US CREDIT - Analysts divided on Tyson swap widening
Reuters
Jan 31, 2006
NEW YORK, Jan 31, 2006 (Reuters) - Credit default swap spreads of meat processor Tyson Foods (TSN.N: Quote, Profile, Research) have widened in the past month on concerns about fundamentals in the company's beef and poultry business, but analysts are divided on whether the widening will continue.
Tyson, the largest U.S. meat processor, on Monday slashed its full-year earnings forecast, citing avian flu fears cutting overseas chicken demand and a slow recovery in its beef business. The company also posted a 19 percent drop in first-quarter profit.
Tyson Food's swap spreads have widened more than 20 basis points to around 78 basis points on Tuesday, from 55 basis points at the beginning of the year. Spreads on Tuesday, however, were little changed from levels before the company announced first-quarter earnings on Monday.
"The fundamentals have deteriorated a bit faster than we had anticipated and the visibility into their future earnings, at least for the balance of 2006 is murky at best," said Craig B. Hutson, senior bond analyst at Gimme Credit in Chicago.
"It just doesn't give us a lot of confidence that we are going to see much improvement here," Hutson said. Both CreditSights and Gimme Credit lowered their recommendation on the company's debt to "underweight," based on its first quarter earnings.
"They have a lot of head winds. Where (spreads) would go really depends on how difficult things become," said Andrew Brady, senior analyst at CreditSights in New York. Spreads could move out another 10-20 basis points from Tuesday's levels, he said.
The risk of avian flu spreading to the U.S. and the closure of Japan's borders to export beef is weighing on Tyson, Brady said. The company's free cash flow is also expected to fall and Tyson has talked about making acquisitions, which may make it less likely to continue paying down its debt, he said.
However, Frank Henson, high grade retail and consumer product analyst at Bear Stearns Cos. in New York, said although Tyson Foods lowered its earnings expectations rather dramatically yesterday, it wasn't that great of a surprise. He continues to rank the company's debt "marketweight."
"The market has likely already priced in several factors, including the reclosing of the Japanese border and anticipated weakness in the company's poultry division due to a slowdown in international demand for chicken leg quarters," Henson said.
"If investors or analysts are looking at the day-to-day pricing, they realize there has been a sharp fall off in poultry margins as grain costs have risen and chicken prices have fallen," he said.
That is why credit spreads did not drift wider after their earnings release, he said.
today.reuters.com
Reuters
Jan 31, 2006
NEW YORK, Jan 31, 2006 (Reuters) - Credit default swap spreads of meat processor Tyson Foods (TSN.N: Quote, Profile, Research) have widened in the past month on concerns about fundamentals in the company's beef and poultry business, but analysts are divided on whether the widening will continue.
Tyson, the largest U.S. meat processor, on Monday slashed its full-year earnings forecast, citing avian flu fears cutting overseas chicken demand and a slow recovery in its beef business. The company also posted a 19 percent drop in first-quarter profit.
Tyson Food's swap spreads have widened more than 20 basis points to around 78 basis points on Tuesday, from 55 basis points at the beginning of the year. Spreads on Tuesday, however, were little changed from levels before the company announced first-quarter earnings on Monday.
"The fundamentals have deteriorated a bit faster than we had anticipated and the visibility into their future earnings, at least for the balance of 2006 is murky at best," said Craig B. Hutson, senior bond analyst at Gimme Credit in Chicago.
"It just doesn't give us a lot of confidence that we are going to see much improvement here," Hutson said. Both CreditSights and Gimme Credit lowered their recommendation on the company's debt to "underweight," based on its first quarter earnings.
"They have a lot of head winds. Where (spreads) would go really depends on how difficult things become," said Andrew Brady, senior analyst at CreditSights in New York. Spreads could move out another 10-20 basis points from Tuesday's levels, he said.
The risk of avian flu spreading to the U.S. and the closure of Japan's borders to export beef is weighing on Tyson, Brady said. The company's free cash flow is also expected to fall and Tyson has talked about making acquisitions, which may make it less likely to continue paying down its debt, he said.
However, Frank Henson, high grade retail and consumer product analyst at Bear Stearns Cos. in New York, said although Tyson Foods lowered its earnings expectations rather dramatically yesterday, it wasn't that great of a surprise. He continues to rank the company's debt "marketweight."
"The market has likely already priced in several factors, including the reclosing of the Japanese border and anticipated weakness in the company's poultry division due to a slowdown in international demand for chicken leg quarters," Henson said.
"If investors or analysts are looking at the day-to-day pricing, they realize there has been a sharp fall off in poultry margins as grain costs have risen and chicken prices have fallen," he said.
That is why credit spreads did not drift wider after their earnings release, he said.
today.reuters.com