S&P Global Ratings lowers PLZ Corp’s credit rating due to “weak” demand
S&P Global Ratings has lowered its issuer credit rating on PLZ Corp by one notch - to 'B-' from 'B'.
The organisation said that, despite sequential improvement in profitability in its second quarter of 2023, "demand for PLZ Corp.'s aerosol products remains weak and credit measures are not likely to improve much this year."
S&P Global Ratings added that: "The stable outlook reflects our view that PLZ's operational execution, in spite of a tepid macroeconomic backdrop, should be sufficient to allow for appropriate credit measures and adequate liquidity at the new ratings, including an adjusted debt-to-EBITDA ratio in the 6.5x-8.0x range."
The agency noted that PLZ's S&P Global Ratings-adjusted EBITDA margin improved by 160 basis points sequentially in the June quarter, which was assisted by cost-reduction actions, sequential decreases in raw material costs and improved manufacturing efficiency.
However, its absolute profitability was lower than expected because of the significant 13% year-over-year contraction in quarterly sales, according to S&P Global Ratings.
"While volumes were up sequentially in the second quarter, they were only modestly so, and there is still much ground to make up before volumes come in at more normal levels," said S&P Global Ratings.
"There will be plant closures in the fourth quarter of 2023 and mid-2024 to continue to generate fixed-cost savings, as demand modestly comes back."
The agency went on to state that: "On the positive side, the company's better margins and good working capital management should allow for healthier cash flow from operations to about $35 million (€32.1 million) this year compared with only $9 million (€8.2 million) last year.
"The $100 million (€91.9 million) revolving facility due 2026 is undrawn, so the company's sources of liquidity are more than sufficient to meet its needs."
The organisation said that, despite sequential improvement in profitability in its second quarter of 2023, "demand for PLZ Corp.'s aerosol products remains weak and credit measures are not likely to improve much this year."
S&P Global Ratings added that: "The stable outlook reflects our view that PLZ's operational execution, in spite of a tepid macroeconomic backdrop, should be sufficient to allow for appropriate credit measures and adequate liquidity at the new ratings, including an adjusted debt-to-EBITDA ratio in the 6.5x-8.0x range."
The agency noted that PLZ's S&P Global Ratings-adjusted EBITDA margin improved by 160 basis points sequentially in the June quarter, which was assisted by cost-reduction actions, sequential decreases in raw material costs and improved manufacturing efficiency.
However, its absolute profitability was lower than expected because of the significant 13% year-over-year contraction in quarterly sales, according to S&P Global Ratings.
"While volumes were up sequentially in the second quarter, they were only modestly so, and there is still much ground to make up before volumes come in at more normal levels," said S&P Global Ratings.
"There will be plant closures in the fourth quarter of 2023 and mid-2024 to continue to generate fixed-cost savings, as demand modestly comes back."
The agency went on to state that: "On the positive side, the company's better margins and good working capital management should allow for healthier cash flow from operations to about $35 million (€32.1 million) this year compared with only $9 million (€8.2 million) last year.
"The $100 million (€91.9 million) revolving facility due 2026 is undrawn, so the company's sources of liquidity are more than sufficient to meet its needs."
