Mars Inc.

The stable outlook on Mars reflects our expectation that the company will maintain adjusted leverage in the 2x-3x range over the next 12-24 months. In the near term, we expect the company to repay its upcoming debt maturities and focus more on liquidity preservation and less on acquisitions. We could lower our rating on Mars if it sustains leverage of more than 3x. This could occur if the company pursues more aggressive financial policies, including undertaking another large acquisition before reducing its debt. This could also occur if Mars cannot execute on its plan to invest in the business and innovate its portfolio to grow revenue or if its margins become pressured due to higher costs that it cannot offset.

...The COVID-19 pandemic will pressure operating performance in the pet services segment, and we expect the company to delay pursuit of vet hospital acquisitions in 2020. Mars Inc.'s long-term strategy as a consolidator and leader in the pet vet hospital industry has led to consistent acquisitions annually. This segment has fueled topline growth, well above Mars' consumer products portfolio. The company typically allots $1 billion in discretionary cash flow to fund acquisitions, but it will focus on preserving liquidity in 2020. Pet hospitals largely remain open because they are deemed essential services, but many locations have limited operations to emergencies to protect care providers and customers from the coronavirus outbreak. As a result, we expect performance in this segment to decline this year. Pet food will drive growth and cash flow in 2020, while confections will decline. We expect Mars' pet food portfolio will drive organic revenue growth for the company in 2020. Pet food in the...

Full Report