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Fitch Affirms ConAgra's IDR at 'BBB'; Outlook Stable

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  Published in House and Home on Wednesday, January 21st 2009 at 14:11 GMT, Last Modified on 2009-01-21 14:11:58 by Market Wire
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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the following ratings for ConAgra Foods, Inc. (ConAgra) (NYSE: CAG):

--Long-term Issuer Default Rating (IDR) 'BBB';

--Senior unsecured notes 'BBB';

--Bank credit facility 'BBB';

--Subordinated notes 'BBB-';

--Short-term IDR 'F2';

--Commercial paper 'F2'.

The Rating Outlook is Stable. ConAgra's total debt was $3.7 billion at Nov. 23, 2008.

ConAgra's credit ratings recognize the company's diversified product portfolio and balanced financial strategy. The company has transformed itself into primarily a branded, packaged foods company after completing the divestitures of its commodity businesses over the past several years. In June 2008, ConAgra completed the divestiture of its Trade Group, which sourced, merchandised, traded, marketed and distributed agricultural and energy commodities. Net proceeds were used for a combination of debt reduction and share repurchases. The Trade Group was highly working capital intensive and had greater variability of earnings than ConAgra's food business.

The ratings also factor in the company's low margins relative to its packaged food industry peers and its difficulty in achieving consistent operating earnings and volume growth in its core Consumer Foods segment. Moderation of input cost increases, cost savings and adjustments to merchandising programs are expected to result in operating earnings and margin improvement in the second half of fiscal 2009. ConAgra is well positioned to benefit from the increase in consumers preparing meals at home during the weak economic environment. However, the risk of consumers trading down from branded products to private label products in this environment has also increased.

Net sales for the six months ended Nov. 23, 2008 rose 14% to $6.3 billion, versus the prior year period. Consumer Foods sales increased 7% and Commercial Foods increased 27%. The sales increase in Consumer Foods was comprised of 6% net price increases and 1% from volume and mix. Operating profit rose 1% in Consumer Foods and 14% in Commercial Foods for the same period. Fitch anticipates that working capital usage will moderate over the remainder of fiscal 2009, resulting in improved cash flow from operations. However, if ConAgra needs to increase borrowings for capital expenditures and dividends, Fitch would not view that positively. For the latest 12 months ended Nov. 23, 2008, ConAgra's total debt-to-operating EBITDA was 2.6 times (x), operating EBITDA-to-gross interest expense was 5.3x and Funds From Operations adjusted leverage was 4.5x. The ratings factor in modest improvement in credit metrics. ConAgra has $300 million of 6.7% notes due August 2027 with a put option exercisable by the debt holders from June 1, 2009 to July 1, 2009. Fitch expects that ConAgra will refinance the notes if the put option is exercised.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.