Continued high inflation, rising interest rates and subdued economic activity are likely to 'limit demand and a rapid recovery in earnings' at consumer packaged food firms over the next 12-18 months, Moody's has said.
At the same time, it noted that most food producers have 'good credit ratios and adequate liquidity', which support credit quality.
However, companies that sell premium and non-essential foods are likely to find the going tougher, it noted.
Improved Profitability
According to Moody's, profitability is likely to improve for most food businesses in 2023, reflecting the effect of increased selling prices on margins, coupled with an easing of inflationary pressures, compared with last year.
Average global operating profit is expected to grow by between 4% and 7% over the next 12 to 18 months, Moody's said, however 'sticky inflation' in many leading economics is likely to continue to weigh on operating profit.
Read More: 'Stable' Outlook For Consumer Products Amid Economic Uncertainty: Moody's
Free Cash Flow
Free cash flow generation similarly remains 'limited' for many food companies, with higher interest rates weighing on free cash flow generation, despite earnings improvements and cuts to capital spending.
In terms of credit ratios, meanwhile, Moody's added that it expects credit ratios to 'improve from low levels in 2022, with gross leverage ratios well within the range we expect for the ratings of most companies in 2023. However for some lower rated companies these ratios will remain at the weak end or outside of those ranges'.
Moody's also noted that increased number of consumers are turning to private-label products amid high inflation and lower purchasing power, meaning that food manufacturers with 'well-established and diverse private label offerings' will see a benefit.
