Seneca Foods Corp

Previous wording

Seneca Foods Corporation is a leading provider of packaged fruits and vegetables, with facilities located throughout the United States. Our product offerings include canned, frozen and jarred produce and snack chips that are sold under private label as well as national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Green Giant®, Aunt Nellie’s®, Cherryman®, Green Valley® and READ®. Canned fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. We also sell products to foodservice distributors, restaurant chains, industrial markets, other food processors, export customers in approximately 60 countries and federal, state and local governments for school and other food programs. Additionally, the Company packs canned and frozen vegetables under contract packing agreements.

Current wording

Seneca Foods Corporation is a leading provider of packaged fruits and vegetables, with facilities located throughout the United States. Our product offerings include canned, frozen and jarred produce and snack chips that are sold under private label as well as national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Green Giant®, Aunt Nellie’s®, Cherryman®, Green Valley® and READ®. Our products are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. We also sell products to foodservice distributors, restaurant chains, industrial markets, other food processors, export customers in approximately 55 countries and federal, state and local governments for school and other food programs. Additionally, the Company packs canned and frozen vegetables under contract packing agreements.

Previous wording

We continue to experience material cost inflation for many of our raw materials and other input costs attributable to a number of factors, including but not limited to, supply chain disruptions (including raw material shortages), labor shortages, the conflict between Russia and Ukraine, and the conflict in Israel and Gaza. While we have no direct exposure to these conflicts, we have experienced increased costs for transportation, energy and raw materials due in part to their negative impact on the global economy. We attempt to manage cost inflation risks by locking in prices through short-term supply contracts, advance grower purchase agreements, and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers may lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs. To the extent we are unable to avoid or offset any present or future cost increases our operating results could be materially adversely affected.

Current wording

We attempt to manage costs by locking in prices through short-term supply contracts, advance grower purchase agreements, and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers may lag behind rising input costs. Competitive pressures also may limit our ability to raise prices in response to rising costs. To the extent we are unable to avoid or offset any present or future cost increases, our operating results could be materially adversely affected.

Previous wording

Net sales totaled $444.5 million for the three months ended December 30, 2023 as compared with $473.3 million for the three months ended December 31, 2022. The overall net sales decrease of $28.8 million, or 6.1%, was predominantly due to lower sales volumes having an unfavorable impact of $50.9 million to net sales, partially offset by $22.1 million of favorability due to higher selling prices and a favorable mix impact, as compared to the prior year three-month interim period.

Current wording

Net sales totaled $304.7 million for the three months ended June 29, 2024 as compared with $298.7 million for the three months ended July 1, 2023. The overall net sales increase of $6.0 million, or 2.0%, was due to higher sales volumes contributing favorability of $11.2 million to net sales, offset by product mix and lower selling prices which had an unfavorable impact of $5.2 million as compared to the prior year three-month interim period.

Previous wording

Gross margin: Gross margin for the three months ended December 30, 2023 was 12.2% as compared with 11.4% for the three months ended December 31, 2022. The increase in gross margin for the three months ended December 30, 2023 was due primarily to the Company incurring a decrease in the LIFO charge for the current quarter as compared to the prior year quarter. The Company’s LIFO charge for the three months ended December 30, 2023 was $12.0 million as compared to a LIFO charge of $30.9 million for the three months ended December 31, 2022.

Current wording

Gross Margin: Gross margin for the three months ended June 29, 2024 was 14.0% as compared to 18.5% for the three months ended July 1, 2023. The decrease in gross margin for the three months ended June 29, 2024 was mainly due to continued elevated costs. Refer to the section above for additional discussion regarding business trends. The Company’s LIFO credit for the three months ended June 29, 2024 was $2.9 million as compared to a LIFO credit of $1.7 million for the three months ended July 1, 2023. The LIFO credit amounts have the impact of reducing cost of products sold.

Previous wording

Selling, General, and Administrative: Selling, general, and administrative costs as a percentage of net sales for the three months ended December 30, 2023, were 5.2% as compared with 4.6% for the prior year quarter. The increase in selling, general, and administrative costs as a percentage of net sales was largely driven by the decrease in net sales and the fixed nature of certain other expenses. Also, there were routine increases to other expenses within the category, such as cost of living wage adjustments.

Current wording

Selling, General, and Administrative: Selling, general and administrative expense for the three months ended June 29, 2024 decreased $2.4 million from the three months ended July 1, 2023. Selling, general, and administrative expense as a percentage of net sales for the three months ended June 29, 2024, was 5.7% as compared with 6.6% for the prior year quarter. The decrease in selling, general, and administrative expense as a percentage of net sales was due to the increase in net sales and the fixed nature of certain expenses.

