Fitch assigns initial ratings to Ralcorp

by Eric Schroeder
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CHICAGO — Fitch Ratings on July 15 assigned initial ratings to Ralcorp Holdings, Inc., including BBB- ratings for the company’s long-term issuer default rating, senior unsecured notes and bank credit facility. The ratings service also assigned a stable outlook to the St. Louis-based company.

Fitch said the ratings and outlook incorporate higher leverage that is expected following Ralcorp’s agreement to acquire Kansas City-based American Italian Pasta Co. as well as the recently completed acquisition of three bolt-on businesses.
“Ralcorp’s credit ratings recognize the company’s leading market share positions and scale in certain private label categories, and its diversified portfolio across food categories,” Fitch said, adding that the company’s size and scale “have grown significantly over the past several years through a series of acquisitions.”

“Margins have greatly increased since the Post acquisition,” Fitch said. “However, the company has recently faced challenges in optimizing its execution of branded promotional programs for Post versus its larger competitors. Branded cereal sales and operating profit in the first half of fiscal 2010 were negatively impacted by higher promotions to increase Post’s market share.

“Ralcorp’s downward earnings estimate for the fiscal third quarter of 2010 was attributed to weaker performance in both Ralcorp’s branded and private label cereal categories. This near-term pressure on the cereal category, as well as ongoing weakness in food service due to economic conditions, has been factored into Ralcorp’s ratings. However, longer-term lower operating earnings performance in core categories that slows Ralcorp’s delivering plans could negatively impact the ratings.”
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