Moody's: Downgrades ahead for consumer goods sector

An elevated risk of mergers, share repurchases and other special events could lead to rating downgrades in the food and consumer products sectors, Moody's Investors Services said in a new report.

Event risk is elevated because many investment-grade consumer products companies focused on shoring up liquidity during the economic downturn, Moody's said.

They cut costs, scaled back share repurchases and limited mergers and acquisitions, which built up a cushion in terms of cash and credit metrics that now provides flexibility to pursue more shareholder-friendly financial policies and strategic mergers and acquisitions, the agency said.

Although consumer products companies have grappled with revenue pressure through the downturn, they have continued to grow, Moody's said.

As a result, many investment-grade consumer products companies are in a strong financial condition and have the ammunition to make strategic deals and ramp up payments to shareholders, the agency said.

Moody's said that Alberto-Culver Co., Jarden Corp. and Hillenbrand Inc. are among the companies with the most capacity to assume additional debt through mergers and acquisitions within current rating categories, while Fortune Brands Inc., Mead Johnson Nutrition Co. and Constellation Brands Inc. are among those with the least capacity.

In terms of assuming additional debt through shareholder payouts within current rating categories, Moody's said Leggett & Platt Inc., Sara Lee Corp. and Kimberly-Clark Corp. have the most capacity and Avon Products Inc. and Procter & Gamble Co. have the least capacity.

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