Previous wording

Restructuring*:* During the nine months ended December 30, 2023, the Company incurred restructuring charges primarily due to equipment moves from plants that were closed in the previous fiscal year. During the nine months ended December 31, 2022, the Company incurred restructuring charges primarily associated with ceasing production of green beans at a plant in the Northeast. The charges were comprised of severance costs and a write down of production equipment that was sold during the subsequent twelve months.

Current wording

Restructuring*:* The Company did not incur significant restructuring charges during the three months ended June 29, 2024. During the three months ended July 1, 2023, the Company incurred restructuring charges primarily due to equipment moves from ceasing production of green beans at a plant in the Northeast in the previous fiscal year.

Previous wording

Other Operating Income, net: The Company had net other operating income of $1.2 million during the nine months ended December 30, 2023, which was driven primarily by $1.8 million from the sale of non-operational assets in the Pacific Northwest, offset by $0.6 million of transition service fees during the nine-month period. During the nine months ended December 31, 2022, the Company had net other operating income of $2.4 million, which was driven primarily by a gain on the sale of the Company’s western trucking fleet amongst other fixed assets and a true-up of the supplemental early retirement plan accrual, partially offset by the aforementioned write down of idle production equipment.

Current wording

Other Operating Income, net: The Company had net other operating income of $0.4 million during the three months ended June 29, 2024, which was driven primarily by the sale of a small portion of land in the Midwest. During the three months ended July 1, 2023, the Company had net other operating income of $0.2 million, which was driven primarily by the sale of a non-operational plant in the Midwest.

Previous wording

Other Non-Operating Income: Other non-operating income totaled $1.8 million and $2.0 million for the three months ended December 30, 2023, and December 31, 2022, respectively, and is comprised of the non-service related pension amounts that are actuarially determined.

Current wording

Other Non-Operating Income: Other non-operating income totaled $1.4 million and $1.3 million for the three months ended June 29, 2024, and July 1, 2023, respectively, and is comprised of the non-service related pension amounts that are actuarially determined.

Previous wording

Interest Expense, net: Interest expense as a percentage of net sales was 2.1% for the three months ended December 30, 2023, as compared to 0.9% for the three months ended December 31, 2022. Interest expense increased from $4.3 million in the prior year quarter to $9.4 million for the current quarter as a result of higher interest rates and increased long-term debt levels.

Current wording

Interest Expense, net: Interest expense as a percentage of net sales was 3.4% for the three months ended June 29, 2024, as compared to 2.2% for the three months ended July 1, 2023. Interest expense increased from $6.6 million in the prior year quarter to $10.3 million for the current quarter as a result of higher interest rates and increased borrowings under the Company’s revolving credit facility as compared to the prior year quarter. Additionally, the three months ended July 1, 2023 did not have Term Loan A-2 outstanding for the entire quarterly period which contributed to a lower interest expense amount for that prior year quarter.

Previous wording

The Company’s effective tax rate was 23.8% and 23.5% for the nine months ended December 30, 2023 and December 31, 2022, respectively. The effective tax rate increased in the current nine-month interim period primarily due to state rate changes having an unfavorable impact on the effective rate which increased the rate by 0.3%.

Current wording

The Company’s effective tax rate was 23.3% and 23.6% for the three months ended June 29, 2024 and July 1, 2023, respectively. The effective tax rate decreased in the current interim period as compared to the prior year quarter driven by interest received on a federal income tax refund which reduced the effective tax rate by 0.7%, partially offset by the impact of state rate changes driven by apportionment which increased the effective rate by 0.4%.

Previous wording

Material Cash Requirements**:** The Company’s primary liquidity requirements include debt service, capital expenditures, and working capital needs. The Company may also seek strategic acquisitions to leverage existing capabilities and further build upon its existing business. Liquidity requirements are funded primarily through cash generated from operations and external sources of financing, including the revolving credit facility. The Company believes that its operations along with existing liquidity sources will satisfy its cash requirements for at least the next twelve months. The Company has borrowed funds and continues to believe that it has the ability to do so at reasonable interest rates, however additional borrowings would result in increased interest expense. The Company does not have any off-balance sheet financing arrangements.

Current wording

The Company believes that its operations along with existing liquidity sources will satisfy its cash requirements for at least the next twelve months. This includes the Company’s expectation with respect to Term Loan A-1 that matures on June 1, 2025, that it will maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, using operating cash flows, access to the capital markets, and access to its revolving credit facility. The Company has borrowed funds and continues to believe that it has the ability to do so at reasonable interest rates, however additional borrowings would result in increased interest expense. The Company does not have any off-balance sheet financing arrangements.

