Electrolux (ELTLX; NR/BBB Neg) Q2 (to June) Results

Main CDS -4 at +126, € cash -2 (26s) to +1 (28s)

The Swedish manufacturer of home appliances has shown growth for a change - though it looks contained to it's smallest region LATAM (22% of FY23 sales). FY guidance remains dull. Unclear how this co is IG rated after 2 years of operating losses, a still low 1% EBIT margin and BS over net 3x. S&P has been incredibly patient on BBB.

Arguably similar scale but French goods focused retailer (not manufacturer) Fnac Darty (N/BB+ Neg/BB+) looks better on a lot of these metrics and gives +90bs on the 29s (working out to '28 call) - though we are still not ready to endorse Fnac after it gave subdued 1H results. Electrolux CDS trading on a positive basis (+42 on 6Y vs. Main -10) is perhaps another indication cash (particularly 30s) has been bid in.

Front maturities are small SEK floaters - co should pay them down if it wants to delever - unclear if it will.

• 1Q sales at SEK 33.8b (€2.9b) with organic growth of +6.8% - that breaks 4-straigh quarters of falls and was not expected by equity analyst (c-1.5%). It says growth driven by higher volumes while price was negative.
• EBIT was SEK 419m (€36m) up from the -€124m loss it logged last year. 1.2% margin is still well shy of historical levels. It says cost efficiencies contributed a small SEK0.3b this qtr.
• EMEA & Asia (45% of FY23 sales) was down -0.4% with slight volume increase and a EBIT margin of 1.7%. NA (34%) saw organic growth of +4.7% for a change but still logged a operating loss leaving EBIT margin of -3.1%. It says mainly on pricing pressure. Latin America (22%) saw +26.6% growth which it ties to Brazil volumes. EBIT at 7.9% margin is up 3.1% yoy helped by the headline growth.* Operating cash flows totalled SEK 1.2b (€100m) down from 3.1b which is on lower seasonally WC inflow - it says this continues the trend of "normalising WC" - believable given WC outflow in Q1 was milder and cash flow in 1H is up.
• Unfortunately this quarters beat has not translated to it's non-numeric guidance - which has moved lower. EMEA & APAC to be negative (from neutral) while NA remains Neutral and Latin America moves to Positive (from neutral/positive). Cost efficiencies including investments have moved lower now as well to SEK4b/€340m (from SEK4-5b). Capex guidance unch at SEK 5-6b (€430-520m).
• BS had gross SEK45.2b/€3.9b of debt of which only 4.6b/€0.4b was leases. A healthy 15b/€1.3b cash on hand leaves net debt at 29.7b/€2.6b. On current FY24 EBITDA consensus of 8.1b/€0.7b (+22%) it would leave it 5.6x/3.7x levered.
• Dividends have been on pause for the last 2 years but still capex guidance is sizeable given operating cash flows only totalled 7.4b last year.