Whirlpool (WHR) Q1 Earnings Surpass Estimates & Rise Y/Y

Zacks Equity Research

Whirlpool Corporation WHR reported mixed first-quarter 2019 results, wherein earnings outpaced the Zacks Consensus Estimate but sales missed the same. Notably, this marked the company’s third consecutive quarter of positive earnings surprise, with eighth straight sales miss.

However, shares of the company jumped 8.1% in after-hours trading on Apr 22. This uptick can be attributed to better-than-expected earnings in the quarter under review. Effective implementation of price increase, margin expansion and cost-containment efforts fueled bottom-line growth. Also, robust margin growth at the company’s North America segment despite sluggish industry demand and higher costs aided the quarterly performance. Furthermore, management raised its GAAP earnings view for 2019.

Q1 Highlights

Whirlpool delivered adjusted earnings of $3.11 per share, which outpaced the Zacks Consensus Estimate of $3.04. The bottom line also increased 10.7% from $2.81 per share earned in the year-ago quarter. On a GAAP basis, the company reported earnings of $7.31 per share, significantly up from $1.30 in the prior-year quarter. This upside was mainly driven by gains from certain tax-related items.

Net sales came in at $4,760 million, down 3.1% from the year-ago period number. The top line also fell short of the Zacks Consensus Estimate of $4,884 million. This underperformance can be attributed to sales decline across all the company’s segments, except the North America division. On a currency-neutral basis, the metric grew 1%.

Whirlpool Corporation Price, Consensus and EPS Surprise

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

Adjusted operating profit (EBIT) inched up about 1% to $298 million from $295 million in the year-ago quarter. Also, operating margin expanded 30 basis points (bps) to 6.3%, driven by favorable product price/mix and restructuring benefits. Growth was somewhat compensated with cost inflation, lower unit volumes and adverse currency.

Regional Performance

Sales from North America remained flat at $2.5 billion, while the same grew 1.1% on a currency-neutral basis. Operating profit margin expanded 90 bps to 12.3%, primarily backed by favorable product price/mix that was partly negated by higher costs and decline in unit volumes. In dollar terms, operating profit increased 8.3% to $312 million.

Sales from Latin America declined 2.6% year over year to $875 million. However, excluding currency translations, the metric grew 6.7%. Operating margin of 5.1% contracted 120 bps, mainly due to adverse currency, which was offset by higher unit volumes and favorable product price/mix. In dollar terms, operating income decreased 21.1% to $45 million.

Sales from EMEA declined 9.1% to $1 billion. Nonetheless, the metric inched up 1.6% on a currency-neutral basis. Whirlpool incurred an operating loss of $21 million in the first quarter compared with an operating loss of $27 million in the year-ago quarter. Decline in production levels and inventory liquidation charges in Turkey hurt the segment’s performance. This was partly compensated with higher unit volumes and gains from restructuring.

Sales from Asia fell 17.2% to $371 million from the prior-year quarter figure. Excluding currency effects, the metric also declined 11.5%. Further, the segment reported operating profit of $7 million, which plunged 63.2% from the year-ago period. Also, operating margin contracted 230 bps to 1.9% as gains from favorable product price/mix was more than offset by decline in unit volumes and adverse productivity in China.

Financial Position

Whirlpool had cash and cash equivalents of $1,163 million as of Mar 31, 2019, and long-term debt of $4,137 million.

During the first three months of 2019, the company used $895 million cash in operating activities and reported negative free cash flow of $969 million. Meanwhile, it incurred capital expenditures of $85 million in the first quarter.

Furthermore, Whirlpool bought back shares worth $50 million and paid dividends of $73 million in the first quarter. It also announced a 4.3% hike in its quarterly dividend to $1.20 per share. Management plans to buy back shares throughout the remainder of the year.

2019 Guidance

Whirlpool continues to envision adjusted earnings per share in the range of $14-$15 compared with $15.16 earned in 2018.

However, on a GAAP basis, it now anticipates earnings of $14.05-$15.05 per share, up from the prior projection of $12.75-$13.75. Markedly, the GAAP guidance includes restructuring costs of about $100 million, divestiture related transition expenses of roughly $23 million as well as gains from Brazil indirect tax credit of $127 million.

For 2019, the company continues to expect operating cash flow of $1.4-$1.5 billion and free cash flow of $800-$900 million.

Price Performance

Shares of this Zacks Rank #3 (Hold) company have gained 13.4% in the past three months, faring better than the industry’s 11.6% rally.

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lululemon athletica inc. LULU has an impressive long-term earnings growth rate of 18% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren Corporation RL has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 10.3%.

Columbia Sportswear Company COLM delivered a positive earnings surprise in each of the trailing four quarters, the average being 83.5%. The company has a Zacks Rank of 2.

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