15th Sep 2020 12:29
(Alliance News) - Europe's economic decline from the coronavirus pandemic will keep eroding the credit quality of consumer goods companies in 2020 with recovery in 2021, Moody's Investors Service said on Tuesday.
Corporates exposed to non-essential products, like beauty and cosmetics, or to out-of-home consumption or travel retail, like LVMH Moet Hennessy Louis Vuitton SE, L'Oreal SA, Kerry Group PLC and Froneri International Ltd, are most vulnerable to declining demand and profit erosion, Moody's said, as coronavirus disruption, social distancing and lockdown measures take effect.
However, Moody's said the credit quality of investment-grade companies like Nestle SA, Danone SA and Unilever PLC will be less affected, because of their greater diversification, stronger liquidity and business profiles.
The ratings agency also said European consumer product companies' recovery will depend on how quickly consumer demand and spending picks up again, with companies also finding it hard to pass higher costs to price conscious consumers.
Moody's said it expects the higher working capital needs in 2020 to increase companies' leverage ratios temporarily, with credit ratios only reaching 2019 levels by the end of 2021.
"While our outlook on the global packaged goods sector remains stable, the increased odds of higher costs and lower production efficiencies have lowered the expectations of any profit growth," said Paolo Leschiutta, senior vice president at Moody's Investors Service.
"Companies cost cutting measures will only partially limit the effect, but that said, lower commodity costs could help support some companies' margins," added Leschiutta.
LVMH shares were trading 1.0% higher in Paris on Tuesday at EUR424.25 each, Danone shares were flat at EUR57.34, while L'Oreal shares were up 0.4% at EUR282.60 each. In Zurich, Nestle shares were trading 0.3% higher at CHF110.02 each.
Univeler and Kerry Group shares were up 0.8% at 4,840.00 pence and down 1.1% at EUR113.40, respectively, in London.
By Evelina Grecenko; [email protected]
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