CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects pricing and efficiency to be paramount for the protein, dairy, and produce sectors in 2013, as the pace of large scale divestitures and spinoffs slows, according to an outlook report published today. Proceeds from transformative transactions by Dean Foods Co. (Dean: 'B+/Watch Positive') and Dole Food Co. ('B/Watch Positive') are funding debt reduction for these firms, but additional large scale deals in the commodity food sector are viewed as unlikely.
Fitch's outlook for the industry is stable for 2013 as lower debt balances, solid liquidity and minimal refinancing needs reduce credit risk and improve the ability of these low-margin firms to handle inflationary cost pressures. Global corn prices are likely to remain elevated in 2013, although prices have eased from recent highs, due to relatively low supplies, good demand, and the potential for unfavorable weather.
Fitch expects pricing to mitigate some of the cost pressure in the protein sector even though moderate declines in volumes could occur and margins are at risk of contracting. Dairy processors, such as Dean, are also expected to realize pricing with volume declines continuing due to secular changes in milk consumption. Operating efficiency is expected to remain a focus for all commodity food companies, but given the magnitude of cost savings achieved over the past couple of years, firms may experience less incremental benefit.
Tyson Foods, Inc. (Tyson: 'BBB/Stable') is projecting $600 million of incremental grain costs and $100 million of efficiencies across its chicken and prepared foods segments during fiscal 2013. Fitch expects pricing to contribute to sales growth and views the targeted improvements as achievable, given Tyson's ability to realize about $1 billion in its chicken operations alone since 2008.
The full '2013 Outlook: U.S. Commodity, Protein, Produce and Dairy' is available at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: 2013 Outlook: U.S. Commodity
Protein, Produce, and Dairy
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696573
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