S&P revises outlook for Tyson Foods

While affirming Tyson Foods’ corporate rating at “BBB-“ Standard and Poor’s Rating Services said it revised its outlook for the company to “positive” from “neutral.”

“Given its reduced debt levels, we believe U.S. meat marketer and producer Tyson Foods can sustain its improved credit measures despite the potential for a softening of operating performance in the coming quarters,” the rating agency explained on its website.

Tyson Foods was carrying about $2.4 billion of total debt was outstanding at Oct. 1, 2011.

The positive outlook reflects Standard & Poor’s opinion that despite the possibility of a decline in operating performance in fiscal 2012 (from weakness in domestic beef markets and an uncertain recovery in the domestic chicken industry), Tyson can sustain its reduced debt levels and improved credit measures that support an “intermediate” financial risk profile.

The ratings on Tyson also reflect a “satisfactory” business risk profile. Key credit factors include its leading market shares, degree of operating efficiency, extent of geographic diversity, ability to manage price volatility, and track record in mitigating earnings volatility.

Tyson’s satisfactory business risk profile reflects Standard & Poor’s opinion that the company will maintain its leading domestic market positions in all three major meat offerings (beef, chicken, and pork) and will be able to leverage its well-positioned beef manufacturing facilities, which are strategically located near key supply sources, and sustain its improved operating efficiencies in chicken to help mitigate any continued softness in those two markets in the coming quarters.

“Although the company is less diversified internationally than some of its peers, we believe Tyson’s product portfolio benefits from its balanced offering of beef, chicken, and, to a lesser extent, pork products,” said Standard & Poor’s credit analyst Chris Johnson. “Continued favorable export demand for beef and pork offerings should also help offset any near-term weakness in the domestic beef and chicken markets, in our opinion. Still, we believe the company is exposed to commodity price swings, and the very-low-margin nature of the majority of its business can still result in earnings volatility.”