Seneca Foods Corp

Previous wording

We experienced material cost increases to various production inputs during the last several years due to a number of factors, including but not limited to, supply chain disruptions, steel supply and pricing, raw material shortages, labor shortages, and the conflicts between Russia and Ukraine. While we have no direct exposure to this foreign conflict, it had a negative impact on the global economy which increased certain of our input costs. While certain of the factors mentioned above have started to ease and stabilize during the current fiscal year, our costs remain elevated as compared to historical levels.

Current wording

We experienced material cost increases to various production inputs during the last several years due to a number of factors, including but not limited to, supply chain disruptions, steel supply and pricing, raw material shortages, labor shortages, and the conflicts between Russia and Ukraine. While we have no direct exposure to this foreign conflict, it had a negative impact on the global economy which increased certain of our input costs. While certain of the factors mentioned above have started to ease and stabilize during the current six-month interim period, our costs remain elevated as compared to historical levels.

Previous 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.

Current wording

Net sales totaled $425.5 million for the three months ended September 28, 2024 as compared with $407.5 million for the three months ended September 30, 2023. The overall net sales increase of $18.0 million, or 4.4%, was due to higher sales volumes contributing favorability of $8.5 million, coupled with product mix and increased selling prices which had a favorable impact of $9.5 million as compared to the prior year three-month interim period.

Previous wording

Net sales of canned and frozen vegetables increased over the prior year quarter driven by higher sales volumes in each of these product categories, which outpaced decreases related to pricing and product mix. The Company’s fruit products category benefited from both increased pricing in response to material cost pressures and increases in sales volumes, which drove the net sales increase compared to the prior year quarter. Net sales in the snack products category remained relatively consistent with the prior year quarter. Offsetting the increases in the main product categories was a decrease in net sales attributable to the other category which experienced lower demand as compared to the prior year quarter for seed, cans and ends, which are ancillary to the Company’s main operations.

Current wording

Net sales of canned vegetables and frozen vegetables increased by a combined $18.7 million over the prior year quarter. The categories were impacted by overall higher demand, complemented by increased pricing and favorable product mix. Net sales in the fruit products and snack products categories remained relatively consistent with the prior year quarter with a nominal combined $0.7 million decrease. Net sales attributable to the other category also remained flat as compared to the prior year quarter for seed, cans and ends, and outside revenue from aircraft operations, which are ancillary to the Company’s main operations.

Previous 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.

Current wording

Gross Margin: Gross margin for the three months ended September 28, 2024 was 10.1% as compared to 14.3% for the three months ended September 30, 2023. The decrease in gross margin for the three months ended September 28, 2024 was mainly due to continued elevated costs. Refer to the section above for additional discussion regarding business trends. The Company’s LIFO charge for the three months ended September 28, 2024 was $15.0 million as compared to a LIFO charge of $9.3 million for the three months ended September 30, 2023. The LIFO charge amounts have the impact of increasing cost of products sold.

Previous 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.

Current wording

Selling, General, and Administrative: Selling, general and administrative expense for the three months ended September 28, 2024 decreased $3.0 million from the three months ended September 30, 2023. Selling, general, and administrative expense as a percentage of net sales for the three months ended September 28, 2024, was 4.2% as compared with 5.2% for the prior year quarter. The decrease in selling, general, and administrative expense as a percentage of net sales was mainly due to the increase in net sales and the fixed nature of certain expenses.

Previous 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.

Current wording

Restructuring*:* The Company incurred minimal restructuring charges during the three months ended September 28, 2024, attributable to equipment moves for the Northeast trucking fleet which ceased operations in the previous fiscal year. During the three months ended September 30, 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 $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.

Current wording

Other Operating Income, net: The Company had net other operating income of $0.1 million during the three months ended September 28, 2024, which was driven primarily by the sale of a small portion of land in the Midwest. During the three months ended September 30, 2023, the Company had net other operating income of $1.3 million, which was driven primarily by the sale of non-operational assets in the Pacific Northwest.

Previous 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.

Current wording

Interest Expense, net: Interest expense as a percentage of net sales was 2.7% for the six months ended September 28, 2024, as compared to 1.9% for the six months ended September 30, 2023. Interest expense increased from $13.8 million in the prior year six-month interim period to $19.4 million for the current six-month interim period as a result of higher interest rates and increased borrowings under the Company’s revolving credit facility as compared to the prior year. Additionally, the six months ended September 30, 2023 did not have Term Loan A-2 outstanding for the entire period which contributed to a lower interest expense amount for that prior year interim period.

