A one-notch upgrade, the Moody’s move to A3 “recognizes the improved and stable operating performance that General Mills has achieved in recent years through a combination of cost-efficiency initiatives that have enhanced cash flow, and a more disciplined business strategy focused on improved product mix and profit margin expansion.”
Financial policies at General Mills were described as “more balanced” than was the case several years ago, Moody’s said. Underpinning the higher rating is a “diverse portfolio of strong brands,” including Big G cereals, Pillsbury, Nature Valley, Progresso and Yoplait and the market leadership commanded by the brands, Moody’s said.
Also cited by the agency was what General Mills calls its Holistic Margin Management program aimed at bolstering financial results through improved product mix, supply chain streamlining, product redesigns and other profit enhancing initiatives.
“Recent initiatives have contributed to stronger profit margins and stronger cash conversion, which have funded successful incremental investments in marketing, promotions, product development and targeted acquisitions,” said Brian Weddington a Moody’s senior credit officer. “These improvements along with a more predictable financial policy have strengthened Mills’ credit profile.”
In Moody’s discussion, the agency seemed impressed by a decision by General Mills to scale back share repurchases in the aftermath of two acquisitions — Brazil-based Yoki Alimentos in August 2012 and the international Yoplait business in July 2011 — that increased leverage on a short-term basis and were dilutive to General Mills’ profits. In each case, credit metrics were restored within 18 months of the transaction closing.
Moody’s said continued stable operating performance could result in another upgrade. Specifically, retained cash flow/net debt would need to be sustained above 23%, the agency said. A financial reversal could result in a downgrade, Moody’s said.