Previous wording

Net Cash Used in Operating Activities**:** For the nine months ended December 30, 2023, cash used in operating activities was $128.1 million, which consisted of a use of cash of $249.4 million by operating assets and liabilities partially offset by net earnings of $65.6 million, adjusted by non-cash charges of $55.7 million. The non-cash charges were largely driven by $38.1 million of depreciation and amortization and $19.6 million LIFO charge. The change in operating assets and liabilities was due to inventories being a principal use of cash as the nine-month period covered the primary seasonal pack harvest month. The increase in inventories was also impacted by finished goods acquired in the asset acquisition, refer to Note 14 of the Notes to Condensed Consolidated Statements contained herein for further details of that transaction.

Current wording

Net Cash Provided by Operating Activities**:** For the three months ended June 29, 2024, cash provided by operating activities was $50.3 million, which consisted of $28.3 million for operating assets and liabilities, coupled with net earnings of $12.7 million and non-cash charges of $9.3 million. The non-cash charges were largely driven by $10.8 million of depreciation and amortization, $1.6 million of non-cash lease expense, partially offset by a $2.9 million LIFO credit. The change in operating assets and liabilities was largely due to inventories contributing favorably as the strategic approach discussed above within the material cash requirements section resulted in lower working capital needs, especially for steel, during the current three month period. A corresponding decline in accounts payable activity also contributed to the change in operating assets and liabilities.

Previous wording

For the nine months ended December 31, 2022, cash used in operating activities was $189.5 million, which consisted of a use of cash of $351.3 million by operating assets and liabilities partially offset by net earnings of $42.3 million, adjusted by non-cash charges of $119.5 million. The non-cash charges were largely driven by $39.7 million of depreciation and amortization and $79.3 million LIFO charge. The change in operating assets and liabilities was largely due to inventories being a use of cash driven by the material cost inflation to various production inputs. The increase in inventories was partially offset by an associated increase in accounts payable.

Current wording

For the three months ended July 1, 2023, cash provided by operating activities was $25.0 million, which consisted of net earnings of $23.1 million, adjusted by non-cash charges of $11.1 million, partially offset by operating assets and liabilities using cash of $9.2 million. The non-cash charges were largely driven by $10.7 million of depreciation and amortization, $1.9 million of non-cash lease expense, partially offset by a $1.7 million LIFO credit. The change in operating assets and liabilities was due to inventories being a use of cash as early stages of the Company’s seasonal pack commenced during the quarter, in addition to material cost inflation to various production inputs.

Previous wording

The cash requirements of the business fluctuate significantly throughout the year to coincide with the seasonal growing cycles of vegetables. The majority of the inventories are produced during the packing months, from June through November, and are then sold over the following year. Cash flow from operating activities is one of the Company’s main sources of liquidity.

Current wording

The cash requirements of the business fluctuate significantly throughout the year to coincide with the seasonal growing cycles of vegetables. The majority of the inventories are produced during the packing months, from June through November, and are then sold over the following twelve months. Cash flow from operating activities is one of the Company’s main sources of liquidity, excluding usual seasonal working capital swings.

Previous wording

Net Cash Used in Investing Activities**:**Net cash used in investing activities was $23.8 million for the nine months ended December 30, 2023, and consisted of cash used for capital expenditures of $31.8 million partially offset by proceeds from the sale of assets totaling $8.0 million.

Current wording

Net Cash Used in Investing Activities**:**Net cash used in investing activities was $13.4 million for the three months ended June 29, 2024, and consisted of cash used for capital expenditures of $12.1 million and $1.7 million paid as deposits to vendors for a new can manufacturing line. Offsetting those amounts, the Company received proceeds from the sale of assets totaling $0.4 million.

Previous wording

Net cash used in investing activities was $51.5 million for the nine months ended December 31, 2022, and consisted of cash used for capital expenditures of $56.5 million partially offset by proceeds from the sale of assets totaling $5.0 million.

Current wording

Net cash used in investing activities was $11.7 million for the three months ended July 1, 2023, and consisted of cash used for capital expenditures of $14.8 million partially offset by proceeds from the sale of assets totaling $3.1 million.

