NEW YORK — While highly profitable, Mars, Inc. is likely to feel pressure from the coronavirus (COVID-19) in coming weeks and months, according to Moody’s Investors Service. On July 13, Moody’s issued an A1 rating for $2.5 billion of new senior unsecured notes issued by Mars in multiple tranches.
Moody’s said Mars’ outlook is stable.
The A1 rating reflects the scale and diversification of McLean, Va., a business with $38 billion in annual sales in the global confectionery, pet food, pet health care and other food business. Debt with A ratings is subject to low credit risk.
Mars will use proceeds for general corporate purposes and to refinance existing debt.
The company holds the No. 1 position globally in the gum, chocolate confectionery and pet food.
“The rating also reflects Mars’ strong profitability and excellent liquidity,” Moody’s said. “Mars’ financial leverage is elevated following a number of acquisitions, but Moody’s expects debt/EBITDA to decline to under 3.0x over the next two years, helped by debt repayment. Further supporting the rating are the good growth prospects for many of its segments, particularly pet and pet health, which sets it apart from many other companies in the consumer space.”
Amid Mars many positives, Moody’s said the COVID-19 pandemic is likely to disrupt some of the company’s business over the next few quarters. Even though the company benefited from pantry loading early in the outbreak, the closing of certain outlets and a reduction in impulse purchases are expected to take a toll.
Notwithstanding these challenges, Moody’s expects Mars’ to sustain “solid operating performance” and as a result the ratings agency is maintaining a stable outlook for the company.
“The outlook also reflects Moody’s assumption that Mars will reduce leverage over the next two years,” the agency said.
Moody’s said the ratings could be downgraded if operating performance weakens, there is a large debt funded acquisition or a shift to more aggressive financial policies. Also possible triggers for a downgrade would be if the company’s debt to EBITDA ratio holds above 3.0x, its EBITA margin falls below 15%, or liquidity deteriorates.
“The ratings could be upgraded if the company successfully integrates its recent acquisitions, the company maintains stable operating performance and leading market positions as well as strong liquidity and conservative financial policies, retained cash flow to net debt is above 30%, and there is evidence of broad financial flexibility,” Moody’s said.
The agency said it expects Mars’ family-controlled board to “pursue a relatively conservative financial policy despite an aggressive expansion strategy.”