Shares of Whirlpool Corporation (WHR - Free Report) have dropped 6.5% since it reported lower-than-expected second-quarter 2017 results on Jul 26.
Moreover, this Zacks Rank #4 (Sell) stock has declined 5.2% in the last three months against the Zacks categorized Consumer Discretionary sector’s gain of 2.9%. Currently, the sector is placed at the bottom 44% of the Zacks classified sectors (9 out of 16).
Let’s delve deeper to know the factors weighing upon the stock.
Soft Q2 Results & Guidance
Whirlpool witnessed fourth consecutive negative earnings surprise in the second quarter, with a trailing four-quarter average miss of 5.8%. Moreover, earnings declined 4.3% year over year due to increased raw material inflation. While, the company’s revenues rose year over year owing to strength in North America and Latin America, it lagged estimates after two straight quarters of beat.
Moreover, management slashed its earnings guidance for 2017 due to higher raw material cost and lower product price/mix in China and Europe. It now envisions adjusted earnings in the range of $14.50–$15.00 per share compared with $14.75–$15.50, guided earlier. (Read more: Whirlpool Falls on Q2 Earnings & Sales Miss, Cuts View)
Consequently, estimates witnessed downward revisions in the last seven days. The Zacks Consensus Estimate of $14.80 and $17.16 for 2017 and 2018, respectively, has moved down 32 cents and 36 cents. Also, estimates for the third quarter declined 2 cents to $4.20.
Whirlpool’s operating performance is significantly dependent on the price of raw materials, and the volatility in commodity prices has been adversely affecting its performance. Evidently, adjusted operating profit in the reported quarter declined 14.6% year over year to $373, while the operating margin contracted 150 basis points to 6.9%.
We note that Whirlpool’s customer concentration is also high, which is expected to negatively impact the company’s margins. Further, this world’s largest home-appliances manufacturer derives a significant portion of its revenues from international operations, which exposes it to risks such as currency headwinds, imposition of foreign tariffs and other trade barriers.
In fact, the current challenging global economic environment is weighing on the company’s performance in terms of volatility in currency and weak market demand, primarily in Brazil, China and Eastern Europe.
Can the Tables Turn?
Whirlpool is amongst those few companies that heavily invest in technology for producing differentiated products for their end consumers. This is evident from the company’s deal with Amazon.com, Inc. (AMZN - Free Report) , to introduce voice-controlled home appliances.
Furthermore, its growth strategies, disciplined operational execution and balanced capital allocation bode well. Also, its significant long-term targets through 2020, backed by brand strength and product portfolio, remain encouraging.
Now, let’s wait and see whether these growth endeavors can counter the company’s headwinds and aid it to spark a turnaround.
Meanwhile, you can consider some better-ranked stocks in the broader Consumer Discretionary space that include Nutrisystem, Inc. (NTRI - Free Report) and The Container Store Group, Inc. (TCS - Free Report) .
Nutrisystem pulled off an average positive earnings surprise of 23.8% in the last four quarters and has a long-term earnings growth rate of 18.3%. Also, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Container Store Group has delivered average positive earnings surprise of 34.9% in the last four quarters and carries a Zacks Rank #2 (Buy). Moreover, it has a long-term earnings growth rate of 8%.
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