Ended) | Cash Flow Activity | Nine Months Ended Dec 31, 2022 ($ thousands) | Nine Months Ended Jan 1, 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash used by operating activities | ($189,480) | ($11,085) | | Net cash used by investing activities | ($51,496) | ($31,664) | | Net cash provided (used) by financing activities | $242,588 | ($6,077) | | Net increase (decrease) in cash | $1,612 | ($48,826) | - The significant use of cash from operating activities was primarily driven by a $370.1 million increase in inventories, funded by net borrowings and a reduction in cash on hand[15][86] Notes to Condensed Consolidated Financial Statements Revenue by Product Category (Nine Months Ended) | Product Category | Dec 31, 2022 ($ thousands) | Jan 1, 2022 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Canned vegetables | $976,026 | $860,737 | +13.4% | | Frozen vegetables | $93,560 | $95,739 | -2.3% | | Fruit products | $75,674 | $68,351 | +10.7% | | Total Net Sales | $1,178,289 | $1,052,891 | +11.9% | - The company values inventory using the Last-In, First-Out (LIFO) method, with the LIFO reserve increasing to $243.8 million due to significant cost inflation[29][30][31] - On September 14, 2022, the company amended its revolving credit facility to replace the LIBOR interest rate benchmark with SOFR[36] - During the nine months ended December 31, 2022, the company repurchased 766,071 shares of its Class A Common Stock for $41.2 million[47] - In Q3 2023, the company ceased green bean production at a New York facility, resulting in a restructuring charge of $1.8 million[52] - Subsequent to the quarter end, the company entered into a new loan agreement adding an additional term loan of $175 million maturing in 2028[53][54] Management's Discussion and Analysis of Financial Condition and Results of Operations Higher selling prices drove sales growth but were insufficient to offset significant LIFO charges from cost inflation, resulting in compressed gross margins Results of Operations - For the nine months ended Dec 31, 2022, the net sales increase of $125.4 million (11.9%) was driven by higher selling prices, partially offset by lower sales volumes[64] - Gross margin for the nine-month period decreased to 10.0% from 11.5% year-over-year, mainly due to a LIFO charge of $79.3 million reflecting significant cost inflation[74] - Interest expense for the nine-month period nearly doubled to $8.0 million from $4.2 million, driven by higher interest rates and increased borrowing levels[79] - In fiscal year 2022, the company recorded a $7.8 million impairment charge, writing down its equity investment to zero[77] Liquidity and Capital Resources - Net cash used by operating activities increased to $189.5 million for the nine months ended Dec 31, 2022, primarily due to a $231.3 million increase in cash used for inventories[84] - Cash provided by financing activities was $242.6 million, driven by net borrowings of $290.3 million under the revolving credit facility to fund working capital and share repurchases[86] - The company's production cycle is seasonal, with inventories and accounts payable peaking in mid-autumn after the harvest[92] Non-GAAP Financial Measures Reconciliation of Reported Net Earnings to Adjusted Net Earnings | Metric ($ thousands) | Nine Months Ended Dec 31, 2022 | Nine Months Ended Jan 1, 2022 | | :--- | :--- | :--- | | Earnings before income taxes, as reported | $55,282 | $58,221 | | LIFO charge | $79,333 | $30,654 | | Loss on equity investment | - | $7,775 | | Adjusted earnings before income taxes | $134,615 | $96,650 | | Adjusted net earnings | $102,980 | $73,841 | - The company provides an adjusted net earnings figure, a non-GAAP measure, which is calculated on a FIFO basis to allow for better year-over-year comparison[95] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from raw material pricing, competition, and interest rate fluctuations, with no material changes since March 31, 2022 - The company is exposed to market risks from raw material pricing, competition, and interest rate fluctuations on its variable-rate debt with no material changes reported[107] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[110] - There were no changes during the quarter that materially affected the company's internal control over financial reporting[111] PART II. OTHER INFORMATION Legal Proceedings Information regarding legal proceedings is referenced in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022 - For details on legal proceedings, the company refers to its Form 10-K for the fiscal year ended March 31, 2022[114] Risk Factors No material changes have been reported to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the period ended March 31, 2022, were reported[115] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 76,145 shares of its Class A Common Stock during the third quarter of fiscal 2023 at an average price of $55.38 per share Issuer Purchases of Equity Securities (Q3 FY2023) | Period | Total Shares Purchased (Class A) | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | 64,997 | $54.31 | | Nov 2022 | 0 | $0.00 | | Dec 2022 | 11,148 | $61.57 | | Total | 76,145 | $55.38 | Exhibits The report lists filed exhibits, including CEO and CFO certifications under the Sarbanes-Oxley Act and Inline XBRL documents - Exhibits filed with the report include certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Inline XBRL data files[123]