Tyson Foods receives upbeat debt rating review

Executives with Springdale-based Tyson Foods Inc. who recently predicted financial improvements in 2010 were afforded a favorable second opinion Tuesday (Mar. 9) from Fitch Ratings.

Chicago-based Fitch rated Tyson Foods’ debt BB and gave the company a stable outlook. The stable rating not only provides independent confirmation of recent comments by Tyson Foods’ execs, but maintaining the rating helps Tyson Foods avoid higher costs related to debt financing.

“Tyson’s ratings reflect its leading U.S. market positions, strong brand recognition and the diversification provided by its chicken, beef, pork and prepared foods businesses. These factors are partially offset by the low margin and often unpredictable nature of the commodity protein industry,” Fitch noted in the statement. “Operating earnings and cash flow volatility combined with high debt levels have historically caused significant swings in Tyson’s credit statistics. However, solid liquidity and declining debt levels are viewed positively.”

Tyson Foods Inc. closed its 2009 fiscal year with a decent fourth quarter earnings of 28 cents per share, beating analysts estimate and the fourth quarter 2008 earnings of 14 cents per share. However, a non-cash ledger adjustment of $560 million to devalue assets in the company’s beef segment pushed the company to an accounting loss of $455 million for the quarter and $537 million on the year.

Fourth quarter revenue was $7.214 billion, up just 0.18% over the same period of 2008. Revenue for all of fiscal 2009 was $26.704 billion, down 0.58% from the 2008 period.

During a Mar. 3 investor conference in San Francisco, Tyson Foods’ execs said they have improved the company’s chicken business in recent years and “believe the changes the company has made, along with favorable market conditions, should bring good returns in the 2010 and 2011 fiscal years,” according to a company statement.

“U.S. per capita consumption is projected down due in part to reduced supplies, which should mean higher prices," Jim Lochner, chief operating officer for Tyson Foods, said in the statement. "Long-term protein supplies are driven by profitability — or the lack of profitability. Beginning with the 2006-2007 crop, corn and soybean prices became extremely volatile, coupled with a supply-demand imbalance. Most livestock and poultry producers lost money in ’08 and ’09, which led to cutbacks in the herds and flocks and less protein available in the marketplace."

Fitch mirrored Lochner’s comments with this statement: “Fitch currently anticipates that Tyson’s leverage will remain at significantly lower levels in the near term, providing room within the ratings. Improvement will be driven by continued debt reduction along with higher global protein demand and manageable production costs. While import restrictions related to various proteins and over production within chicken remain risks, Tyson should benefit from improved operating efficiencies and diversification across beef, pork and prepared foods.”