NEW YORK--(BUSINESS WIRE)--Consumer product companies have consistently posted organic growth rates in the +2% to +6% range and Fitch Ratings expects the trend to continue into 2016. However, the contribution from volume versus prices is expected to shift. In 2015, volume growth took a slight dip as companies increased prices to offset currency movements. With currency headwinds expected to moderate, top-line should be supported by improved volume growth driven by innovation and premiumization.
Portfolio reshaping via M&A and corporate reorganizations should continue next year. Newell just announced its $20 billion merger with Jarden that follows on the heels of Coty's $12.5 billion acquisition of P&G's beauty brands, both expected to close in 2016. Henkel, Church & Dwight and S.C. Johnson are actively seeking acquisitions in adjacencies (by product and geography) for growth while Procter & Gamble, a large industry participant continues to look to divesting noncore assets.
The operating environment in the U.S. has improved over the past year with moderately less promotional behavior. Rated issuers with home bases in Western Europe continue to face weak - albeit modestly improving - trading environments with geopolitical tensions, high unemployment and fragile consumer confidence. Fitch does not expect any material improvement in this region in 2016 relative to 2015. Growth in some emerging markets has slowed but remains healthier than developed.
In 2013, many U.S. issuers began large-scale restructuring programs. The related savings should be meaningful in 2016 and should help to partially offset FX pressure for U.S. companies. A benign commodity environment has also been helpful, resulting in improved margins and cash flows.
The sector generally has substantial liquidity and financial flexibility. Fitch anticipates that increases in leverage related to acquisitions will be temporary and companies will pull back on other discretionary activities until credit protection measures are restored.
There is cushion in some ratings to accommodate bolt-on acquisitions in 2016. Upward momentum in ratings is unlikely as issuers continue to manage within targeted credit metrics. However, companies adopting more aggressive financial strategies given the backdrop of a global slowdown could see negative rating actions.
The full report '2016 Outlook: U.S. and EMEA Consumer Products' is available at 'www.fitchratings.com.' Fitch's outlook reports for other sectors and regions are also available.
Additional information is available at 'www.fitchratings.com'.
2016 Outlook: U.S. and EMEA Consumer Products (Stable Organic Top-Line; M&A Could Transform Landscape)
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