Positive outlook for US food sector: Moody's
Dec. 20, 2016
by Josh Sosland
Unilever's like-for-like sales will continue to grow 4 percent to 5 percent and margin will improve by round 30 to 40 basis points per year, Moody's said.
NEW YORK — While describing the outlook for the US packaged food sector as “positive,” consumer spending is expected to rise very little and many companies are expected to face serious challenges, according to Moody’s Investors Service.
The analysis was part of a broader look at the global consumer products sector issued by Moody’s Dec. 14. The credit ratings agency was upbeat on the food business despite a forecast of 1 percent to 2 percent growth in consumer spending.
“But cost cutting will improve companies’ profitability and cash flows, as well as plant rationalization,” Moody’s said. “In 2017, product innovation will give way to renovation, which will include upgrading packaging, ingredients, flavoring and labeling.”
Chobani Holdings, CSM Bakery and Del Monte Food will need to improve their operating performance to sustain their current profiles, Moody's said.
While identifying numerous global packaged goods companies with positive outlooks for 2017, including The Proctor & Gamble Co, and Unilever NV, Moody’s offered a list of cautionary examples in the food sector.
“Among companies that face near-term changes or challenges are Kellogg, with no significant growth in sight for its US cereal business, while performance in US snacks is mixed, which ups the stake for achieving targeted ‘Project K’ cost savings,” Moody’s said. “In the coming year, TreeHouse Foods will face integration challenges with Private Brands as key operating and IT systems are taken in house. Chobani Holdings, CSM Bakery and Del Monte Food will all need to significantly improve their operating performance to sustain their current credit profiles.”
Merger and acquisition activity is likely to be sluggish in 2017 in the food sector, Moody’s said. Still, the agency identified a number of the largest players — Tyson Foods Inc.; The Kraft Heinz Co.; Pinnacle Foods Inc.; and Mondelez International Inc. as possibly on the prowl for strategic acquisitions.
Kellogg faces near-term challenges, with no growth in sight for its US cereal business, Moody's said.
“Notably, across all the global consumer sectors, a number of common positive drivers emerge, including solid EBIT growth and emerging markets stability,” said Kevin Cassidy, vice-president and senior credit officer at Moody’s. “Strengthened by the benign commodity cost environment and a focus on cost cutting, consumer sectors globally should see improved profitability and a boost to the bottom line.”
Regarding P&G, Moody’s said the CPG giant was poised to maintain strong credit metrics with improved cash flow as it harvests the benefits of a restructuring.
“For Unilever, like-for-like sales will continue to grow 4 percent to 5 percent and margin will improve by around 30 to 40 basis points per year,” Moody’s said. “Reckitt Benckiser will likewise see like-for like sales growth 4 percent to 5 percent, while margin will improve by around 50 to 100 basis points, though sizeable acquisitions are a risk.”