S.&P. outlook for Pilgrim's Pride turns negative

by Josh Sosland
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NEW YORK — While affirming the credit ratings of Pilgrim’s Pride Corp. at BB-, Standard & Poor’s Ratings Service said on May 13 the poultry maker’s outlook was negative.

S.&P. said the ratings of Greely, Colo.-based Pilgrim’s Price “include one notch of implied support from its parent, JBS USA Holdings.”

“The outlook revision to negative reflects our opinion that higher feed costs in the company’s core chicken segment together with weaker-than-expected pricing (primarily due to an oversupply of chicken inventories leading into the first quarter of fiscal 2011) will cause a significant EBITDA decline and lead to weaker-than-expected credit measures in fiscal 2011,” said Christopher Johnson, a credit analyst for S.&P. “We believe adjusted EBITDA margins will decline by more than 250 basis points year-over-year resulting in full-year EBITDA of less than $300 million and an adjusted debt to EBITDA ratio of close to 5.5x by fiscal year-end 2011.”

Implicit in the projections is an expectation Pilgrim’s Pride will face double-digit grain inflation in its chicken raising operations in 2011, and that higher pricing will not fully offset the increased grain costs.

The agency said the negative outlook reflects S.&P.’s view that operating performance is likely to remain weaker than originally expected over the remainder of fiscal 2011, resulting in a further deterioration of credit measures.

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