November 26, 2008

Fitch sees liquidity and leverage as priorities for meat processors

Stock-rating agency Fitch Ratings suggests that meat processors should make liquidity and debt reduction as priorities in 2009.


For this year, equity issuances, convertible debt offerings and asset sales allowed some food companies to reduce debt or support near-term liquidity. However, Fitch expects continued stock market weakness, poor credit environment and higher risk premiums will limit such activities in the year ahead.


Hormel Foods received a stable rating due to its conservative financial strategy and substantial exposure to high-margin packaged foods.


For Tyson Foods, however, Fitch warned that the rating could be downgraded if the company's acquisition strategy becomes more aggressive, if leverage increased more than expected or if liquidity becomes a problem.


Still, Tyson could benefit if Pilgrim's Pride goes bankrupt. Fitch expects Pilgrim's Pride to happen, and said it would be the most significant change the industry would face in 2009.


Fitch said Pilgrim's Pride bankruptcy will also benefit other poultry companies, as the resulting reduced poultry production would support higher prices for the sector.


However, Fitch said current credit limitations, leveraged balance sheets, uncertain operating conditions and stronger US dollar will curtail the number of potential buyers for Pilgrim's Pride, should it go up for sale.


Pilgrim's Pride has appointed a chief restructuring officer to work on cost reduction initiatives, develop restructuring plans and improve long-term liquidity.

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