NEW YORK — While describing the outlook for the U.S. 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% to 2% 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.”
While identifying numerous global packaged goods companies with positive outlooks for 2017, including The Proctor & Gamble Co, and Unilever N.V., 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 U.S. cereal business, while performance in U.S. 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 I.T. 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.
“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 C.P.G. 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% to 5% 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% to 5%, while margin will improve by around 50 to 100 basis points, though sizeable acquisitions are a risk.”