Research Update: Covetrus Inc. Outlook Revised To Negative From Stable On A More Challenging Industry Backdrop; 'B-' Rating Affirmed

Portland, Maine-based animal health distributor Covetrus Inc. continues to face macroeconomic and competitive headwinds. leading us to reduce our expectations for profitability and cash flows over the next three years. We think veterinarian visits will continue to be pressured in the next two to three years due to adoption trends and competitive pricing among animal health distributors leading to sustained pressure on gross margins. Our base case expectations include adjusted debt to EBITDA in the 10x area in 2025 and free cash flow deficits persisting until 2027. Therefore, we revised our outlook on Covetrus to negative from stable and affirmed our 'B-' issuer credit rating on the company. The 'B-' issue-level rating and '3' recovery rating on the company's first-lien

...- Portland, Maine-based animal health distributor Covetrus Inc. continues to face macroeconomic and competitive headwinds. leading us to reduce our expectations for profitability and cash flows over the next three years. - We think veterinarian visits will continue to be pressured in the next two to three years due to adoption trends and competitive pricing among animal health distributors leading to sustained pressure on gross margins. - Our base case expectations include adjusted debt to EBITDA in the 10x area in 2025 and free cash flow deficits persisting until 2027. - Therefore, we revised our outlook on Covetrus to negative from stable and affirmed our 'B-' issuer credit rating on the company. The 'B-' issue-level rating and '3' recovery rating on the company's first-lien credit facility are unchanged. - The negative outlook reflects elevated risk to our base case due to the extent of sustained margin improvement required to meet our expectations and the difficulty predicting outcomes...

Research Update