Research Update: Germany-Based Schaeffler AG Outlook Revised To Negative On Weakening Profitability And Cash Flow; 'BBB-' Rating Affirmed

German automotive supplier Schaeffler AG recently lowered its revenue margin guidance to (1%)-1% from 1%-3%, and its EBIT margin guidance (before exceptional items) to 7%-8% from 8%-9%. We have revised our base case and now expect EBITDA margins will be below 15% in 2019, unlikely to recover to historical levels above 15%, despite prompt restructuring measures. We are therefore revising our outlook on Schaeffler to negative from stable and affirming the 'BBB-' long-term issuer credit rating. At the same, we are affirming our 'BBB-' issue rating on Schaeffler's unsecured debt and our 'BB+' issue rating on IHO Verwaltungs' secured debt. The negative outlook reflects the one-in-three likelihood of a one-notch downgrade over the next 12-24 months if Schaeffler cannot improve

...- German automotive supplier Schaeffler AG recently lowered its revenue margin guidance to (1%)-1% from 1%-3%, and its EBIT margin guidance (before exceptional items) to 7%-8% from 8%-9%. - We have revised our base case and now expect EBITDA margins will be below 15% in 2019, unlikely to recover to historical levels above 15%, despite prompt restructuring measures. - We are therefore revising our outlook on Schaeffler to negative from stable and affirming the '###-' long-term issuer credit rating. At the same, we are affirming our '###-' issue rating on Schaeffler's unsecured debt and our '##+' issue rating on IHO Verwaltungs' secured debt. - The negative outlook reflects the one-in-three likelihood of a one-notch downgrade over the next 12-24 months if Schaeffler cannot improve its adjusted EBITDA margins from a low point of about 13%-14% in 2019....

Research Update