Moody's has given a relatively positive outlook for the packaged-goods, food, and consumer durables sector in 2019, anticipating operating profit growth of 5% therein.
“The positive 2019 outlook on globally diversified packaged-goods companies in EMEA and the region’s consumer durables sector is largely a product of successful cost-cutting, which will drive operating profit growth," commented Lorenzo Re, vice-president – senior analyst at Moody’s.
“Conversely, the stable outlook on Europe’s regionally focused packaged-goods companies reflects slowing organic profit growth, as companies struggle to cope with changing consumer habits, strong competition, and rising raw-material prices,” added Re.
Brand Powerhouses
In terms of the performance of specific companies, Moody's noted that Nestlé and Unilever are likely to see their credit quality 'deteriorate as a result of more aggressive financial policies', however, efficiency measures will drive margin improvements and support sound cash flow generation.
Reckitt Benckiser and Danone, meanwhile, will 'continue to deleverage' after making large acquisitions in 2017.
The credit quality is currently weak for both companies' ratings, but this is likely to improve due to a positive operating performance, Moody's noted.
L'Oréal , meanwhile, is poised to 'continue to benefit from strong growth in the prestige beauty segment, driven by Asia-Pacific markets and the specialty and travel retail segments,' the agency further noted.
Beverage Performance
Elsewhere, in the beverages market, Moody's is anticipating strong operating profit growth of 6% to 7%, which underpins the stable 2019 outlook for the EMEA beverage sector, as product innovation and growth in premium segments drives demand and prices higher, and enhances companies’ product mix, according to Ernesto Bisagno, vice-president – senior credit officer at Moody’s.
“This steady profit growth will bolster cash flows and support drinks-makers’ credit quality, but higher dividends, share buy-backs and potential M&A would constrain debt reduction,” Bisagno added.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
