Seaboard – Strategic Update, Operational Challenges &
Profitability Outlook – 22 April 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Danny Walker (DW)
Former AVP, Supply Chain & Planning at Seaboard Foods LLC
Agenda:
1. Seaboard (NYSE: SEB) business update
2. Labour and commodity sourcing inflation
3. Protein alternatives and demand impact on traditional meat
4. Multinational presence and affiliate model efficiency
5. Profitability outlook
Contents
Q: Could you give an overview of the meat-processing industry, its main drivers and the top competitors
across Seaboard’s different divisions?
Q: What were the key industry trends pre-coronavirus? Was labour always a key trend or is this something
that crept up unexpectedly?
Q: Could you elaborate on the different experts and how everyone is trying to get their products overseas?
Why are there not better price points globally?
Q: How would you say all of these trends were impacted by coronavirus? How might consumer behaviour
have changed?
Q: How would you describe the long-term trends vs the more temporary ones?
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Q: Are there any trade concerns or restrictions around sending pork directly from the US to China? Are there
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any significant added duties?
Q: Are there any other markets that may provide a good opportunity for pork?
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Q: Could you outline Seaboard’s different business lines and how the company has evolved by adding new
businesses?
Q: How would you assess Seaboard’s performance? What were the significant challenges over the last few
years? How would you assess the company’s strength?
Q: How would you say things have changed over the last year?
Q: How would you say Seaboard is managing input costs inflation? Are there any segments that you think
are much more inflationary than others?
Q: You said Seaboard owns its own farm, and I’m sure it has a good distribution network for exports. How
do its internal and external freight costs compare? Is it mostly leasing trucks? Does it own some of the
distribution network?
Q: Do you think it was a mistake to own the different truck divisions, given how much freight costs have
risen? Is Seaboard in a lose-lose since it’s paying higher costs and trafficking much higher volume?
Q: Who is Seaboard selling its products to?
Q: US freight costs have risen significantly. How have global shipping pricing and capacity escalated?
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Q: How has the trade relations dynamic changed since the start of the Biden administration? What policies
may have impacted or favoured Seaboard to make it more competitive globally and how do you expect them
to change under the new administration?
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Q: Has Seaboard ever thought about expanding production capacity much closer to Asian markets and
operating more plants, perhaps through partnerships?
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Q: How would you compare Seaboard’s quality vs competitors? What differentiates it from others and allows
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it to take advantage of good trade relations and achieve greater profitability?
Q: Does the new trend towards fewer additives apply in China?
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Q: What are your thoughts on the chicken price-fixing scandal around the large meat processors? What are
your thoughts on big producers controlling prices for products such as pork?
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Q: Is private label a significant part of Seaboard’s business?
Q: If Seaboard is already so vertically integrated, do you think it makes sense to take that next step into
being a marketer and selling a branded product on top of the bacon, or do you think it’s tried and had less
than ideal results?
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Q: Are there any segments that you think don’t fit within Seaboard’s structure or that the company would be
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better without?
Q: Could you elaborate on the consumer trend of wanting less processed meat? How does that compare to
consumers in China? Is there any risk of Chinese consumers becoming much more health-conscious, similar
to American consumers, and trying to tone down the consumption of red meat and replace it with
alternatives?
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Q: How would you assess Seaboard’s ability to demand a price premium across the majority of its products?12
Q: How would you tie in the sustainability pressure Seaboard is experiencing from the investor community,
consumer activists or the regulatory environment?
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Q: What do you think are the best- and worst-case scenarios for Seaboard over the next six months?
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Q: Do you think Seaboard is too slow in making big decisions? Kellogg’s have had an alternative meat
product for a long time but it did not roll out the launch of the Incogmeato for about 6-7 years, and now
Beyond Meat it taking all the market share. Are there any areas where you think Seaboard has missed an
opportunity by not expanding quickly enough?
Q: Is there anything you think investors should know regarding Seaboard’s management team and their
ability to execute on priorities?
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Seaboard – Strategic Update, Operational Challenges &
Profitability Outlook
Transcription begins at 00:00:00 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview, entitled Seaboard – Strategic Update, Operational
Challenges and Profitability Outlook. I am Nyree Hinton and I will be facilitating today’s Interview with Mr
Danny Walker, former AVP Supply Chain and Planning at Seaboard Foods LLC.
