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Can Whirlpool (WHR) Reverse Its Dismal Earnings Trend in Q2?

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Whirlpool Corp. (WHR - Free Report) is slated to release second-quarter 2018 results on Jul 23, after the closing bell. In the last reported quarter, the company reported a negative earnings surprise of 3.8%.

Further, Whirlpool missed estimates in three of the last four quarters, with an average negative earnings surprise of 2.6%. Notably, the company has delivered negative earnings surprise in six of the last seven quarters. Moreover, the company delivered a negative sales surprise in the trailing four quarters. Primary concerns for the company in recent quarters are raw material cost inflation and unfavorable price/mix. Let’s see how things are shaping up for this announcement.

What to Expect?

The question lingering in investors’ minds now is whether Whirlpool will be able to post a positive earnings surprise in the to-be-reported quarter. The Zacks Consensus Estimate for the quarter under review is $3.74, reflecting year-over-year growth of 11.6%. We note that the Zacks Consensus Estimate has declined in the last 30 days. Analysts polled by Zacks expect revenues of $5.35 billion, up nearly 0.13% from the year-ago quarter.

Moreover, we note that the stock has declined 20.3% in the past year. However, this fares better than 31% downside recorded by the industry. Also, the company’s stock has increased 3.4% in the past month, reflecting a positive sentiment ahead of earnings.



Factors at Play

Whirlpool is gaining significantly from its commitment toward long-term goals, supported by robust product pipeline, solid innovations and cost-productivity initiatives. Moreover, the company outlined significant long-term targets through 2020, driven by the brand strength and product portfolio.

Through 2020, Whirlpool aims to deliver organic revenue growth of 3-5%, annually. Moreover, it targets EBIT margin to exceed 10% by 2020 and envisions earnings per share to grow by 10-15% each year. By 2018, it anticipates free cash flow generation of 5-6% of revenues.

Additionally, the company is striving to improve margins through several measures, including cost-based price increments and cost-reduction initiatives, which should also boost business efficiency. The company recently introduced global cost-based pricing for trade customers to mitigate raw-material inflation. Furthermore, it is on track to cut down fixed overhead expenses by $150 million, which will add to the company’s ongoing cost-productivity program.

However, Whirlpool has been witnessing soft top-line performance as is clear from the negative sales surprise in the last four quarters. The top-line lag can be attributed to the fall in unit volumes, unfavorable currency and raw material inflation. Additionally, the company is witnessing soft demand for washers and refrigerators along with a weak global demand for compressor.

Further, the company’s margins remained strained due to the raw material inflation, unit-volume declines and unfavorable currency. While management expects favorable product price/mix to aid earnings in 2018; this will be partly offset by lower global-revenue growth and increased raw material inflation. In fact, management has raised its raw material inflation outlook by nearly $50 million for 2018, mainly owing to U.S. tariffs on steel and aluminum. Raw material cost inflation is expected to be $250-$300 million.

Moreover, management trimmed its GAAP earnings per share forecast but retained adjusted earnings view for 2018. Let’s wait and see if the company’s efforts can turnaround the top line and margin-related constraints.

What the Zacks Model Unveils

Our proven model does not conclusively show that Whirlpool is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Whirlpool has a Zacks Rank #3. However, the company’s Earnings ESP of -1.96% makes it difficult for us to predict a beat in the upcoming release.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +0.88% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

V.F. Corporation (VFC - Free Report) currently has an Earnings ESP of +4.52% and a Zacks Rank #2.

Columbia Sportswear Company (COLM - Free Report) currently has an Earnings ESP of +51.61% and a Zacks Rank #2.

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