You could somehow manipulate things so that it appears the topic comes up casually, and then after having had the opportunity to test the ground for a bit and having it found safe enough, you could go for something like 'yeah actually about that, and I find it hard to tell you this, but I am not exactly keen on the way you smell either'. Course when the ground isn't safe you have to bug out and come up with something else... or lose touch if you really can't seem to think of anything else and can't handle it anymore. The latter is quite cruel, and it is really a last resort, and it shouldn't be something you should be happy about doing: but lord knows, I think a lot of people have bugged out when a friendship became too awkward. :/
Yeah, I think a lot of friendships have been hurt by honesty just as much as lies. Some people can't handle it well. It's something that I hate doing... but meh, I chose to lose touch with him because I can't tolerate smelly people... it grosses me out. So that's the story, at the end of it.