Whirlpool Corporation WHR appears to be a solid bet, given the company’s strategies like robust product pipeline and innovations, and cost productivity initiatives. Further, its progress on global cost-based price increases and fixed cost reduction initiatives are commendable. Recently, the company came up with modern innovations in Smart Kitchen appliances at CES 2019.
Backed by these initiatives, shares of this Benton Harbor, MI-based company have gained 16.4%, outperforming the industry’s growth of 14.5% and S&P 500 Index’s decline of 5.4% in the past three months.
Let’s delve deeper into the major factors, which have been driving this Zacks Rank #2 (Buy) stock.
Strong North America Business: Key Catalyst
Whirlpool continued to post strong top and bottom-line results for its North America division. Sales for the segment improved 3.4% year over year, mainly driven by strong price/mix as well as volume growth due to market share gains, primarily in the kitchen category. Further, adjusted operating income in North America expanded 20 basis points on gains from favorable product price/mix.
Moreover, Whirlpool expects to continue delivering strong results for the region driven by price/mix actions as well as the recently announced U.S. kitchen cost-based price increases, which should offset the cost pressure. Additionally, its steady offering of innovative products should support continued growth and margin expansion for the region. The company continues to project about 12% adjusted EBIT margin for North America in 2018.
Cost-Productivity Programs Bode Well
Whirlpool introduced global cost-based pricing for its trade customers in order to mitigate raw material inflation. Moreover, it is on track with initiatives to cut fixed overhead expenses by $150 million, which will add to its ongoing cost productivity program. Management also announced an additional increase in cost-based price across the U.S. kitchen and Brazil home appliance divisions, which will be effective from the fourth quarter. Positive global price/mix along with significant progress on cost-saving initiatives are likely to result in margin expansion in 2018.
These margin recovery actions, along with renewed focus on inventory management, are also likely to boost earnings and free cash flow in the coming years. The Zacks Consensus Estimate for earnings for fourth-quarter 2018 and first-quarter 2019 reflects a year-over-year increase of 4.9% and 15.3% to $4.30 and $3.24, respectively.
Long-Term Targets on Track
Whirlpool’s robust product pipeline, solid innovations and cost productivity initiatives keep it on track to achieve its long-term goals. The company has outlined significant long-term targets through 2020, backed by brand strength and product portfolio. Also, it aims to deliver organic revenue growth of 3-5% every year. Additionally, the company targets EBIT margin to exceed 10% by 2020 and envisions earnings per share to grow 10-15% each year. Furthermore, Whirlpool anticipates delivering roughly 4-5% margins along with 8% margin in Europe.
We expect all aforementioned factors to continue bolstering the company’s performance, and help it remain in investors’ good books.
Other Key Picks
G-III Apparel Group, Ltd. GIII outperformed estimates by a wide margin in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Deckers Outdoor Corporation DECK delivered average positive earnings surprise of 69.1% in the trailing four quarters. It has a long-term earnings growth rate of 11.3% and a Zacks Rank #2.
Under Armour, Inc. UAA delivered average positive earnings surprise of 27.1% in the trailing four quarters. It has a long-term earnings growth rate of 22.8% and a Zacks Rank #2.
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