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Can Demand & Currency Woes Mar Whirlpool's (WHR) Q2 Earnings?

Zacks Equity Research

Whirlpool Corporation WHR is slated to release second-quarter 2019 results on Jul 22, after the closing bell.

The company delivered a positive earnings surprise in the preceding three quarters. Also, it recorded average four-quarter earnings beat of 6.1%.

For second-quarter 2019, the Zacks Consensus Estimate for the company’s earnings is pegged at $3.78, suggesting growth of about 18.1% from the year-ago quarter. Estimates have also witnessed upward revisions in the past seven days.

Whirlpool Corporation Price and EPS Surprise

How Things are Shaping for This Announcement

Whirlpool’s success in the recent quarters can be largely attributed to its robust product pipeline, solid innovations and cost-productivity initiatives. The company is benefiting from strong execution of higher prices and robust price/mix, owing to benefits realized from strategic actions. Effective implementation of price increase, margin expansion and cost-containment efforts mainly fueled bottom-line growth in first-quarter fiscal 2019.

Robust growth at the North America segment has also been aiding quarterly results despite sluggish industry demand and higher raw material costs. In the first quarter, this segment delivered 1.1% currency-neutral revenue growth along with margin expansion, mainly driven by a favorable product price/mix. Looking ahead, the company expects to continue delivering strong results for the region, driven by favorable price/mix and price increases despite expectations of lower demand. We are, therefore, hopeful that this segment will contribute to the company’s top and bottom-line growth in the second quarter.

For 2019, Whirlpool reiterated adjusted earnings per share guidance of $14-$15. It recorded earnings of $15.16 in 2018. The company expects price/mix to aid margin growth throughout 2019, with slight moderation on a year-over-year basis due to comparisons from higher pricing undertaken in the second half of 2018.

The company anticipates ongoing EBIT margin of 6.5-6.8% in fiscal 2019, suggesting a 40-bps expansion from 2018. This guidance reflects 150-bps gain from price/mix and net cost improvement of 50 bps based on revised industry demand and related lower production volume expectations. Further, the company expects reduced cost inflation of nearly 25 bps for 2019, owing to lower raw material cost inflation.

Though the company estimates reduced impacts of cost inflation in 2019, it still expects cost inflation and unfavorable currency to offset benefits from improved price/mix by nearly 250 bps in 2019. This should continue to weigh on operating margin growth in 2019. Additionally, the company anticipates industry demand in Latin America and Asia to be at the lower end of the prior guidance due to the negative industry demand witnessed in Mexico and China in the first quarter. Overall, we expect soft industry demand to weigh on the bottom line despite easing of pressure from raw material inflation.

Furthermore, Whirlpool expects EBIT margin in North America to be at least 12% in 2019 as gains from price/mix actions are likely to be negated by lower industry demand, and raw material and tariff inflation. For the second quarter, the company predicts North America margins to be impacted by the planned reduction in production volume to right-size inventory levels and increased marketing investments to support product launches. Consequently, it expects EBIT margin for the region to be similar to the first-quarter level in the second quarter instead of sequential improvement. This should result in increased pressure on the bottom line in the upcoming quarterly results.

A Look at the Zacks Model

Our proven model does not conclusively show that Whirlpool is likely to beat earnings estimates in the second 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 currently has a Zacks Rank #3 and an Earnings ESP of -3.70%. While the company’s positive Zacks Rank increases the predictive power, a negative ESP makes surprise prediction difficult.

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:

Skechers U.S.A., Inc. SKX has an Earnings ESP of +6.06% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rent-A-Center, Inc. RCII currently has an Earnings ESP of +3.88% and a Zacks Rank of 2.

Prestige Consumer Healthcare Inc. PBH presently has an Earnings ESP of +1.56% and a Zacks Rank #2.

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Click to get this free report Whirlpool Corporation (WHR) : Free Stock Analysis Report Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report Prestige Consumer Healthcare Inc. (PBH) : Free Stock Analysis Report Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research