Fitch downgrades General Mills outlook to negative

by Eric Schroeder
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CHICAGO — Fitch Ratings on Monday revised its outlook for Minneapolis-based General Mills, Inc. to "negative" from "stable," reflecting the company’s higher leverage and weak credit measures for the rating category over the near to intermediate term.

"The packaged foods industry as a whole is facing rising commodity costs, and General Mills is expecting approximately $250 million of higher raw material and energy costs in fiscal 2008," Fitch said. "However, the company intends to offset these higher costs with pricing and productivity. In addition, capital expenditures will be up approximately $115 million year-over year. If the company is able to return to and maintain leverage in the mid-2x range, the outlook could be revised to stable. If not, the ratings could be downgraded."

Fitch said the ratings take into account General Mills’ position as the No. 1 or No. 2 brand in several major product categories such as cereal, yogurt, vegetables, soup and dough. In addition, the ratings incorporate General Mills’ substantial free cash flow and desirable competitive position in the packaged food industry’s faster growing categories such as yogurt and healthy snacks.

Fitch also said General Mills’ margins "are among the best in the packaged foods industry," and its operating performance during fiscal 2007 was strong, with 6% net sales growth for the year and 7% segment operating profit growth.

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