Moody's revises Kraft Heinz view to negative

Moody's Investors Service said it revised the outlook for the Kraft Heinz Co. and its subsidiaries, The agency also affirmed its ratings for the company and its subsidiaries, including the Baa3 senior unsecured rating.

The negative outlook reflects ongoing declining operating performance and high financial leverage Moody's said it expects will continue through 2020 and likely will rise in the first half of the year. The negative outlook also mirrors Moody's view the level of investment necessary for the company to stabilize and restore growth in market share and revenue will cut the operating profit margin and keep upward pressure on financial leverage for at least the next year. Leverage could remain high beyond 2020, depending on measures the company takes to improve performance and reduce debt, which could lead to a downgrade.

Moody's estimates debt-to-EBITDA rose to about 4.7x at the end of 2019 from 4.4x a year ago. This compares to the maximum debt-to-EBITDA leverage of 4.5x that Kraft Heinz can sustain at the Baa3 rating level. Eroding sales and operating earnings over the past year reflect operational and execution challenges, partly stemming from underinvestment in key brands in recent years while the company was aggressively cutting costs.

The company reported declining organic EBITDA of -15.6% in the first half of 2019, improving to -3.5% in the second half. Positively, cash flow metrics improved during the year after the company cut its dividend by a third in early 2019, saving $1.1 billion in cash.

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