Whirlpool Corporation is a 106-year-old manufacturer of home appliances with more than 70 manufacturing as well as research and development centers around the world.
Whirlpool’s third quarter earnings results were well below expectations and, according to RBC Capital Markets, has caused the company to lose credibility in the market. This is because this is the third consecutive quarter that the company has cut guidance.
Whirlpool’s shares dropped by 10.54% on the back of this news, closing trade down at $163.26 for the day. This is a $19.24 drop from its share price the previous day.
Earnings were at $276 million or $3.72 per share for the quarter, up from quarter 3 of 2016 when earnings were at $238 million or $3.10 per share.
The company reported a $3.83 adjusted EPS with a $5.42 billion revenue. These figures are below the consensus targets of $3.92 EPS and $5.5 billion revenue. Q3 2016 adjusted EPS was at $3.66 while revenue was at $5.2 billion.
The company cut guidance again this time for the full year. The previous forecast EPS was $12.40 to $12.90 and adjusted EPS was $14.50 to $15.00. After this quarter’s cut in guidance, the forecast EPS for the year is now down to $11.10 – $11.40 per share and an adjusted EPS is $13.60 – $13.90 per share. The analysts’ consensus for EPS for the year is $14.29.
Whirlpool’s Chief Executive Officer, Marc Bitzer, stated that the company was dissatisfied with its operating margins. He also blamed rising costs of raw material, an unfavorable price/mix as well as slow integration in the company’s European operations as reasons for the company’s poor performance this quarter.
Bitzer also announced that the company would be taking “strong actions” to fix the problems that Whirlpool is facing. This would include a $150 million reduction in fixed costs.
Whirlpool had further bad news to give as it revealed that it would not be selling its appliances at Sears’ any longer, thus ending a century-long relationship with the retailer. The department store chain will stop selling Whirlpool products, including the company’s subsidiary brands Maytag, KitchenAid and Jenn-Air. Sears will finish off its current Whirlpool inventory. Both parties cited a pricing dispute which led to the break in their relationship. However, Whirlpool will continue to manufacture Sears’ own Kenmore branded appliances for the retailer.
RBC Capital Markets downgraded Whirlpool’s rating to “sector perform” from “top pick” and dropped its share price target from $209 to $184. The firm’s analyst, Robert Wetenhall, stated that cutting guidance for the last three consecutive quarters has made Whirlpool lose credibility in the market. This lack of credibility will continue to weigh stock prices down till the company starts showing consistent performance again.
According to Robert Wetenhall, this quarter’s poor results are not acceptable also because Whirlpool’s revenue got a positive push from FX tailwinds as well as an unexpected but highly welcome tax benefit.
The company also increased the prices of its products to counterbalance the higher cost of raw materials. Analysts feel that this move may prove fruitful and stabilize the company’s performance again.
CEO Bitzer stated that he expects the current price increase to be a successful strategy as it has worked in the past in the US and Brazilian markets. However, it would take about 2 years to recover the cost of raw material inflation.
Whirlpool stocks have dropped by 14.5% for the quarter. The company’s shares are down by 10.6% YTD. The S&P 500 is up by 14.8% YTD.