Whirlpool

by Zacks Equity Research

October 26, 2012 |
WHR

Shares of Whirlpool Corp. (WHR - Analyst Report) gained 10.3% and reached their 52-week high of $97.96 on October 24; a day after this Zacks #1 Rank (Strong Buy) released solid third-quarter results. The world’s largest manufacturer of home appliances delivered a positive earnings surprise of 12.5%.

Strong Earnings Growth

On October 23, Whirlpool reported a more than six-fold increase in earnings per share to $1.80 for the third quarter, compared to 29 cents last year. Earnings easily surpassed the Zacks Consensus Estimate of $1.60.

However, revenues fell 2.8% year over year to $4.50 billion, missing the Zacks Consensus Estimate of $4.58 billion. Foreign currency translation and lower monetization of Brazilian tax credits weighed on the top line.

The company’s strong earnings growth can be attributable to impressive results in the company’s North American operation. Revenues from the operating region went up 2% to $2.4 billion despite a 5% drop in shipments, while operating profit increased more than three-fold to $227.0 million from $62.0 million last year. The growth in operating profit was driven by strong product price and mix, as well as measures to reduce cost and capacity that offset the adverse impact of higher raw material costs.

Outlook

For full year 2012, Whirlpool expects earnings per share between $5.00 and $5.50. Excluding restructuring charges and Brazilian tax credits, the company projects earnings per share between $6.90 and $7.10, up from the previous guidance range of $6.50 to $7.00.

Earnings Momentum on the Rise

The Zacks Consensus Estimate for 2012 rose 7.9% in the past 7 days to $7.00 per share. For 2013, the Zacks Consensus Estimate of $8.11 is up 1.4% in the past week, and reflects year-over-year growth of 15.9%.

Valuation a Bit Expensive but Reasonable

Whirlpool currently trades at a forward P/E of 13.6x, a 20.4% premium to the peer group average of 11.3x. It has a price-to-book ratio of 1.7, which is also at a premium of 6.3% compared to the peer group average of 1.6. Meanwhile, its price-to-sales ratio of 0.4 is on par with the peer group average.

Chart Depicts Strength

Whirlpool’s stock price has almost doubled year-to-date, driven by its improving business in North America, better product and price mix, and effective cost and capacity reduction measures.

After moving sideways with the 50-day and 200-day moving averages for a short time in the second quarter, the stock began outperforming both averages from the beginning of third quarter of 2012. Currently, it stands above the 50-day moving average of $81.16 and the 200-day moving average of $68.94.

Volume is fairly strong, averaging roughly 1,325K daily. The 1-year return for the stock is 71.7%, which is substantially higher than the S&P 500’s return of 14.8%.

Headquartered in Benton Harbor, Michigan, Whirlpool Corp. was founded in 1898. The $7.4 billion company is considered to be the largest home-appliances manufacturer in the world, ahead of ElectroluxAB (ELUXY), LG, Samsung and General Electric Co. (GE). It has annual sales of nearly $20 billion, employs 68,000 people and operates 65 manufacturing and technology research centers around the world.


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