Whirlpool Corporation (WHR - Free Report) remains committed to its innovation strategy that helps tap additional sales and gain market share. Also, the company’s long-term goals backed by its robust product pipeline, solid innovations and cost-productivity initiatives, bode well.
Despite the company’s solid growth drivers, this Zacks Rank #3 (Hold) stock gained only a meager 1.5% in the last six months, in line with the industry's growth. However, its shares have underperformed the broader Consumer Discretionary sector’s growth of 4%, which is currently placed at the top 31% of the Zacks classified sectors (5 out of 16).
Let’s take a deep look as why the company’s solid strategic efforts are not well reflected in its share price.
What’s Weighing Upon the Stock?
Dismal Performance & Bleak Outlook
Whirlpool delivered fourth consecutive negative earnings surprise in second-quarter 2017. With this, the company has recorded an average miss of 5.8% in trailing four quarters. Further, the company’s top line lagged the Zacks Consensus Estimate in four of the last seven quarters.
Also, Whirlpool has slashed its earnings forecast for 2017 based on elevated raw material inflation and lower product price/mix in China and Europe. Management now envisions adjusted earnings per share in the range of $14.50–$15.00 compared with $14.75–$15.50, guided earlier. The Zacks Consensus Estimate for 2017 is currently pegged at $14.62.
Whirlpool’s operating performance is significantly dependent on the price of raw materials, particularly steel, oil, plastic resins, aluminum, copper, zinc and nickel. In fact, the volatility in commodity prices has been adversely affecting the company’s performance as evident from its second-quarter results.
Notably, the costs of key raw materials, particularly steel and resins have also increased worldwide in the first half of 2017. While these headwinds were fully offset in North America and Latin America due to favorable demand and productivity gains, Europe and Asia suffered as soft demand made it difficult to offset these challenges.
Furthermore, Whirlpool’s customer concentration is high, which is expected to negatively impact the company’s margins. Also, 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.
Innovation Mantra – A Secret to Success?
Whirlpool is among the few companies that heavily invest in technologies to produce differentiated products to suit the needs of their end consumers. Evidently, the company inked a deal with Amazon.com, Inc. (AMZN - Free Report) , to introduce voice-controlled home appliances. Also, Whirlpool is keen on boosting revenues of its core appliance business through expansions and investments. This, in turn, is expected to fuel growth of its high-margin categories.
Other Strategic Endeavors
Whirlpool is striving to improve its margins through a series of measures, including cost-based price increments and cost-reduction initiatives that are focused on improving business efficiency. Though second-quarter 2017 was disappointing from margins perspective, the company has very strong initiatives to facilitate operating margin expansion in the second half.
Recently, management also outlined significant long-term targets through 2020, backed by brand strength and product portfolio. The company aims to deliver organic revenue growth of 3–5% every year.
Going forward, Whirlpool anticipates growth efforts to boost consumer demand and lead to enhanced price mix. This, in turn encouraged management to target its operating margin to exceed 10% by 2020. Further, the company envisions earnings per share to grow by 10–15% each year.
We expect Whirlpool’s robust strategies to spark a turnaround in its performance. This is likely to bolster share prices and attract investors in the near term.
3 Picks You Can’t Miss
Some better-ranked stocks in the broader Consumer Discretionary sector include Crocs, Inc. (CROX - Free Report) , G-III Apparel Group, Ltd. (GIII - Free Report) and PVH Corp. (PVH - Free Report) .
Crocs, with a long-term earnings growth rate of 15% has pulled off average positive earnings surprise of 83.9% in the last four quarters. Also, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
G-III Apparel, a Zacks Rank #1 stock, has delivered positive earnings surprise of 42.3% in the last quarter. Moreover, it has a long-term earnings growth rate of 15%.
PVH Corp. carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 12.6%. Also, its earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters by an average of 3.6%.
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