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Whirlpool (WHR) Beats on Q4 Earnings, Sales Lag Hurts Stock

Zacks Equity Research

Whirlpool Corporation WHR reported mixed fourth-quarter 2017 results with earnings topping estimates while sales missed the same. While the company posted a positive earnings surprise after five consecutive misses, sales lagged for the third straight quarter. Further, management provided earnings outlook for 2018. Moreover, the company hinted at margin gains in the year.

Shares of this world’s leading home-appliances manufacturer declined nearly 1% in the after-hours session yesterday, probably due to its lower-than-expected sales. Though this Zacks Rank #3 (Hold) stock lost 9.6% in the past three months, it fared better than the industry’s decline of 21.7%.



Q4 Highlights

Whirlpool’s quarterly adjusted earnings per share came in at $4.10, ahead of the Zacks Consensus Estimate of $4.01. However, it declined 5.3% from $4.33 per share earned in the year-ago quarter.

Whirlpool Corporation Price, Consensus and EPS Surprise

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

On a GAAP basis, the company reported net loss of $3.69 per share against earnings per share of $2.36 in the prior-year quarter. The loss reported can primarily be attributed to a non-cash charge of $420 million associated with the new tax reform.

Revenues of $5,702 million rose nearly 1% from the comparable year-ago quarter revenues of $5,656 million. However, the top line fell short of the Zacks Consensus Estimate of $5,836 million. On a currency-neutral basis, sales declined of 1.6%. Top-line growth was driven by gains in Latin America and EMEA regions.  

Further, adjusted operating profit in the quarter dropped 9% to $392 million from $431 million in the year-ago quarter. Also, the operating margin contracted 70 basis points (bps) to 6.9%. During the quarter, unit volume declines and raw material inflation completely negated the gains from favorable cost productivity, product price/mix and restructuring benefits.

Regional Performance

Revenues from North America remained flat with last year at $3.1 billion, while it dipped 0.8% on a currency-neutral basis. Adjusted operating profit margin expanded 60 bps to 11.8%. In dollar terms, operating profit grew 5.4% to $368 million. Notably, operating profit gains reflected from favorable product price/mix which mitigated the negative impact of raw material inflation.

Revenues from Latin America rose 5.2% year over year to $905 million. Excluding currency translations, it increased 4.4%. Adjusted operating margin of 7.1% contracted 120 bps mainly due to raw material inflation, which was partly neutralized by cost productivity and the sale and monetization of some tax credits.

Meanwhile, revenues from EMEA increased 1.5% to $1.4 billion. On a currency-neutral basis, it dropped 5.6%. Whirlpool reported adjusted operating profit of $4 million in the fourth quarter versus adjusted operating profit of $45 million in the year-ago quarter. Further, adjusted operating margin came in at 0.3%, which fell 300 bps from the year-ago period. The decline can be attributed to raw material inflation and adverse product price/mix negated by favorable cost productivity and restructuring gains.

Revenues from Asia declined 5.4% to $333 million from $352 million in the prior-year quarter. Excluding currency effects, revenues decreased 8.3%. Moreover, the segment reported adjusted operating loss of $1 million against operating profit of $19 million in the prior-year quarter. Unit volume declines and raw material inflation were the main culprits for the decline, partly offset by favorable product price/mix.

Financial Position

Whirlpool had cash and cash equivalents of $1,196 million as of Dec 31, 2017 and long-term debt of $4,392 million.

The company generated cash from operating activities of $1,264 million in 2017. Capital expenditures for the year totaled $684 million. As of Dec 31, 2017, Whirlpool generated free cash flow of $707 million.

Notably, the company returned $1.1 billion to shareholders in 2017. Further, it expects to continue buying back shares in 2018.

Guidance

Following a mixed fourth quarter, Whirlpool provided earnings projections for 2018. Moreover, the company hinted at margin gains in the year. The company envisions adjusted earnings per share for 2018 in a range of $14.50-$15.50. On a GAAP basis, it anticipates earnings in a range of $12.45-$13.45 per share.

Further, the company remains optimistic about cost reduction initiatives and global price/mix, which is likely to result in considerable margin improvements in 2018. This builds the company’s hopes on achieving cash conversion goal as well as returning more cash to shareholders.

The company anticipates generating free cash flow of $1-$1.1 billion in 2018, while operating cash flows are projected in the range of $1.7-$1.8 billion. This guidance includes restructured cash outlays of approximately $300 million, pension contributions of $35 million and capital expenditures of $675 million related to free cash flows.

Looking for Attractive Consumer Discretionary Stocks? Check These

Better-ranked stocks in the Consumer Discretionary sector include Tailored Brands Inc. TLRD, Marriott International MAR and Churchill Downs Incorporated CHDN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailored Brands, with a long-term earnings growth rate of 16.5%, has delivered positive earnings surprise of 7.7% in the trailing four quarters.

Marriott has a long-term earnings growth rate of 11.9%. Moreover, it has an average positive earnings surprise 9.1% in the trailing four quarters.

Churchill Downs has a long-term earnings growth rate of 16.1%. Further, the company has delivered an average positive earnings surprise of 9.5%.

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