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Whirlpool (WHR) Beats on Q2 Earnings & Sales, Ups EPS View

Zacks Equity Research

Whirlpool Corporation WHR reported strong second-quarter 2019 results, wherein earnings and sales outpaced the Zacks Consensus Estimate. Notably, this marked the company’s fourth consecutive quarter of positive earnings surprise, with sales beat the consensus mark after eight straight misses. As a result, the company raised guidance for 2019.

Q2 Highlights

Whirlpool delivered adjusted earnings of $4.01 per share, which outpaced the Zacks Consensus Estimate of $3.80. The bottom line also increased 25.3% from $3.20 per share earned in the year-ago quarter. On a GAAP basis, the company reported earnings of $1.04 per share against a loss of $9.50 incurred in the prior-year quarter.

Higher sales, margin expansion and cost-containment efforts fueled bottom-line growth. Also, robust margin growth at the company’s North America segment aided the quarterly performance.

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation price-consensus-eps-surprise-chart | Whirlpool Corporation Quote

Net sales came in at $5,186 million, up 0.9% from the year-ago period number. The top line also came ahead of the Zacks Consensus Estimate of $4,931 million. This upside was driven by sales growth across all the company’s segments, except the EMEA division. On a currency-neutral basis, the metric grew 3.5%.

Adjusted operating profit (EBIT) increased 5.8% to $363 million from $343 million in the year-ago quarter. Also, the operating margin expanded 30 basis points (bps) to 7% backed by gains from global cost-based pricing and constant fixed cost discipline. Additionally, favorable product price/mix and restructuring benefits drove the EBIT margin growth. The metric was somewhat offset by cost inflation and adverse currency.

Regional Performance

Sales from North America edged up 3.6% to $2.9 billion, while it grew 3% on a currency-neutral basis. Operating profit margin expanded 50 bps to 12.4% primarily backed by favorable product price/mix that was partly negated by higher costs and decline in unit volumes. In dollar terms, operating profit increased 6.6% to $353 million.

Sales from Latin America grew 4.2% year over year to $888 million. Excluding currency translations, the same metric grew 9.6%. Operating margin of 6.3% expanded 250 bps mainly owing to favorable product price/mix, which was somewhat offset by adverse currency. In dollar terms, operating income surged 69.7% to $56 million.

Sales from EMEA declined 9.1% to $1 billion, while the same slipped 0.2% on a currency-neutral basis. Whirlpool incurred an adjusted operating loss of $16 million in the second quarter compared with an operating loss of $25 million in the year-ago quarter. However, the loss was somewhat compensated with volume recovery in major countries and gains from restructuring.

Sales from Asia inched up 0.5% to $430 million from the prior-year quarter figure. Excluding currency effects, sales grew 4.7%. Further, the segment reported an operating profit of $15 million, which plunged 65.1% from the year-ago period. Operating margin contracted 650 bps to 3.6% as gains from favorable product price/mix was more than offset by higher brand transition investments in China.

Financial Position

Whirlpool had cash and cash equivalents of $1,178 million as of Jun 30, 2019, and long-term debt of $4,155 million.

During the first six months of 2019, the company used $821 million cash in operating activities and reported negative free cash flow of $997 million. Meanwhile, it incurred capital expenditures of $197 million.

Moreover, the company plans to repay its outstanding term loan of $1 billion with the cash proceeds from the sale of its Embraco compressor business.

In the first six months of 2019, Whirlpool bought back shares worth $50 million and paid dividends of $149 million. Management plans to buy back shares through the remainder of the year.

2019 Guidance

Despite global macro uncertainties, Whirlpool raised guidance for 2019. Management now envisions adjusted earnings per share in the range of $14.75-$15.50 compared with $14-$15 guided earlier. In 2018, it recorded earnings of $15.16 per share. The Zacks Consensus Estimate is currently pegged at the lower end of the company’s guided range.

Moreover, on a GAAP basis, the company now anticipates earnings of $17.80-$18.55, up from the earlier projection of $14.05-$15.05. Markedly, the GAAP guidance includes gains from the sale of the Embraco worth roughly $400 million, restructuring costs of about $200 million, gains from Brazil indirect tax credit of $180 million as well as a charge of $79 million associated with sale of its business in South Africa and exit of domestic sales operations in Turkey.

For 2019, the company expects to generate operating cash flow of about $1.4 billion and free cash flow of $800 million.

 



Price Performance

Shares of this Zacks Rank #3 (Hold) company have gained 23.8% in the past six months, faring better than the industry’s 21.2% rally.

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lululemon athletica inc. LULU has an expected long-term earnings growth rate of 18.4% and a Zacks Rank #2 (Buy).

Crocs, Inc. CROX, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 15%.

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