Whirlpool Corporation (WHR - Free Report) posted second-quarter 2017 results, wherein both earnings and sales lagged estimates. This marked the company’s fourth consecutive quarter of earnings miss. Moreover, the company slashed earnings guidance for 2017 due to amplified raw material inflation and inferior product price/mix in China and Europe.
Consequently, stock price of this world’s largest home-appliances manufacturer dipped 4% in the after-hours session yesterday. Moreover, Whirlpool’s shares have underperformed the Consumer Discretionary sector in the past one year. While the stock declined 1.1%, the sector witnessed growth of 16.9%.
Whirlpool’s quarterly adjusted earnings per share of $3.35 declined 4.3% year over year and missed the Zacks Consensus Estimate of $3.60.
On a reported basis, the company’s earnings fell 39.3% to $2.52 per share from $4.15 earned in the prior-year quarter. The decline can mainly be attributed to higher income tax expenses due to the timing of tax planning activities in the prior-year period.
Revenues came in at $5,347 million, an increase of 2.9% from the comparable year-ago quarter revenues of $5,198 million. However, revenues were short of the Zacks Consensus Estimate of $5,361.2 million. On currency-neutral basis, Whirlpool registered sales growth of over 3%. The top line benefited from strength in North America and Latin America. Further, the company remains on track for reaching long-term revenue growth targets.
Adjusted operating profit in the quarter dropped 14.6% to $373 million from $437 million in the year-ago quarter, while the operating margin contracted 150 basis points (bps) to 6.9%. During the quarter, an adverse product price/mix and raw material inflation almost fully negated the gains from increased unit volumes and ongoing cost productivity. However, the company reported sequential operating margin improvement in the EMEA region.
Revenues from North America went up 7.1% year over year to $3 billion, while revenues grew 9% on a currency-neutral basis. Adjusted operating profit margin contracted 50 bps to 11.8%, while in dollar terms operating profit grew 4.1% to $354 million. Operating profit gains reflected from strong unit volume growth in core and adjacent businesses. However, the negative impact of raw material price inflation and foreign currency hurt operating margins. The company retained North-American industry shipments guidance of an increase 4–6% for 2017.
Revenues from Latin America rose 2.7% year over year to $848 million. Excluding the effects of currency translation, revenues dipped 1%. Adjusted operating margin of 7% increased 90 bps, on the back of favorable price/mix and cost productivity gains, slightly offset by raw material inflation and unit volume declines. The company anticipates industry unit shipments in Brazil to be flat in 2017.
Revenues from EMEA descended 7.7% from the prior-year quarter to $1.2 billion. On currency-neutral basis, revenues dropped 5%. The company reported breakeven adjusted operating profit in the second quarter compared with adjusted operating profit of $60 million in the year-ago quarter. However, the segment reported sequential operating profit improvement of $17 million on account of better product availability versus last quarter. Additionally, the company expects solid operating profit recovery in the second half on the back of simplified brand structure, additional product availability improvements and the deployment of marketing initiatives to support new product launches. Consequently, Whirlpool estimates industry unit shipments growth in 2017 in the range of flat to up 2%.
Revenues from Asia slipped 1.4% to $358 million in second-quarter 2017 from $363 million in the prior-year quarter. Excluding currency effects, revenues remained flat. Adjusted operating margin contracted 610 bps to 2%. Adverse product price/mix and raw material price inflation more than offset the gains from cost productivity, unit volume growth and foreign currency.
Going forward, the company expects cost-cutting initiatives and product price/mix to aid in operating margins growth in the second half, through innovative product launches and previously announced cost-based price increases. The company projects industry shipments in the region to be flat to up 2% in 2017.
Whirlpool had cash and cash equivalents of $1,041 million as of Jun 30, 2017, and long-term debt of $3,631 million.
The company used $191 million in operating activities in first-half 2017. Meanwhile, the company’s capital expenditure in the period was $210 million. As of Jun 30, 2017, Whirlpool had negative free cash flow of $356 million due to the company's focus on working capital optimization.
In the second quarter, the company rewarded shareholders with increased cash dividend of $1.10 per share and $200 million worth of share buybacks.
Management remains pleased with ongoing growth strategies, disciplined operational execution and balanced capital allocation. Further, it anticipates profitable growth in the EMEA region in the second half of 2017 and expects to navigate through the volatility in emerging markets.
However, Whirlpool slashed earnings forecasts for 2017 based on elevated raw material inflation and lower product price/mix in China and Europe. The company now envisions adjusted earnings per share for 2017 in a range of $14.50–$15.00, compared with $14.75–$15.50 guided earlier. On a GAAP basis, Whirlpool anticipates earnings in a range of $12.40–$12.90 per share for 2017, compared with the previous estimate of $12.65–$13.40.
Nonetheless, the company continues to anticipate generating free cash flow of about $1 billion for 2017, while it revised operating cash flows guidance to range from $1.65–$1.7 billion. Earlier, the company had anticipated operating cash flows of $1.7–$1.75 billion. The revised guidance includes restructured cash outlays of up to $165 million, legacy product warranty and liability costs of $70 million, pension contributions of $45 million and capital expenditures of $650–$700 million (down from $700–$750 million expected earlier).
Further, the company approved an additional share repurchase authorization worth $2 billion. This brings the company’s total available share repurchase authorization to $2.35 billion. The company expects to continue rewarding shareholders through increased dividends and share repurchases.
Zacks Rank & Other Key Picks
Currently, Whirlpool carries a Zacks Rank #2 (Buy). Some other top-ranked consumer discretionary stocks include Electrolux AB (ELUXY - Free Report) , Adidas AG (ADDYY - Free Report) and Guess', Inc. (GES - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Electrolux, with a long-term earnings growth rate of 8.7%, has advanced 17.4% in the last three months.
Adidas has returned 24.6% in the last six months and has an average earnings beat of 34% in the trailing four quarters. The company also has a long-term earnings growth rate of 26.5%.
Guess' has increased 8.4% in the last three months. Moreover, the company has an average earnings beat of 33% in the trailing four quarters and a long-term earnings growth rate of 17.5%.
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