Seneca Foods Corp. (NASDAQ:SENEA) reported mixed second quarter 2014 results (SEC filing, press release). For the fiscal first quarter of 2015 ended June 28, 2014, Net sales increased by 3.4% to $240.0M thanks to favorable sales mix and higher selling prices of $10.0M, partially offset by a volume decrease of $2.1M. Net loss reached $0.1M, or $(0.01) per diluted share, compared to net earnings of $1.3M, or $0.12 a year ago, largely due to higher SG&A costs which jumped almost 5% Y/Y, more than sales. Excluding the non-cash after-tax LIFO credit of $0.2M, net loss was $(0.03), compared to $0.46 net earnings including the LIFO charge a year ago.
Despite the weak GAAP earnings, SENEA's total shareholders' equity increase by almost 5% Y/Y, showing that below the surface, the company keeps generating long-term value, thank in part to its LIFO inventory accounting policy which under most prevailing conditions lowers the tax expenses. Also, total liabilities and long-term debt decreased and interest payments were significantly lower Y/Y, partially offset by a small loss from equity investments made in April 2014, when the company purchased a 50% equity interest in Truitt Bros. Inc. for $16.3M. The purchase agreement grants the Company the right to acquire the remaining 50% ownership of Truitt in the future under certain conditions. In other words, SENEA purchased sales growth, but negative earnings. But the purchase should contribute positively in the future to earnings as well.
Trading at 5.6x P/CF, 8.32x P/FCF and 0.24 P/S ratio, Seneca is a steal in today's fully valued market. On the other hand, the low valuation largely reflects relatively timid sales growth prospects. SENEA has been roughly flat since my last year's long thesis. I reiterate my long thesis because the company continues to be undervalued and is a good defensive buy-and-hold stock despite not paying any dividend. The company realizes the shareholder value will not come by itself and it initiated a large share repurchase program recently which should help investors realize gains going forward. I reiterate my fair value estimate of ~$37 per share from last year. The stock offers a ~25% total upside within two to three years when it should close the undervaluation gap. No conference calls and very scant quarterly earnings press release is not helping the stock.
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