Seneca(SENEA) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended September 30, 2023, show total assets increasing to $1.57 billion driven by inventory growth, net earnings more than doubling to $47.9 million due to a lower LIFO charge, and improved operating cash flow despite seasonal inventory build-up, alongside a $55.6 million acquisition Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased to $1.57 billion driven by a rise in inventories to $1.01 billion, while total liabilities grew to $988.5 million and stockholders' equity reached $583.2 million Consolidated Balance Sheet Highlights (In thousands) | Account | Sep 30, 2023 | Oct 1, 2022 | Mar 31, 2023 | | :--- | :--- | :--- | :--- | | Total current assets | $1,157,511 | $999,883 | $794,039 | | Inventories | $1,013,447 | $814,966 | $670,898 | | Total assets | $1,571,720 | $1,397,972 | $1,212,721 | | Total current liabilities | $432,817 | $445,215 | $156,188 | | Long-term debt, less current portion | $492,685 | $316,345 | $432,695 | | Total liabilities | $988,495 | $834,565 | $657,971 | | Total stockholders' equity | $583,225 | $563,407 | $554,750 | Condensed Consolidated Statements of Net Earnings For the six months ended September 30, 2023, net sales remained flat at $706.1 million, while operating income surged to $73.9 million and diluted EPS increased to $6.30, primarily driven by a lower cost of products sold Statement of Net Earnings Highlights (In thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $407,475 | $439,842 | $706,139 | $705,035 | | Operating income | $38,424 | $21,836 | $73,921 | $28,432 | | Net earnings | $24,779 | $16,131 | $47,890 | $21,234 | | Diluted EPS | $3.29 | $2.03 | $6.30 | $2.62 | Condensed Consolidated Statements of Cash Flows For the six months ended September 30, 2023, net cash used in operating activities significantly improved to $26.3 million despite seasonal inventory build-up, while investing activities used $18.9 million and financing activities provided $45.0 million primarily from borrowings Cash Flow Summary (In thousands) | Activity | Six Months Ended Sep 30, 2023 | Six Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,279) | $(133,621) | | Net cash used in investing activities | $(18,886) | $(29,826) | | Net cash provided by financing activities | $44,990 | $165,430 | | Net (decrease) increase in cash | $(175) | $1,983 | Notes to Condensed Consolidated Financial Statements Key notes reveal revenue is primarily from canned vegetables, a significantly lower LIFO charge boosted profitability, long-term debt increased to $511.9 million, $19.6 million in stock was repurchased, and a $55.6 million acquisition of the Green Giant® shelf-stable product line occurred subsequently - On November 8, 2023, the Company acquired certain assets of the Green Giant® shelf-stable vegetable product line from B&G Foods, Inc. for an initial purchase price of approximately $55.6 million in cash[69] - For the six months ended September 30, 2023, the company repurchased 386,681 shares of its Class A Common Stock for $19.6 million[61] Revenue by Product Category (Six Months Ended, In thousands) | Product Category | Sep 30, 2023 | Oct 1, 2022 | | :--- | :--- | :--- | | Canned vegetables | $579,536 | $583,084 | | Frozen vegetables | $64,585 | $59,806 | | Fruit products | $39,539 | $42,303 | | Snack products | $7,354 | $6,675 | | Other | $15,125 | $13,167 | | Total | $706,139 | $705,035 | - The LIFO charge decreased significantly, with an increase to cost of products sold of $7.6 million for the six months ended Sep 30, 2023, compared to $48.4 million for the same period in 2022[34] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes increased profitability for the first six months of fiscal 2024 to a significantly lower LIFO charge, which boosted gross margin to 16.1% despite flat net sales, while liquidity is managed through a revolving credit facility and increased debt, with remediation underway for a material weakness in year-end LIFO calculation controls Results of Operations For the six months ended September 30, 2023, net sales marginally increased to $706.1 million due to higher prices offsetting lower volumes, while gross margin substantially improved to 16.1% driven by a lower LIFO charge, and interest expense rose sharply to $13.8 million due to increased debt and rates - For the six months ended Sep 30, 2023, the net sales increase of $1.1 million was due to higher selling prices contributing $52.6 million, offset by lower sales volumes having an unfavorable impact of $51.5 million[77] - Gross margin for the six months ended Sep 30, 2023, increased to 16.1% from 9.2% in the prior year, primarily due to a decrease in the LIFO charge to $7.6 million from $48.4 million[87] - Interest expense for