Whirlpool Corporation (WHR)
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May 04, 2020 Whirlpool Corporation (WHR) Long Term: 6-12 Months Zacks Recommendation: Neutral (Since: 04/01/19) $112.19 (As of 05/01/20) Prior Recommendation: Underperform Price Target (6-12 Months): $119.00 Short Term: 1-3 Months Zacks Rank: (1-5) 3-Hold Zacks Style Scores: VGM:A Value: A Growth: B Momentum: A Summary Price, Consensus & Surprise Shares of Whirlpool have declined in the past three months. The stock came under pressure in spite of the company continuing with its earnings beat streak for the seventh straight quarter with first-quarter 2020 results. We note that net sales missed the Zacks Consensus Estimate for the third quarter in row. Also, both the top and bottom lines fell year over year. Sales decreased across all regions, except North America that witnessed a marginal growth. Management notified that in spite of disruptions caused by the pandemic, the company registered decent margin performance in North America, Latin America and EMEA regions. Moreover, Whirlpool has chalked out plans to protect margins and enhance liquidity position to navigate through this turbulent environment. The company is targeting more than $500 million in net cost takeout. Data Overview Sales and EPS Growth Rates (Y/Y %) 52 Week High-Low $163.64 - $64.00 Sales EPS 20 Day Average Volume (sh) 946,814 Market Cap $7.0 B YTD Price Change -24.0% Beta 1.98 Dividend / Div Yld $4.80 / 4.3% Industry Household Appliances Zacks Industry Rank Bottom 24% (192 out of 253) Sales Estimates (millions of $) Last EPS Surprise 8.1% Q1 Q2 Q3 Q4 Annual* Last Sales Surprise -1.2% 2021 3,934 E 4,109 E 4,603 E 4,929 E 19,335 E EPS F1 Est- 4 week change -2.6% 2020 4,325 A 4,243 E 4,861 E 5,368 E 17,356 E Expected Report Date NA 2019 4,760 A 5,186 A 5,091 A 5,382 A 20,419 A Earnings ESP -59.6% EPS Estimates Q1 Q2 Q3 Q4 Annual* P/E TTM 7.1 2021 $3.44 E $2.96 E $4.25 E $4.36 E $16.00 E P/E F1 8.8 2020 $2.82 A $2.60 E $3.72 E $4.48 E $12.77 E PEG F1 1.7 2019 $3.11 A $4.01 A $3.97 A $4.91 A $16.00 A P/S TTM 0.4 *Quarterly figures may not add up to annual. The data in the charts and tables, except sales and EPS estimates, is as of 05/01/2020. The reports text and the analyst-provided sales and EPS estimates are as of 05/04/2020. © 2020 Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 1600 · Chicago, IL 60606 Overview Benton Harbor, MI-based Whirlpool Corporation was founded in 1955 and is one of the largest manufacturers of home appliances in the world. The company manufactures products in 14 countries and markets products in nearly every country around the world. Notably, the company’s portfolio of products can be broadly classified into laundry appliances, refrigerators and freezers, cooking appliances, and other small household appliances such as dishwashers and mixers. It also produces hermetic compressors for refrigeration systems. It markets brands including Whirlpool, KitchenAid, Maytag, Consul, Brastemp, Amana, Bauknecht, JennAir, Indesit and other major brand names. The company has the best brand portfolio in the industry, led by Whirlpool and KitchenAid. Of its brand portfolio, six brands generate more than $1 billion in revenue. Whirlpool, with its manufacturing and technology research centers spread globally, conducts its business through four reportable geographic segments. These are – North America; Latin America; Europe, Middle East and Africa (EMEA); and Asia. These regions contributed 56%, 16%, 21% and 7%, respectively, to total revenues in 2019. Zacks Equity Research: WHR www.zacks.com Page 2 of 8 Reasons To Buy: Cost-Productivity Efforts Aid Operating Margins: Whirlpool continues to gain from the Whirlpool has chalked out successful execution of various measures undertaken to boost margins. These efforts plans to protect margins included cost-based price increments and cost-reduction initiatives focused on improving and enhance liquidity business efficiency. We note that in spite of the disruptions caused by the pandemic the position to navigate company managed to score decent operating margin. Adjusted operating margin contracted through this difficult time. marginally by 20 basis points to 6.1% during the first quarter of 2020. This can be