New York, January 27, 2021 -- Moody's Investors Service ("Moody's") today affirmed the ratings of Conagra
Brands, Inc. ("Conagra") and revised the outlook to positive
from stable. Ratings affirmed include its Long Term Issuer Rating
and senior unsecured debt ratings at Baa3, subordinated debt rating
at Ba1, and commercial paper rating at Prime-3.
The positive outlook reflects Conagra's steady progress towards
reducing debt and financial leverage toward levels that could support
a rating upgrade within the next 12 to 18 months. Conagra has repaid
approximately $2 billion of debt since the Pinnacle acquisition
in 2018. Moody's anticipates that debt/EBITDA could fall
comfortably below 4.0x by the end of calendar 2021, which
could lead to an upgrade. This assumes that Conagra's operating
performance remains stable, including through the transition to
a more normalized demand pattern once the effects from the coronavirus
abates.
Conagra's operating performance has been especially strong since
the onset of the coronavirus in early 2020 as lockdowns drove increased
purchases of food for at-home dining. Over the past three
quarters ending in November, sales grew over 10%.
Moody's anticipates that as the United States makes further progress
in reducing coronavirus infections, Conagra's year-over-year
revenue comparisons will become negative, likely beginning in Conagra's
fourth quarter of fiscal 2021 ending in May. However, because
of the lasting benefits gained over the past year, including market
share gains, higher household penetration and a stronger innovation
pipeline, Moody's believes that the company can achieve its
plan to grow annual sales and earnings through fiscal 2022.
Ratings Affirmed:
..Issuer: Conagra Brands, Inc.
....Commercial Paper at Prime-3;
....Issuer Rating at Baa3;
.... Senior Unsecured Shelf at (P)Baa3;
....Senior Unsecured Medium-Term Note
Program at (P)Baa3;
....Senior Unsecured Revolving Credit Facility
at Baa3;
....Senior Unsecured Term Loan at Baa3;
....Senior Unsecured Regular Bond/Debenture
at Baa3;
....Subordinate Regular Bond/Debenture at
Ba1.
Outlook Actions:
..Issuer: Conagra Brands, Inc.
....Outlook, Changed To Positive from
Stable
RATINGS RATIONALE
Conagra's credit profile is supported by its diverse portfolio of well-known
branded food products, solid free cash flows and relatively large
scale in the packaged food industry. These positive factors are
balanced against the high financial leverage that resulted from the 2018
Pinnacle Foods acquisition, which has declined steadily through
earnings growth and debt repayment. Conagra remains on track to
achieve its targeted transaction-related cost synergies and is
strengthening credit metrics in line with its deleveraging plan.
Since the 2018 leveraged acquisition of Pinnacle Foods --
a major negative shift in financial policy that led to a one notch downgrade
to Baa3 -- Conagra has favorably prioritized debt reduction
in its use of operating cash flow. The company has already achieved
its targeted net debt/EBITDA of 3.5x to 3.6x, based
on company-defined EBITDA that includes affiliate earnings.
On this basis, as of the second quarter (ending in November) of
the May 2021 fiscal year, the company's net debt to last twelve
month adjusted EBITDA ratio was 3.6x. For the same period,
Moody's key metrics for Conagra, adjusted gross debt/EBITDA (excluding
affiliate earnings) and retained cash flow to net debt were approximately
3.9x and 14.0%, respectively. Moody's
expects that Conagra's financial policies will continue to be supportive
of its investment-grade profile.
The packaged food sector is moderately exposed to social risks related
to responsible production, health and safety standards and evolving
consumer lifestyle changes. The sector is also moderately exposed
to environmental risks such as soil/water and land use, and energy
& emissions impacts, among others. These factors will
continue to play an important role in evaluating the overall creditworthiness
of food processors.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Moody's
analysis has considered the effect on the performance of consumer sectors
from the current weak U.S. economic activity and a gradual
recovery for the coming months. Although an economic recovery is
underway, it is tenuous and its continuation will be closely tied
to containment of the virus. As a result, the degree of uncertainty
around our forecasts is unusually high. We regard the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Conagra's ratings could be upgraded if the company improves operating
performance and maintains financial policies such that debt/EBITDA is
sustained below 4.0x and retained cash flow / net debt approaches
15%. The company would also need to generate stable to growing
organic revenue and EBITDA and maintain at least $500 million in
annual free cash flow (operating cash flow less capex and dividends) to
warrant consideration of an upgrade.
A rating downgrade is possible if operating performance deteriorates such
that debt /EBITDA is likely to be sustained above 4.5x or financial
policies become more aggressive.
The principal methodology used in this rating was Consumer Packaged Goods
Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
With approximately $11.5 billion in annual net sales,
Chicago, Illinois-based Conagra Brands, Inc.
(NYSE: CAG) is one of North America's largest manufacturers of packaged
foods. Key retail food brands include Marie Callender's®,
Healthy Choice®, Slim Jim®, Orville Redenbacher's®,
Reddi-wip®, Banquet®, Chef Boyardee®,
Hunt's®, Birds Eye®, Vlasic®, Wish Bone®,
Duncan Hines®, and Gardein.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Brian Weddington, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
