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Whirlpool Corporation (WHR - Analyst Report) reported adjusted net income of $1.80 per share in the third quarter of 2012, significantly higher than 29 cents in the same period last year and surpassing the Zacks Consensus Estimate of $1.60. However, reported profits went down 58% to $74.0 million or 94 cents per share in the quarter from $177.0 million or $2.27 in the year-ago period.

Revenues in the quarter fell 2.8% year over year to $4.50 billion, missing the Zacks Consensus Estimate of $4.58 billion. Despite a strong product price/mix, foreign currency translation and lower monetization of Brazilian (BEFIEX) tax credits weighed on the top line.

Gross profit improved 22.9% year over year to $704.0 million from $573.0 million a year ago. Gross margin was 15.7% compared with 12.4% year ago. Adjusted operating profit more than doubled to $263.0 million from $110.0 million in the year ago quarter.

Regional Performance

Revenues from North America increased 2% to $2.4 billion, despite a 5% drop in shipments. Operating profit jumped more than threefold to $227.0 million in the quarter from $62.0 million last year. The year-over-year growth in operating profit was due to product price and mix along with cost and capacity reduction measures, which offset the adverse impact of higher raw material costs.

However, Whirlpool lowered its U.S. industry unit shipments growth forecast for the year due to unfavorable economic conditions. The company now expects shipments to be either flat or down 2%.

Revenues from Latin America were flat at $1.2 billion on a year-over-year basis. However, excluding the effects of currency translation and tax credits, revenues grew 21%. Unit shipments went up 15% in the quarter. Adjusted operating income increased 23.5% to $105.0 million from $85.0 million in the prior year, driven by a favorable product price/mix.
 
On a positive note, Whirlpool raised its Latin American appliance industry shipments forecast for 2012. The company expects appliance industry shipments in Latin America to grow in the range of 7%–10% this year against the earlier expectation of 5%–7%.

Revenues from Europe, Middle East and Africa dipped 19.6% to $703.0 million in the quarter as shipments fell 9%. However, excluding the effects of currency translation, the decline in revenues was much less at 10%. The region recorded operating loss of $35.0 million compared with $12.0 million in the prior year. Whirlpool expects industry unit shipments in the region to decline in the range of 2%–3% in 2012.

Revenues from Asia went down 6.5% to $201 million from $215 million last year. However, excluding the negative impact of currency translation, revenues increased 2%. Shipments decreased 1% in the region. Meanwhile, operating income went up 75% to $7.0 million from $4.0 million in the year ago quarter. The company expects industry shipments in the region to decline 5%–7% in 2012.

Financial Position

Whirlpool had cash and cash equivalents of $518.0 million as of September 30, 2012 compared with $1.1 billion as of December 31, 2011. Long-term debt was $1.9 billion as of September 30, 2012 compared with $2.1 billion as of December 31, 2011.

The company used cash flow of $161 million from operations in the first nine months of 2012 compared with $342 million in the same period last year. Meanwhile, capital expenditures decreased to $276 million from $417 million in the first nine months of 2011. Whirlpool raised its free cash flow guidance to $125 million–$175 million for 2012, from the previous guidance of $100 million–$150 million.

Outlook

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

Our Take

Whirlpool is considered to be the largest home-appliances manufacturer in the world, ahead of ElectroluxAB (ELUXY), LG, Samsung and General Electric Co. (GE - Analyst Report). The company is placed among the leading home appliances makers in India and Europe.

Whirlpool’s cost and capacity reduction initiatives are noteworthy, resulting in improved margins. However, we are concerned about the ongoing weakness in Europe, a region where it expects shipments to decline this year.

Currently, Whirlpool retains a Zacks #2 Rank, reflecting a short-term (1 to 3 months) Buy rating and we have a long-term (more than 6 months) Neutral recommendation on the stock.

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