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Fitch revises Kraft Heinz outlook to negative on doubts over go-forward strategy

Fitch Ratings on Aug. 12 affirmed the long-term issuer default rating of The Kraft Heinz Co. at BBB-, but revised its outlook to negative from stable, citing uncertainty around the company's go-forward strategy, among other reasons.

Kraft Heinz CEO Miguel Patricio, who joined the company from Anheuser-Busch InBev SA in July, is currently drafting a new strategic plan for the company, which he plans to present to the company's board by the end of 2019.

Apart from the new strategy, the rating agency said the negative outlook is also due to the U.S. packaged food producer's elevated leverage due to the deterioration in the company's financial performance, as well as a pause in asset sales, which it said is required to trim the company's elevated gross leverage.

Kraft Heinz halted the sale of its Breakstone's business and baby food brand Plasmon in July, shortly after closing the sale of its Canadian natural cheese business.

Fitch said it expects the company's EBITDA in 2019 to be in the low $6 billion range with gross leverage elevated in the 4.6x-4.8x range, assuming debt paydown of over $2 billion using asset sale proceeds from deals that it closed in the first half of 2019.

During the first half of the year, Kraft Heinz wrote down the value of several business units by $1.22 billion, as it reported a 51% year over year drop in net income attributable to shareholders to $854 million.

As with Campbell Soup Co., Fitch said Kraft Heinz is also expected to experience challenges in organic growth due to brand maturity and changing consumer preferences.

The rating agency said it could upgrade the company's ratings if shows flat to modestly positive organic growth over the long term, if its EBITDA grows from its current base, and if it shows strong free cash flow generation, along with significant debt reduction that takes leverage below 3.75x.

A downgrade is also likely if Kraft Heinz loses its market share in major categories leading to sustained declines in top-line and EBITDA, or if the company fails to repay its debt through asset divestitures or dividend cuts, Fitch said.