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Moody’s Rated HanesBrands’ Credit Facilities as ‘Baa2’

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Price movement 

HanesBrands (HBI) fell by 2.3% and closed at $25.62 per share at the end of the fourth week of June 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -2.3%, -5.3%, and -12.2%, respectively. This means that Hanesbrands is trading 4.4% below its 20-day moving average, 6.3% below its 50-day moving average, and 10.3% below its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid-Cap Growth Index Fund (JKH) invests 0.87% of its holdings in HanesBrands. JKH tracks a market-cap-weighted index of mid-cap companies selected by Morningstar based on their growth characteristics. JKH’s YTD price movement was -0.99% on June 24, 2016.

The market caps of HanesBrands’ competitors are as follows:

  • L Brands (LB) – $19.4 billion
  • Ralph Lauren (RL) – $7.4 billion
  • Gildan Activewear (GIL) – $6.5 billion

Moody’s rated HanesBrands’ credit facilities

Moody’s Investors Service rated HBI Australia Acquisition Co. Pty Ltd.’s, an indirect subsidiary of HanesBrands, proposed $465 million Australian dollar senior secured credit facilities. This includes a $200 million Australian dollar secured term loan due in 2019, a $200 million Australian dollar secured term loan due in 2021, and a $65 million Australian dollar secured revolver due in 2021 as “Baa2.” There wasn’t an impact on HanesBrands’ corporate family rating of Ba1, the probability of default rating of Ba1-PD, the secured ratings of Baa3, the unsecured ratings of Ba2, the speculative grade liquidity of SGL-2, and HF Lux’s (HanesBrands Finance Luxembourg S.C.A) 500 million euro senior unsecured notes’ ratings of Ba1. Moody’s rated the company’s outlook as “stable.”

The net proceeds from the proposed term loans combined with cash on hand and from HF Lux’s unsecured notes will be used to acquire Champion Europe and Pacific Brands.

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Performance in fiscal 1Q16

HanesBrands reported fiscal 1Q16 net sales of $1.22 billion—a rise of 0.84% compared to net sales of $1.21 billion in fiscal 1Q15. The company’s cost of sales as a percentage of net sales and operating profit rose by 1.6% and 36.2%, respectively, in fiscal 1Q16—compared to fiscal 1Q15.

The company’s net income and EPS (earnings per share) rose to $80.3 million and $0.21, respectively, in fiscal 1Q16—compared to $52.6 million and $0.13, respectively, in fiscal 1Q15. It reported adjusted EPS of $0.26 in fiscal 1Q16—a rise of 18.2% compared to fiscal 1Q15.

HanesBrands’ cash and cash equivalents and inventories rose by 4.1% and 8.6%, respectively, in fiscal 1Q16—compared to fiscal 4Q15. Its current ratio and debt-to-equity ratio rose to 2.3x and 5.1x, respectively, in fiscal 1Q16—compared to 1.9x and 3.4x, respectively, in fiscal 4Q15.

Projections for 2016

The company revised its guidance for fiscal 2016. Its new projections are as follows:

  • net sales of $6.2 billion–$6.3 billion
  • EPS of $1.51–$1.57
  • operating profit of $780 million–$815 million
  • non-GAAP (generally accepted accounting principles) EPS of $1.89–$1.95
  • non-GAAP operating profit of $940 million–$975 million
  • net cash flows from operations of $750 million–$850 million
  • capital expenditures of ~$75 million
  • tax rate in the high single digits
  • contributions of ~$800 million in net sales and ~$70 million in operating profit before synergies from the acquisitions of Champion Europe and Pacific Brands

This guidance reflects the contribution from the pending acquisition of Champion Europe. It’s expected to close in late June 2016. It also reflects the pending acquisition of Pacific Brands. It’s expected to close in July 2016.

In the next part of the series, we’ll look at General Motors.

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