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Whirlpool (WHR) Divests Embraco to Boost Customer Value

Whirlpool Corporation WHR has successfully sealed the sale of its Embraco business unit to Kyoto — a unit of Japan-based Nidec Corporation — for $1.08 billion in cash. Notably, Embraco has been manufacturing hermetic compressors for refrigeration. The sale includes Embraco’s seven plants located in Brazil, China, Slovakia and Mexico as well as its commercial offices in the United States, Italy and Russia.

Headquartered in Brazil, this unit has been a part of Whirlpool since 1994. It employs around 10,000 people in the aforementioned plants and corporate offices.

The sale of Embraco is consistent with Whirlpool’s strategy to strengthen its customer-facing businesses. With this sale, the company is looking to deliver on its goal of providing advanced, high-quality products to its customers that solve their day-to-day problems.

However, the company revealed that Embraco will continue to be a major supplier of hermetic compressors to Whirlpool.

Shares of Whirlpool did not react much to the news. Year to date, the stock has gained 36.2%, outperforming the industry’s growth of 31.2%. Investors’ optimism on the stock is attributed to its consistently strong earnings performances. Furthermore, investors are impressed with the company’s  robust product pipeline, solid innovations and cost productivity initiatives, which keeps it on track to achieve long-term goals.

Despite the positive stock performance, Whirlpool’s top-line trend remains disheartening due to soft industry demand in some countries, including the United States, Canada, Mexico, China and several European countries. Additionally, the company reiterated the 2019 industry demand guidance for most regions, except for North America, where demand was softer-than-expected in the first quarter.

Consequently, for 2019, the company expects industry demand in North America to be between negative 2% and flat. As a result of the negative industry demand witnessed in Mexico and China during the first quarter, Whirlpool now anticipates industry demand in Latin America and Asia to be at the lower end of the prior guidance. Overall, we expect soft industry demand to weigh on the bottom line.

Moreover, Whirlpool is likely to witness pressures from higher cost inflation, unfavorable productivity related to lower unit volume and adverse currency, which should partly offset gains from improved price/mix. Though the company estimates reduced impacts of cost inflation this year, it still expects cost inflation and unfavorable currency to offset benefits from improved price/mix by nearly 250 bps in 2019. In fact, this is likely to persistently dent operating margin in 2019. These shortcomings clearly substantiates Whirlpool’s Zacks Rank #4 (Sell).

3 Better-Ranked Consumer Discretionary Stocks

Crocs, Inc. CROX has an expected long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Guess Inc. GES, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 17.5%.

lululemon athletica inc. LULU, carrying a Zacks Rank #2 (Buy), has an impressive long-term earnings growth rate of 18.4%.

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Whirlpool Corporation (WHR): Free Stock Analysis Report
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