Source: Janie Gabbett, MEATINGPLACE.COM, 10/29/08
Moody's Investors Service said it has confirmed the long-term ratings of Smithfield Foods, including the company's corporate family rating and probability of default rating, at B1, concluding the review for possible downgrade originally begun on June 12, 2008.
The action follows the completion of the sale of Smithfield's beef business to JBS S.A. for $565 million cash, but Moody's said the rating outlook is still negative.
"The negative rating outlook incorporates Moody's expectation that Smithfield's consolidated operating profitability and cash flow are likely to remain pressured in the near term, especially now that the company's business is concentrated in pork," the rating agency said in a news release, noting that live hog prices, though higher, have trailed cash raising costs for Smithfield for the last four quarters.
BB&T Capital Markets sounded similar concerns for Smithfield in the near term, though continued to recommend the stock as a long-term investment in a note to investors Tuesday.
BB&T said Smithfield's earnings recovery could take longer than expected. It noted that hog production remains in the red, despite lower feed cost. "We are concerned about pork packing margins, which have already shown deterioration and could deteriorate further dependent upon demand trends. The decline in ham prices has been somewhat alarming," BB&T noted.
On the upside, BB&T said Smithfield is believed to have been prudent in selling forward hogs and pork production, including hams.
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