Description

Summary

Stock price $3,062

FDS: 971k

Market cap: $2,973m

Net debt: $226m

EV: $3,200m

Book value: $4,636m (tangible book $4,473m)

Seaboard is an agribusiness conglomerate that has been run by the Bresky family (73% ownership) for 105 years and has been public since 1959.  The stock price has a 11% CAGR since 1990.  At $3,062/share, the stock currently trades at 0.64x book value.  Its businesses are cyclical but over time the company has earned an 11% ROE.  The stock has traded at an average price of 1.2x book value over the years, with spikes up to 3x book value in boom periods and a trough of 0.5x book value in 2000.  2023 was the first time the company has had negative operating income in over 25 years, mostly due to big losses in the pork business.

I think this is a very low price for a decent business that has a reason to exist, has a good balance sheet, and is run by long-time owner-operators.  If Seaboard averaged an 8% ROE for the next 3 years and the stock traded back to book value, that would be a 100% return.  Even just a return to book value would be over a 50% gain.  Expectations are quite low.

Seaboard is no stranger to VIC, having been written up four times over the years: as a short in August 2005 at 2.6x book value ($1,680/share), as a short in May 2007 at 2.6x book value ($2,580/share), as a long in August 2016 at 1.3x book value ($3,200/share), and as a long in April 2019 at 1.6x book value ($4,662/share).  I recommend revisiting those writeups/threads for background.

Description 

Seaboard Corporation ("Seaboard") is a Kansas City, MO-based conglomerate that was founded in 1918 by Otto Bresky and has remained under family control ever since, with the family owning 73% of the outstanding shares.

The company that has 3 main segments: 1) Pork - vertically integrated pork production and processing, 2) Commodity Trading - commodity trading and grain processing in Africa and South America, and 3) Marine - cargo shipping in the western hemisphere, along with a few smaller segments that produce power in the Dominican Republic and alcohol/sugar in Argentina.  The company also owns 52.5% of Butterball, which is involved in turkey production.  The company is decentralized and each segment is run independently.

Over the last few decades, Pork has produced about 37% of earnings, Marine shipping 29% of earnings, and Commodity Trading & Milling 20% of earnings, with Power producing most of the remainder.

These are cyclical commodity businesses, with Pork tending to experience multi-year cycles where it loses money for a year or two (5 money-losing years in the last 25), then earns decent profits.  Marine has even bigger spikes ($591m EBIT in 2022).  Commodity Trading tends to be more stable, with no money-losing years this century.  Pork lost a heroic amount of money in 2023, a $528m loss.  2022 was the 2nd worst year at a $102m loss.  I'm not going to go into detail on the Pork business, but I will note that many protein producers have been written up on VIC over the years, and the story in these businesses is always the same due to how the business works - booms lead to busts and busts lead to booms.  I expect that the Pork segment will earn $100m+ within the next few years.

The company is coming off a huge capex cycle, with much of the investment in the Pork segment being spent on renewable biogas recovery projects and biodiesel plants.  It remains to be seen what the returns will be from these projects, but at this point most of the money has been spent.  Segment capex is provided in the 10-K, and Pork capex has been over $1b in last 3 years.  The company has stumbled with these projects, but expects them to get fully up and running this year.  There is an additional $293m capex budgeted for Pork in 2024, but at this point most of the money has been spent.  In Marine, the company has budgeted $342m capex for 2024 & 2025 to get 8 additional ships online.

Normalized earnings

Here is an estimate of normalized margins for each business.  This is based on the last 25 years and is rough but I think reasonably accurate and foots to an 8% unlevered ROE on $4.6b equity, which is perhaps a bit conservative, and comes to 8x PE.  I note that while 2023 was rough, 2021 & 2022 were the two best years in the company's history

Pork - $2.5b revenue, 7% EBIT margins, $175m EBIT

Commodity Trading & Milling - $5b revenue, 3% EBIT margins, $150m EBIT

Marine - $1.4b revenue - 10% EBIT margins, $140m EBIT

Power/Sugar/Other - $40m EBIT

Corporate OH - -$25m EBIT

Total - $480m EBIT

Ownership

The Breskys have long been tight-lipped.  They do not have quarterly earnings releases or conference calls, though the CEO does write an informative one page shareholder letter in the annual report each year.  The family tends to just go about its business and attempts to grow earnings over the long term.

The CEO has been a Bresky man for 3 generations going back to 1918 until Steve Bresky died unexpectedly of a heart attack in 2020 at age 67.  His son, Jack has been with the company for 11 years but is age 36 and was apparently not ready for the top job and Robert Steer, the CFO since 2011, took the reins.  I believe that Steve's wife Ellen, who is Chairman, is calling the shots.

There was a very unusual transaction in mid-2023: the company repurchased 20% of the Bresky family stake and 16% of shares outstanding at $3,162.50/share, a 14% discount to the market price and 24% discount to tangible book value.  This seems to be unusually shareholder friendly, as I don't think anyone would have blinked if it had been done at the market price.  I was a bit puzzled about this transaction and have not ever seen anything else like it (please mention if you have).  There is one exception, which assuaged my concerns - Seaboard did a similar transaction in 2002.  The company repurchased 15% of shares outstanding from the Bresky's at $202.26/share, at 60% of book value, and within 3 years the book value had doubled and in another 5 years it doubled again.

My takeaway is that the family wanted liquidity and seems not to care about maximizing their personal gains.  This is unusual but would not shock me having reviewed Steve Bresky's shareholder letters back to 2007.  I have no doubt that if the company were ever put up for sale, it would go for decently north of book value.

Summary

This is a decent business at a very cheap price.  It is cyclical, though the different segments run on different cycles and thus tend to balance each other out over time.  For whatever reason, the company is currently trading a price far below where it has traded in recent history, on both a relative and absolute basis.  I don't think there is any deep reason for this.  It's an oddball stock that trades at over $3k per share with a low float in a hodgepodge of businesses and management doesn't talk with investors.  Over time, if the value continues to grow, the stock price will go up.

I own shares, purchased recently at similar prices to where the stock trades, but do not consider it a material position (>5%).

Catalyst

Earnings improving.