EM LATAM CREDIT: Kimberly-Clark Mexico: 2Q Earnings Miss – Neutral
(KCMA; NR/A-/A)
“Kimberly-Clark Mexico 2Q Net Income Misses Estimates” - Bbg
• Mexican paper consumer products producer Kimberly-Clark partially owned by U.S. based paper producer Kimberly-Clark was expected to post weak earnings but even missed those estimates.
• Net debt/EBITDA was still low at 1x, and the company maintained a healthy cash position of MXN11bn (USD584mn) relative to MXN20.8bn (USD1.1bn) so ratings should be unaffected given a strong business position and historically a good track record of free cash flow generation.
• Net sales were flat while 2Q EBITDA fell 11.5% YoY. YTD compared to last year we see a similar pattern with flat sales and a drop in EBITDA of 11.2%, primarily due to a depreciating peso as 60% of the company cost structure is linked to USD according to Fitch Ratings.
• KCMA 31s were last quoted T+80bp, 35bp tighter since March 31st and 42bp tighter YTD.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
MNI EXCLUSIVE: Riksbank Governor Erik Thedeen speaks to MNI in an interview
Riksbank Governor Erik Thedeen speaks to MNI in an interview - On MNI Policy MainWire now, for more details please contact sales@marketnews.com
SONIA: SFIH8/U8 Spread Sold
SFIH8/U8 ~5.7K given at 7.5. Spread spiked to all-time highs at 11.0 in early April, before operating in a 6.0-9.0 range since the start of May.
US DATA: Housing Activity Showing Increasing Signs Of Deterioration
May's New Residential Construction report was very weak, portending very negative current conditions for residential investment activity, as well as a dim outlook for the quarters ahead.
- Housing starts fell to the lowest level since July 2019 (seasonally adjusted) excluding the sudden stop in 2020's pandemic, with a 9.8% M/M decline bringing the seasonally-adjusted annual rate of starts to 1,256k in May (vs 1,350k expected, 1,392k prior rev from 1,361k).
- Permits at 1,393k also disappointed vs expectations of a steady reading vs April at 1,422k and also hit the ex-pandemic lowest since July 2019.
- Weakness was seen across the board: single family permits fell 2.7% (4th fall in 5 months) to a 25-month low 898k, with multi-unit permits down 0.8% (7th fall in 9 months). Starts, which lag permits, saw single-family activity actually pick up slightly (0.4%, but only after falls in 3 of the prior 4 months) to 924k, but multi-units fall almost 30% to 332k.
- Starts are now down 4.6% Y/Y with permits down 1.0% Y/Y.
- New homes continue to sell, but combined with June's very poor NAHB survey - which tends to lead single-family starts/permits - the housing market is due to weaken significantly this year after 2024's residential investment bounce.
- The recent downward pressure in prices is set to accelerate too, albeit against the backdrop of very limited sales volumes as existing homeowners stay put (that said, inventories-to-sales have clearly picked up). New home sales are fairly robust though as we learned in the NAHB survey, that may be because discounting is picking up sharply.
- There is likely no relief in sight absent a pullback in mortgage rates, with homebuilders' responses to supply-side reform (eg regulation) probably paling in importance.
- Permits are a leading indicator for starts but there is a bit more of a gap than usual building between the two - we wonder if there is some combination of factors here restraining starts, including uncertainty over government policy, "surprisingly" elevated interest rates, and immigration policy shifts (which were noted in the Fed's latest Beige Book as a constraint on construction companies).
