Reuters logo
Fitch Rates Mondelez's $1.5B 364-Day Facility 'BBB'
March 1, 2017 / 11:06 PM / 9 months ago

Fitch Rates Mondelez's $1.5B 364-Day Facility 'BBB'

(The following statement was released by the rating agency) CHICAGO, March 01 (Fitch) Fitch Ratings has assigned a 'BBB' rating to the new $1.5 billion 364-day facility being issued by Mondelez International, Inc. (Mondelez). The Rating Outlook is Stable. Fitch also affirmed its Long-Term Issuer Default Rating Rating and Short-Term IDR at 'BBB'/F2'. A full list of rating actions follows at the end of this release. Mondelez has secured a new $1.5 billion 364-day credit facility due February 2018. This facility is in addition to Mondelez's existing $4.5 billion credit facility due October 2021. The total $6 billion will backstop commercial paper (CP) borrowings. Mondelez ended 2016 with $2.4 billion in CP borrowings. The new 364-day facility is similar in terms to the outstanding $4.5 billion, multi-year credit facility. KEY RATING DRIVERS Increased Confidence in 2018 EBIT Margin Target of 17%-18%: The ratings reflect Fitch's expectation that Mondelez can achieve its target to improve EBIT margins from 15.6% in 2016 to 17%-18% in 2018 on 1%-2% annual organic revenue growth. The improvement will primarily be driven by the large restructuring program the company put in place in 2014 to realize $1.5 billion in annualized savings by 2018 in the areas of supply chain, overhead costs, and other organizational efficiencies. Free cash flow (FCF; after dividends, cash restructuring charges, and pension contribution) is expected to improve from approximately $520 million in 2016 to over $1.4 billion in 2018, as the company cycles heavy restructuring-related cash payments and capex over the next 2-3 years. Debt/EBITDA is expected to improve from 3.5x in 2016 to 3.3x in 2018 and trend toward 3.2x by 2019, primarily as a result of EBITDA growth. Risks to the ratings include prolonged weakness in organic sales growth, with Mondelez growing below industry-category sales and higher than expected investments needed to drive sales which would preclude the company from achieving the targeted EBIT margins. Debt-financed share buybacks and M&A activity that keeps leverage elevated in the mid-to-high 3x range are also rating concerns. Fitch expects M&A activity to continue in the packaged food sector as companies optimize product portfolio, geographic exposure, and seek cost reduction opportunities. While Mondelez's rating does not factor in a major M&A event, the company could be acquisitive or even the target of a larger multi-national food company over the rating horizon. Favorable Portfolio Mix Fitch views Mondelez as having a favorable product mix relative to its packaged-food peers given that 85% of its sales are geared towards snacks, which Fitch expects should grow in the 2%-3% range going forward (versus 6% historically) against flat to 1% for overall packaged foods. The snacking category is well-aligned with consumer trends of eating more frequent, smaller meals, and convenience. In addition, 40% of its sales come from emerging markets which have near-term headwinds but strong growth prospects longer term. This supports long-term organic growth of 1%-2%, which Fitch expects will be driven equally by volume growth and pricing over the medium term. Mondelez is one of the world's largest snack companies, with 2016 revenues of approximately $26 billion and an attractive portfolio of sweet snack brands. The company operates in approximately 165 countries and has #1 global market shares in biscuits and candy, as well as #2 global shares in chocolate and gum. Oreo, Cadbury, Nabisco, Dairy Milk, LU, Milka, and Trident each generate more than $1 billion in annual sales. Power Brands, which make up approximately 70% of sales, are the company's fastest growing and highest-margin global and regional brands. These brands have grown at about twice the pace of overall sales during the past few years and have margins 100bps-200bps higher than the company's other brands. Power Brands also receives about 80% of advertising and consumer (A&C) expenditures. Restructuring Program to Yield Industry Level Margins Management has been focused on improving efficiency, since Mondelez was created through a series of acquisitions made by legacy Kraft that were never properly optimized or integrated. In 2014, the company announced a $3.5 billion restructuring program to be