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Why Is Whirlpool (WHR) Down 12.5% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Whirlpool (WHR). Shares have lost about 12.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Whirlpool due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Whirlpool Q4 Earnings Surpass Estimates, Sales Miss

Whirlpool reported mixed fourth-quarter 2019 results, wherein earnings outpaced the Zacks Consensus Estimate, while sales missed the same. With this, the company delivered the sixth straight earnings beat. Driven by the strong demand for its innovative products and lower inflationary pressures, it provided a favorable view for 2020.

Q4 Highlights

The company delivered adjusted earnings of $4.91 per share, outpacing the Zacks Consensus Estimate of $4.30 and increasing 3.4% from the year-ago quarter’s $4.75. On a GAAP basis, it reported earnings of $4.52 per share, significantly up from $2.64 registered in the prior-year quarter.

Net sales of $5,382 million declined 4.9% from the year-ago period and lagged the Zacks Consensus Estimate of $5,528 million. However, organic net sales rose 1.2%.

Adjusted operating profit (EBIT) grew 11.8% to $389 million from $348 million in the year-ago quarter. Also, the operating margin expanded 100 basis points (bps) to 7.2%, backed by gains from favorable price/mix and stringent cost discipline.

Regional Performance

Sales from North America edged down 0.3% to $3.1 billion. On a GAAP basis, the North America region sustained strong operating margin of 13.3%, representing an expansion of 110 bps year over year. In dollar terms, GAAP operating profit rose 9% to $410 million. Adjusted operating profit in the quarter was $362 million, with an operating margin of 11.8%. The segment gained from favorable product price/mix and disciplined cost management, offset by lower fixed cost leverage and continued cost inflation.

Sales from Latin America fell 21% year over year to $782 million. Despite soft industry trends in Mexico, organic sales grew 16.7%. On a GAAP basis, operating margin of 5.3% expanded 80 bps. In dollar terms, GAAP operating income declined 6.7% to $42 million. However, adjusted operating income was $59 million, with an operating margin of 5.9%. The segment gained from higher unit volume and lower raw material inflation, offset by adverse currency in Brazil and Argentina.

Sales from EMEA declined 5.5% to $1.2 billion. On a currency-neutral basis, sales for the region fell 4.2%. The segment reported an operating profit of $11 million in the fourth quarter against an operating loss of $15 million in the year-ago quarter. Operating margin for EMEA was 0.9%. The segment’s margins mainly benefited from the ongoing cost-reduction efforts. Notably, this marked the second straight quarter of sequential operating margin growth for the EMEA segment.

Sales from Asia declined 4.3% to $356 million from the prior-year quarter’s figure. The segment reported an operating profit of $2 million, which declined 75% from the year-ago period. Operating margin also contracted 130 bps to 0.6% as gains from lower raw material inflation and cost-reduction efforts were more than offset by higher brand transition investments in China and soft demand. Nonetheless, strong growth in India on a healthy demand environment favored the segment’s results.

Financial Position

Whirlpool had cash and cash equivalents of $1,952 million as of Dec 31, 2019, and long-term debt of $4,140 million. In 2019, the company generated operating cash flow of $1,230 million and free cash flow of $912 million. Meanwhile, it incurred capital expenditure of $532 million for the year.

Guidance

Based on the strength displayed in 2019 and momentum so far in 2020, the company remains on track to deliver on its long-term targets. Consequently, it provided strong view for 2020.

For 2020, management expects adjusted earnings per share of $16-$17. On a GAAP basis, the company anticipates earnings of $14.80-$15.80. Further, it expects to generate operating cash flow of $1.3-$1.4 billion and free cash flow of $800-$900 million in 2020. Moreover, it anticipates effective tax rate of 20-25%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Whirlpool has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Whirlpool has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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