Moody's Upgrades Tyson Foods (TSN) to 'Baa2'; Outlook Stable

November 14, 2016 2:36 PM EST

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Moody's Investors Service upgraded the senior unsecured debt ratings of Tyson Foods, Inc. (NYSE: TSN) to Baa2 from Baa3. The rating outlook is stable. This rating action concludes the review for upgrade that began on 5 August 2016.

The rating upgrade reflects Tyson's improved earnings diversity and restored financial metrics following the leveraged acquisition of Hillshire Brands in August 2014. The transaction caused debt/EBITDA to rise to around 3.3x on a pro forma basis. Tyson has since successfully integrated the business and reduced debt/EBITDA to below 2.0x.

RATINGS RATIONALE

Tyson's ratings reflect the company's large scale and improved segmental diversity among the three primary protein businesses -- chicken, pork and beef -- and its packaged foods business that together provide important diversification against the high earnings volatility inherent in its commodity protein operations. The ratings also reflect the company's improved profitability mix resulting from the Hillshire Brands packaged foods acquisition and Tyson's solid liquidity. These strengths are balanced against an aggressive financial policy that includes heavy share repurchases and the company's indicated interest in pursuing transformational acquisitions. Moody's expects that Tyson's future financial strategy also will reflect its senior management's stated intent to maintain an investment grade profile.

"Tyson's improved business diversity has reduced, but not eliminated, the potential for significant earnings volatility, especially due to its high exposure to commodity protein operations," commented Brian Weddington, a Moody's Senior Credit Officer.

Additionally, Tyson's protein segment results can be highly correlated at times. For example, Moody anticipates that operating profit margin in both the US chicken and US pork sectors are likely to experience declines over the next year after recent periods of record profitability.

Ratings upgraded: Tyson Foods, Inc.:

Senior unsecured debt to Baa2 from Baa3;

Senior unsecured bank credit facility to Baa2 from Baa3;

Backed revenue bonds supported by Tyson Foods, Inc. to Baa2 from Baa3;

Senior unsecured shelf to (P)Baa2 from (P)Baa3;

Senior unsecured medium term notes program to (P)Baa2 from (P)Baa3.

The outlook is stable.

Tyson Fresh Meats, Inc.:

Senior unsecured medium term notes program to (P)Baa2 from (P)Baa3.

Moody's would consider an upgrade of Tyson's ratings if the company continues to improve business diversity and earnings stability. Quantitatively, the ratings could be upgraded if debt/EBITDA is likely to be sustained below 2.0 times and the company maintains combined cash and external liquidity sources of at least $1.5 billion.

Moody's would consider downgrading Tyson's ratings if liquidity or operating performance deteriorates. It could also consider a downgrade if debt/EBITDA is sustained above 2.5 times, or the aggregate of cash and external liquidity sources falls below $1.0 billion.



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