Whirlpool's (WHR) Q4 Earnings Surpass Estimates, Sales Miss

Whirlpool Corporation (NYSE:WHR) reported mixed fourth-quarter 2018 results, wherein earnings outpaced estimates while sales missed. This marked the company’s second consecutive quarter of positive earnings surprise, with seventh straight sales miss. Further, management issued forecasts for 2019.

A glimpse of the company’s price trend shows that the stock has underperformed the industry in the past three months. This Zacks Rank #3 (Hold) stock has gained 4.2% compared with the industry’s 13.4% rally.

Q4 Highlights

Whirlpool delivered adjusted earnings of $4.75 per share, surpassing the Zacks Consensus Estimate of $4.30. The bottom line also increased 15.9% from $4.10 per share earned in the year-ago quarter. On a GAAP basis, the company reported earnings per share of $2.64 compared to a loss of $3.74 incurred in the prior-year quarter.

Notably, the bottom line benefited from solid execution of higher prices, strict working capital reduction and a lower tax rate. Also, robust growth at the company’s North America segment despite sluggish industry demand and higher raw material costs aided its quarterly performance.

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation Price, Consensus and EPS Surprise | Whirlpool Corporation Quote

Net sales came in at $5,660 million, almost flat with the year-ago period number. However, the top line fell short of the Zacks Consensus Estimate of $5,745 million. The underperformance can be attributed to sales decline at the company’s Latin America and EMEA segments, partly offset by sales growth at the North America and Asia divisions. On a currency-neutral basis, the metric grew 2.5%.

Adjusted operating profit (EBIT) declined nearly 7% to $348 million from $374 million in the year-ago quarter. Also, operating margin contracted 40 basis points (bps) to 6.2% on elevated expenses, decline in unit volumes and adverse currency. These were somewhat compensated with favorable product price/mix and restructuring benefits.

Regional Performance

Sales from North America rose 6.9% to $3.1 billion, while the same grew 5.4% on a currency-neutral basis. Adjusted operating profit margin expanded 40 bps to 11.8% as lower fixed expenses and favorable product price/mix were partly negated by raw material inflation, tariffs and increased freight costs. In dollar terms, operating profit increased 7.1% to $362 million.

Sales from Latin America declined 10% year over year to $990 million. However, excluding currency translations, the metric edged up 1.1%. Adjusted operating margin of 5.9% fell 60 bps, mainly due to higher raw material expenses and adverse currency, which were offset by improved productivity and favorable product price/mix. In dollar terms, operating income also decreased 15.7% to $59 million.

Sales from EMEA declined 14.3% to $1.2 billion. On a currency-neutral basis, the metric dropped 6.3%. Whirlpool incurred operating loss of $15 million in the fourth quarter against the operating income of $8 million registered in the year-ago quarter. This downside can be attributed to raw material inflation, lower productivity on account of fall in unit volumes and adverse currency.

Sales from Asia grew 3.9% to $372 million from the prior-year quarter figure. Excluding currency effects, the metric also rose 11.2%. However, the segment reported operating profit of $8 million that plunged 20% from the year-ago period. Also, operating margin contracted 80 bps to 1.9% as gains from restructuring and favourable product price/mix were more than offset by higher raw material costs and elevated bad debt provision.

Financial Position

Whirlpool had cash and cash equivalents of $1,498 million as of Dec 31, 2018, and long-term debt of $4,046 million.

In 2018, the company generated $1,229 million cash in operating activities and reported free cash flow of $853 million. Meanwhile, capital expenditures amounted to $376 million for the year. Furthermore, Whirlpool bought back shares worth $1,153 million and paid dividends of $306 million in the same time frame.

2019 Guidance

Following the mixed quarterly performance, management issued guidance for 2019. Whirlpool envisions adjusted earnings per share in the range of $14-$15 compared with $15.16 earned in 2018. On a GAAP basis, it now anticipates earnings per share of $12.75-$13.75.

Markedly, this guidance includes gains from restructuring, positive product price/mix, and reduced share count, which will be compensated with higher tax rate as well as increased costs and currency. The Zacks Consensus Estimate for 2019 is pegged at $16.18, which is likely to witness downward revisions in the coming days.

While operating cash flow is expected in the $1.4-$1.5 billion range, free cash flow is projected to come in at $800-$900 million for the year. This guidance includes restructuring cash outlays of roughly $100 million and capital expenditures of $625 million related to free cash flows.

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