Surging costs and softening demand for foie gras, smoked salmon and other festive food will burn up cash at Labeyrie Fine Foods SAS this year.
(Bloomberg) — Surging costs and softening demand for foie gras, smoked salmon and other festive food will burn up cash at Labeyrie Fine Foods SAS this year.
The French purveyor of fine foods has told investors it will likely need to draw on loans to make up for dwindling cash buffers as inflation will hit sales in the busiest period of the year, according to a person familiar with the matter, who asked not to be identified because they aren’t authorized to talk about it.
A surge in inflation has driven up Labeyrie’s production expenses and is squeezing household budgets, forcing buyers of its smoked salmon and pâtés made from livers of force-fed ducks to tighten their belts. Adding to the cost pressures facing the firm this year was an outbreak of avian flu that meant it had to spend more on purchasing birds to prepare its delicacies.
Labeyrie forecasts negative cash of around €11 million ($11.7 million) by the end of its fiscal year in June, and plans to plug the gap by drawing funds from a revolving credit facility, the person said. Covenants will apply if it needs more than €40 million under the facility.
A spokesperson for PAI Partners, which jointly owns the firm with the French agricultural cooperative Lur Berri, declined to comment.
Festive Foods
The festive period is key for Labeyrie, accounting for as much as 60% of its annual Ebitda, according to analysts at Moody’s Investors Service, who downgraded company’s rating by one notch to B3. They expect the firm will end the fiscal year with negative cash flow in the €40 million-to-€50 million range. Ebitda for the year may be a little higher than €60 million, according to S&P Global Ratings.
Labeyrie’s offering of private label products and lower prices for some foods such as its appetizers offer some resilience against the trend for consumers to rein in spending on high-end items, S&P’s analysts led by Arianna Maino wrote in a report last week in which they cut the firm to CCC-.
Even so, its foie gras and salmon are items that more customers may choose to dispense with as they trade down to cheaper alternatives, they wrote.
The company has €455 million of leveraged loans, which are currently quoted at a discount of just below 40% to their face value, according to data compiled by Bloomberg.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
