Whirlpool (WHR) Down On Q1 Earnings Miss, Outlook Trimmed

Whirlpool Corporation (NYSE:WHR) posted first-quarter 2017 results, wherein earnings lagged estimates for the third consecutive quarter and dipped year over year. Consequently, stock price of this largest home-appliances manufacturer in the world declined 1.8% in the after-hours session yesterday.

Moreover, Whirlpool’s shares have underperformed the Zacks categorized Consumer Discretionary sector on a year-to-date basis. While the stock declined 3.8%, the sector witnessed growth of 9.6%.

Q1 Highlights

Whirlpool’s quarterly adjusted earnings per share of $2.50 declined 4.9% year over year and missed the Zacks Consensus Estimate of $2.67.

On a reported basis, the company’s earnings were up 4.7% to $2.01 per share from $1.92 earned in the prior-year quarter.

Revenues came in at $4,786 million, an increase of 3.7% from the comparable year-ago quarter revenues of $4,616 million. Additionally, revenues surpassed the Zacks Consensus Estimate of $4,761 million. On currency-neutral basis, Whirlpool registered sales growth of 3%. The company’s top-line benefited from strength in North America and Latin America. Further, the company remains on track for reaching long-term revenue growth targets.

Adjusted operating profit in the quarter dropped 9.1% to $310 million from $341 million in the year-ago quarter, while the operating margin contracted 90 basis points (bps) to 6.5%. During the quarter, an adverse product price/mix and raw material inflation almost fully neutralized the gains from increased unit volumes and ongoing cost productivity.

Regional Performance

Revenues from North America went up 8.3% year over year to $2.6 billion, while revenues grew 7% on a currency-neutral basis. Adjusted operating profit margin expanded 70 bps to 11.2%. During the quarter, gains from ongoing cost productivity and improved unit volumes overshadowed the negative impact of raw material price inflation. The company retained North-American industry shipments guidance of an increase 4–6% for 2017.

Revenues from Latin America rose 16% year over year to $818 million. Excluding the effects of currency translation, revenues jumped 4%. Adjusted operating margin of 8.3% increased 220 bps, on the back of favorable price/mix and cost productivity gains, slightly offset by raw material inflation. The company anticipates industry unit shipments in Brazil to be flat in 2017.

Revenues from EMEA descended 16.7% from the prior-year quarter to $1 billion. On currency-neutral basis, revenues dropped 9%. The company reported first-quarter adjusted operating loss of $17 million compared with operating profit of $58 million in the year-ago quarter. This resulted from a key integration complexity due to headquarters integration, which led to a temporary supply chain disruption and low product availability in the region. Additionally, operating margins were hurt by currency headwinds as well as weak demand in the U.K.

Driven by the company’s progress on its integration in Europe, it anticipates operating margin for the second quarter to improve sequentially and sustain improvement in second-half 2017. Consequently, Whirlpool now estimates industry unit shipments growth in 2017 in the range of flat to up 2%.

Revenues from Asia grew 12.9% to $419 million in first-quarter 2017 from $371 million in the prior-year quarter. Excluding currency effects, revenues increased 16%. Adjusted operating margin contracted 180 bps to 5.5%. Adverse product price/mix and raw material price inflation more than offset the gains from unit volume growth. The company projects industry shipments in the region to be flat to up 2% in 2017.

Financial Position

Whirlpool had cash and cash equivalents of $951million as of Mar 31, 2017, and long-term debt of $3,890 million.

The company used $435 million in operating activities in first-quarter 2017. Meanwhile, the company’s capital expenditure in the period was $88 million. As of Mar 31, 2017, Whirlpool had negative free cash flow of $497 million due to the company's focus on working capital optimization.

Guidance

Management remains pleased with ongoing growth strategies, disciplined operational execution and balanced capital allocation. However, Whirlpool lowered the earnings forecasts for 2017 based on the temporary integration challenges in the EMEA region. The company now envisions adjusted earnings per share for 2017 in a range of $14.75–$15.50, compared with $15.25–$16.25 guided earlier. On a GAAP basis, Whirlpool anticipates earnings in a range of $12.65–$13.40 per share for 2017, compared with the previous estimate of $13.25–$14.25.

Nonetheless, the company continues to anticipate generating free cash flow of about $1 billion for 2017, while it expects operating cash flows to range from $1.7–$1.75 billion. This guidance includes restructured cash outlays of up to $165 million, legacy product warranty and liability costs of $70 million, pension contributions of $45 million and capital expenditures of $700–$750 million.

Zacks Rank & Key Picks

Currently, Whirlpool carries a Zacks Rank #3 (Hold). Some better-ranked consumer discretionary stocks include NutriSystem Inc. (NASDAQ:NTRI) , AMC Entertainment Holdings, Inc. (NYSE:AMC) and Masonite International Corporation (NYSE:DOOR) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NutriSystem, with a long-term earnings growth rate of 17.5%, has surged 58.9% year to date.

AMC Entertainment has an average earnings beat of 7.7% in the last four quarters. The company also has a long-term earnings growth rate of 10%.

Masonite International has returned 22.8% year to date. Moreover, the company has an average earnings beat of 18.1% in the last four quarters.

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