Fitch Affirms Tyson Foods' IDR at 'BBB-/F3'; Outlook Negative

Tyson

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

--Senior unsecured notes 'BBB-';

--Credit facility 'BBB-';

--Short-term IDR 'F3'.

Lakeside

--Term loan 'BBB-'.

The Rating Outlook remains Negative. At Sept. 30, 2007, Tyson had approximately $2.8 billion of debt.

Tyson's ratings balance the company's ability to sustain investment grade credit measures over the long term with the company's significant size and its strong brand equity. Due to the low margin and inherent volatility of the protein processing industry, Fitch expects the company to maintain lower leverage than typically required for the rating level in most years.

The ratings incorporate the assumption that periodic and often unpredictable shocks to global supply and demand represent cyclical versus longer term structural changes in the industry. High levels of excess supply or severe disruptions in demand caused by foreign export restrictions or incidences of food-borne illnesses; such as salmonella, E. coli or avian influenza could cause periods of extreme short-term volatility in credit measures.

For the fiscal year ended Sept. 30, 2007, total debt-to-operating EBITDA was approximately 2.5 times (x) and Operating EBITDA-to-gross interest expense was an estimated 4.9x. During the fiscal 2006 period, these measures were 7.8x and 1.9x, respectively. Credit measures returned to normalized levels as the company recovered from the unprecedented impact of avian influenza on chicken exports and the resulting protein oversupply in the U.S.

During fiscal 2007, consolidated sales increased 5.3% to $26.9 billion due to a 6.2% increase in average price and a 0.9% decline in volumes. Pricing was strong across all segments while volume declines were primarily due to planned production cuts and plant closures. Consolidated operating income grew to $614 million after declining $77 million in 2006.

Free cash flow after capital expenditures and dividends was approximately $338 million versus negative $299 million in fiscal 2006. Tyson absorbed $334 million of additional corn and soybean meal feed ingredient costs in 2007. Approximately 25% of the cost was offset with risk management activities while the rest was offset with pricing and over $265 million in annualized savings from the company's Cost Management Initiative.

The Negative Outlook is a result of expectations that near term margin pressure combined with relatively stable debt balances could result in credit measures that are moderately weak for the company's investment grade rating. Tyson's chicken margins are being pressured by continued elevation in corn and soybean meal feed grain costs. The combination of risk management activities, price increases, productivity initiatives and increased earnings from other segments are not expected to completely offset these additional costs.

Tyson's ratings could be downgraded if the company's credit statistics are significantly impacted in the near term by disruptions in international demand and export activity, which may indicate structural changes in the industry. Considerably weakness in product pricing due to an oversupply of protein or higher than expected feed grain costs could also negatively impact ratings. Conversely, the Outlook is likely to be stabilized if Tyson's credit measures demonstrate near term consistency or strengthen within the investment grade category due to improved profitability and additional debt reduction.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, . 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.