NEW YORK — Very modest growth in sales and operating profit is expected in 2020 for the U.S. packaged foods industry, according to Moody’s Investors Service. The U.S. forecast was included in Moody’s “Consumer packaged goods and beverages — Global consumer durables and food — U.S.: 2020 Outlook” published during December.

The operating profit growth will emanate from enhanced margins stemming principally from acquisition synergies, Moody’s said. Conagra Brands, Inc., Chicago, and Campbell Soup Co., Camden, N.J., were two companies expected to harvest such synergies.

“Most other companies’ profit margins will be flat, reflecting rising input costs for labor and commodities, such as meat and dairy products,” Moody’s said.

Food companies will pass along to consumers some, not all cost inflation, looking to cost efficiencies to offset the balance, the outlook said.

Moody’s was guarded in its expectations of benefits food companies will reap from heavier new product development.

“Several companies have stepped up investments in new products and innovation that are more consumer driven and aimed at helping top-line growth,” the ratings agency said. “However, heavy competition and inflation will limit the potential for profit growth from these investments.”

Another challenge in the coming year will be portfolio reconfiguration through elimination of less promising businesses, the outlook said. Moody’s predicted the number of major divestures will be down versus what transpired in 2018 and 2019 because “potential buyers have become more cautious about overpaying.”

Still, Moody’s said merger and acquisition activity will help food companies rebalance portfolios with an eye toward growth.

Among debt “issuers of interest” for 2020, Moody’s said investors are waiting on a new strategic plan from Kraft Heinz Co., Pittsburgh, with an expectation executing the plan will reverse the company’s poor financial performance and bolster cash flow. The ratings agency said Kellogg Co., Battle Creek, Mich., is a company investing in faster-growing markets amid changes in its core ready-to-eat cereal market. In pursuing a “balanced financial policy,” Kellogg is able to invest in more promising markets, boost shareholder returns and protect its credit profile.
Other companies cited by Moody’s in its “issuers of interest” were:

  • Campbell Soup
  • 8th Avenue Food & Provisions
  • BellRing Brands
  • CH Guenther
  • KC Culinarte
  • Sovos Brands
  • Trilliant Food and Nutrition

Moody’s referred to the group as “relatively new issuers.” While apparently a new bond issuer, Guenther is the oldest flour milling company in the United States, established in 1851.

Offering an overview of the global credit picture for 2020, Moody’s identified six potential drivers:

  • Recession risks will be higher with economic growth expected to slow down globally;
  • Domestic policy shifts together with geopolitical uncertainty;
  • The pace of change of traditional businesses will accelerate thanks to scaling up digital technologies;
  • Unusually low interest rates will proliferate around the world;
  • “An enduring U.S.-China trade deal will remain elusive,” and other trade disputes are expected to arise and be impactful; and
  • Environmental, social and governance will emerge as a force through credit constraints in areas/sectors exposed to risk from climate change; demographic and social trends also are expected to be a factor.