Whirlpool (WHR) Q3 Earnings Rise Y/Y, Miss Estimates

Whirlpool Corporation’s (WHR) adjusted earnings per share came in at $3.04 in the third quarter of 2014, way below the Zacks Consensus Estimate of $3.15. However, the adjusted figure was up 11.8% from the prior-year quarter.

Whirlpool Corporation - Earnings Surprise | FindTheBest

The year-over-year improvement was primarily driven by top-line growth, ongoing cost productivity and the company’s sustained focus on cost and capacity reduction initiatives. The company’s reported earnings grew 19% year over year to $2.88 per share.

Revenues for the quarter came in at $4,824 million, up 3% from the comparable year-ago quarter and also above the Zacks Consensus Estimate of $4,787 million. After excluding the impact of foreign currency translation and lower monetization of Brazilian (:BEFIEX) tax credits, Whirlpool registered year-over-year sales growth of nearly 4%.

Quarterly results mainly gained from the company’s ongoing investments in its brands, product innovation as well as disciplined operation management.

During the quarter, gross profit decreased 2.2% year over year to $827 million, while gross margin contracted 100 basis points (bps) to 17.1% due to higher material costs and negative impact from foreign exchange rate, offset partly by increased sales.

However, adjusted operating profit for the quarter rose 9.6% to $387 million from $353million in the year-ago quarter. The negative impact of higher material costs and unfavorable exchange rates were more than offset by revenue growth, ongoing cost and capacity reduction initiatives and enhanced cost productivity. Consequently, adjusted operating margin expanded 40 bps to 8% when compared with the year-ago quarter.

Regional Performance

Revenues from North America grew 6.3% year over year to $2.8 billion. Operating profit increased 5.2% to $304 million in the quarter. The year-over-year growth in operating profit was due to higher unit volumes and better cost productivity, partly offset by increased material costs, negative currency impact and unfavorable impact of product transitions. Going forward, the company expects its U.S. industry shipments to increase approximately 5% in fiscal 2014.

Revenues from Latin America were at $1.1 billion, flat compared with the prior-year period. Moreover, excluding the negative effects of currency translation and Brazilian tax credits, revenues rose 3.2%. Adjusted operating income was up 13.5% to $118 million, as better product price and mix more than offset increased material costs and lower unit volumes. The company expects industry unit shipments in Latin America to decline 4% to 5% in fiscal 2014.

Revenues from EMEA dipped nearly 1% to $785 million in the quarter. Third-quarter adjusted operating income for the region was $9.0 million, as against break-even operating profit in the year-ago quarter, benefiting from higher unit volumes, enhanced cost productivity as well as gains from cost and capacity reduction measures, offset by unfavorable product price and mix and negative currency impact. Whirlpool expects industry unit shipments in fiscal 2014 to range between flat to a 2% increase.

Revenues from Asia fell 20.3% to $157 million in the second quarter of 2014. Excluding the negative impact of currency translation, revenues fell nearly 22%. The company reported an operating loss of $8 million contrary to an operating profit of $7 million in the prior-year quarter. During the quarter, benefits from strong volume growth and improved product price and mix in India along with ongoing cost productivity initiatives were more than offset by a temporary reduction in sales in China, higher material costs and unfavorable foreign currency translation. The company expects industry shipments in the region to be flat in fiscal 2014.

Financial Position

Whirlpool had cash and cash equivalents of $987 million as of Sep 30, 2014 and long-term debt $2,450 million.

This largest home-appliances manufacturer in the world, which comes ahead of ElectroluxAB, LG, Samsung, General Electric Co. (GE) and Haier Electronics Group Company Ltd., reported cash used in investing activities of $128 million in the first nine months of 2014. Meanwhile, the company’s capital expenditure during the first three quarters of 2014 was $422 million. At the end of third quarter, Whirlpool has a negative free cash flow of $532 million.

Guidance

Following the third-quarter results and the recently completed acquisitions, Whirlpool has updated its GAAP earnings guidance for 2014 to incorporate increased investment expenses and purchase price accounting (PPA) adjustments related to the acquisition of majority interests in Indesit Company S.p.A and Hefei Rongshida Sanyo Electric Co. Ltd, as well as additional restructuring charges primarily related to integration activities.

As a result, the company now forecasts earnings per share (on a GAAP basis) in the range of $9.40–$9.90, compared with $10.30–$10.80 guided earlier. However, the company retained its adjusted earnings per share guidance of $11.50 to $12.00.

Moreover, in 2014, the company expects to generate free cash flow in the range of $650–$700 million compared with $600–$650 million projected earlier. The revised free cash flow guidance includes restructured cash outlays of $150 million, capital expenditures in the range of $675–$725 million, U.S. pension contributions of nearly $125 million and free cash flow related to the acquisitions of majority interests in Indesit Company, S.p.A and Hefei Rongshida Sanyo Electric Co. Ltd.

Other Stocks that Warrant a Look

Currently, Whirlpool carries a Zacks Rank #3 (Hold). However, some better-ranked stocks in the related industry include Leggett & Platt Inc. (LEG) and Select Comfort Corporation (SCSS), both carrying a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on LEG
Read the Full Research Report on WHR
Read the Full Research Report on GE
Read the Full Research Report on SCSS


Zacks Investment Research