CHICAGO – Fitch Ratings asserted Tyson Food’s stable investment grade credit rating of ‘BBB’/’F2’ following its agreement to acquire the Keystone Foods business from Marfrig Global Foods for $2.16 billion in cash on Aug. 20.
Critical factors in the assessment by Fitch included the importance of subsidiary Hillshire Brands to Tyson’s overall portfolio. This included the level of integration between entities’ including operational and centralized treasury functions.
Fitch analysts added that “Tyson’s acquisition of Keystone Foods is complementary to the existing portfolio, improves scale and is consistent with the company’s strategy of transitioning from a commodity meat and poultry processor to a higher margin protein-packed foods firm that should benefit from expanded growth opportunities in the Asia Pacific region as well as exports on key markets via a new international platform.”
Fitch expects Tyson’s total debt-to-EBITDA to close in the 2.6x to 2.7x range when the transaction closes. However, the ratings agency said that there could be a decline from 2.3x to 2.4x in the following year.
“Debt reduction will be a priority as Tyson suspends discretionary share buybacks and utilizes FCF to return net debt-to-EBITDA to the company's targeted 1.5x - 2.0x range over the medium term,” Fitch said in its ratings report.
On July 30, Tyson revised guidance for its 2018 fiscal year due to market challenges in the meat and poultry processing industry. The company lowered its expected adjusted earnings per share (EPS) to $5.70-$6.00 after starting it at $6.55-$6.70.
The company cited the negative impact of recent tariffs on chicken and pork exports; a domestic protein supply glut pushing prices lower; headwinds in demand for chicken domestically from competing proteins; imbalance in supply and demand of pork pressuring margins; and lower-than-expected benefit from tax reforms earlier this year.