Danny, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information, or any other information which is confidential, during this Interview.
DW: Yes, I agree.
NH: Thank you, Danny. Could you begin with a brief background about yourself and various roles you’ve held
in the industry?
DW: My background is in supply chain, demand planning, production scheduling, warehouse management,
freezer storage management for Sprint Nextel, Farmland Foods, Smithfield Foods, Hostess Brands, Seaboard
Foods, Triumph Foods and Lindt & Sprüngli, Russell Stover. That’s a quick update on my background.
[00:01:23]
Q: Could you give an overview of the meat-processing industry, its main drivers and the top competitors
across Seaboard’s different divisions?
DW: There’s a handful of meat processors in the pork industry, Smithfield Foods, JBS, Seaboard Foods,
Triumph Foods, Prestage Farms to name a few. What distinguishes Seaboard Foods is that they own their own
farms with Triumph Foods. They have a joint partnership, and so some of the other companies have to
contract their sow farming out to get hogs, whereas Seaboard Foods owns their own farms and can supply
their own products to their facilities. Some of the challenges that all of these facilities have is labour, in all the
plants. Everybody is struggling in most manufacturing plants, and then everybody is trying to export product
overseas because that’s where they get a higher price for commodity products.
[00:02:44]
Q: What were the key industry trends pre-coronavirus? Was labour always a key trend or is this something
that crept up unexpectedly?
DW: A large percent of these companies deal in commodities, which is pennies per pound, and so everybody
is trying to maximise the pennies per pound and the price, and so with commodities it’s just a timing who can
get the pork to the best price and maximise the penny and the yield. They’re all struggling with labour. Pre-
COVID, it was hard to get labour at most of the facilities, everybody just raising prices to get the labour in the
plants. Everybody is trying to put in automation in the facilities to try to reduce cost and not rely on requiring
people to make some of the products, and then, before COVID, where really some of the main options to
increase your margins was to move into more processed meats where you can get higher margins with your
Private and confidential 4
products because you go from pennies per pound to USD 0.30 per pound.
[00:04:14]
Q: Could you elaborate on the different experts and how everyone is trying to get their products overseas?
Why are there not better price points globally?
DW: Markets like China, they have a different requirement for pork. It’s sought-after a little bit different.
They require a superior product and they will pay a much higher price for a superior product. A pork loin, it’s a
large product, it weighs a lot, you can get a lot per pound. If the colour and the texture is perfect, you can get
probably two or three times the price you can get for a loin in America, and then they also purchase by-
products that you don’t usually sell in America, bums and the stomachs and different parts that you don’t
make a lot of money for in America, whereas all the parts are worth pretty good money in exporting it and in
China.
[00:05:44]
Q: How would you say all of these trends were impacted by coronavirus? How might consumer behaviour
have changed?
DW: It’s made labour even more of a challenge. It’s easier for people to stay at home and not work and make
more money than they did sometimes when they were working, so it’s going to put more pressure on more
automation, and then it’s challenging to ship stuff through ports with COVID so export shipping became more
challenging, and plant labour became more challenging with COVID.
[00:06:34]
Q: How would you describe the long-term trends vs the more temporary ones?
DW: Long-term trends, everybody is watching what China’s infrastructure is, how it’s being developed. China
typically hasn’t had the sow farms and the sow controls and the pork controls that we do in America, so as they
build the infrastructure in China, that will reduce the demand needs from international supply in China, so
that’s probably a long-term red flag. If China is able to build up the supply networks in their own country, they
purchase, I think, one-third of the world’s pork goes to China, and so if they can build up their own
infrastructure a little, that could be a potential risk for domestic, for the US exporting to China.
[00:07:43]
Q: Are there any trade concerns or restrictions around sending pork directly from the US to China? Are there
any significant added duties?
DW: Yes, there’s gate pricing and additional pricing, and you have to have ownership partnerships in China
sometimes to do business. It’s very costly to do business in China, but the price, even the added cost, even with
all the tariffs that occurred a few years ago, we still made more money in China than we did in the US.
NH: How quickly do you think that infrastructure build is coming? Why do you think China just decided now
to start building that capacity for that pork?
