Fitch Ratings has assigned a 'BBB-' rating to the proposed benchmark senior unsecured notes due in 2033 issued by Pilgrim's Pride Corporation (PPC).
The company expects to use the proceeds for debt repayment including the outstanding amount of the term loan under the U.S. credit facility. The ratings reflect PPC's resilient operating performance, moderate net leverage and strong liquidity position
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Key Rating Drivers
Standing Alone Credit Profile and Parent Linkage: Fitch believes PPC's business and standalone credit profile is in line with its 'BBB-' ratings. PPC's ratings are viewed on a standalone basis despite its credit linkage with JBS S.A. (BBB-/Stable). Fitch views PPC as highly strategic for JBS due to overall profitability contribution, growth perspective and diversification. JBS also owns 82.6% of PPC and influences its business and financial strategies. Fitch estimates that PPC represented about 24% of JBS'S.A. consolidated in 2022. The credit linkage with JBS also considers moderate ring-fencing or medium legal incentives under Fitch's criteria, as PPC has minority shareholders represented by independent board members governed by U.S. law, due to its listing on Nasdaq. In addition, no cross-default, acceleration clauses or upstream guarantees exist between PPC and its parent.
Expect Higher Leverage: Fitch forecasts PPC's net debt/EBITDA to increase to 2.5x in 2023 from 1.7x at YE 2022, due to lower EBITDA as gross debt is expected to remain stable. Fitch anticipates PPC to generate close to USD1.1 billion of EBITDA in 2023 following a strong 2022 result. EBITDA peaked at USD1.6 billion in 2022 despite high commodity costs. Chicken market prices were higher in the first half of 2022, but declined in the second half due to a surplus in supply while demand slowed. Fitch forecasts FCF to remain positive, with capex ranging between USD400 million to USD500 million.
Resilient Business Profile: PPC's ratings are supported by its resilient business profile as one of the world's largest vertically integrated chicken processors with a diversified product line across multiple bird sizes along with a geographic presence throughout the U.S., Europe and Mexico. In addition, roughly half of PPC's sales go to food retailers, while the other half go to the foodservice segment, predominately quick-service restaurants.
U.S. sales represented about 62% of group sales as of YE 2022. The company's product types include fresh chicken products, prepared chicken products, and value-added export chicken products. Fresh chicken accounted for 80%, 19%, and 86% of total U.S., U.K. and Europe, and Mexico chicken sales in 2022, while prepared foods represented about 25% of sales.
Protein Outlook: The chicken sector in the U.S. is anticipated to take advantage of the shift in protein mix towards chicken, stemming from reduced beef supply. USD forecast steady 1.2% yoy production growth in chicken in 2023. Industry risks include downturns in the economy or consumer demand, increased tariffs, environmental and sanitary risks including avian influenza, higher labor and feed costs, and potential litigation fines due to increased public scrutiny.
Derivation Summary
PPC's business profile is in line with the 'BBB-' rating category due to its size, profitability, geographical diversification and leverage. The company operates in the U.S., Mexico and Europe, with PPC's U.S. operations representing about 62% of sales as of FYE 2022.
PPC is smaller than other U.S. peers such as Tyson Foods, Inc. (BBB/Stable) and Cargill Incorporated (A/Stable), which receive synergistic benefits from their scale. PPC has a less diversified product portfolio than both its parent company, JBS and Tyson Foods, which exposes the company to higher industry risks.
The company is subject to various legal proceedings and claims that arise in the ordinary course of business. The company registered and expense of USD34 million in its results related to litigation settlements in 2022.
Key Assumptions
EBITDA of about $1.1 billion in 2023;
Capex of about USD400 million-USD500 million in 2023;
Total net debt/EBITDA to about 2.5x in 2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of JBS's ratings could lead to an upgrade for PPC;
Strong FCF.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Significant debt-financed acquisitions and/or excessive shareholder distributions that would lead to a significant deterioration of the standalone credit profile;
A downgrade of JBS could impact the PPC's rating.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Liquidity and Debt Structure
Strong Liquidity: Fitch views PPC's liquidity as ample, supported by adequate cash on hand, revolver availability, strong cash flow generation, and a comfortable amortization profile. As of Dec. 31, 2022, PPC had approximately USD401 million of cash and USD26 million of short-term debt. The company's main debt is comprised of senior unsecured bonds and a term loan due in 2026.
Issuer Profile
PPC is one of the largest chicken producers in the world, with operations in the U.S., the U.K., Mexico, France, Puerto Rico, Republic of Ireland and the Netherlands. PPC is a vertically integrated company controlled by Brazilbased JBS S.A. through an indirect ownership of common stock.
PILGRIM'S PRIDE CORPORATION 
