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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: MCsweet who wrote (53808)

4/26/2014 5:29:58 PM

From: Spekulatius

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E_K_S

Respond to of 78753

Re Senea LIFO. Because of LIFO accounting, the value of the inventory is understated on SENEA's balance sheet. Key sentence from the latest 10q:

3.

First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $155,126,000 as of the end of the third quarter of fiscal 2014 as compared to $136,051,000 as of the end of the third quarter of fiscal 2013. The change in the LIFO Reserve for the three months ended December 28, 2013 was an increase of $7,676,000 as compared to an increase of $1,268,000 for the three months ended December 29, 2012. The change in the LIFO Reserve for the nine months ended December 28, 2013 was an increase of $22,111,000 as compared to a decrease of $1,176,000 for the nine months ended December 29, 2012. This reflects the projected impact of greater inflationary cost increases expected in fiscal 2014 versus fiscal 2013.

LiFO means that the profit is calculated as if the last produced unit is sold first. If we have inflation in food input prices, this means that the older lower cost inventory is still on the books, while the newer higher cost inventory is sold. This reduces the profits, and the inventory is undervalued (if there is cost inflation) and the difference between the current cost (per FIFO) and the (historical cost) in the books per LiFo is the LIFO reserve, which is currently 155M$ or almost 15$/ share that would need to be added to the stated book value.

FWIW, they started LiFo in 2007, when they correctly assumed that food input cost inflation is likely. At that point, the LiFo reserve was zero.

I wonder when somebody get's the idea to raid the pantry and sell off the inventory, the real estate (must be valued way below current market prices). I guess this trades at no more than 60c on the $, based on liquidation value. Of course, it has been that way for quite some time.