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DW: I think that the United States has years and years of farming controls where you can control diseases and
the controlled process of having babies and all that stuff, whereas in China they’re more affected when there
are diseases that occur. It impacts all the farms at a faster rate, I believe, than the United States, so eventually
they’re going to continue to invest in their infrastructure, but I can’t speak to when that would be, but I can tell
you that they’re adding more and more sow farms every year in China and it’s just that the more they do that,
the less they rely on US.
[00:10:07]
Q: Are there any other markets that may provide a good opportunity for pork?
DW: Yes. You’ve got Japan and some of the other Asian countries where good markets, Vietnam and Japan.
There are other markets coming up. I think JBS is in Brazil. I know particularly that we were having the
highest margins in some of the Asian countries, South Korea and Japan and Vietnam and those areas, and
China.
[00:10:55]
Q: Could you outline Seaboard’s different business lines and how the company has evolved by adding new
businesses?
DW: Seaboard Corporation has many divisions. The biggest division and the highest-margin division is
Seaboard Foods, but they also have the biofuel division. I think it was called High Plains, now it’s called
Seaboard Energy, but they also have investment groups and energy divisions and Seaboard Transportation,
and so they have many different divisions and so Seaboard Corporation is able to maintain high revenues by
adjusting profitabilities to across the different divisions. They also offset some of the revenue loss with the tax
savings with their biochemical divisions, but Seaboard Foods, it’s broken up into three divisions. You’ve got
Seaboard Foods plant, which is in Guymon, Oklahoma and then you’ve got Triumph Foods, which is in St Jo,
and then Seaboard Triumph Foods which is in Sioux City, Iowa, so those three make up the food processing
for Seaboard Corporation.
[00:12:27]
Q: How would you assess Seaboard’s performance? What were the significant challenges over the last few
years? How would you assess the company’s strength?
DW: Seaboard Corporation is the only Fortune 500 company in Kansas City. I used to talk to colleges and
universities. When they hit over USD 1,000 of shares, there were only two other companies that were reaching
that peak and it was Google and Berkshire Hathaway, so they’re in a special category. They’re very secretive.
They don’t really tell everybody how they do what they do. They have operations around the world, they’re in
many different divisions, and so they’re able to move things around where profitability and overall revenue
continues to rise if a different division is struggling. They also own Butterball foods, Butterball turkeys, and so
we’ve worked with them quite a bit, and then their recent CEO came from Butterball, which leads me to
believe that they’re going to get into more processed meats.
[00:13:57]
Q: How would you say things have changed over the last year?
Private and confidential 6
DW: They brought some of the innovation group from Farmland Foods over to Seaboard Foods, and they’re
pretty well-versed in better-for-you, all-natural programmes, and so they’re working on a lot of all-natural,
better-for-you, low-sodium types of programmes. Leaner, healthier is the trend in the marketplace, and so
with the new innovation marketing team that they have now, that’s pretty common to go in those directions.
[00:14:59]
Q: How would you say Seaboard is managing input costs inflation? Are there any segments that you think are
much more inflationary than others?
DW: Yes, so manufacturing costs are continuing to rise, freight costs are continuing to rise, freezer,
warehouses continuing to rise, and so I think that they have a good five-, 10-year roadmap of automation in
the plants and they continue to add more and more robotics in the plants that reduces the need for labour.
Freezer storage is a tough one because if you have a slowdown in the pork production in the world, like China
or COVID, then you put more in the freezers and that’s just high cost, and so if you can sell it and move it and
get good prices and not rely on a lot of freezers, you can reduce your cost there, and then I think transportation
would be probably an area that they can improve on. They spend a lot on freight and a lot of trucks in a lot of
different places and they go a lot of different places, and so if they could optimise some of the freight costs,
that would be probably another area that would be beneficial to them.
[00:16:13]
Q: You said Seaboard owns its own farm, and I’m sure it has a good distribution network for exports. How do
its internal and external freight costs compare? Is it mostly leasing trucks? Does it own some of the
distribution network?
DW: They used to own their own fleet division of trucks and they slowly sold that off, and then they got into a
fleet of trucks that were compressed natural gas and then found out those trucks didn’t work very well going
through the mountains and the engines would break and they couldn’t hold up, and so they slowly got out of
owning their own fleet. Now they just contract carriers to haul all of their products across the country. I
believe that, I can’t remember at once, I think it’s over 100 trucks per day per plant or something like that. If
it’s three plants, it’s 60,000 hogs per day at the peak, so it’s an unbelievable amount of volume that they
produce and move.
