CONSUMER CYCLICALS: Whirlpool: Moody's downgrade, stays on negative outlook
(WHR; Baa3 Neg now/BBB- Stable/BBB- Neg)
Comments from yesterday on WHR have aged well with a Moody's downgrade o/n citing weak macro in NA, high leverage at gross 5.9x and the key to a still negative outlook; "persistence in keeping the dividend while FCF remains weak".
For reference it paid to equity holders $384m from $366m in FCF last year and $450m this year while guiding to $500m in FCF. It's only deleveraging comes from asset sales (~$500m guided to this year) - that alone is not enough to bring leverage down into rating thresholds. On earnings, guidance is far from the worst of home appliance peers (see Electrolux numbers) - Whirlpool expects flat LFL sales over the year, and margin contraction of 90bps to a 6% on adj. EBIT. Note that is backloaded into 4Q performance (says inventory cleaned up and cost savings will kick in).
€27/28s are +3-4bps this morning. We would still caution levels - continued downgrades are likely on current debt load unless earnings turns upwards in the near future (which will be contingent on US Housing activity and in turn contingent on interest rates). Our most concern for levels within the sector are Electrolux 30s.
There is NO spread give-up to rotate out of the cyclical sector into firm names like IAG and high-cash px Rentokil's - something which we find a tad surprising.