executed from 2014 through 2018 with $2.5 billion in cash costs. The purpose is to reduce supply chain and overhead costs by $1.5 billion by the end of 2018. This would be supported by an incremental $1.6 billion in capex to upgrade manufacturing facilities. The company expects 70% of its Power Brand sales will move to upgraded facilities by 2018, versus 25% in 2015. EBIT margin has improved steadily to 15.6% in 2016 versus 12.5% in 2013. Fitch views Mondelez's margin target of 17%-18% in 2018 as achievable, and would bring Mondelez more in line with industry averages. KEY ASSUMPTIONS Fitch's assumptions in its base case projections are as follows: --Organic growth of about 1% in 2017 and 1.5% thereafter split equally between volume/mix and pricing. Currency impact is assumed to be a negative 0.5% in the first half of 2017 and neutral thereafter. --EBIT margin is expected to improve to 16.3% in 2017 from 15.6% in 2016, and then expand to 17%-18% in 2018. --EBITDA margin is expected to be 19.4% in 2017, versus 18.8% in 2016, and then expand to 20%-21% in 2018. --Capex peaked in 2015 at $1.5 billion and declined to $1.2 billion in 2016. Capex is expected to trend slightly lower and come in under $1.1 billion by 2018 as restructuring-related capex continues to decline. --FCF (after dividends, cash restructuring charges, and pension contribution) improving from $520 million in 2016 to over $1.4 billion in 2018. --Total debt-to-EBITDA is expected to decline from 3.5x in 2016 to 3.3x in 2018 and further to 3.2x in 2019, driven primarily by EBITDA growth. This improvement assumes incremental debt (in the form of CP borrowings) will partially fund share buybacks. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a negative rating action include: --EBITDA tracks below expectation due to a shortfall in expected operating margin improvement or deceleration in organic top-line growth, aggressive financial policies or engaging in a large debt-financed acquisition, such that leverage is consistently above 3.5x. Future developments that may, individually or collectively, lead to a positive rating action include: --Organic growth in line with or better than category growth; --EBITDA margins in line with or better than industry average; --Leverage consistently below 3x. LIQUIDITY Mondelez's liquidity at Dec. 31, 2016 included more than $1.7 billion in cash and equivalents and an undrawn $4.5 billion senior unsecured revolving credit facility expiring in October 2021. Mondelez had $2.4 billion in CP outstanding at Dec. 31, 2016, which was backstopped by the $4.5 billion credit facility. Upcoming long-term debt maturities include approximately $0.7 billion due in 2017, which Fitch believes the company is likely to refinance with increased CP borrowings. FCF (after dividends, cash restructuring charges, and pension contribution) is expected to improve from $520 million in 2016 to over $1.4 billion in 2018 as the company cycles heavy restructuring-related cash payments and capex moderates over the next 2-3 years. Debt/EBITDA is expected to trend toward 3.2x by 2019 from 3.5x in 2016 on EBITDA growth. FULL LIST OF RATING ACTIONS Fitch has assigned the following rating: Mondelez International, Inc. --$1.5 billion 364-day credit facility at 'BBB'. Fitch has affirmed the following ratings: Mondelez International, Inc. --Long-Term Issuer Default Rating (IDR) at 'BBB'; --Short-Term IDR at 'F2'; --$4.5 billion credit facility due Oct. 21 at 'BBB'; --Senior unsecured debt at 'BBB'; --Commercial paper at 'F2'. Mondelez International Holdings Netherlands B.V. --Senior unsecured debt at 'BBB'. The Rating Outlook is Stable. Contact: Primary Analyst Ellen Itskovitz, CFA Senior Director +1-312-368-3118 Fitch Ratings, Inc. 70 West Madison St Chicago, IL 60602 Secondary Analyst Monica Aggarwal, CFA Managing Director +1-212-908-0282 Fitch Ratings, Inc. Committee Chairperson David Silverman Senior Director +1-212-908-0840 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --Historical and projected EBITDA is adjusted to add back non-cash stock-based compensation and exclude restructuring charges. For example, Fitch added back $140 million in non-cash stock-based compensation and $498 million in restructuring charges to its EBITDA calculation in 2016. Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:; Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019930 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below