the six-month period increased to $13.8 million from $3.8 million year-over-year, as a result of higher interest rates and increased borrowings[92] Liquidity and Capital Resources The company's liquidity relies on cash from operations and a revolving credit facility, with operating activities using $26.3 million for seasonal inventory buildup, while long-term debt significantly increased to $492.7 million due to term loan amendments, maintaining compliance with all debt covenants - Cash used in operating activities for the six months ended Sep 30, 2023 was $26.3 million, primarily due to the seasonal increase in inventories[97] - On May 23, 2023, the company amended its Term Loan A-2, combining an existing balance with a new $125.0 million facility to create a single $298.5 million term loan[50] - The company utilizes a seasonally adjusted revolving credit facility of up to $400.0 million for working capital needs, which is secured by accounts receivable and inventories[104] Non-GAAP Financial Measures The company presents non-GAAP measures like Adjusted Net Earnings and FIFO EBITDA to enhance comparability by excluding LIFO impact, with Adjusted Net Earnings at $53.6 million and FIFO EBITDA at $109.4 million for the six months ended September 30, 2023 Reconciliation of Reported Earnings to Adjusted Net Earnings (In thousands) | Description | Six Months Ended Sep 30, 2023 | Six Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | Earnings before income taxes, as reported | $62,838 | $27,725 | | LIFO charge | $7,616 | $48,435 | | Adjusted net earnings | $53,610 | $57,609 | Reconciliation of Net Earnings to FIFO EBITDA (In thousands) | Description | Six Months Ended Sep 30, 2023 | Six Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net earnings | $47,890 | $21,234 | | EBITDA | $101,807 | $58,105 | | LIFO charge | $7,616 | $48,435 | | FIFO EBITDA | $109,423 | $106,540 | Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure since March 31, 2023, with key risks including raw material pricing and availability, and interest rate fluctuations impacting variable-rate debt - There have been no material changes to the Company's exposure to market risk since March 31, 2023. The company is exposed to fluctuations in interest rates, primarily related to its revolving credit facility and Amended Term Loan A-2[130] Controls and Procedures Management identified a material weakness in internal control over financial reporting related to year-end LIFO inventory valuation, with remediation efforts underway, yet concluded disclosure controls and procedures were effective as of September 30, 2023 - A material weakness was identified in the Company's internal control over financial reporting relating to the accounting for valuing inventory using the LIFO method, specifically regarding the review controls for a year-end adjustment[132] - Remedial actions include implementing new controls to reconcile inventory quantities and utilizing new software with analytical features to perform the LIFO calculation[135] - The Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[134] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are expected to have a material adverse impact on its financial position, results of operations, or cash flows - In the ordinary course of its business, the Company is made a party to certain legal proceedings but does not believe that an adverse decision would have a material adverse impact on its financial position, results of operations, or cash flows[68] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2023 - There have been no material changes to the risk factors disclosed in the Company's Annual Report Form 10-K for the period ended March 31, 2023[137] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 FY2024, the company repurchased 343,081 shares of Class A Common Stock at an average price of $51.03 per share, and the Board increased the stock repurchase authorization to 2,500,000 shares Share Repurchases (Q2 FY2024) | Period | Class A Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 2023 | - | - | | Aug 2023 | 161,485 | $49.44 | | Sep 2023 | 181,596 | $52.44 | | Total | 343,081 | $51.03 | - On August 9, 2023, the Board of Directors approved an amendment to the stock repurchase program, increasing the maximum number of shares to be repurchased to 2,500,000[141] Other Information During the quarter ended September 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - During the quarterly period ended September 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[142] Exhibits The report includes required exhibits, such as CEO and CFO certifications under Sarbanes-Oxley Act and Inline XBRL financial data files - 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 documents[143]