Standard & Poor Services raised its rating on Smithfield Foods Inc. this week, saying the country’s top pork producer has improved operating performing and credit measures. S&P believes Smithfield will be able to sustain its current level of earnings for the rest of the fiscal year due to higher pricing for hogs and pork, despite possible pressure from stunted economic growth and higher feed costs.
According to the MarketWatch, their rating was raised to double-B-minus, which is three steps below investment-grade status.
S&P reported that the USDA recently projected hog prices to improve by nearly 20 percent in 2011 from last year. S&P also expects pricing for pork bellies, hams and trims to continue to grow into 2012 due to strong export demand. Additionally, tight supplies domestically will continue to support U.S. demand.
Credit analyst Christopher Johnson told MarketWatch reports that the firm believes those conditions would allow Smithfield to maintain adjusted earnings near current level of about $1 billion in the current fiscal year.
S&P acknowledged Smithfield’s history of earnings volatility, which could significantly vary its results. However, S&P also believes that the company’s credit measures will remain at levels appropriate for its new rating category, even if earning soften in coming quarters.