MERRIAM, Kan. – Incremental tariffs on US pork products presented headwinds for Seaboard Corp.’s pork unit in the second quarter of fiscal 2018.
For the second quarter ended June 30, the Pork Segment reported operating income of $17 million which represents a $35 million decline. Lower prices for pork products along with higher feed costs were partially offset by higher volume of pork products sold, Seaboard said. Incremental tariffs imposed by Mexico and China weighed on operating income.
“Seaboard sells pork to international customers including China and Mexico, and recent incremental tariffs, the duration of which is uncertain, are having a negative impact on earnings,” the company said in a filing with the Securities and Exchange Commission (SEC). “Management is unable to predict future market prices for pork products, the cost of feed or cost of third-party hogs. However, management anticipates positive operating income for this segment for the remainder of 2018.”
Net sales for the pork unit for the second quarter were $442 million, an increase from net sales of $414 million reported in the second quarter ended July 1, 2017.
“During the three-month period, the increase was primarily the result of increased volumes and prices of biodiesel sales and higher sales of market hogs to third parties and affiliates, the company said.
For the first six months of fiscal 2018, net sales in the Pork segment were $908 million compared with $784 million reported in the year-ago period. Seaboard attributed the increase to the receipt of federal blender’s credits of $42 million, which was recorded as revenue in the first quarter of 2018. Higher volumes and prices of biodiesel sales and higher sales of market hogs to third-parties and affiliates also contributed to results.
In the company’s Turkey segment, represented by Butterball LLC, the company reported an operating loss of $12 million for the second quarter for a net loss of $15 million. The company reported an operating loss of $10 million for the first six months of 2018.
Net sales in the Turkey segment totaled $326 million in the second quarter compared with $354 million in 2017. For the first six months of 2018, net sales were $647 million, down from $704 million reported in the year-ago period.
Overall, for the three months ended June 30, Seaboard reported net sales of $1,691 million compared with $1,422 million reported in the second quarter of 2017. For the first six months ended June 30, 2018, Seaboard reported net sales of $2,673 million compared with $2,278 million reported in the year-ago quarter.
“The three-month and six-month increases were primarily the result of higher volume third-party and affiliate sales in the CT&M [Commodity Trading and Milling segment] segment, higher volume and rates in the Marine segment and higher sales of biodiesel in the Pork segment,” the company said. “The six-month increase also included the federal blender’s credits in the Pork segment.”
Net earnings attributable Seaboard were $7 million, or $6.28 per common share, compared with $58 million, or $50.51 per common share, reported in the year-ago period. For the first six months of fiscal 2018, the company reported net earnings of $39 million compared with $143 million in the same period in 2017.
Operating income for the second quarter was $32 million compared with $55 million reported in the second quarter of 2017. Seaboard reported operating income of $129 million in the first six months of 2018, compared to $123 million reported in the first six months of 2017.
“The three-month decrease primarily reflected lower margins on pork products sold in the Pork segment and losses on mark-to-market derivative contracts in the CT&M segment, partially offset by higher margins in the Sugar and CT&M segments,” the company said. “The six-month increase primarily reflected the Federal blender’s credits offset by lower margins in the Pork segment.”