Home / Page One / Seneca Foods aims to buy Calif. firm

Seneca Foods aims to buy Calif. firm

Seneca Foods Corp. is getting back into the fruit business.
The Wayne County vegetable processor is in exclusive negotiations to buy a leading packaged-fruit maker in California, with a sale expected to close by Sept. 30.
Officials did not reveal terms of the planned deal to buy Signature Fruit Co. LLC, saying in a statement only that Signature Fruit would stay in Modesto, Calif. When Signature Fruit last changed hands in 2001, as part of a struggling food cooperative that was divided and sold off, creditors John Hancock Life Insurance Co. and the Farm Credit System’s CoBank bought it for $87 million and forgave $165 million in debt, news accounts then show.
A D&B report by Hoover’s Inc. indicates Signature Fruit has 200 employees in Modesto, Calif., and 5,300 overall-many of those likely seasonal workers. The reports put the firm’s annual sales at $1.1 billion. That would mean the deal would more than double Seneca Foods’ annual revenues.
Philip Paras, chief financial officer at Seneca Foods, did not return calls. Signature Fruit officials also were unavailable. John Hancock officials referred questions to Seneca Foods.
Industry followers said, however, they could see why Seneca Foods would be interested in Signature Fruit, and SEC documents filed by Seneca Foods offer some insight into why Seneca would diversify its business.
The deal emerges as Seneca Foods is preparing for its annual meeting next Friday in Janesville, Wisc. The company posted record net earnings in 2006 of nearly $22 million, or $1.96 a share.
Net sales, at $884 million, were up from 2005 but down from $891 million in 2004. One-third of Seneca Food’s business relies on a 1995 renewable contract with General Mills Operations Inc., and those sales have dropped $12 million, to $240 million, since 2003, the company states in SEC documents.
Seneca Foods left the fruit business almost entirely in 1999 when it sold its juice and applesauce business. Now, almost all of its sales are in canned or frozen vegetables, with a fraction in fruit and chip products and packaging supplies.
Signature Fruit, though coming from a troubled background, has a solid share of the fruit-processing market and gives Seneca Foods a presence in California, where most processed fruits are made, industry followers said.
“California’s where the action is,” said Eddie Yates, president and CEO of the California League of Food Processors.
The canned-fruit business has been relatively stable for 20 years, Yates said, and companies are doing more value-added packaging such as fruit-cup packs and glass containers. Seneca Foods is buying a “turnkey” operation with relationships with many growers and vendors, he said.
Yates heard John Hancock Life Insurance was trying to sell the company, he said. The seasonal food-processing business can be challenging for companies that are not used to it.
“I don’t know much about the deal, but it makes sense to me,” said Diane Toops, news and trends editor for Food Processing magazine. “Seneca is a leader in canned veggies, and owns the Libby’s brand of vegetables. Signature owns the Libby’s brand in fruit. It also gives Seneca a plant in California.”
Seneca Foods probably got the company for a good price, Toops said.
“I don’t think an insurance company has much use for a food company,” she said.
Excess capacity in the vegetable-processing industry has put pressure on pricing and profit margins, Seneca Foods officials say in SEC filings. Like its competitors, Seneca Foods has responded by closing plants.
In 2004 it moved some operations fromMarion to its plant in Geneva, Ontario County. The company employs 565 in the Rochester area and roughly 3,000 across the country, with operations concentrated in the upper Midwest.
Seneca Foods carries $209 million in debt, which could limit its ability to invest in the business or compete with companies that are not as highly leveraged, the company reported.
Still, Seneca Foods is one of the more successful companies in a flat industry, a report by investment research firm Price Target Research Inc. in Chicago states. Most food processors are performing in line with the Standard & Poor’s 500-stock index but are projected to grow at below-average rates.
Signature Foods was a piece of Tri Valley Growers, once California’s largest agricultural cooperative. Pieces of the cooperative also were acquired by Del Monte Foods Co. and Furman Foods after TVG filed for bankruptcy protection in July 2000.
In a 2004 research paper published for the U.S. Department of Agriculture, professor Richard Sexton of the University of California concluded that a number of factors contributed to the cooperative’s downfall, but its biggest problem was probably failing to change its tomato-processing operations to adjust to changes in the industry.
The cooperative’s fruit business was healthy and ended up subsidizing the tomato business, Sexton wrote. The cooperative either needed to become competitive in tomatoes by finding a market niche or jettisoning its tomato lines.
“It will never be known whether TVG could have survived as a fruit processor, if it had divested its tomato lines in advance of the disastrous last years of its operation,” Sexton wrote.
(jrbj@rbj.net / 585-546-8303)

07/28/06 (C) Rochester Business Journal

x

Check Also

The second Luminate NY cohort.

NextCorps announces 2019 Luminate NY cohort (access required)

The second cohort of the Luminate NY accelerator has been announced, featuring 10 companies stretching from Israel to California. The ...

brochure

RCSD student graduation rate improves, other metrics slip (access required)

The high school graduation rate in the Rochester City School District is projected to improve this year. Early grade literacy ...