[00:17:35]
Q: Do you think it was a mistake to own the different truck divisions, given how much freight costs have risen?
Is Seaboard in a lose-lose since it’s paying higher costs and trafficking much higher volume?
DW: Yes, could be, but I think that they had issues with trucks not being moved. They had a problem trying to
find drivers, so the trucks were just sitting there, and then when they got into compressed natural gas and
GMC trucks, the diesel was high, and then when diesel came back down then the compressed natural gas
trucks didn’t make sense anymore, and then really just optimising where you need to move inventory and have
inventory. Often, they have over 100-plus trailers sitting at all three plants at any given time, so you’ve got 300
trailers just sitting there, so it just seems like you could probably optimise the system a little bit better by using
and moving a little bit faster and more efficiently.
Private and confidential 7
[00:18:59]
Q: Who is Seaboard selling its products to?
DW: They’re pretty similar to Smithfield Foods. I think it’s a large percent to food service and a large percent
to retail, and then they also have 10% probably of their business that goes to what they call industrial or green
needs or other further processors. You’ve got packaged meats that go to your retail consumers, all the retail
customers in America, and then your food service which is your restaurants, and then a very small percent,
probably 10% or less, is commodity, straight bulk commodity like Armour-Eckrich or John Morrell or Cargill,
which they turn it into processed sausage or whatever they turn it into.
NH: Where do you think Seaboard is making the highest margins?
DW: You have export, you have further processor, you have retail and you have food service. I would say that
they try to export as much as they can and then what’s leftover they sell in America, vs you would think it
would be the other way around, so since they don’t have a lot of processing, which gets you the most money,
the most money is export and so you sell as much as you can export and everything else can go domestic. Not
really for sure on the percentages they’ve got up to export, maybe 20-30%, and then you want the least amount
of your product to go to industrial or further processing, which gives you your least amount of money, and
then you’ve got the middle ground, which is retail and food service, which is your packaged meats or normal
pork products.
[00:21:24]
Q: US freight costs have risen significantly. How have global shipping pricing and capacity escalated?
DW: Seaboard, if you think it’s a little easier exporting out of America than trying to get stuff into America, so
often they have pretty good rates and we’ve always been able to get the containers that Seaboard has needed to
export products overseas. There are always periods when you have a container ship that blocks the Suez Canal
and locks up all the containers around the world, that stuff happens, but for the most part they’ve been able to
secure all the export containers that they’ve needed.
NH: Has the Suez Canal debacle impacted the company?
DW: Yes, so different things happen throughout the years. Oakland Port can go on strike and then you can’t
get containers out of there for weeks. You can have a canal get backed up, you can have issues in China where
they have a holiday for a month, and then you’ve got the consolidation of the vessels that carry the containers.
That’s been changing hands in that area, and all those different disruptions cause delays in getting containers
or getting them back or getting the prices, so the dynamic changes each year, but the export team over at
Seaboard Foods is good and they’ve worked with many different people in different avenue, and if they need to
they can go to different directions. Seaboard Foods also has its own container ships, so they have their own
container ships, but those mostly go to South America and the Caribbean, so we have special connections and
we can take product different avenues, different paths to Asia. We’ve had to go from the East Coast and the
West Coast depending on different challenges, so many different options to get it to Asia and they’ve used
different solutions to get it there in the past.
[00:23:54]
Q: How has the trade relations dynamic changed since the start of the Biden administration? What policies
may have impacted or favoured Seaboard to make it more competitive globally and how do you expect them to
change under the new administration?
Private and confidential 8
DW: Think of pork in China like America likes bacon. Yes, bacon is good, so they want pork like we want
bacon, and the customers and our partners over in China are willing to change the prices and reduce.
Everybody is able to make reductions in prices when tariffs came into play, so they want our product so bad
that they give up some of their margin when that occurs, and so they want the product so bad that they change
the pricing structure to make sure they can continue getting it.
NH: What implications does that have when relations are great? Is that better for the take-home pay of
companies such as Seaboard and some of the retailers?
