Fitch affirms General Mills ratings, maintains outlook
September 02, 2009
by Eric Schroeder
NEW YORK — Fitch Ratings on Aug. 28 affirmed certain credit ratings for General Mills, Inc. and its subsidiary, General Mills Cereals L.L.C., including affirming both companies’ long-term issuer default rating at BBB+. Fitch also affirmed BBB+ ratings for General Mills’ senior unsecured debt and senior unsecured credit facilities.
The BBB+ rating is an investment grade for medium class companies that are deemed satisfactory at the moment.
In addition to affirming the credit ratings, Fitch maintained its "stable" outlook for the Minneapolis-based company.
"While the growth of private label food products remains a significant risk, average private label market share in General Mills’ major categories remains below the market share of private label in all food categories due to the strong brand equities of General Mills’ brands," Fitch noted. "Packaged food companies have benefited from the shift toward eating more meals at home as consumers focus on value during the current weak economic conditions."
Fitch said the ratings incorporate General Mills’ operating earnings stability and substantial internally generated liquidity, which provide the company with financial flexibility. During fiscal 2009 the company generated $686 million of free cash flow after making a $200 million voluntary pension contribution. General Mills also generated approximately $250 million from net divestitures in 2009.
General Mills, which typically has balanced its credit strengths with its historically high priority for returning cash to shareholders, is expected to take a more balanced approach in fiscal 2010, Fitch said. That approach is expected to include reducing debt as well as engaging in a more modest level of share repurchases.
Despite facing unusually high input cost inflation of 9% and 7%, respectively, during the past two fiscal years, General Mills’ margins and operating fundamentals remain among the top tier in the sector, according to Fitch.
"Fitch expects General Mills’ operating margins to improve in fiscal 2010 with more moderate input cost inflation combined with Holistic Margin Management efforts, which include cost savings initiatives, marketing spending efficiencies and sales mix enhancement," Fitch said.