Whirlpool (WHR) Gains on Q3 Earnings Beat, Upbeat Outlook

Shares of Whirlpool Corporation WHR rose 4.7% during the after-market trading session on Oct 21. The stock gained following the company’s impressive third-quarter 2020 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. Markedly, the company witnessed significant year-over-year margin expansion in North America, Latin America, and Europe, Middle East and Africa (EMEA) regions. Clearly, demand for home appliances drove the quarterly results.

Better-than-expected performance prompted management to revise its sales projection and reinstate earnings per share guidance for the year. Undeniably, Whirlpool’s well chalked out plan has positioned it well to enhance margins and improve liquidity position to navigate through this turbulent environment. The company also remains committed to strengthening its balance sheet and is poised to pay down the short-term debt by the end of the year.

We note that the company’s COVID-19 response plan is on track to deliver more than $500 million in cost takeout in 2020 through actions such as curtailing structural and discretionary costs, capturing raw material deflation opportunity, effectively managing working capital and syncing supply chain and labor levels with demand. The company has generated cost savings of approximately $175 million in the quarter and $350 million year to date.

Impressively, this Zacks Rank #1 (Strong Buy) stock has surged 33.4% so far in the year compared with the industry’s rally of 29.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

An Insight into Q3

The appliances maker delivered adjusted earnings of $6.91 per share that increased significantly from the year-ago quarter’s figure of $3.97 on the back of exceptional execution of go-to-market and cost takeout endeavors. Notably, the bottom line also surpassed the Zacks Consensus Estimate of $4.10. This was the third straight quarter of positive earnings surprise in the current financial year.

Net sales of $5,291 million rose 3.9% from the year-ago period, and outpaced the Zacks Consensus Estimate of $4,689 million, thus marking the second successive beat. Organic net sales increased 7% to $5,448 million. The company delivered sales increase across Latin America and EMEA regions but witnessed decline across North America and Asia regions.

Adjusted operating profit (EBIT) came in at $635 million, up from $364 million in the year-ago quarter. We note that adjusted operating margin expanded 480 basis points to 12% with three of four regions registering meaningful margin expansion.

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation price-consensus-eps-surprise-chart | Whirlpool Corporation Quote

Regional Performance

Net sales from North America decreased 1.6% year over year to $2,961 million due to COVID-19 related supply constraints. Nonetheless, order backlog remains elevated. Excluding the currency impact, sales for the region declined 1.6%. Markedly, segment’s operating profit surged 46.7% to $567 million, while operating margin expanded 640 basis points to 19.2%. Aggressive cost containment efforts and go-to-market actions fueled margin expansion.

Net sales from EMEA increased 15.4% to $1,258 million. Excluding the currency impact, sales for the region rose 13.6%. Management highlighted that demand recovery drove solid volume growth of 6.5% year over year, with double digit growth in key countries. Notably, the segment’s operating profit of $43 million, improved significantly from operating loss of $4 million in the year-ago period, as higher demand and cost discipline offset currency headwinds.

Net sales from Latin America grew 13.7% to $719 million. Excluding the currency impact, sales for the region surged 40%. Revenues increased on account of industry growth and share gains in Brazil and Mexico. The segment operating profit of $77 million, surged from $29 million in the year-ago period owing to higher demand and disciplined go-to-market actions. Impressively, operating margin expanded 610 basis points to 10.7% courtesy of increased demand and positive price/mix that helped mitigate currency headwinds in Brazil and Mexico.

Net sales from Asia decreased 1.4% to $353 million from the prior-year quarter’s figure. Excluding the currency impact, sales for the region grew 0.7%. The company experienced demand recovery and share gains in India, despite pandemic-induced disruptions. Segment operating profit came in at $6 million, down from $9 million reported in the year-ago period. Segment operating margin contracted 60 basis points to 1.8%. Management stated that soft demand resulted in negative EBIT in China.

Financial Position

As of Sep 30, 2020, Whirlpool had cash and cash equivalents of $3,528 million, long-term debt of $4,965 million and stockholders’ equity of $3,371 million, excluding non-controlling interest of $907 million. Management highlighted that the company has roughly $2.5 billion available under committed credit facilities. The company plans to repay $1.7 billion of outstanding short-term debt by year end, including all COVID-related short-term borrowings.

During nine-month period ended on Sep 30, 2020, Whirlpool has generated free cash flow of $170 million. The company expects free cash flow of approximately $900 million for the full year. Management anticipates incurring capital expenditures of $475 million in the current financial year.

Outlook

Whirlpool now envisions net sales decline of approximately 5-7% for the full year compared with its prior forecast for a fall of 10-15%. The company now expects organic net sales to be flat to down 1% compared with earlier projection for a drop of 7-12%.

Additionally, management anticipates adjusted earnings for the full year in the band $17.50-$18.00 per share better than analysts’ expectations. The current Zacks Consensus Estimate for the full year is pegged at $13.24, which is likely to witness upward revisions in the coming days.

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