DW: Yes, so when export shipping is strong, all you’ve got to do is ship it, if export shipping is strong,
profitability is going to be great. If there are world dynamics that cause export shipping to go down, then
profitability will go down. It’s pretty just that straightforward.
[00:26:04]
Q: Has Seaboard ever thought about expanding production capacity much closer to Asian markets and
operating more plants, perhaps through partnerships?
DW: I’ve just heard that different options are being evaluated. You can’t fully manufacture in China unless
they own the company, so if you remember Tesla or whoever was trying to put a manufacturing plant in China,
but they can control the intellectual property and they must become an owner, and so Shuanghui International
with Smithfield Foods was a good example. Smithfield ships a lot more stuff to China now that they have a
China owner, so once you have a China owner and are in business with China, you can do a lot more, and so it
just requires a bigger partnership, and so I believe that different options have been evaluated and will continue
to be evaluated on that front.
[00:27:22]
Q: How would you compare Seaboard’s quality vs competitors? What differentiates it from others and allows
it to take advantage of good trade relations and achieve greater profitability?
DW: A lot of the other pork producers contract their farms, so they have Billy-Bob’s farm over here and Joe’s
farm over here and Sam’s farm over here and then a big farm over here, and we control all the farms. They’re
fed the exact same way. They have a very strict diet. They have very strict controls and they’re very healthy,
and so the whole system of controls, and so you get a certain breed of hog and you get a certain quality and it’s
repeated every single time, and most of the hogs look identical over and over and over. When China comes
over and looks for quality we’ve built our standards around what they want, Seaboard has, and so when we
produce, it produces a product that they want. They are constantly over-walking in the plants and looking at
the product, touching it, feeling it, seeing the structure of it, the texture, the quality, the freshness. Everything
about it has to be perfect, and the controlled system generates that type of a product.
NH: How does the Asian consumer differ from the US consumer?
DW: It’s off the scale. They want a perfect colour. When you touch it, it’s got to expand at a slower rate. When
they have a box of pork in China, the box is open and it’s presented and everything is perfect in a box. In a box
in America, stuff is thrown there, it’s jumbled around, you would open it up and people are okay with it. It has
to be perfect. The look, the quality, the colour, the texture, everything has to be perfect. A consumer in
America goes and grabs something out of a grocery shelf and it’s totally different. They don’t know about
colours and the skin. I would say that the scale and what China wants is on a different scale. They demand a
different quality that US consumers are not really aware of.
Private and confidential 9
[00:30:06]
Q: Does the new trend towards fewer additives apply in China?
DW: I think you hear more about antibiotics-type stuff in America because of, I don’t know, just PETA or
whoever, but the Seaboard stance on antibiotics is they’re going to treat animals that are sick and that’s their
methodology. If an animal is sick, they’re going to treat it and that’s their stance, and if people don’t like that
then that’s what they believe in.
[00:30:58]
Q: What are your thoughts on the chicken price-fixing scandal around the large meat processors? What are
your thoughts on big producers controlling prices for products such as pork?
DW: I’m in the supply chain area. I don’t get into the pork pricing or the USDA pricing and how that’s set and
how you can influence that, so I don’t really have anything to add there, I can’t tell you. I don’t believe that
folks are getting together and altering pricing, so I don’t really have anything to add there.
[00:31:51]
Q: Is private label a significant part of Seaboard’s business?
DW: No. When you sell a commodity product and it’s a penny, so that would be further processing, so we sell
our product to Cargill and Armour-Eckrich and Jimmy Dean and those companies can put whatever label they
want on it, but generally you make less money on private label commodity products because it’s just a
commodity. If you further process it and make it into bacon or (? 32.47) pork loin, filet, flavoured pork loins or
filets, then you make more money, but currently they sell under Prairie Fresh and that label. They don’t
currently make private label for any other customers, but they sell product as a commodity that those other
customers can turn into a private label.
NH: Does it not make sense to expand into a branded business?
DW: Yes, so I would tell you, they also own Daily’s bacon. Daily’s bacon may sell some private label to
different companies and they just put a different label on it, but Seaboard Foods’ commodity pork, they don’t
sell private label other than the further processing that they sell, which is just combos of raw meat.
[00:33:52]
Q: If Seaboard is already so vertically integrated, do you think it makes sense to take that next step into being
a marketer and selling a branded product on top of the bacon, or do you think it’s tried and had less than ideal
results?
