Seneca Foods: Exploring Bright Spots in Earnings Amidst Soft Profits

Seneca Foods' (NASDAQ:SENE.A) earnings may seem soft, but its financial foundations are strong. The company's accrual ratio is -0.25, indicating good cash conversion and understating its free cash flow. Seneca Foods produced free cash flow of $302m in the last year, dwarfing its reported profit of $43.4m. The EPS has increased 43% annually over the last three years.

Shares of Seneca Foods Corporation (SENEA) gained 1.9% following the release of its Q1 2026 earnings report, despite a 2.4% decline in net sales. The stock performance mirrored the S&P 500 Index's 1.6% rise over the same period, and over the past month, SENEA's stock advanced 2.1%, matching the S&P 500's 3.2% increase [1].

Earnings Snapshot:
- Net Sales: $297.5 million, down 2.4% from the prior-year period.
- Net Earnings: $14.9 million, up 17.6% year over year.
- Operating Income: $23.2 million, down 8.8% from the same quarter last year.
- Gross Margin: 14.1%, up from 14% the previous year.

Segment-wise Performance:
- Vegetable Sales: Down 3.2% to $270.3 million.
- Fruit/Snack Sales: Down 0.5% to $21.6 million.
- Other Category: Up 41.3% to $5.6 million, driven by seed, can, and aircraft-related revenues [1].

Key Financial Metrics:
- Interest Expense: Dropped 47.7% to $5.4 million.
- Adjusted Net Earnings: $6 million, down 42.5% from the prior-year quarter.
- EBITDA: $36.9 million, down 5.6% from $39.2 million.
- FIFO EBITDA: $25.2 million, down 30.5% from $36.3 million [1].

Liquidity Position:
Seneca maintained a strong liquidity position with $12.1 million in cash and access to $389.1 million in unused credit under its revolving facility [1].

Management Commentary:
President and CEO Paul Palmby acknowledged lingering cost pressures from high-cost 2024 inventory but expressed satisfaction with the quarter's progress in selling through that inventory. He also cited sales disruptions from a key co-pack customer but indicated that volumes are expected to recover under the existing contract. Looking ahead, Palmby noted that the 2025 seasonal pack is underway with expectations for a better growing season to normalize inventory levels and costs [1].

Factors Influencing Seneca's Headline Numbers:
The decline in sales was primarily volume-driven, with a $13.6 million decrease in volume partially offset by $6.4 million from pricing and product mix. Lower vegetable category sales, particularly canned and frozen, were due to volume losses that outweighed pricing gains. Fruit products suffered from weaker pricing and mix, while snacks benefited from higher volumes. The increase in "Other" revenues was linked to ancillary businesses such as seed, can manufacturing, and aircraft operations. Gross margin stability was aided by a larger LIFO credit that reduced cost of goods sold [1].

Guidance:
While no formal quantitative guidance was issued, management signaled expectations for volume recovery from the co-pack customer and cost normalization from improved crop yields in the 2025 pack [1].

Stock Repurchases:
During the quarter, Seneca repurchased 41,937 shares of Class A Common Stock at a cost of $3.8 million. No Class B shares were repurchased [1].

Conclusion:
Seneca Foods' Q1 2026 earnings report highlights a mixed bag of results, with a decline in net sales but an increase in net earnings. The company's strong financial foundations, as evidenced by its accrual ratio and free cash flow, provide a solid base for future growth. Investors should keep an eye on the company's ability to recover from the sales disruptions and normalize inventory levels and costs.

References:
[1] https://www.nasdaq.com/articles/seneca-stock-rises-following-q1-earnings-despite-sales-decline
[2] https://www.barchart.com/story/news/34123971/seneca-stock-rises-following-q1-earnings-despite-sales-decline
[3] https://seekingalpha.com/news/4482796-seneca-foods-gaap-eps-of-2_14-revenue-of-297_5m