NEW YORK — Fitch Ratings has revised its rating outlook for General Mills, Inc. to “negative” from “stable” and withdrawn its ratings for the Minneapolis-based company, citing potential challenges in maintaining the growth that has arisen as a result of the coronavirus pandemic.

“General Mills’ ratings reflect the company’s global scale, strong brands, high EBITDA margin and solid FCF (free cash flow),” Fitch noted in a March 10 report. “The company has significant exposure to mature developed markets and categories, such as cereal and yogurt, and over the medium term, Fitch expects organic sales to be relatively flat, with revenue and EBITDA returning close to fiscal 2019 levels once the benefit from pandemic-related demand abates.”

Fitch noted that General Mills experienced a “significant sales lift” as a result of COVID-19-related shutdowns in early 2020. The company has continued to benefit from elevated at-home food demand and positive price/mix, but as pandemic-related demand abates, Fitch expects General Mills’ sales trends to return to prior trends of flat organic growth.

“Organic sales in fiscal 2021 is expected to be around 4% but trend negative 4% to 5% in fiscal 2022 against difficult comparisons,” Fitch said.

The ratings agency also said it expects to see flat volume trends as elevated demand abates.

“Organic sales growth was essentially flat in fiscal 2018, fiscal 2019 and the for the first three quarters of fiscal 2020 (ended Feb. 23, 2020) before benefiting from the pandemic-related demand beginning fiscal 4Q20 (ended May 2020),” Fitch said. “Volume growth has been challenged over the five years pre-pandemic given the company’s product mix. Cereal, convenient meals and yogurt, which collectively represent about $7.75 billion, or 44%, of the company’s sales in FY20, have been under pressure as consumer preferences shift toward healthier and more natural product offerings.

“General Mills, similar to other large packaged food companies, continues to renovate existing products to be healthier, acquire food companies with higher growth or margin potential, such as organic food company Annie’s, and introduce organic-focused brand extensions. However, consumer perceptions of the company’s older and mature legacy brands remain a long-term obstacle to growth. The company has significant exposure to mature developed markets and categories, such as cereal, and until recently saw flat to modest declines in most of its categories, with yogurt down 30% to around $2.1 billion in fiscal 2020 versus close to $3 billion in fiscals 2013-2015.”

Fitch said it anticipates General Mills’ EBITDA to remain elevated at $3.8 billion in fiscal 2021 relative to pre-pandemic levels of $3.6 billion in fiscal 2019. However, as volume normalizes EBITDA is likely to return close to fiscal 2019 levels of $3.6 billion, Fitch said.

EBITDA margins, meanwhile, are forecast in the 21% to 21.5% range as General Mills’ ongoing investments in brands and cost inflation largely offset any benefits from the company’s cost reduction initiatives, Fitch said.



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