Fitch: Cost Cutting, M&A Drive Global Packaged Food Sector Outlook in 2014 Amid Slower Growth

CHICAGO--()--Global packaged food companies have the ability to manage their capital structures to maintain current credit ratings despite macroeconomic factors such as high unemployment and reduction in SNAP program payments pressuring lower income consumers, according to Fitch Ratings. The ratings and sector outlooks are both stable for 2014.

Most companies in the global packaged food sector have very strong free-cash-flow (FCF) and liquidity. This supports the ability to manage through difficult operating cycles without affecting ratings.

In general, Fitch expects low- to mid-single digit top line growth with the higher growth range among companies with heavier emerging market exposure, including Unilever PLC/NV (A+/Stable), Nestle SA (AA+/Stable) and Mondelez International, Inc. (Mondelez, BBB/Stable). Sector companies will focus on accelerating top line and volume growth in a modest input cost inflation environment, which Fitch notes could be difficult to achieve in the highly promotional retail environment.

Packaged food companies remain committed to growth in emerging markets to drive their overall top line. However, large BRIC exposure, which several companies had touted as a quick way to fuel growth, is proving less helpful due to slower economic growth, particularly in China.

Fitch anticipates companies will continue cost cutting, acquisitions and divestitures to optimize operations for higher top and bottom line growth.

Fitch views higher leverage resulting from debt financed acquisitions as the greatest threat to credit profiles. The current low interest rate environment still provides for attractive financing for deals. Although Fitch anticipates most industry acquisitions will be bolt-ons, large, transformational acquisitions may also occur, as well as other capital structure changes driven by activist investors. Examples of companies that could make operational and/or financial strategy changes as a result of activist investors include PepsiCo, Inc. (A/Stable) and Mondelez.

The full '2014 Outlook: Global Packaged Food' is available at www.fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: 2014 Outlook: Global Packaged Food (Companies Continue to Combat Slow Growth with M&A, Cost Cutting)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724171

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Contacts

Fitch Ratings, Inc.
Judi M. Rossetti, CFA/CPA, +1 312-368-2077
Senior Director
70 W. Madison Street
Chicago IL, 60602
or
Giulio Lombardi, +39 02 08790 87214
Senior Director
or
Wesley E. Moultrie II, CPA, +1 312-368-3186
Managing Director
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings, Inc.
Judi M. Rossetti, CFA/CPA, +1 312-368-2077
Senior Director
70 W. Madison Street
Chicago IL, 60602
or
Giulio Lombardi, +39 02 08790 87214
Senior Director
or
Wesley E. Moultrie II, CPA, +1 312-368-3186
Managing Director
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com