Whirlpool Corporation’s (WHR) adjusted earnings per share came in at $2.62 in the second quarter of 2014, way below the Zacks Consensus Estimate of $2.88. However, the adjusted figure was up 10.5% from the prior-year quarter.
The year-over-year improvement was primarily driven by the company’s sustained focus on cost and capacity reduction partially offset by fall in revenue. However, the company’s reported earnings fell 7.8% year over year to $2.25 per share.
Revenues for the quarter came in at $4,682 million, down 1.4% from the comparable year-ago quarter level as well as the Zacks Consensus Estimate of $4,879 million. However, after excluding the impact of foreign currency translation and lower monetization of Brazilian (BEFIEX) tax credits, Whirlpool registered year-over-year sales growth of nearly 1%.
The top-line decline was mainly due to soft performance at the company’s Asia and Latin America regions partially offset by improved sales at North America and Europe, the Middle East and Africa (EMEA) regions.
During the quarter, gross profit decreased 3.7% year over year to $787 million while gross margin contracted 40 basis points (bps) to 16.8% due to lower sales, higher material costs and negative impact from foreign exchange rate.
However, adjusted operating profit for the quarter fell marginally to $330 million from $335 million in the year-ago quarter. The negative impact of lower sales, higher material costs and unfavorable exchange rates were almost offset by the company’s ongoing cost and capacity reduction initiatives and improved product price mix as well as enhanced productivity. Consequently, adjusted operating margin remained flat at 7.1% when compared with the year-ago comparable quarter.
Q2 Regional Performance
Revenues from North America grew over 3% year over year to $2.7 billion. Operating profit increased 8.8% to $285 million in the quarter. The year-over-year growth in operating profit was due to higher sales and better cost productivity, which was partly offset by increased material costs, negative impact from unfavorable exchange rates and higher investments in marketing, technology and products. Going forward, the company expects its U.S. industry shipments to increase approximately 5% in fiscal 2014.
Revenues from Latin America were $1.1 billion compared with $1.2 billion in the prior-year period. Moreover, excluding the negative effects of currency translation and Brazilian tax credits, revenues were down 4%. Adjusted operating income was down 21.6% to $87 million, as lower sales, increased material costs and unfavorable foreign currency exchange rate more than offset better product price and mix as well as cost and productivity initiatives. The company expects flat to a 3% decrease in appliance industry shipments in Latin America in fiscal 2014.
Revenues from EMEA grew 2.1% to $746 million in the quarter. Second-quarter adjusted operating income for the region was $2.0 million, as against operating loss of $6.0 million in the year-ago quarter, benefiting from higher sales as well as cost and capacity reduction measures. Whirlpool expects industry unit shipments in fiscal 2014 to range between flat to a 2% increase.
Revenues from Asia fell 14.2% to $211 million in the second quarter of 2014. Excluding the negative impact of currency translation, revenues fell nearly 9%. Operating income declined 71.4% year over year to $4 million as the benefit from improved product price and mix, along with ongoing cost productivity initiatives, more than offset the higher material costs, unfavorable foreign currency translation and lower unit volumes. The company expects industry shipments in the region to be flat in fiscal 2014.
Financial Position
Whirlpool had cash and cash equivalents of $945 million as of Jun 30, 2014 and long-term debt $2,461 million.
This largest home-appliances manufacturer in the world, which comes ahead of ElectroluxAB, LG, Samsung, General Electric Co. (GE) and Haier Electronics Group Company Ltd., reported cash used in investing activities of $368 million in the first two quarters of 2014. Meanwhile, the company spent $265 million toward capital expenditure during the first six months of 2014. At the end of second quarter, Whirlpool has a negative free cash flow of $622 million.
Guidance
Whirlpool has lowered its guidance for 2014 to incorporate the expenditure related to the pending acquisition of majority stake in Hefei Rongshida Sanyo Electric Co., Ltd. and Indesit Company S.p.A. For full-year 2014, the company now expects earnings per share (on a GAAP basis) in the range of $10.30–$10.80 compared with $11.05–$11.55 projected earlier.
Further, considering the impact of restructuring charges, Brazilian tax credits and investment expenses, adjusted earnings per share are now anticipated to come between $11.50 and $12.00, down from the previous forecast of $12.00 and $12.50.
Moreover, in 2014, the company expects to generate free cash flow in the range of $600–$650 million, down from $700 million projected earlier.
Other Stocks that Warrant a Look
Currently, Whirlpool carries a Zacks Rank #4 (Sell). However, some better-ranked retail stocks include Conn's Inc. (CONN) and Big Lots Inc. (BIG), both carrying a Zacks Rank #2 (Buy).
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