How to Manage Your Way Through the New Bev/Al Environment

The party's over, and the punchbowl's been taken away. But if you're running an alcohol beverage company, you can't just leave. To put it in dance terms, you have to turn from swing to foxtrot, or maybe to waltz.

S&P Global, the credit ratings agency, has just laid out your financial objectives in detailing why it raised its outlook for Bacardi Ltd. to positive from stable.

1. Most important, reduce your leverage. In the case of Bacardi, it has maintained leverage below four times EBITDA for two consecutive years and is committed to reducing debt to well below 3.5 times EBITDA in the coming years. To put it another way, it appears to us debt should be no more than one-third of EBITDA.
2. Maintain stable EBITDA through disciplined expense management while slowly stabilizing sales across core brands.
3. Then restore consolidated sales growth while steadily reducing debt to EBITDA to near or below 3.5.

S&P noted that Bacardi applied most of its fiscal 2026 discretionary cash flow to debt repayment. The result: S&P adjustred debt-to- EBITDA debt was reduced to 3.7 times compared with 3.9 times at the end of the prior fiscal year.

4. Where necessary, increase capital spending. Bacardi is expected to increase capital spending, primarily for sipply chain and upgrades to its ERP system. This is likely to make debt reduction "more muted" than in the prior two years. Still, the company is committed to reducing debt-to-EBITDA to less than 3 times over the next several years.
5. Avoid mergers and acquisitions and don't increase the company's dividend. Easier for a private company like Bacaredi to do, perhaps, but it facilitates a reduction in leverage.
6. Focus on top brands and geographies. Bacardi reduced advertising and promotional spending, investing the savings in more targeted advertising across its top priority brands and markets. "The company's operating strategy prioritizes its core brands and over allocating marketing and promotional spending to its must-win markets over other less strategic markets." S&P noted. The U.S. remains Bacardi's key market and is showing early signs of a rebound. Bacardi has also partially recovered its U.S. market share across its core strategic and emerging brands with disciplined promotions and an increase in its sales force.
7. Bacardi's portfolio is skewed toward higher priced brands that have demonstrated less price elasticity in the current difficult environment, S&P said. These premium-priced brands cater to consumers whose income is less hurt by rising gas prices.

The carrot: S&P said it could upgrade Bacardi's rating over the next two years if the company further stabilizes its sales deciines, maintains stable EBITDA margins and continues to reduce leverage to near or below 3.5 times EBITDA.

The Stick: On the other hand, S&P said it could reduce the outlook to stable if the debt-to-EBITDA ratio increases closers to four times. This could happen if sales declines reaccelerate closer to 5%, or weaker cash flow conversion from lower profitability and higher-than-expeccted cash outflows for working capital and capex or unexpected capex result in higher debt balances.