S&P cuts International Multifoods to BB-, on watch

Standard & Poor's lowered its corporate credit rating on branded consumer food and food service products manufacturer International Multifoods Corp. to BB- from BB and placed the ratings on CreditWatch with negative implications.

At the same time, the company's A senior unsecured debt rating was affirmed. This rating is not on CreditWatch, because Diageo PLC unconditionally guarantees the senior unsecured debt issue.

The rating actions follow International Multifoods' announcement earlier today that it has significantly lowered its earnings guidance for fiscal 2004 and beyond. The expected earnings shortfall and revised guidance are due to heightened competition, specifically increased promotion by existing as well as new participants in the company's U.S. consumer products business. At the same time, there has been lackluster category growth during the key baking season.

As a result of the company's fiscal 2004 financial performance, credit protection measures will be below S&P's expectations.

International Multifoods' operating performance had already been pressured by weakness in the Canadian and U.S. food service business, lower pension income, and higher commodity costs. Moreover, the company may find it necessary to take additional restructuring charges barring an improvement in current business conditions, and it is uncertain when credit measures will recover.

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