VF Corp (Baa3 Neg, BBB Neg) € Bonds Price Downgrade; Equities Open -9%

VF Corp (Baa3 Neg, BBB Neg) - lines have not taken much reassurance from management that “Reducing debt and strengthening the balance sheet remains a top priority” with the help of divesting brands.

Misses on the headline earnings for 3Q24 weren’t helped by an operating margin miss of over 4% - both dragging EBTIDA miss of -$400m that came in at $57m. No Revenue or profit guidance for FY24 (pointing to a rough 4Q qtr) but it has left FCF unch at $600m.

As a positive net debt fell by $640m helped by a ~$300m boost in cash & ~flat debt levels. Inventories was also down $330m over qtr and -17% yoy (c-9%)- it expects further reductions ahead.

Management confirmed its paying down debt due in Dec 24 (not public credit but ~$1b) & the April 25 (the 2.4% $750m line) – it’ll raise cash from sale of non-core physical assets - ~$50-$100m over next 2-3qtrs & the rest from the PACS businesses (Eastpak, JanSport & Kipling) sale – on the latter management said in the “middle of pretty substantive due diligence as we speak.” It also points to FCF guidance of $600m, expected recovery in FY25 & continued progress in inventories as support for cash.

Crossover rating risk might still be there – Moody’s one-notch downgrade & negative outlook in Mid-November accounted for falling leverage and downgrade was conditional on headline performance; “Ratings could also be downgraded should operating performance fail to improve” which seems to be the case. Still € curve pricing seems wide of a crossover rating.

Equity Analyst takes; https://blinks.bloomberg.com/news/stories/S8HP8QDWX2PS