Moody's places Tyson under review for downgrade

by Eric Schroeder
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NEW YORK — Moody’s Investors Service on Friday placed the long-term ratings of Tyson Foods, Inc. under review for possible downgrade, citing the concern that volatile and still high grain costs may preclude material near-term improvement in Tyson’s chicken segment.

Among the ratings under review for possible downgrade are Tyson’s corporate family rating at Ba1 and probability of default rating at Ba1.

"The long-term trend of generally rising corn prices is expected to continue," Moody’s said. "Corn and soybean meal are important feed grains for livestock and poultry, and a material cost of goods sold for protein companies such as Tyson. The company’s chicken segment has been especially hard hit by higher input costs, with grain costs expected to be up $550 million in the current fiscal year. Tyson’s chicken business incurred a reported operating loss of $52 million in the nine months ended June 28, 2008, proforma for charges, down from a profit of $229 million in the same period in the prior year.

"Tyson’s beef segment, after turning around in fiscal 2007, incurred a reported operating loss of $71 million in the first six months of fiscal 2008, proforma for one time charges, as live cattle prices remained high; the recent third fiscal quarter was an improvement, proforma for non-recurring expenses. Thus, despite much stronger results in its pork segment, Tyson’s consolidated margins and credit metrics have deteriorated in fiscal 2008."

Moody’s said its review will focus on Tyson’s ability to "offset higher commodity costs with price increases and/or savings in other costs; on its capital and investment plans; and on liquidity, including projected covenant compliance and usage under its committed credit facilities."

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