Tyson Foods (TSN)

June 19th,2008

Fitch Ratings downgraded the company’s status to “junk”. Fitch said that the chicken processor’s credit statistics will likely deteriorate in the near term as a result lower-than-anticipated operating earnings, with increased grain costs and pricing issues expected to hamper the bottom line. This prompted the agency to cut Tyson’s issuer-default rating one notch from BBB-to BB+. Fitch cautioned of the potential for further downgrades should Tyson experience an extended period of high leveraging. Tyson has indeed witnessed tough times, largely on account of macroeconomic headwinds –this latest development should only serve to make matters worse.

Cash Flow Deteriorates

The company reported a 58% decline in consolidated cash flows over the first half of F08, attributed primarily to rising grain costs and inventory requirements. In April, the company swung to a second-quarter loss as a result of restructuring costs and further feed-expense issues.

In late 2007 Tyson was dealt a setback when the US department of agriculture (USDA) reversed an earlier decision to allow the company to label its chicken products "raised without antibiotics." Tyson has spent millions of dollars since June in advertising, promoting itself as the "first major poultry company to offer fresh chicken raised without antibiotics on a large-scale basis." The USDA contested this claim because Tyson uses ionophores, a common chicken feed additive.

Tyson stock performed well in 2006 and the first half of 2007, however, its short term earnings are still dramatically impacted by the boom and bust cycle of commodity prices.

Increased ethanol production in the U.S. has pressured corn prices recently, which will only increase Tyson's costs.

The company's stewardship reeks of nepotism, with retired chairman Don Tyson controlling 75% of the voting stock of the firm. Not to mention, the family has a history of using corporate cash for personal perks, putting minority shareholders at a distinct disadvantage.