July 31, 2006
Tyson's stumble earns it a downgrade from Moody's
US food giant Tyson Foods has been downgraded by Moody's Investors Service, on concerns that firm is unable to claw its way out of the current slump in sales.
Moody's based its decision on Tyson's lacklustre performance and debt protection measures, its doubts over the firm's ability to cut costs and adapt to the soft protein market.
The company was assigned a low "speculative grade liquidity rating".
Should Tyson be unable to improve its performance, its ratings could again come under fire.
Despite its size and diversity, Tyson has not exhibited the level of stability and predictability expected of an investment grade company, said Moody's senior vice-president Peter Abdill.
Moody's said Tyson's operations have been severely impacted this year due to weak supplies and high raw materials prices in the beef market. Bans on beef exports to South Korea and Japan also worsened the situation. To add to Tyson's woes, there was bird flu, which hit the company's profits hard.
In addition, investors were unimpressed by Tyson's recent high-spending policy to market value-added and branded protein products.
To weather the crisis, Tyson is now pursuing a drastic cost reduction initiative.
In early July, it announced plans to layoff 420 workers and implement a plan that would save it US$200 million.
The new savings programme would concentrate on slashing staff levels, consulting fees, travel and sales-related expenses and supplies.
However, with world meat prices expected to fall 5.8 per cent this year, Tyson conceded that savings alone would not bring it to profitability.
The company said it would work more on cost management, introducing more value-added products, heighten efficiencies and expanding its international business.
The company lowered its yearly profit forecast in May, indicating weaker than expected operating performance as it reported a US$127m loss for the second quarter of 2006.