Whirlpool Corporation (WHR) saw its adjusted net income of $1.55 per share in the second quarter of 2012 nearly doubled from 81 cents in the same period last year but falling short of the Zacks Consensus Estimate of $1.64. However, before adjustments, Whirlpool swung to a profit of $113 million or $1.43 per share in the quarter from a loss of $161 million or $2.10 in the year-ago period.
Revenues in the quarter fell 4.6% to $4.5 billion in the quarter and missed the Zacks Consensus Estimate of $4.6 billion. Although Whirlpool’s product price/mix remained strong, foreign currency translation and lower monetization of Brazilian (BEFIEX) tax credits weighed on the top line.
Whirlpool’s business in the Americas continued to do well and management is of the opinion that the company’s performance was better than the last year. However, foreign currency effects, lower demand and cost inflation proved to be headwinds in the quarter. A look at the region wise performance would reveal things better.
Regional Performance
North America: Revenues increased 4% to $2.5 billion, despite a 2% drop in shipments. The improved performance was driven by cost and capacity reduction measures and improvement in product price/mix.
Moreover, Whirlpool handled the challenge of rising costs quite efficiently with the help of price increments in the quarter. As a result, its operating profit increased more than two-fold to $186 million in the quarter from $76 million last year.
However, Whirlpool lowered its U.S. industry unit shipments growth forecast for the year due to economic pressures. The company now expects shipments to be either flat or down 2% this year as against the earlier expectation of growth at the lower end of 0%–3%.
Latin America: Revenues declined to $1.2 billion from $1.3 billion last year. However, excluding the effects of currency translation and tax credits, revenues grew 8% year over year. On an adjusted basis, operating income increased to $101 million from $87 million in the prior year, driven by a favorable product price/mix, partially offset by unfavorable currency and lower monetization of tax credits.
On a positive note, Whirlpool raised its Latin American appliance industry shipments forecast for 2012. The company expects appliance industry shipments in Latin America to grow in the range of 5%–7% this year as against the earlier expectation of 2%–5%.
Europe, Middle East and Africa: Revenues plummeted almost 18% to $692 million in the quarter as shipments fell 7%. However, excluding the effects of currency translation, the decline in revenues was much less at 7%.
The effects of the sovereign debt crisis in Europe were visible in Whirlpool’s performance in the region, as the company had to contend with low consumer demand and unfavorable currency. Whirlpool expects industry unit shipments in the region to decline in the range of 2%–5% in 2012.
Asia: Revenues went down to $241 million from $257 million last year. However, excluding the negative impact of currency translation, revenues increased 6%, helped by a 1% increase in shipments. Nevertheless, Whirlpool slashed the region’s industry unit-shipment guidance for 2012. It expects industry shipments to grow 0%–2% this year compared with the earlier forecast of 2%-4%.
Financial Position
Whirlpool had cash and cash equivalents of $426 million as of June 30, 2012 compared with $1.1 billion as of December 31, 2011. Long-term debt was $1.9 billion as of June 30, 2012 compared with $2.1 billion as of December 31, 2011.
The company used cash flow of $355 million from operations in the first six months of 2012 compared with $234 million in the same period last year. Meanwhile, capital expenditures decreased to $187 million from $259 million in the first half of 2011. Whirlpool reiterated its free cash flow guidance of $100 million–$150 million for 2012.
Outlook
For full year 2012, Whirlpool expects to report earnings per share of $5.00 to $5.50. However, excluding restructuring charges and Brazilian tax credits, the company anticipates earnings per share of $6.50 to $7.00.
Our Take
Whirlpool is considered to be the largest home-appliances manufacturer in the world, ahead of ElectroluxAB (ELUXY), LG, Samsung and General Electric Co. (GE). The company is placed among the leading home appliances makers in India and Europe.
Whirlpool’s cost and capacity reduction initiatives are noteworthy, resulting in improved margins. However, we are concerned about the ongoing weakness in Europe, a region where it expects shipments to decline this year.
Currently, Whirlpool retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating and, we have a long-term (more than 6 months) Neutral recommendation on the stock.
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