Seneca Foods Corp 10-K

Item 1. Business   Overview   Seneca Foods Corporation (“Seneca” or the “Company”) was founded in 1949 and has evolved through internal growth and strategic acquisitions into a leading provider of packaged fruits and vegetables, with 26 main facilities located throughout the United States. The facilities are comprised of plants for packaging, can manufacturing, seed production, a farming operation and a logistical support network. Food packaging operations are primarily supported by plant locations in New York, Michigan, Oregon, Wisconsin, Washington, Idaho, Illinois, and Minnesota. The Company also maintains warehouses which are generally located adjacent to its packaging plants. The Company is incorporated in New York with its headquarters located at 350 WillowBrook Office Park Fairport, New York and its telephone number is (585) 495-4100.   The Company’s business strategies are designed to grow its market share and enhance sales and margins. These strategies include: 1) expand the Company’s leadership in the packaged fruit and vegetable industry; 2) provide low-cost, high-quality vegetable products to consumers through the elimination of costs from the Company’s supply chain and investment in state-of-the-art production and logistical technology; 3) focus on growth opportunities to capitalize on higher expected returns; and 4) pursue strategic acquisitions that leverage the Company’s core competencies.   Available Information   The Company’s Internet address is www.senecafoods.com . The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available on the Company’s web site, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. All such filings on the Company’s web site are available free of charge. Information on our website is not part of the annual report on Form 10-K.   In addition, the Company's website includes items related to corporate governance matters, including charters of various committees of the Board of Directors and the Company's Code of Business Conduct and Ethics. The Company intends to disclose on its website any amendment to or waiver of any provision of the Code of Business Conduct and Ethics that would otherwise be required to be disclosed under the rules of the SEC and NASDAQ.   Financial Information about Industry Segments   The Company has historically managed its business on the basis of three reportable food packaging segments: (1) fruits and vegetables, (2) prepared food products and (3) snack products. The other category comprises non-food packaging sales which relate to the sale of cans, ends, seed, and outside revenue from the Company's trucking and aircraft operations. During fiscal year 2021, the Company sold its prepared foods business, leaving just two reportable segments along with the other category. The Company’s food operation constituted 98% of total net sales in fiscal year 2023. Canned vegetables represented 83%, frozen vegetables represented 8%, fruit products represented 6%, and chip products represented 1% of the total food packaging net sales. Non-food packaging sales represented 2% of the Company's fiscal year 2023 net sales. Refer to the information set forth under the heading “ Segment Information ” in Note 14 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data”, for additional discussion about the Company’s segments.   Principal products and markets   The Company’s principal product offerings include canned, frozen and bottled produce, and snack chips. The Company manufactures and sells the following:     ● private label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers’ own or controlled labels;   ● private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators;   ● branded products under national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Aunt Nellie’s®, Cherryman®, Green Valley® and READ®;   ● branded products under co-pack agreements to other major branded companies for their distribution; and   ● products to the Company’s industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers.   2 Table of Contents   The Company’s fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. The Company also sells its products to foodservice distributors, restaurants 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. The following table summarizes net sales by major product category for fiscal years 2023 and 2022 (in thousands):       Fiscal Year:       2023     2022   Canned vegetables   $ 1,253,257     $ 1,135,983   Frozen vegetables     121,211       123,895   Fruit products     91,495       84,708   Snack products     12,661       12,332   Other     30,728       28,362       $ 1,509,352     $ 1,385,280     Source and Availability of Raw Materials   The Company’s high-quality products are primarily sourced from approximately 1,400 American farms. The Company purchases other raw materials, including steel, ingredients and packaging materials from commodity processors, steel producers and packaging suppliers. Raw materials and other input costs, such as labor, fuel, utilities and transportation, are subject to fluctuations in price attributable to a number of factors. Fluctuations in commodity prices can lead to retail price volatility and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.   The Company continues to experience material cost inflation for many of its 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, and the war in Ukraine. While the Company has no direct exposure to Russia and Ukraine, it has experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine conflict on the global economy. The Company attempts to manage cost inflation risks by locking in prices through short-term supply contracts, advance grower purchase agreements, and by implementing cost saving measures. The Company also attempts to offset rising input costs by raising sales prices to its customers. However, increases in the prices the Company charges its customers may lag behind rising input costs. Competitive pressures also may limit the Company’s ability to quickly raise prices in response to rising costs. To the extent the Company is unable to avoid or offset any present or future cost increases its operating results could be materially adversely affected.   Domestic and International Sales   The following table sets forth domestic and international sales (In thousands, except percentages):       Fiscal Year       2023     2022   Net sales:                 Domestic   $ 1,408,710     $ 1,285,540   International     100,642       99,740   Total net sales   $ 1,509,352     $ 1,385,280                     As a percentage of net sales:                 Domestic     93.3 %     92.8 % International     6.7 %     7.2 % Total     100.0 %     100.0 %   Intellectual Property   The Company's most significant brand name, Libby's®, is held pursuant to a trademark license granted to the Company in March 1982 and renewable by the Company every 10 years for an aggregate period expiring in March 2081. The original licensor was Libby, McNeill & Libby, Inc., then an indirect subsidiary of Nestlé, S. A. ("Nestlé") and the license was granted in connection with the Company's purchase of certain of the licensor's canned vegetable operations in the United States. Corlib Brands Management, LTD acquired the license from Nestlé during 2006. The license is limited to vegetables which are shelf-stable, frozen, and thermally packaged, and includes the Company's major vegetable varieties – corn, peas and green beans – as well as certain other thermally packaged vegetable varieties and sauerkraut.   