S&P downgrades outlook for US personal care

By Simon Pitman

- Last updated on GMT

Related tags Personal care Us

Standard & Poor’s says its outlook for the credit quality of personal care is now slightly negative, indicating that growth and investment potential for the area is likely to be curbed.

“This reflects slow economic growth in the US and our belief that lower-rated companies may have more difficulty refinancing than in the first half of 2011,”​ said Standard & Poor’s credit analyst Diane Shand.

Refinancing often proves a crucial means of securing investment funds that might be used for the research and development of new products, the launch, marketing and promotion of those products or else funding for new business ventures such as acquisitions.

Depressing reading...

The report, titled ‘Slow Economic Recovery Could Mean Downgrades Again Outpace Upgrades In 2012 for US Personal Care, Consumer Services, Apparel and Tobacco Companies’, could make depressing reading for any executives hoping for a sign of improved business prospects.

However, on a more positive note, the credit rating agency did say that prospects for the personal care industry in the US are likely to stabilize in the second half of 2012.

Standard & Poor’s analysts note that improvements will be seen as more and more companies start to benefit from restructuring and cost saving measures introduced throughout last year, in turn increasing operating efficiencies and profit margins.

Commodity costs likely to remain high

However, although the agency states that there could be a moderation of inflation during the year ahead, commodity costs are likely to remain above the levels seen in 2010, in turn continuing to put margins under pressure.

“For all of 2012, we believe downgrades will outpace upgrades. The downgrade-to-upgrade ratio, however, could be slightly better than in 2011, when downgrades outpaced upgrades by 2.2 times,”​ said Shand.

Standard & Poor’s predictions were reflected in the most recent quarterly results for Procter & Gamble, which underlined how commodity prices and a falling consumer spend in the US are putting pressure on margins.

P&G results reflect margin pressures

P&G’s second quarter results were buoyed by a strong performance in the developing markets, slower consumer spend in the US market holds back growth.

The results for the quarter showed that sales were up 4 percent to $22.13bn, from $21.35bn in the corresponding quarter last year, while sales for the first two quarters were up 6 percent to $44.05bn.

The slower rate of growth underlines the fact that sales took quite a beating in the US market, where the company recently raised retail prices in a bid to make up for increased commodity prices.

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