DW: I think they’ve done really well by taking different steps to maximise profitability everywhere, so they’ve
figured out how to take the methane gas and sell that. They’ve figured out how to take some of the by-products
in terms of biochemical, so you have the biochemical division. They’ve figured out how to make sure that they
use all the bellies and send them to their belly further-processing plant that goes to Daily’s bacon. They’ve
minimised selling further-processing products and they’ve maximised export shipping, so they’ve done a really
good job integrating vertically and trying to maximise in all these different areas, selling raw bellies to the
market for other companies that make bacon. They sell very few bellies to the outside market. Most of those go
to the internal plants to make their own bacon, Daily’s bacon, so done a very good job in different divisions
and different swim lanes to maximise their profitability.
Private and confidential 10
[00:35:33]
Q: Are there any segments that you think don’t fit within Seaboard’s structure or that the company would be
better without?
DW: There’s a Seaboard corporate that oversees all the different divisions and to make sure that if there’s a
piece that’s not generating revenue or it’s not being as profitable as they want, they move things around, and
so there’s an overseeing umbrella that oversees all these different divisions to make sure that they’re
profitable. They often play a game where if one division is not as profitable, there’s another division to cover
that revenue, and so they do a good job of balancing all those different divisions to make sure that they’re all
profitable. They’re in everything from container shipping to transporting to making various different products
in a way that they have consistently, over the last 20 years, been able to hit a stock price that’s out of this
world, and so they have done a really good job.
[00:36:46]
Q: Could you elaborate on the consumer trend of wanting less processed meat? How does that compare to
consumers in China? Is there any risk of Chinese consumers becoming much more health-conscious, similar
to American consumers, and trying to tone down the consumption of red meat and replace it with
alternatives?
DW: Yes, so it seems like all marketing studies and innovation teams will tell you that there’s a big push for
healthier and healthier choices, and so the marketing and innovation teams at most companies are looking at
different ways to release products that fit that market request, and so all natural and better for you, low
sodium. If it is processed, use ingredients that are healthy. We’re getting a lot of that from US but I don’t
believe we’re getting a lot of that push from China. They just want the raw commodity products.
NH: Would you apply that same scope in most markets?
DW: Yes. I’ve been in the Twinkie business, I’ve been in the bacon business, the fresh pork business, the
candy business. All the marketing teams seem to be talking about the same things. Each buyer of a grocery
store is talking about the same things. They want healthier. It seems like they want smaller sizes. They want to
make more money per inch of the store, and so it seems to be pretty common across the board. It doesn’t
matter what industry you’re in. We brought back Twinkies and everybody wanted to make a smaller Twinkie
that was healthier. It’s same thing in pork. Low-sodium pork, whatever you can do, low-sodium bacon, smaller
sizes. Bacon packages went from 16 ounces to 12 ounces. It’s just smaller and try to maximise the dollars per
inch.
NH: How does that apply to Seaboard in terms of maximising profits and sale price per ounce? Is this a game
of repackaging?
DW: Yes, so whatever you make and whatever you change, if it sells for more money. that’s what you want to
do, and so if you come out with a programme and you’re processing it and people are willing to pay you USD
0.30, USD 0.40, USD 0.50 a pound, then that’s what you want to do. If you can inject a processed loin, a
processed meat, spiral ham, turkey, bacon, and you can make it healthier and you can do it in a way that
people will pay more money, that’s the direction everybody is trying to go. They’re constantly rolling out,
testing new, different, innovative products that fall in those categories, and if one sticks then they’re going to
continue to invest more in that direction.
Private and confidential 11
[00:41:01]
Q: How would you assess Seaboard’s ability to demand a price premium across the majority of its products?
DW: I would say that they have historically been more commodity-focused, so they figure out how to make
the best commodity, just raw pork loin that would get the most export dollar per pound. An area that is an
opportunity for them is to take pork products, further process them into sausage, bacon, spiral ham, hot dogs,
hamburgers, different processed meats, and then when you do that you get a lot more money per pound, and I
think that’s likely why they brought in the CEO from Butterball. If you look at all the Butterball products, they
have a lot more processed meats now than when Butterball first started when they were only turkeys, and so if
you can take turkeys and turn them into sliced ham and deli meat, then you can make a lot more money per
pound.
