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Whirlpool (WHR) Up 1.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Whirlpool (WHR - Free Report) . Shares have added about 1.2% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is Whirlpool due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Whirlpool Down on Q2 Earnings & Sales Miss, View Cut
Whirlpool reported dismal second-quarter 2018 results as both earnings and sales missed estimates. With this, the company came up with a negative earnings surprise in seven of the last eight quarters. Notably, this marked its fifth straight quarter of top-line miss. Furthermore, top and bottom lines declined year over year due to rising raw material costs, lower sales volumes and currency headwinds.
We note that increased tariffs on steel, due to the Trump administration’s global trade war, are hurting Whirlpool as steel is the main raw material for the company. This maker of Kitchen Aid, Maytag and other home appliances witnessed significantly higher raw material costs in three of its four regional markets, including North America, Asia and EMEA. Additionally, a struggling EMEA segment due to charges booked in the European operations and an antitrust settlement in France weighed on the results. Also, the company felt the pressure of a trucker strike in Brazil, which hurt both sales and EBIT of the Latin America segment.
Driven by the increased raw material cost inflation and other factors, the company trimmed its GAAP and adjusted earnings view for 2018.
Q2 Highlights
Whirlpool delivered adjusted earnings per share of $3.20, which missed the Zacks Consensus Estimate of $3.63. Moreover, the bottom line declined 4.5% from $3.35 per share earned in the year-ago quarter. Bottom-line results were hurt by raw material cost inflation, lower sales volumes and unfavorable currency. However, the company witnessed margin expansion due to strong North America margins and a significant improvement in global price/mix.
On a GAAP basis, the company reported loss per share of $9.50 compared to earnings of 2.52 per share in the prior-year quarter.
Revenues of $5,140 million dropped nearly 3.9% from the comparable year-ago quarter figure of $5,347 million. The top line also fell short of the Zacks Consensus Estimate of $5,217 million. On a currency-neutral basis, sales declined 4.5%.
Adjusted operating profit (EBIT) declined 2% to $343 million from $350 million in the year-ago quarter. However, operating margin expanded 20 basis points (bps) to 6.7% aided by favorable product price/mix and restructuring benefits. The metric was partly negated by raw material inflation, unit-volume declines and unfavorable currency.
Regional Performance
Revenues from North America remained flat at $2.8 billion while it dipped 2.2% on a currency-neutral basis. Adjusted operating profit margin was also flat at 11.9% as gains from favorable product price/mix were offset by unit volume declines, raw material inflation and higher freight costs. In dollar terms, operating profit declined 1.5% to $331 million.
Revenues from Latin America declined 13.6% year over year to $852 million. Excluding currency translations, it decreased 11.4%. Adjusted operating margin of 3.8% contracted 200 bps, mainly due to a trucker strike in Brazil. In dollar terms, operating income declined 42.1% to $33 million.
Revenues from EMEA were down 8.3% to $1.1 billion. On a currency-neutral basis, it dropped 12.3%. Whirlpool incurred adjusted operating loss of $25 million in the second quarter compared with an operating loss of $2 million in the year-ago quarter. The decline can be attributed to raw material inflation, unit-volume declines and unfavorable currency, which more than offset the favorable product price/mix and restructuring gains.
Revenues from Asia improved nearly 14.7% to $428 million from $373 million in the prior-year quarter. Excluding currency effects, revenues rose 14.5%. Moreover, the segment reported adjusted operating profit of $43 million, up significantly from $10 million in the year-ago quarter. Adjusted operating margin expanded 760 bps to 10.1%. The improvement was driven by gains from an acquisition-related government incentive as well as a favorable product price/mix, partly offset by raw material inflation and negative currency movements.
Financial Position
Whirlpool had cash and cash equivalents of $1,057 million as of Jun 30, 2018, and long-term debt of $4,781 million.
The company used $584 million cash in operating activities in the first half of 2018 and reported negative free cash flow of $725 million. Capital expenditures for the six-month period (ended Jun 30) totaled $194 million.
During the reported quarter, the company bought back shares worth of $1 billion, using the anticipated proceeds from the sale of its Embraco compressor business. Further, it expects to continue buying back shares through the rest of 2018 as Whirlpool remains committed to its balanced capital-allocation approach.
Guidance
Following the dismal second quarter and expectations of increased raw material costs in the future, Whirlpool has cut its GAAP and adjusted earnings per share forecast for 2018. It now envisions adjusted earnings per share to be $14.20-$14.80 compared with the prior guidance of $14.50-$15.50. On a GAAP basis, it anticipates earnings of 15-75 cents per share compared with $12.30-$13.30 per share expected earlier.
The company expects to gain from a favorable product price/mix and share repurchases through the rest of the year. However, lower global revenue growth, expectations for higher global cost inflation and soft EMEA performance are likely to weigh on the results.
Whirlpool also trimmed its operating cash flow and free cash flow forecasts for 2018. It now expects to generate operating cash flow of $1.5 billion compared with the previous guidance of $1.7-$1.8 billion. Free cash flow is envisioned to be $850 million than $1-$1.1 billion projected earlier. This guidance includes restructured cash outlays of approximately $300 million, pension contributions of $35 million and capital expenditures of $675 million related to free cash flows.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. In the past month, the consensus estimate has shifted -8.92% due to these changes.
