The credit ratings, research and risk analysis company reports in its U.S. Food Industry: Six-Month Update that the significant fixed costs of packaged-food companies and falling sales volume are likely to put a dent in companies’ cash flow and profitability, according to seekingalpha.com.
The company considers the US food industry as a combination of two segments: the packaged-food companies and the meat processors.
Of the 34 companies listed by seekingalpha.com, 10 have negative outlooks, including Hershey, Sara Lee, Tyson, Smithfield, Advance Food Company, Wm. Bolthouse Farms, Dole, Chiquita, Eurofresh, and Best Brands. All of the other companies are rated as having stable outlooks.
The long-term ratings, expressed for the next year to 18 months, for Hershey, Sara Lee and Tyson are A2, Baa1, and Ba3, respectively. The other companies are listed as having a long-term rating of B1 or lower.
For these lower-rated companies, being starved of credit could deepen their problems, and lead to an increase in the number of bankruptcy filings.
The general outlook for the industry is pessimistic. The six-month update indicates that the continued high prices for many commodities, coupled with the economic slowdown, will damage operating profits. And these increased pressures are unlikely to be relieved or offset by falling oil prices, said the update.
Glimmers of hope
According to Moody’s and seekingalpha.com, consumers are not trading down from the leading cereal brands to stores' own brands, although the trading down to cheaper alternatives is expected. This would increase the pressure on branded packaged-food companies.