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Why Is Whirlpool (WHR) Down 3.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Whirlpool (WHR). Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Whirlpool due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Whirlpool Beats on Q2 Earnings & Sales, Ups EPS View

Whirlpool reported strong second-quarter 2019 results, wherein earnings and sales outpaced the Zacks Consensus Estimate. Notably, this marked the company’s fourth consecutive quarter of positive earnings surprise, with sales beat the consensus mark after eight straight misses. As a result, the company raised guidance for 2019.

Q2 Highlights

Whirlpool delivered adjusted earnings of $4.01 per share, which outpaced the Zacks Consensus Estimate of $3.80. The bottom line also grew 25.3% from $3.20 per share earned in the year-ago quarter. On a GAAP basis, the company reported earnings of $1.04 per share against loss of $9.50 incurred in the prior-year quarter.

Higher sales, margin expansion and cost-containment efforts fueled bottom-line growth. Also, robust margin growth at the company’s North America segment aided the quarterly performance.

Net sales were $5,186 million, up 0.9% from the year-ago period. Further, the top line surpassed the Zacks Consensus Estimate of $4,931 million. This upside was driven by sales growth across all the company’s segments, except for the EMEA division. On a currency-neutral basis, the metric grew 3.5%.

Adjusted operating profit (EBIT) grew 5.8% to $363 million from $343 million in the year-ago quarter. Also, the operating margin expanded 30 basis points (bps) to 7%, backed by gains from global cost-based pricing and constant fixed cost discipline. Additionally, favorable product price/mix and restructuring benefits drove growth in the EBIT margin. The metric was somewhat offset by cost inflation and adverse currency.

Regional Performance

Sales from North America moved up 3.6% to $2.9 billion while grew 3% on a currency-neutral basis. Operating profit margin expanded 50 bps to 12.4%, primarily backed by favorable product price/mix that was partly negated by higher costs and a decline in unit volume. In dollar terms, operating profit grew 6.6% to $353 million.

Sales from Latin America grew 4.2% year over year to $888 million. Excluding currency translations, the same grew 9.6%. Operating margin of 6.3% expanded 250 bps, mainly owing to favorable product price/mix, which was somewhat offset by adverse currency. In dollar terms, operating income surged 69.7% to $56 million.

Sales from EMEA declined 9.1% to $1 billion while the same slipped 0.2% on a currency-neutral basis. Whirlpool incurred adjusted operating loss of $16 million in the second quarter compared with operating loss of $25 million in the year-ago quarter. However, loss was somewhat compensated with volume recovery in major countries and gains from restructuring.

Sales from Asia inched up 0.5% to $430 million from the prior-year quarter figure. Excluding currency effects, sales grew 4.7%. Further, the segment reported an operating profit of $15 million, which plunged 65.1% from the year-ago period. Operating margin contracted 650 bps to 3.6% as gains from favorable product price/mix was more than offset by higher brand transition investments in China.

Financial Position

Whirlpool had cash and cash equivalents of $1,178 million as of Jun 30, 2019, and long-term debt of $4,155 million. During the first six months of 2019, the company used $821 million in cash in operating activities and reported negative free cash flow of $997 million. Meanwhile, it incurred capital expenditure of $197 million.

Moreover, the company plans to repay its outstanding term loan of $1 billion with the cash proceeds from the sale of its Embraco compressor business.

In the first six months of 2019, Whirlpool bought back shares worth $50 million and paid out dividends worth $149 million. Management plans to buy back shares through the remainder of the year.

2019 Guidance

Despite global macro uncertainties, Whirlpool raised guidance for 2019. Management now envisions adjusted earnings per share of $14.75-$15.50 compared with $14-$15 mentioned earlier. In 2018, it recorded earnings of $15.16 per share.

Moreover, on a GAAP basis, the company now anticipates earnings of $17.80-$18.55, up from $14.05-$15.05 stated earlier. Markedly, the GAAP guidance includes gains from the sale of the Embraco worth roughly $400 million, restructuring costs of about $200 million and gains from Brazil indirect tax credit of $180 million as well as a $79-million charge associated with the sale of its business in South Africa and exit of domestic sales operations in Turkey.

For 2019, the company expects to generate operating cash flow of about $1.4 billion and free cash flow of $800 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Whirlpool has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Whirlpool has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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