Previous 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%.

Current wording

The Company’s effective tax rate was 22.7% and 23.8% for the six months ended September 28, 2024 and September 30, 2023, respectively. The effective tax rate decreased in the current six-month period as compared to the prior year six-month period driven by the impact of federal credits which reduced the effective rate by 1.1% and interest received on a federal income tax refund which reduced the effective tax rate by 0.4%. These decreases were partially offset by the impact of state rate changes driven by apportionment which increased the effective rate by 0.4%.

Previous 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.

Current wording

Net Cash Provided by (Used in) Operating Activities**:** For the six months ended September 28, 2024, cash provided by operating activities was $125.9 million, which consisted of $66.4 million from changes in operating assets and liabilities, coupled with net earnings of $26.0 million and non-cash charges of $33.5 million. The non-cash charges were driven by $22.0 million of depreciation and amortization, $2.9 million of non-cash lease expense, and a $12.1 million LIFO charge. The change in operating assets and liabilities was largely due to working capital needs as the six-month period covered the primary seasonal pack harvest months. Cash utilized for inventories and higher accounts payable activity were the main drivers, although the use of cash for these items was lower than in the prior year six-month interim period resulting from factors discussed above within the material cash requirements section.

Previous 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.

Current wording

For the six months ended September 30, 2023, cash used in operating activities was $26.3 million, which consisted of net earnings of $47.9 million, adjusted by non-cash charges of $32.2 million, partially offset by operating assets and liabilities using cash of $106.4 million. The non-cash charges were largely driven by $21.8 million of depreciation and amortization, $3.7 million of non-cash lease expense, and a $7.6 million LIFO charge. The change in operating assets and liabilities was due to inventories being a use of cash as the six-month period covered the primary seasonal pack harvest months, in addition to material cost inflation to various production inputs.

Previous 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.

Current wording

Net Cash Used in Investing Activities**:**Net cash used in investing activities was $19.9 million for the six months ended September 28, 2024, and consisted of cash used for capital expenditures of $17.6 million and $2.7 million paid as deposits to vendors for the installation of 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 $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.

Current wording

Net cash used in investing activities was $18.9 million for the six months ended September 30, 2023, and consisted of cash used for capital expenditures of $26.5 million partially offset by proceeds from the sale of assets totaling $7.6 million.

Previous wording

Net Cash Used in Financing Activities**:** Net cash used in financing activities was $35.8 million for the three months ended June 29, 2024, driven primarily by a net paydown on the Company’s revolving credit facility of $28.0 million and term loan payments of $4.8 million during the quarter. Offsetting the payments was a $5.0 million increase in the note payable borrowings associated with the Company’s new can manufacturing line. Additionally, the Company used cash of $6.6 million to purchase treasury stock and made payments of $1.4 million on financing leases.

Current wording

Net Cash (Used in) Provided by Financing Activities**:** Net cash used in financing activities was $100.7 million for the six months ended September 28, 2024, driven primarily by a net paydown on the Company’s revolving credit facility of $90.8 million and term loan payments of $9.5 million during the six-month interim period. Offsetting the outflows was a $12.4 million increase in the note payable borrowings associated with the Company’s new can manufacturing line. Additionally, the Company used cash of $10.0 million to purchase treasury stock and made payments of $2.8 million on financing leases.

Previous wording

Net cash used in financing activities was $13.3 million for the three months ended July 1, 2023, driven primarily by a net paydown on the Company’s revolving credit facility of $128.4 million and term loan payments of $4.8 million. That activity was offset by the Company receiving proceeds of $124.4 million from a new term loan during the quarter. Additionally, the Company used cash of $2.2 million to purchase treasury stock and made payments of $2.3 million on financing leases.

Current wording

Net cash provided by financing activities was $45.0 million for the six months ended September 30, 2023, driven primarily by a net paydown on the Company’s revolving credit facility of $45.7 million and term loan payments of $9.5 million. That activity was offset by the Company receiving proceeds of $124.4 million from a new term loan during the six-month interim period. Additionally, the Company used cash of $19.6 million to purchase treasury stock and made payments of $4.6 million on financing leases, which partially offset the increased cash provided.

Previous 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):

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.

Previous 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.

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 six months ended September 28, 2024.