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Resilience Series Part 9: Seaboard
Studying Edelweiss Holdings to learn more about resilience
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So far in this series, we’ve covered:
French barrel-maker, TFF Group
Biscoff famous, Lotus Bakeries
Faroe Island fisheries, Bakkafrost
Swiss plastic creator, EMS-Chemie
French plant extractor, Robertet
Swiss dairy, Emmi Group
Dutch investment company, HAL Trust
Mining royalties, Franco-Nevada
We only have one more write-up in this series and then we’ll take a little break; 10 write-ups in 10 weeks has been a torrid pace. I hope you’ve been enjoying the series. Now, onto today’s breakdown!
Seaboard is in rare company, being the third “highest-priced” stock, behind Berkshire A shares and NVR. One Seaboard share is over $3,600. That means the stock has gone up a lot over time and management hasn’t split the stock. My gut is that these companies tend to have strong moats and good management teams. A stock that goes up a lot without dilution implies a stellar underlying business. And stock splits tend to mean that management cares about the stock price and how it is perceived, rather than just focusing on the business. But I digress, let’s talk about this particular company, Seaboard.
Seaboard is made up of six decentralized business segments, defined by vertical integration. Yes, once again, a focus on vertical integration!
Let’s quickly go through each one of these.
The company’s main subsidiary here is Seaboard Foods, which consists of breeding, farrowing (birthing for hogs), and nursery facilities. In conjunction with its 50% non-controlling interest in Triumph Foods, the company has capacity to process well over six million pigs annually. Seaboard also owns another 50% stake in Daily’s Premium Meat, a provider of raw and pre-cooked bacon.
Commodity Trading and Milling
This is an interesting segment that includes multiple entities that operate grain processing plants and the ships that transport the grain around the world. These mills are primarily in Africa and South America.
Separate from grain logistics, Seaboard also owns six ocean liners to provide cargo shipping services. The main port for this segment is in Miami, which allows easy access to the Caribbean, Central, and South America.
Sugar and Alcohol
The company also owns a rather substantial sugar production facility in Argentina. It owns 70,000 acres of sugarcane, which it processes and sells locally. Then, they use the alcohol byproduct to sell to Argentinian oil companies.
Yes, the business segments are getting even more obscure. The company owns two barges in the Dominican Republic that provide electricity to the surrounding areas. Below is a picture of the original barge, Estrella Del Mar II, located in the Ozama River.
Turkey and Other
Seaboard owns a 52% stake in Butterball, the national supplier of turkey products. And lastly, it also processes jalapenos in Honduras, under its Mount Dora Farms subsidiary.
Ok, wow, that was a lot. Talk about a complex web of companies! After digging through the business segments, the commonality is food processing and the shipping required to transport those food products. The company was started in 1918 by Otto Bresky, when he purchased a flour mill in Kansas. Over the next 70 years, the company bought several more mills in the US and internationally. Faced with intensifying competition, Seaboard sold its American mills to Cargill in 1982. Over the next decade, the company expanded into nearly all of its current business lines. In 1992, the company built a new pork processing plant in Oklahoma, where 90% of Seaboard’s pork is still processed. A lot of this was done under Harry Bresky, Otto’s son, who ran the conglomerate from 1973 to 2006, before his son, Steven, took the reins. Steven, unfortunately, passed away in 2020, leaving his wife as the chair of the Board. Currently, the Bresky family still owns 77% of the outstanding stock.
These days, most of the capex in the business is spent on the hog breeding grounds and pork processing plants. The rest is used to build tankers for the Marine business. Next year, three new ships should be completed with three more to follow in 2025. Each of these ships costs about $60 million.
Interestingly, in 2022, nearly all of the company’s $655 million in EBIT was from the Marine shipping business, as freight costs exploded. This offset the lower pork volumes as hog prices increased. This is a theme in the resilient companies we’ve studied – they are diversified so when one business segment isn’t doing well, another is. The broad geographies the company touches also enable opportunities like the power in the Dominican Republic or milling subsidiaries in Africa.
One other lesson from Seaboard is the importance of decentralization with diversification. What I mean is that there’s no way that a single, central leadership team could understand what’s going on in all of those business segments. Companies that are very diversified but insist on centralized decision making simply can’t move fast enough and competition will catch up. The reality of each of those businesses is too complex for a handful of people to make the decisions. That’s why Seaboard is very decentralized, oftentimes not even owning complete stakes in the businesses, so that the leadership teams have lots of ownership. The CEO of Seaboard, who sits in Kansas, can’t know the in-depth details of grain processing in Gambia, sugarcane yields in Argentina, pig feed in Oklahoma, electricity rates in the Dominican Republic, freight costs in the Caribbean, and turkey processing in North Carolina (all of which are real examples that he is responsible for). It’s just too much to understand. So there is a high degree of delegation and incentivization. That’s a great rule of thumb, the more diversified a business is, the more decentralized it probably should be.
All in all, Seaboard is yet another example of resilience. Its vast, global businesses provide diversification amidst the vagaries of the world economy. Further, it’s still majority family-owned and the 35 year old son of Steven Bresky, is now a VP of the commodity business, carrying the torch for the 4th generation. The level of vertical integration, once again, isn’t necessarily efficient, but it stabilizes the company for longevity. A mix of decentralization, vertical integration, diversification, and ownership seem to be the key ingredients for this business, as well as for the vast majority of resilient businesses we’ve studied over the past several months. Only one more left in our series!
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