Seneca Foods: Q4 FY24 Results Look Strong Only Using LIFO

Core Viewpoint - Seneca Foods reported mixed financial results for Q4 FY24, with higher selling prices offsetting lower sales volume, leading to a net loss of $2.2 million compared to a loss of $33.1 million a year earlier. However, EBITDA decreased by 22.7% year-on-year when using the FIFO method, indicating concerns about the sustainability of high margins [9][12]. Financial Performance - For Q4 FY24, net sales were $308 million, a 7% decrease year-on-year. The operating income was impacted by the LIFO method, which decreased operating income by $2.7 million compared to $52.3 million a year earlier [11][12]. - The company’s net debt increased to $632.6 million from $470.5 million a year earlier, driven by a $201.8 million rise in inventories due to higher raw material costs [3][16]. - Seneca Foods invested $33 million in share buybacks during FY24, but rising debt levels may limit future buybacks [3][16]. Valuation Metrics - Seneca Foods is currently trading at 6.7x EV/EBITDA and a similar level for P/E, with a price to tangible book value of 0.7x, indicating that the company is not expensive based on historical financial multiples [6][15]. - The company’s financial results appear strong under the LIFO method, but the FIFO method presents a less favorable picture, suggesting potential valuation concerns [6][12]. Business Overview - Seneca Foods, founded in 1949, primarily produces canned vegetables, contributing around 80% of its revenues. The company operates 26 facilities across the USA and has a diverse product range including packaged fruits and sauces [10][11]. - The business operates in a highly competitive seasonal market, with peak sales and net earnings typically occurring in the second and third quarters of the fiscal year [11]. Future Outlook - The company is expected to face challenges in FY25, with revenues and EBITDA likely to remain at similar levels to FY24 due to its mature business model. Rising net debt is anticipated to lead to a decrease in net income in the low double-digit percentage range [16][17]. - There are concerns about the sustainability of high margins and the potential for Seneca Foods to be viewed as a value trap, with no positive catalysts on the horizon [6][15].