EU CONSUMER CYCLICALS: CONSUMER CYCLICALS: Consumer & Transport: Week in Review

The only point in macro we want to flag is today's US June PCE print that pointed to relatively solid real consumption (+0.2%). But as our economist notes real income growth was slowing towards the end of the quarter and personal savings rate at 3.4% is at the lowest since Dec '22. Our focus stays on earnings which will give better a forward indication for now. We've linked the movers this week below and it wasn't all in earnings; Essity continues to price out Event of Default triggered put at par, Rentokil has started pricing in a par put on potential PE buyers and Whirlpool is repricing (mainly in $s) its chances of a rating uplift after Bosch made another acquisition.

As an aside, we know credit doesn't like to care about governance but over time we often see that as a costly mistake. The most recent example was Burberry, a co we gave multiple warnings of when it came to primary. The bond we saw as effectively funding elevated equity pay-outs from the year before and the CEO's strategy to capex store refurbishments while refusing to disclose online sales exposure was worrying. He was let go by the board last week and the new '30 bond holders have been left with 40bps of spread widening. We again see red flags this week on Elo/Auchan who thought it was appropriate to have a private call for one of its most watched earnings before releasing a public presser. Yes, a private co, but it has €7b in public bonds, Xover member CDS and revisiting public markets as recently as April.

Ex. Auchan the two other disappointments in earnings - Air-France and Kering - should have been expected. Levels are better on both, but we remain cautious on the lack of positive near-term catalyst and macro potentially weakening before then. No Primary this week for us.

Notable Earnings

• Elo/Auchan (NR/BB+); Poor results were already flagged by S&P as it took on loss-making Casino stores this half. But still the approach to communication and plans to pull margins out of the gutter are unclear to us. The price action and trends in earnings will no doubt trigger some to think back to fellow French grocer Casino and its bonds (went to single digits before restructuring).
• easyJet (Baa2/BBB Pos); after disappointment from Ryanair, firm results took us (and the market) by surprise. Unfortunately, cash curve was and is not showing much value. Booking.com might turn into a comp. as its Holiday business continues to contribute more and more.
• Air France-KLM (NR/BB+/BBB-); tough co to follow and catalyst are not positive near term. Impact from Olympics it keeps warning on and indications of month-to-month trends within Q2 was indicative of that.
• Carrefour (NR/BBB); benefits of diversification (particularly when that means out of France Food) is showing for CAFP. It downplayed the weaker areas, one to watch in Q3 for any larger risks from that continuing.
• Whirlpool (Baa2/BBB-/BBB Neg); post-Bosch comments we see it needing to come out. Results were weak on the bottom line adding to the pain for longs.
• Reckitt (A3 Pos/A-); unclear where proceeds from trimming down the business will go but it has a history of high-grade ratings. Still not provisioning for any NEC claims.

Event-driven Movers

• International Game Technology (Ba1/BB+ CW Pos/BBB-); Looks like more cash coming its way on Apollo taking the gaming business, EoD trigger is unclear to us but regardless IG ratings on closure there.
• Essity (Baa1/BBB+); no formal notice, yet 31s are leaking wider. Not great sign for those eyeing the par put but again caution for those not in the conversation.
• Whirlpool (Baa2/BBB-/BBB Neg); repriced chances after Bosch mgmt downplayed future acquisitions.
• Rentokil (NR/BBB/BBB); PE rumours spark CoC at par possibility.

Rating Changes

• Adecco (Baa1/BBB+ Neg); S&P moves to neg. outlook.
• Walgreen Boots (B1/BB Neg); S&P finally moves off IG with a double notch downgrade and neg. outlook.
• VFC (Baa3 Neg/BBB- Neg); extreme patience from raters continues, Moody's stays put.
• Carnival (unsecured; B2 Pos/BB); Moody's follows S&P with a single-notch upgrade and pos. outlook. Still notches aggressively for unsecured.
• LVMH (Aa3/AA-); S&P promptly comes out to green light earnings performance in the face of peers.
• Tesco (Baa3/BBB- Pos/BBB-); S&P moves to positive outlook echoing a recent run of positive news for the co.
• Deutsche Post (A1/NR/A-); Fitch with a 1-notch upgrade to the dislocated/tight curve
• Fnac Darty (NR/BB+ Neg/BB+ S); S&P positive on Unieuro acquisition (headline only).