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Will Multiple Headwinds Dent Whirlpool's (WHR) Q3 Earnings?

Zacks Equity Research

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

Notably, the company delivered a positive earnings surprise in each of the trailing four quarters, the average beat being 10.5%. Let’s see how things are shaping up prior to its upcoming earnings release.

Whirlpool Corporation Price and EPS Surprise

Whirlpool Corporation Price and EPS Surprise

Whirlpool Corporation price-eps-surprise | Whirlpool Corporation Quote

Which Way Are Q3 Estimates Headed?

The Zacks Consensus Estimate for the company’s third-quarter earnings is currently pegged at $3.92, indicating a decline of about 14% from the year-earlier reported figure. However, estimates rose 1.6% in the last 30 days.

For quarterly revenues, the consensus mark is pinned at $5.13 billion, implying a 3.7% fall from the figure reported a year ago.

What You Should Know Prior to 3Q19

Whirlpool has been witnessing softness across its EMEA segment. The company completed the exit of Turkey domestic sales operations and Hotpoint small appliances in the second quarter. Also, it finalized the sale of its South Africa operations. The segment’s third-quarter sales will reflect significant impact of adverse currency translation.

We note that cost inflation and adverse currency are also weighing on Whirlpool’s performance. Though the company estimates reduced impacts of cost inflation, it expects cost inflation and unfavorable currency to continue offsetting benefits of improved price/mix in 2019. Further, it expects increased marketing and technology investment to hurt operating margin growth in 2019. We believe these factors are likely to have hurt the company’s performance in the third quarter.

Moreover, its Asia segment is grappling with soft China operations owing to lower industry demand. Management lowered EBIT margin view for Asia to nearly 3% for the quarter under review, as it expects gains from strong India business to be more than offset by weakness in China. This might have weighed on the company’s top and bottom lines in the third quarter.

Nevertheless, Whirlpool’s solid bottom-line performance in the recent quarters can be largely attributed to its robust product pipeline, solid innovations and cost-productivity efforts. Moreover, the company is benefiting from strong execution of higher prices and robust price/mix, owing to benefits realized from strategic actions.

In addition, robust growth at the company’s North America segment is likely to have aided quarterly results despite a challenging industry backdrop. Favorable price mix and effective cost discipline coupled with solid market share gains in a stable U.S. industry environment remain tailwinds. Looking ahead, the company expects to continue delivering strong results for the region, driven by favorable price/mix and price increases along with improvement in the U.S. demand environment.

Whirlpool’s solid North America segment and strategic endeavors are likely to have contributed and somewhat offset the aforesaid headwinds in the third quarter.

A Glance at the Zacks Model

Our proven model does not conclusively show a beat for Whirlpool this earnings season. The odds of a beat increase with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Whirlpool’s Zacks Rank #2 increases the chances of an earnings beat, its Earnings ESP of -4.47% 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:

Hasbro, Inc HAS currently has an Earnings ESP of +1.44% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spectrum Brands Holdings, Inc SPB presently has an Earnings ESP of +2.47% and a Zacks Rank of 2.

Gildan Activewear Inc GIL currently has an Earnings ESP of +0.87% and a Zacks Rank #3.

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