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Fitch: Repackaged Kraft Likely to Grow Faster

NEW YORK--(BUSINESS WIRE)-- Kraft Foods Inc. will spin off its North American Grocery business and change its name to Mondelez International, Inc. (MDLZ), effective 5 p.m. EDT today. Fitch Ratings believes MDLZ is likely to generate faster growth versus consolidated Kraft and also anticipates some improvement in leverage.

MDLZ boasts 44% of its sales in geographically diverse developing markets, which we think will be a key driver in exceeding historical consolidated Kraft growth. But while speed of growth is likely to improve, we do expect MDLZ's growth will be balanced with significant exposure to mature, relatively stable markets in developed Europe (37%) and North America (19%), lower margins than historical Kraft, currency volatility, and the discretionary nature of the snack category.

Kraft bought Cadbury plc in 2010 and has generated strong growth in the chocolate and biscuit portion of its business. We expect MDLZ should generate substantial and growing free cash flow (FCF), with a moderate dividend payout and capital expenditures above Kraft's historical mid 3% of sales level to support developing markets growth.

MDLZ will have ample liquidity, with most of Kraft's approximately $4.6 billion cash at June 30, 2012, and its undrawn $4.5 billion revolving credit facility. MDLZ plans to fund $3.6 billion of maturities in 2013 with cash and new borrowings. Rates for funding via the bond market are still at or near historically low levels, allowing the company abundant market access.

We have a stable outlook for MDLZ and rate the company 'BBB'. That rating incorporates our expectation that MDLZ will utilize approximately $2 billion in cash to repay a portion of debt maturing in 2013, leaving the company with an $18 billion debt level.

We believe MDLZ's business profile, capital structure, financial strategies and FCF generation support its solid investment-grade ratings. With that said, we recognize that MDLZ could experience some near-term deceleration due to the challenging economic environment that has placed pressure on consumers' food spending.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Source: Fitch Ratings