Previous wording

While individual vegetables have seasonal cycles of peak production and sales, the different cycles are somewhat offsetting. Minimal food packaging occurs in the Company's last fiscal quarter ending March 31, which is the optimal time for maintenance, repairs and equipment changes in its packaging plants. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing and amount of the Company’s sales and earnings. When the seasonal harvesting periods of the Company's major vegetables are newly completed, inventories for these packaged vegetables are at their highest levels. For peas, the peak inventory time is mid-summer and for corn and green beans, the Company's highest volume vegetables, the peak inventory is in mid-autumn. The seasonal nature of the Company’s production cycle results in inventory and accounts payable reaching their lowest point late in the fourth quarter/early in the first quarter prior to the new seasonal pack commencing. As the seasonal pack progresses, these components of working capital both increase until the pack is complete.

Current wording

The Company’s production cycle begins with planting in the spring followed by harvesting and packaging during the second and third fiscal quarters with sales spanning over the following twelve months. Minimal food packaging occurs in the Company's last fiscal quarter ending March 31, which is the optimal time for maintenance, repairs and equipment changes in its packaging plants. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing and amount of the Company’s sales and earnings. When the seasonal harvesting periods of the Company's major vegetables are newly completed, inventories for these packaged vegetables are at their highest levels. For peas, the peak inventory time is mid-summer and for corn and green beans, the Company's highest volume vegetables, the peak inventory is in mid-autumn. The seasonal nature of the Company’s production cycle results in inventory and accounts payable reaching their lowest point in mid-to-late first quarter prior to the new seasonal pack commencing. As the seasonal pack progresses, these components of working capital both increase until the pack is complete.

Previous wording

The Company’s fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday seasons. In addition, the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis at the end of each pack cycle, which typically occurs during the second and third quarters. The seasonal nature of the Company’s sales, particularly holiday driven retail sales, result in the accounts receivable balance reaching its highest point at the end of the second and third fiscal quarters, while typically being the lowest at the end of the first quarter.

Current wording

The Company’s fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday seasons. In addition, the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis during the pack cycle, the majority of which typically occurs in the second and third quarters. The seasonal nature of the Company’s sales, particularly holiday driven retail sales, result in the accounts receivable balance reaching its highest point at the end of the second and third fiscal quarters, while typically being the lowest at the end of the first quarter.

Previous wording

Adjusted net earnings, EBITDA, and FIFO EBITDA are non-GAAP financial measures and are provided for information purposes only. The Company believes these non-GAAP financial measures provide investors with helpful information to evaluate financial performance, perform comparisons from period to period, and to compare results against the Company’s industry peers. A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with GAAP in our condensed consolidated balance sheets and related condensed consolidated statements of net earnings, comprehensive income, stockholders’ equity and cash flows. The Company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.

Current wording

Adjusted net earnings, EBITDA, and FIFO EBITDA are non-GAAP financial measures and are provided for informational purposes only. The Company believes these non-GAAP financial measures provide investors with helpful information to evaluate financial performance, perform comparisons from period to period, and to compare results against the Company’s industry peers. A non-GAAP financial measure is defined as a numerical measure of the Company’s financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated balance sheets and related condensed consolidated statements of net earnings, comprehensive income, stockholders’ equity and cash flows. The Company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.

Previous wording

Adjusted net earnings is calculated on a FIFO basis which excludes the impact from the application of LIFO. Set forth below is a reconciliation of reported earnings before income taxes to adjusted net earnings (in thousands):

Current wording

Adjusted net earnings are calculated on a FIFO basis which excludes the impact from the application of LIFO. Set forth below is a reconciliation of reported net earnings before income taxes to adjusted net earnings (in thousands):

Previous wording

The Company believes EBITDA is often a useful measure of a Company’s operating performance because EBITDA excludes charges for depreciation, amortization, and interest expense as well as the Company’s provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry. FIFO EBITDA also excludes non-cash charges related to the LIFO inventory valuation method. The Company’s revolving credit facility and term loan agreements use FIFO EBITDA in the financial covenants thereunder. Set forth below is a reconciliation of reported net earnings to EBITDA and FIFO EBITDA (in thousands):

Current wording

The Company believes EBITDA is often a useful measure of a Company’s operating performance because EBITDA excludes charges for depreciation, amortization, non-cash lease expense, and interest expense as well as the Company’s provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry. FIFO EBITDA also excludes non-cash charges related to the LIFO inventory valuation method. The Company’s revolving credit facility and term loan agreements use FIFO EBITDA in the financial covenants thereunder. Set forth below is a reconciliation of reported net earnings to EBITDA and FIFO EBITDA (in thousands):

Previous wording

A description of the Company's critical accounting policies and estimates is contained in the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended March 31, 2023. There were no material changes to the Company's critical accounting policies or estimates during the three and nine months ended December 30, 2023.

Current wording

A description of the Company's critical accounting estimates is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024. There were no material changes to the Company's critical accounting policies or estimates during the three months ended June 29, 2024.