CONSUMER CYCLICALS
We see over 20bps of upside for shorts on the rumoured risk being removed. Reminder this is not a par call/CoC situation (requires junk ratings); i.e. downside is limited to Bosch curve (~circa 2-5bps from here).
- 2Q headline revenues at €4b (-17%) was in-line with expectations but adj. EBIT at $212m (-40%) is a miss and comes in at a 5.3% margin (-200bps yoy).
- It's broken down EBIT margin decline as -3% from Price/Mix, -0.5% from SG&A and -0.25% from currency. It somewhat offset those with +1% from cost savings and +0.75% from divesting its European business (small 25% stake remaining in a JV).
- By region NA (64% of sales this qtr) was -6%, LATAM (22%) +11%, Asia (8.5%) +20% and rest (5%) +11%. Margin movers were NA that fell 3.8ppts yoy to 6.3% and Asia that rose +2.7ppt to 6.2%. LATAM is running 5.8% margin. Reminder before its divestiture EMEA was 20% of sales and struggling to be profitable.
- America's poor performance on headline and margin its blaming on promotional pricing, LATAM strength it tying to market share gains (despite unfavourable pricing/mix) and Asia strength all-around it says was aging market gains in the face of weak pricing/mix.
- FY24 Guidance is very detailed; Headline left unch at $16.9b (flat yoy), margin brought down 80bps to 6% (-90bps yoy) and FCF brought down by $100m to $500m ($366m last year). Consensus was at 6.5% on margins, in-line on FCF and headline.
- Reason for margin revision - higher promotions (dragging on pricing) and lower cost savings. Reason for FCF revision down; lower headline operating cash flows (its actually boosted WC assumptions by +$50m and lowered capex by $50m (total +$100m) to get there).
- Dividend guidance unch at $400m this year, $50m in buybacks done in 1H. Liquidity fine with $1.2b cash on hand.
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