Whirlpool projects flattening sales, needs interest rate cuts to unfreeze the housing market
Whirlpool (WHR) aims to put cleaner financials on the board later this year and into 2025.
To make it happen, the 113-year-old industrial giant needs better housing trends in the US, driven by a few interest rate cuts, explained chairman and CEO Marc Bitzer.
"On existing home sales [we] probably need not just one cut, but two or three cuts. I think you would have to see below 6% mortgage rates on a sustained basis to really kind of unfreeze the markets," Bitzer told Yahoo Finance Live from the floor of the New York Stock Exchange (video above).
Bitzer was fresh off of courting institutional investors during a Tuesday presentation at the exchange after his company released a back-end-weighted outlook.
Whirlpool projected flat sales in North America, its largest market, in 2024, reflecting first-half demand challenges.
Total sales for the year are expected to be about $16.9 billion, down from $19.5 billion in 2023, in large part due to exits of certain overseas businesses.
As a result of $300 million to $400 million in planned cost cuts and the exits of those lower-margin international businesses, Whirlpool expects operating profit margins to expand from 6.2% to 6.8% in 2024.
The company outlined a compound annual sales growth rate of 3% to 4% for 2026, with an operating margin of 9% — the latter supported by up to $400 million in cost cuts in 2025 and 2026.
The appliance giant's cautious near-term outlook reflects several economic realities.
For one, expectations for interest rate cuts have been pushed back after optimism over them exploded late in 2023.
Data since the Fed's Jan. 30-31 meeting, including a stronger-than-expected jobs report and above-consensus core inflation readings, have sent economists back to the drawing board on their rate cut projections.
Goldman Sachs chief economist Jan Hatzius recently lowered expectations for 2024 interest rate cuts from five to four, with the first reduction not arriving until June.
In turn, mortgage rates have begun to creep back up.
The 30-year fixed rate mortgage rate stands at a lofty 7.57%, up from 6.6% or so in the first week of January.
"A strong job market also has certain implications in this inflationary era: It implies slightly higher mortgage rates for longer, as the Fed tries to tame the economy and prevent inflation from rising again," said Redfin chief economist Chen Zhao.
Meantime, housing sales — a key driver of appliance sales — have stayed under pressure.
New home sales rose a mere 1.5% in January, while December's results were revised lower, according to data from the Census Bureau released on Monday. The National Association of Realtors said January existing home sales slipped 1.7% from the year before.
Read more: Mortgage rates hover around 7% — is this a good time to buy a house?
Coupled with high rates on credit cards, which are often used to fund appliance purchases, a durable goods seller like Whirlpool has reason to be cautious.
Wall Street has followed suit — shares of Whirlpool are down 22% in the past year, compared to a 28% gain for the S&P 500.
JPMorgan analyst Michael Rehaut told clients in a new note that he expects a "still relatively constrained demand environment in 2024."
Bitzer isn't standing still, however.
Besides cost-cutting, Whirlpool will unleash a flurry of product launches starting in mid-2024, geared toward higher-margin small appliances.
That includes a line of automated espresso makers under the KitchenAid brand.
"Small appliances is one of our best businesses," said Bitzer.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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