[00:42:17]
Q: How would you tie in the sustainability pressure Seaboard is experiencing from the investor community,
consumer activists or the regulatory environment?
DW: The general stuff with groundwater and landscape and ecology and service waters and land use, they do
a really, really good job in those areas. They try to maximise biofuels and use everything they can to use
sustainable alternative fuels. There are other areas such as people wanting animal-cruelty-type stuff where
you’re processing hogs and it’s never fun for anybody to watch an animal die, but you’re processing food and
so it’s a balance, so how do you make pork and not make people unhappy about killing animals? You always
have that type of challenge, and then you also have folks that want hogs to be cage-free, and what they don’t
understand is if you put 15 hogs in a cage and you go to feed them, they will bite each other and rip each
other’s eyeballs out and eat their ears off, and you keep them separated for a reason when you feed them when
they get older or they attack each other. People don’t know that, but you don’t want to show a video to the
world to show what happens if everybody is free-range. You’ll have less alive animals and more dead animals,
so I think they do good on the main core environmental stuff, but some of the topics on antibiotics and free
range, I think those will continue to be a battle, and just humane, healthy animals, that’s just a challenging
environment.
[00:44:29]
Q: What do you think are the best- and worst-case scenarios for Seaboard over the next six months?
DW: Seaboard has a long history. I think 1908 or 1918 is when they started. They have a long history of high
profitability. They make very sound decisions and very slow decisions, and when they make a decision they go
into it for the long haul. They’ve made big, big, big changes in the last 10 years. They partnered with Triumph
Foods and they put one of the largest pork-producing plants in the world in Sioux City, Iowa, so they’ve made
some big changes. They purchased millions and millions of new sow farms so they can own and control those
sow farms, so they’ve made big investments to have the control of more pork manufacturing, and then they
just rolled out the new Seaboard Energy and bought the giant plant. I don’t remember where it’s at, north of
Guymon, Oklahoma and Kansas, the bioenergy plant. They also bought the bioenergy plant in St Jo, and so
they make big decisions and big choices and they have mostly been all profitable.
[00:45:56]
Q: Do you think Seaboard is too slow in making big decisions? Kellogg’s have had an alternative meat product
for a long time but it did not roll out the launch of the Incogmeato for about 6-7 years, and now Beyond Meat
it taking all the market share. Are there any areas where you think Seaboard has missed an opportunity by not
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expanding quickly enough?
DW: Yes, so they have an innovation team. Probably the best. They have a couple individuals that are
probably the best product, pork innovators, probably in America, and they have a lot of ideas sitting on the
shelf and management is pretty content on making the commodity choices. They like the commodity and they
like the export choices. When you get into pork processing, it requires a lot more machinery, a lot more USDA
cleaning down of equipment, and so I think they’re comfortable with the commodity area. I think processed
meats requires a lot more investment, a lot more machinery, and it changes quicker. Each year, the grocery
stores want a different product and you’ve got to change stuff and change equipment, and so with commodity
you get your ribs and your bellies and your loins and your butts and your hams and your core elements. That
stays consistent, and when you get into processed meats, you go to the grocery store now and you go to the
grocery store a year later and you go to the processed meats aisle and you’ll see different things and there are a
lot of changes, and so it can get very costly for big competition to make sure that grocery stores and retailers
are always happy because they’re always changing their minds.
[00:47:57]
Q: Is there anything you think investors should know regarding Seaboard’s management team and their
ability to execute on priorities?
DW: No, they just have a long history of good profitability. They are consistent. They make big investment
choices. They may not go as fast as everybody else, but again, the only Fortune 500 company in Kansas City
and they’re slow and steady. They don’t let very many people know what they’re doing and so they make big,
tough choices. They try to get the employees involved in the big decisions and ask the employees, “Do you
think this is the right decision?” which is pretty cool, but I think that they will be strong company in the future.
[00:49:06]
NH: Let me close by saying thank you, Danny, for your input. Clients, if you would like to speak to Danny in a
private call or meeting, please let your relationship manager know. Thank you again for joining Third Bridge
Forum's Interview today, this now concludes our meeting. Goodbye.
DW: Thank you.
Transcription ends at 00:49:17 of the recorded material
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