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Fitch: Mondelez should generate faster growth

by Eric Schroeder
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NEW YORK — In advance of Kraft Foods Inc.’s official spin-off of its North American Grocery business and name change to Mondelez International, Inc., Fitch Ratings said it believes Mondelez is likely to generate faster growth versus consolidated Kraft and also anticipates some improvement in leverage.

“Mondelez boasts 44% of its sales in geographically diverse developing markets, which we think will be a key driver in exceeding historical consolidated Kraft growth,” Fitch said. “But while speed of growth is likely to improve, we do expect Mondelez’s growth will be balanced with significant exposure to mature, relatively stable markets in developed Europe (37%) and North America (19%), lower margins than historical Kraft, currency volatility, and the discretionary nature of the snack category.”

Fitch said it expects Mondelez to generate substantial and growing free cash flow, with a moderate dividend payout and capital expenditures above Kraft’s historical mid 3% of sales level to support developing markets growth.

Additionally, Mondelez should have ample liquidity, Fitch noted.

“We have a stable outlook for Mondelez and rate the company ‘BBB,’” Fitch said. “That rating incorporates our expectation that Mondelez will utilize approximately $2 billion in cash to repay a portion of debt maturing in 2013, leaving the company with an $18 billion debt level.

“We believe Mondelez’s business profile, capital structure, financial strategies and (free cash flow) generation support its solid investment-grade ratings. With that said, we recognize that Mondelez could experience some near-term deceleration due to the challenging economic environment that has placed pressure on consumers’ food spending.”

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