S&P: General Mills outlook negative

Standard & Poor's said it revised its outlook on General Mills Inc. to negative from stable and affirmed the company's BBB+ corporate credit rating and A-2 commercial paper rating.

The outlook revision follows the release of General Mills' earnings for the fiscal first quarter and reflects credit measures below the agency's prior expectations. While General Mills grew EBITDA in the quarter, debt levels increased due to $1.3 billion of share repurchases and the repurchase of $993 million in preferred stock. As a result, the adjusted total debt-to-EBITDA ratio was high at 3.4 times.

The company indicated it would use some of the $750 million cash to be received from Lehman Brothers in October as part of a 2004 agreement for debt repayment, but S&P believes leverage will still be in the 3 times area, versus its prior expectations of closer to 2.7 times.

The agency said General Mills has a strong business risk profile, highlighted by its portfolio of leading packaged food brands and its historically stable cash flow, and that these factors help offset an intermediate financial risk profile that remains slightly weak for the rating.

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