Will Solid Strategies Aid Whirlpool's (WHR) Earnings In Q4?

Whirlpool Corporation (NYSE:WHR) is slated to release fourth-quarter 2018 results on Jan 28, after the closing bell.

The company has delivered a positive earnings surprise in two of the last four quarters, the average beat being 2.6%.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $4.30, reflecting year-over-year growth of 4.9%. Estimates have been stable in the past 30 days. For revenues, the consensus mark is pinned at $5.74 billion, up nearly 0.8% from the year-ago quarter.

In the past three months, shares of Whirlpool have advanced 19.5% compared with the industry’s 20.6% rally.

How Things Are Shaping for This Announcement

Whirlpool’s robust product pipeline, solid innovations and cost productivity initiatives appear promising. The company has been striving to expand margins through a series of measures, including cost-based price increments and cost-reduction initiatives focused on improving business efficiency. Notably, it introduced global cost-based pricing for its trade customers for mitigating raw material inflation.

In addition, the company is on track to cut down fixed overhead expenses by $150 million. Management also announced an additional increase in cost-based price across the U.S. kitchen and Brazil home appliance divisions, slated to be effective in the fourth quarter. Positive global price/mix along with significant progress on cost-saving initiatives is likely to result in margin expansion in 2018.

Meanwhile, Whirlpool is witnessing continued strength in its North America division, which is likely to boost the company’s overall performance. Also, robust price/mix and volume growth owing to market share gains, primarily in the kitchen category, have been bolstering the segment’s results. For North America, management projects about 12% adjusted EBIT margin in 2018.

Backed by all these afore-mentioned initiatives, Whirlpool is likely to deliver solid top- and bottom-line growth in the to-be-reported quarter. Furthermore, management raised the lower end of the adjusted earnings per share view to $14.50-$14.80 for 2018.

However, Whirlpool trimmed its GAAP projection as well as operating cash flow and free cash flow forecasts for 2018. Operating cash flow is expected to come in at roughly $1.2 billion, with free cash flow of $600 million. This guidance includes restructured cash outlays of approximately $300 million, pension contributions of $350 million and capital expenditures of $625 million related to free cash flows.

Further, the primary concern for the company in recent quarters has been the raw material cost inflation, which is weighing on its top-line performance. Evidently, Whirlpool’s sales lagged estimates for six straight quarters now. As the company is significantly dependent on raw materials, particularly steel, oil, plastic resins, aluminum, any volatility in the price of these materials might hurt its operating performance.

Additionally, increased tariffs on steel and aluminum may act as deterrents. Decline in unit volumes and improved freight expenses along with higher investments toward product launches and innovations might be detrimental to Whirlpool’s margins and profitability in the to-be-reported quarter.

A Look at the Zacks Model

Our proven model does not conclusively show that Whirlpool is likely to beat earnings estimates in the fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Whirlpool has a Zacks Rank #3 but an Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Tractor Supply Company (NASDAQ:TSCO) has an Earnings ESP of +0.76% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wyndham Hotels & Resorts, Inc. (NYSE:WH) has an Earnings ESP of +7.66% and a Zacks Rank of 3

Ralph Lauren Corporation (NYSE:RL) has an Earnings ESP of +0.86% and a Zacks Rank #3.

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