3 Table of Contents   The Company is required to pay an annual royalty to Corlib Brands, now known as Libby's Brand Holding, Ltd., who may terminate the license for non-payment of royalty, use of the trademark in sales outside the licensed territory, failure to achieve a minimum level of sales under the licensed trademark during any calendar year or a material breach or default by the Company under the agreement (which is not cured within the specified cure period). A total of $0.1 million was paid as a royalty fee for the fiscal year ended March 31, 2023.   The Company also sells canned vegetables, frozen vegetables, jarred fruit, and other food products under several other brands for which the Company has obtained registered trademarks, including, Aunt Nellie’s®, CherryMan®, Green Valley®, READ®, Seneca®, and other regional brands.   Seasonality   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.   The Company’s revenues typically are highest in the second and third fiscal quarters. This is due, in part, because the Company’s fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday season. 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 these quarters.   These seasonal fluctuations are illustrated in the following table, which presents certain unaudited quarterly financial information for the periods indicated (in thousands):       First Quarter     Second Quarter     Third Quarter     Fourth Quarter   Fiscal Year 2023:                                 Net sales   $ 265,193     $ 439,842     $ 473,254     $ 331,063   Gross margin     22,843       41,779       53,789       17,485   Net earnings     5,103       16,131       21,054       (9,150 )                                   Fiscal Year 2022:                                 Net sales   $ 235,042     $ 372,256     $ 445,593     $ 332,389   Gross margin     33,623       42,728       44,985       26,596   Net earnings     14,136       11,654       18,664       6,553     Competition   Competition in the packaged food industry is substantial with brand recognition and promotion, quality, service, and pricing being the major determinants in the Company’s relative market position. The Company believes that it is a major producer of canned vegetables, frozen vegetables, and jarred fruit but some producers of these products have sales which exceed the Company's sales. The Company is aware of at least 13 competitors in the U.S. packaged fruit and vegetable industry, many of which are privately held companies.   Government Regulation   The Company is subject to extensive regulations in the United States by federal, state and local government authorities. In the United States, the federal agencies governing the manufacture, marketing and distribution of our products include, among others, the Federal Trade Commission (“FTC”), the United States Food & Drug Administration (“FDA”), the United States Department of Agriculture (“USDA”), the United States Environmental Protection Agency (“EPA”) and the Occupational Safety and Health Administration (“OSHA”). Under various statutes, these agencies prescribe and establish, among other things, the requirements and standards for quality, safety and representation of the Company’s products to the consumer in labeling and advertising.    4 Table of Contents   Environmental protection is an area that has been worked on diligently at each food packaging facility. In all locations, the Company has cooperated with federal, state, and local environmental protection authorities in developing and maintaining suitable antipollution facilities. In general, we believe our pollution control facilities are equal to or somewhat superior to those of our competitors and are within environmental protection standards. The Company does not expect any capital expenditures out of the ordinary course of business in order to comply with environmental regulations in the near future.   There has been a broad range of proposed and promulgated state, national and international regulations aimed at reducing the effects of climate change. In the United States, there is a significant possibility that some form of regulation will be forthcoming at the federal level to address the effects of climate change. Such regulation could result in the creation of additional costs in the form of taxes, consultant expenses, the restriction of output, investments of capital to maintain compliance with laws and regulations or required acquisition or trading of emission allowances.   Human Capital   Employment   As of March 31, 2023, Seneca Foods employed 2,809 full-time employees and averaged approximately an additional 3,600 seasonal employees during the Company’s peak summer harvest season. 100% of our employees are located in the United States, distributed across the Company’s facilities.   Culture   At Seneca Foods, we work hard every day to feed the world safe and nutritious products, while adhering to our fundamental beliefs (which can be found on our website). These beliefs include acting with integrity in all matters, treating employees with respect, and maintaining the highest standards for protecting our workers. We also believe in promoting from within, which has resulted in many long-tenured employees in leadership positions throughout the Company.   Employee Health and Safety   The health and safety of our employees is a top priority at Seneca Foods. The Company complies with all national and local laws of the jurisdictions in which we operate regarding worker health and safety. In addition, we work to continuously improve our safety record with worker safety training and Seneca’s HERO (Health Environment Risk Observation) program, in which employees proactively identify and mitigate potential safety risks. At Seneca Foods, we believe that safety is everyone’s responsibility, and the HERO program reflects that commitment, with close to 100% employee participation.   The Company also conducts annual safety audits at all processing locations to ensure compliance with Seneca and OSHA safety standards. External risk management services are also consulted as part of this process. The Company’s management recognizes plants that achieve at least one million work hours or 1,000 days worked without a lost time injury to employees with the President’s “Bronze Eagle” award, which is prominently displayed at many of our processing facilities.   Employee Training and Development   Seneca Foods believes in developing internal talent and providing employees with an opportunity for education and advancement. In support of this endeavor, we have developed two key programs . SAVES (Seneca Adding Value Employee System) focuses on employee empowerment, education, and application of lean manufacturing principles. The Company’s dedicated SAVES instructors and project leaders educate employees and empower them to make process improvements at all of our processing facilities. GROWS (Get Rid of Waste Systemically) supports our leadership development efforts through continuous improvement project leadership.   Diversity, Equity and Inclusion   Seneca Foods believes that everyone should feel respected and welcome in our workplace. The Company is committed to providing equal opportunity in all aspects of employment, and to applying fair labor practices while respecting the national and local laws of the countries and communities where we have operations. The Company does not engage in or tolerate discrimination, intimidation, harassment, or any other unlawful conduct. We believe that a diverse and inclusive workforce provides the Company with the benefits of different viewpoints and perspectives, as well as a talented and innovative employee base.