September 25, 2024 16:22 GMT
Dometic (DOMSS; Ba2 Neg (now)/BB- Stable) Moody's moves to neg. outlook
CONSUMER CYCLICALS
Moody's outlook revised to negative. It follows the global manufacturer of outdoor goods giving rough Q3 guidance last week; sales to fall 15%, EBITA margin to be in 8-9% range (11.5% last yr) and net leverage to stay elevated at net 3.1x vs. target <2.5x. It was blaming weakness on macro.
- Moody's sees gross leverage at high 4-handle currently vs. rating threshold of 4.0x. Company is reporting net 3.1x as it excludes leases.
- By year end the continued fall in earnings would see leverage move higher; on analyst consensus (EBITDA -14% yoy) gross at 5.1x and net at 3.9x. Company will report net at 3.4x excluding the leases.
- FCF for debt paydowns would still not bring it below 4x (we see 4.2x on full cash use for paydowns after capex). If it draws down cash on hand (noting it is holding how much it normally does) it could bring it down gross as low as 3x.
- On positives Moody's notes the net cash position is healthier and does like LT fundamentals still.
- It's been given a 18-month runway but we expect if it does not actively pay down debt and/or continues to face operating pressure - in particularly EBITA margins moving into the single digits for the FY (consensus currently at 10.8%, Moody's at 11.5%) - that it will not wait.
Given €380m of cash on hand and still positive FCF we are not concerned for the 26s trading at 4%/Z+157 (1m par call only). The 28s at 5%/Z+275 (3m par call only) we are more cautious on despite the levels. Full Q3 earnings will come on the 23rd of Oct - we will circle back then. The earnings warning from the cyclical goods manufacturer and levels 28s trade at should be a wake-up call for IG investors in Whirlpool and Electrolux - we have concerns for both and don't see either running IG metrics currently.
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