VGM Scores
At this time, Whirlpool has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Whirlpool has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Whirlpool (WHR) Up 1.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Whirlpool (WHR - Free Report) . Shares have added about 1.2% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is Whirlpool due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Whirlpool Down on Q2 Earnings & Sales Miss, View Cut
Whirlpool reported dismal second-quarter 2018 results as both earnings and sales missed estimates. With this, the company came up with a negative earnings surprise in seven of the last eight quarters. Notably, this marked its fifth straight quarter of top-line miss. Furthermore, top and bottom lines declined year over year due to rising raw material costs, lower sales volumes and currency headwinds.
We note that increased tariffs on steel, due to the Trump administration’s global trade war, are hurting Whirlpool as steel is the main raw material for the company. This maker of Kitchen Aid, Maytag and other home appliances witnessed significantly higher raw material costs in three of its four regional markets, including North America, Asia and EMEA. Additionally, a struggling EMEA segment due to charges booked in the European operations and an antitrust settlement in France weighed on the results. Also, the company felt the pressure of a trucker strike in Brazil, which hurt both sales and EBIT of the Latin America segment.
Driven by the increased raw material cost inflation and other factors, the company trimmed its GAAP and adjusted earnings view for 2018.
Q2 Highlights
Whirlpool delivered adjusted earnings per share of $3.20, which missed the Zacks Consensus Estimate of $3.63. Moreover, the bottom line declined 4.5% from $3.35 per share earned in the year-ago quarter. Bottom-line results were hurt by raw material cost inflation, lower sales volumes and unfavorable currency. However, the company witnessed margin expansion due to strong North America margins and a significant improvement in global price/mix.
On a GAAP basis, the company reported loss per share of $9.50 compared to earnings of 2.52 per share in the prior-year quarter.
Revenues of $5,140 million dropped nearly 3.9% from the comparable year-ago quarter figure of $5,347 million. The top line also fell short of the Zacks Consensus Estimate of $5,217 million. On a currency-neutral basis, sales declined 4.5%.
Adjusted operating profit (EBIT) declined 2% to $343 million from $350 million in the year-ago quarter. However, operating margin expanded 20 basis points (bps) to 6.7% aided by favorable product price/mix and restructuring benefits. The metric was partly negated by raw material inflation, unit-volume declines and unfavorable currency.
Regional Performance
Revenues from North America remained flat at $2.8 billion while it dipped 2.2% on a currency-neutral basis. Adjusted operating profit margin was also flat at 11.9% as gains from favorable product price/mix were offset by unit volume declines, raw material inflation and higher freight costs. In dollar terms, operating profit declined 1.5% to $331 million.
Revenues from Latin America declined 13.6% year over year to $852 million. Excluding currency translations, it decreased 11.4%. Adjusted operating margin of 3.8% contracted 200 bps, mainly due to a trucker strike in Brazil. In dollar terms, operating income declined 42.1% to $33 million.
Revenues from EMEA were down 8.3% to $1.1 billion. On a currency-neutral basis, it dropped 12.3%. Whirlpool incurred adjusted operating loss of $25 million in the second quarter compared with an operating loss of $2 million in the year-ago quarter. The decline can be attributed to raw material inflation, unit-volume declines and unfavorable currency, which more than offset the favorable product price/mix and restructuring gains.
Revenues from Asia improved nearly 14.7% to $428 million from $373 million in the prior-year quarter. Excluding currency effects, revenues rose 14.5%. Moreover, the segment reported adjusted operating profit of $43 million, up significantly from $10 million in the year-ago quarter. Adjusted operating margin expanded 760 bps to 10.1%. The improvement was driven by gains from an acquisition-related government incentive as well as a favorable product price/mix, partly offset by raw material inflation and negative currency movements.
Financial Position
Whirlpool had cash and cash equivalents of $1,057 million as of Jun 30, 2018, and long-term debt of $4,781 million.
The company used $584 million cash in operating activities in the first half of 2018 and reported negative free cash flow of $725 million. Capital expenditures for the six-month period (ended Jun 30) totaled $194 million.
During the reported quarter, the company bought back shares worth of $1 billion, using the anticipated proceeds from the sale of its Embraco compressor business. Further, it expects to continue buying back shares through the rest of 2018 as Whirlpool remains committed to its balanced capital-allocation approach.
Guidance
Following the dismal second quarter and expectations of increased raw material costs in the future, Whirlpool has cut its GAAP and adjusted earnings per share forecast for 2018. It now envisions adjusted earnings per share to be $14.20-$14.80 compared with the prior guidance of $14.50-$15.50. On a GAAP basis, it anticipates earnings of 15-75 cents per share compared with $12.30-$13.30 per share expected earlier.
The company expects to gain from a favorable product price/mix and share repurchases through the rest of the year. However, lower global revenue growth, expectations for higher global cost inflation and soft EMEA performance are likely to weigh on the results.
Whirlpool also trimmed its operating cash flow and free cash flow forecasts for 2018. It now expects to generate operating cash flow of $1.5 billion compared with the previous guidance of $1.7-$1.8 billion. Free cash flow is envisioned to be $850 million than $1-$1.1 billion projected earlier. This guidance includes restructured cash outlays of approximately $300 million, pension contributions of $35 million and capital expenditures of $675 million related to free cash flows.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. In the past month, the consensus estimate has shifted -8.92% due to these changes.
VGM Scores
At this time, Whirlpool has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Whirlpool has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.