Jun 7, 2011

Pilgrim's Pride to delay upgrade amid decrease in profits

Moody's Investors Service eliminated the hope of an upgrade for Pilgrim's Pride Corp. (PPC) anytime soon as its profitability might decline due to unexpected poor chicken pricing.

In its latest quarterly results, the company's loss widened as higher inventory levels and feed costs masked sales growth. The feed costs, as well as pricing pressure, have constrained the company's results for several quarters.

Moody's said the world's second-largest poultry producer will likely have difficulty deleveraging this year and lowered its ratings outlook to stable from positive.

"Since the summer of 2010, global chicken prices have deteriorated, particularly breast meat and wings, and have yet to recover," the agency said. It also noted that Pilgrim's Pride's favourable feed prices extended only through the end of last year and the grains cost have been strong as well as volatile lately.

Moody's predicted profitability likely would remain under pressure for the remainder of the year, although pricing should improve somewhat.

Its corporate family rating on Pilgrim's is B1, four notches into junk territory. That reflects its growing leverage and weak free cash flow, as well as its concentration in one highly competitive, global commodity that continues to experience supply gluts from time to time. It said the B1 rating includes its worry the current business environment could deteriorate further before improving.

Shares were closed Monday up 2.7% at US$4.16 and were not active after hours. The stock has fallen 41% since the beginning of the year, while the wider market has gained modestly.