Moody’s Outlook for Packaged Foods in 2017 is “Positive”

Plant rationalization and short-term cost-cutting measures within the food industry will improve companies’ profitability and cash flow in 2017, according to projections on consumer products sectors published Dec. 14. by Moody’s Investors Service. The bond credit rating firm said the outlook for the U.S. packaged foods sector is “positive” in the coming year.

“Consumer spending on food will be relatively flat, at 1% to 2%, but cost-cutting will improve companies’ profitability and cash flows, as will plant rationalization. In 2017, product innovation will give way to renovation, which will include upgrading packaging, ingredients, flavoring, and labeling,” a Moody’s press release announcing the report said.

Major restructuring programs among some packaged food players will near completion in 2017, leading to an increase in cash flow, but Moody’s cautioned that companies will need to maintain sales volumes to retain gains in efficiency. The coming year will see fewer mergers and acquisitions in the packaged foods industry as higher interest rates are projected to reduce M&A activity.

“M&A in general will be slow in the packaged food business, though companies including Kraft-Heinz, Tyson Foods, Pinnacle Foods and Mondelez International could look to make strategic purchases,” the report said.

Kraft-Heinz and Tyson Foods may have a “restored capacity for a major purchase” in 2017, the report notes, and Mondelez International is “likely to explore divesting non-snack European operations.” Pinnacle Foods, Post Holdings, and Conagra Brands are expected to seek “bolt-on” companies to acquire in the coming year.

Though the outlook for the sector as a whole is positive for 2017, Moody’s identified several companies that are facing near-term changes or challenges.

Stagnant cereal sales and mixed performance in the snack foods market in the U.S. “ups the stakes” for Kellogg Company to reach its cost saving targets under its “Project K” plan, the bond credit rating company said. TreeHouse Foods will encounter challenges next year as key IT and operating systems are moved in-house. Chobani Holdings, CSM Bakery, and Del Monte Foods “will all need to significantly improve their operating performance to sustain their current credit profiles,” Moody’s said.

For the full report, visit Moody’s website.

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