Truck Holdings Inc. Outlook Revised To Negative From Stable On Weaker Demand; Ratings Affirmed

  • We believe the consumer demand for pickup and Jeep accessories--including bed covers, truck caps, and bed liners--will likely decline materially, at least over the near term, because of the economic fallout from the spread of the coronavirus. In addition, global financial conditions have deteriorated substantially.
  • We are revising our outlook on U.S.-based truck accessories supplier Truck Holdings Inc. to negative from stable and affirming our 'B-' issuer credit rating.
  • The negative outlook reflects the potential we will lower our rating on Truck Holdings over the next few quarters if sales and EBITDA decline materially, leading to free operating cash flow (FOCF) outflows for multiple quarters in 2020.
NEW YORK (S&P Global Ratings) March 24, 2020--
A U.S. recession stemming from the coronavirus pandemic could reduce consumer discretionary demand and lead to a slow recovery once the virus is contained.  The outlook revision reflects the elevated probability that weak macroeconomic conditions in the U.S. from the coronavirus pandemic will reduce the company's revenue and margins this year. Although the company sells many products directly through warehouse distributors and online channels to install at home, we believe many consumers will likely avoid making nonessential upgrades to their vehicles over the next few quarters. This could partially negate the overall advantage of the company's go-to-market strategy and potential cross-selling opportunities from its Lund International Holding Co. acquisition last year. Roughly 12.5% of sales is directly or indirectly tied to new truck production, though it is supplied to automaker dealer networks and is not an inline install at the plant. We expect significant year-over-year declines (around 15-20%) in U.S. light vehicle sales and production in 2020 and this will have some impact on THI's sales as well.
The negative outlook reflects the potential we will lower our rating on Truck Hero over the next few quarters if sales and EBITDA decline meaningfully, leading to sustained cash flow deficits.
We could lower our ratings if the drop in discretionary demand because of the coronavirus outbreak extends into the second half of 2020, with FOCF likely negative and leverage staying above 7.5x.
We could revise our outlook on Truck Hero to stable if the effect of the pandemic on its demand and margin appears less severe than expected, allowing it to sustain positive free cash flow.
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