Press release·02/06/2025 22:07:51

Seneca Foods Navigates Challenging Conditions with Resilience

Seneca Foods Corporation, a leading provider of packaged fruits and vegetables, has weathered a period of elevated costs and supply chain disruptions, showcasing its ability to adapt and maintain its market position. The company’s recent financial results highlight both the headwinds it has faced and the strategies it has employed to navigate these challenges.

Financial Performance Overview

For the nine months ended December 28, 2024, Seneca Foods reported net sales of $1,233.0 million, a 7.2% increase compared to the same period in the prior year. This growth was primarily driven by higher sales volumes, which contributed $87.3 million in favorability. However, this was partially offset by a $4.9 million decrease in net sales due to a combination of reduced selling prices and product mix changes.

The company’s operating income for the nine-month period was 6.1% of net sales, down from 9.1% in the prior year. This decline was mainly attributable to continued elevated costs, which outpaced the increase in net sales. Gross margin for the nine months ended December 28, 2024, was 10.9%, compared to 14.6% in the same period of the previous year.

Navigating Cost Pressures

Seneca Foods has faced significant cost increases across various production inputs, including raw materials, fuel, labor, and distribution. These cost pressures have been driven by a combination of factors, such as supply chain disruptions, steel supply and pricing challenges, raw material shortages, and labor shortages.

To manage these rising costs, the company has employed several strategies. It has sought to lock in prices through short-term supply contracts, advance grower purchase agreements, and cost-saving measures. Seneca Foods has also attempted to offset the increased costs by raising sales prices to its customers. However, the company has noted that increases in the prices it charges its customers may lag behind the rising input costs, and competitive pressures and pricing methodologies in the various sales channels may limit its ability to fully pass on these cost increases.

Seasonal Impacts and Inventory Management

The company’s financial position and results of operations are significantly impacted by the seasonal nature of its business. Seneca Foods’ production cycle begins with planting in the spring, followed by harvesting and packaging during the second and third fiscal quarters, with sales spanning the following twelve months. This seasonal pattern results in inventory and accounts payable reaching their lowest points in the first fiscal quarter, prior to the new seasonal pack commencing.

During the preceding fiscal years, Seneca Foods experienced larger annual pack sizes to replenish post-pandemic inventory levels and meet customer demand. Additionally, supply chain challenges and inflationary pressure in the steel industry impacted can manufacturing operations, leading to higher costs per unit for the finished goods. These factors contributed to higher cash outflows and increased working capital needs.

In the current fiscal year, the company has experienced an easing of working capital needs, driven by the normalization of inventory levels. However, adverse weather conditions during the planting and harvesting seasons have had a notable impact, especially in the upper Midwest, resulting in a seasonal pack that is lower than originally planned. This, in turn, has led to a higher-cost seasonal pack on a per-unit basis, though the overall cash requirements are more favorable compared to the preceding fiscal years.

Liquidity and Capital Resources

Seneca Foods’ primary liquidity requirements include debt service, capital expenditures, and working capital needs. The company’s liquidity is primarily funded through cash generated from operations and external sources of financing, including its revolving credit facility.

During the nine months ended December 28, 2024, the company generated $243.6 million in cash from operating activities, a significant improvement compared to the $128.1 million used in the prior year period. This was driven by improved working capital needs, as the company experienced a lower utilization of cash for inventories due to the higher inventory levels carried into the current fiscal year and the reduced seasonal pack.

Net cash used in investing activities was $28.9 million, primarily for capital expenditures and deposits for the installation of a new can manufacturing line. In the financing activities, the company used $213.7 million, mainly for a net paydown on its revolving credit facility and payments on term loans and finance obligations.

Seneca Foods believes that its operations, along with existing liquidity sources, will satisfy its cash requirements for at least the next twelve months, including the expectation of being able to retire or refinance its long-term debt at maturity.

Outlook and Risks

Looking ahead, Seneca Foods faces a range of factors that could impact its future performance. The company’s ability to successfully implement sales price increases and cost-saving measures to offset the continued elevated costs will be crucial. Additionally, the company’s exposure to factors such as raw material and labor availability, climate and weather conditions, and competition in the industry will be important considerations.

Seneca Foods has identified several key risks that could affect its business, including:

• Continued rising costs and availability of raw materials, packaging, and labor
• Supply chain disruptions and the impact of the Russia-Ukraine conflict on the global economy
• Adverse weather conditions and their impact on crop yields
• The loss of significant customers or a substantial reduction in orders
• Effectiveness of marketing and trade promotion programs
• Compliance with evolving governmental regulations

The company’s ability to navigate these challenges and capitalize on opportunities will be critical in maintaining its market position and delivering value to its shareholders.

Conclusion

Seneca Foods has demonstrated resilience in the face of significant headwinds, leveraging its operational expertise and strategic initiatives to navigate the challenging conditions. While the company has faced elevated costs and supply chain disruptions, it has employed various strategies to manage these pressures and maintain its financial stability.

Looking ahead, Seneca Foods’ ability to continue adapting to the evolving market landscape, effectively managing its costs, and capitalizing on opportunities will be key to its long-term success. The company’s focus on operational efficiency, inventory management, and strategic investments positions it well to navigate the uncertainties and capitalize on the growth potential in the packaged fruits and vegetables industry.