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Fitch: Consumer Trends, Taxes, M&A Impact U.S. Consumer Sectors
May 25, 2017 / 5:50 PM / 6 months ago

Fitch: Consumer Trends, Taxes, M&A Impact U.S. Consumer Sectors

(The following statement was released by the rating agency) CHICAGO/NEW YORK, May 25 (Fitch) The impact of changing consumer preferences, shifting U.S. regulatory and tax policies, and M&A on U.S. packaged food, consumer products, restaurant, beverage, agribusiness, and tobacco companies is a major concern of institutional investors, according to Fitch Ratings. Companies across the consumer sector are adjusting their product mix, menus, and go-to-market strategies to address consumer trends toward health and wellness, convenience and value. What, where and how consumers purchase goods is changing at a faster pace than ever with innovation, convenient packaging, e-commerce, mobile ordering and acquisitions considered primary vehicles for generating top line growth. Fitch views firms with meaningful natural/organic or snack food offerings, such as Mondelez International and those with portfolios focused on fresh offerings or on-trend around the perimeter of the store, like Constellation Brands, Tyson Foods and Smithfield Foods, as best positioned to benefit from these changes. Meanwhile, M&A will persist with Kraft Heinz, Tyson, Newell Brands and Constellation remaining active participants. A fight for market share is occurring with restaurants and grocery chains competing for share of U.S. food expenditures. As such, share shifts across food consumed at home and food consumed away from home, segments of the restaurant industry or other venues where food is consumed away from home, and individual restaurant brands will likely continue. Fitch views positively McDonald's recently announced initiatives to strengthen its burger offerings, launch mobile order and pay, accelerate conversion of traditional restaurants to a modernized "Experience of the Future" format, and delivery along with its focus on value. However, we believe it will take time for these efforts to have a sustained positive impact on market share and, due to heightened industry competition, consider quarterly sales volatility likely. Alterations to trade policy might affect agribusiness and protein firms given the role of exports in these areas while restaurants will likely be most impacted by changes to labor regulations as labor can be a third of costs. However, we generally expect the new administration's policies to be manageable. A reduced tax rate would benefit all corporate issuers but tax reform could provide a disproportionate benefit to multinational U.S. non-alcoholic beverage companies, such as Coca-Cola and PepsiCo, because both have foreign cash balances in the tens of billions of dollars due to a reluctance to repatriate foreign earnings at high tax rates. Lastly, litigation against U.S. tobacco companies has dropped substantially. Fitch believes moderating litigation risk has increased the appeal of the U.S. tobacco market to global players, a trend underscored by British American Tobacco plc's (BAT) proposed acquisition of Reynolds American. Contact: Carla Norfleet-Taylor, CFA Senior Director Corporate Finance U.S. Restaurants and Commodity Food +1 312 368-3195 70 W. Madison Street Chicago, IL Ellen Itskovitz Senior Director Corporate Finance U.S. Packaged Foods and Consumer Products +1 312 368-3118 Bill Densmore Senior Director Corporate Finance U.S. Beverages, Agribusiness, and Tobacco +1 312 368-3125 Kellie Geressy-Nilsen Senior Analyst Fitch Wire +1 212 908-9123 33 Whitehall Street New York, NY Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Additional information is available on www.fitchratings.com The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Related Research What Investors Want to Know: U.S. Consumer Sector (Takeaways from Recent Investor Roundtables — A Focus on Investment-Grade Issuers) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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