S&P lowers Welch Foods

Standard & Poor's said it lowered the ratings on Welch Foods Inc., including its corporate credit rating, to BBB+ from A-.

The outlook is stable.

The downgrade reflects a re-assessment of Welch's financial risk profile following weakened operating results associated with a smaller crop in fiscal year 2013, S&P said.

The company's modest absolute level of discretionary cash flows after making cooperative member patron-distribution payments also contributed to the downgrade, said Chris Johnson, an S&P analyst.

While United States accounting principles require the cooperative to exclude the cost of member payments from the cost of sales in its determination of member proceeds, a portion of the payments are viewed as more representative of a cash operating expense for purchasing grapes - a primary ingredient for the majority of the cooperative's products, Johnson said in a press release.

Credit measures would be weaker if adjusted for these payments and would not support an A- rating, the analyst said.

Welch's earnings and credit measures weakened in fiscal 2013 primarily because of lost volumes from of a small 2012 patron grape harvest, partially offset by ongoing cost reductions, the agency said.

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