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Why Is Whirlpool (WHR) Down 12% Since Last Earnings Report?

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A month has gone by since the last earnings report for Whirlpool (WHR - Free Report) . Shares have lost about 12% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Whirlpool due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Whirlpool’s Q3 Earnings Beat Estimates, Sales Miss

Whirlpool reported mixed third-quarter 2019 results, wherein earnings outpaced the Zacks Consensus Estimate while sales missed. With this, the company delivered the fifth straight earnings beat, while its sales missed estimates after a beat in the last reported quarter. Both top and bottom lines fell on a year-over-year basis.

Q3 Highlights

The company delivered adjusted earnings of $3.97 per share, which outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 12.7% from $4.55 per share earned in the year-ago quarter. On a GAAP basis, the company reported earnings of $5.57 per share, significantly up from $3.22 registered in the prior-year quarter.

Net sales were $5,091 million, down 4.4% from the year-ago period number. The top line also lagged the Zacks Consensus Estimate of $5,146 million. The downside was driven by sales decline across the company’s Latin America, and Europe, Middle East and Africa (EMEA) segments, somewhat offset by growth at North America and Asia divisions. However, adjusted organic net sales rose 1.6%.

Adjusted operating profit (EBIT) grew 9.6% to $364 million from $332 million in the year-ago quarter. Also, the operating margin expanded 100 basis points (bps) to 7.2%, backed by gains from global cost-based pricing and constant cost-containment efforts.

Regional Performance

Sales from North America inched up 0.5% to $3 billion, while it rose 0.6% on a currency-neutral basis. Operating margin expanded 80 bps to 12.8%, primarily backed by favorable product price/mix and gains from cost productivity, partly negated by higher costs and a decline in unit volume. In dollar terms, operating profit rose 7.5% to $387 million.

Sales from Latin America fell 27.9% year over year to $632 million. However, adjusted organic sales grew 4.1%. Moreover, operating margin of 4.6% contracted 240 bps as favorable product price/mix and lower raw material cost inflation were more than offset by adverse currency and a decline in unit volume. In dollar terms, operating income plunged 52.5% to $29 million.

Sales from EMEA declined 3.8% to $1.1 billion, while the same dipped 0.4% on a currency-neutral basis. The region incurred adjusted operating loss of $4 million in the third quarter, narrower than operating loss of $39 million in the year-ago quarter. However, this was somewhat compensated with a decline in raw material inflation and gains from cost-reduction efforts.

Sales from Asia grew 5.7% to $358 million from the prior-year quarter’s figure. Excluding currency impacts, the metric rose 7.1%. Further, the segment reported operating profit of $9 million, which declined 30.8% from the year-ago period. Operating margin also contracted 140 bps to 2.4% as gains from rise in volume, lower raw material inflation and cost-reduction efforts were more than offset by higher brand transition investments in China.

Financial Position

Whirlpool had cash and cash equivalents of $993 million as of Sep 30, 2019, and long-term debt of $4,105 million. During the first nine months of 2019, the company used $566 million in cash in operating activities and reported negative free cash flow of $805 million. Meanwhile, it incurred capital expenditure of $306 million.

Notably, the company strengthened its balance sheet by repaying the $1-billion term loan.

In the first nine months of 2019, Whirlpool bought back shares worth $100 million and paid out dividends of $229 million.

Guidance

Despite global economic uncertainties, the company remains confident to accomplish long-term financial targets. Moreover, it is smoothly progressing to revive the EMEA segment. Encouragingly, management reiterated its adjusted earnings per share view for 2019. In fact, the company is now trending toward the higher end of $14.75-$15.50 mentioned earlier. In 2018, it recorded earnings of $15.16 per share.

Moreover, on a GAAP basis, the company now anticipates earnings of $16.80-$17.55, down from previously mentioned $17.80-$18.55. Management cut its GAAP earnings view as additional product warranty and liability costs were somewhat offset by adjustments to gains from the Embraco sale.

For 2019, the company still expects to generate operating cash flow of $1.4 billion and free cash flow of $800 million. Moreover, it expects capital expenditure of $625 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Whirlpool has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Whirlpool has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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