attributed to The company is targeting the company’s stringent cost discipline actions that helped nearly offset COVID-19 related more than $500 million in disruptions of about 150 basis points. The company has undertaken stringent measures to net cost takeout. contain fixed costs, which involves restructuring actions, plant optimizations and the exit of certain non-profitable product segments. Management notified that the company witnessed decent margin performance in North America, Latin America and Europe, Middle East and Africa regions. Positive Earnings Surprise Streak: Whirlpool continued with its positive earnings surprise streak for the seventh straight quarter with first- quarter 2020 results. The company delivered adjusted earnings of $2.82 per share that surpassed the Zacks Consensus Estimate of $2.61. The better-than-expected bottom line number unveils the company’s resilience toward the crisis and indicates that it remains watchful on the current economic scenario and its impact on business. Definitely, the cost containment efforts undertaken to navigate through this turbulent environment has been providing cushion to the bottom line. Action Plan to Mitigate COVID-19 Impact: Whirlpool has chalked out plans to protect margins and enhance liquidity position to navigate through this difficult time. The company is targeting more than $500 million in net cost takeout by undertaking 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 remains well positioned to capture increasing demand of customers for the home and kitchen products. The company is focused on enhancing e-commerce and improving direct-to-consumer capabilities. Financial Flexibility: Whirlpool looks financially stable amid the coronavirus pandemic with no current maturities of long-term debt and enough cash and cash equivalents to meet any obligations. As of Mar 31, 2020, the company had cash and cash equivalents of $2,837 million, which reflects an increase of about 45.3% on a sequential basis. Additionally, the company has roughly $2 billion available in remaining committed credit facilities. This includes recently executed $500 million short-term credit facility. Although, the company’s long- term debt increased 12.7% sequentially to $4,662 million as of Mar 31, its debt to capitalization ratio stands at 0.50, which is below the company’s maximum limit of 0.65. While the company’s interest coverage ratio requires a minimum of three times, it is currently above 10 times. Also, the company has no bond maturities for the remainder of 2020. Its next bond maturity of $300 million is due in the second quarter of 2021. Strength in North America Business: We note that sales declined across all regions, except North America that witnessed a marginal growth. Net sales from North America inched up 0.2% year over year to $2,540 million. On a currency-neutral basis, sales for the region rose 0.3%. This follows a decline of 0.3% in the preceding quarter. Notably, the company’s aggressive cost actions partly offset negative price/mix and help mitigate operating margin contraction. Zacks Equity Research: WHR www.zacks.com Page 3 of 8 Reasons To Sell: Dismal Stock Performance: Shares of Whirlpool have declined 27% in the past three Net sales fell short of the months, almost in line with the industry. The stock came under pressure in spite of the Zacks Consensus company continuing with its positive earnings surprise streak for the seventh straight quarter Estimate for the third with first-quarter 2020 results. Net sales fell short of the Zacks Consensus Estimate for the quarter in row. Also, both third quarter in row. Also, both the top and bottom lines declined year over year. Margins also the top and bottom lines contracted during the quarter. Quite apparent, the crippling effect of the coronavirus outbreak declined year over year. has led to supply-chain disruptions, slowdown in production activities and reduced demand for Sales declined across all several commodities. The ongoing pandemic has led the company to witness challenging regions, except North conditions and significant disruptions in its operations as the government ordered shutdown of America. various facilities. Alongside disruptions in production, sluggish demand impacted the results. Disappointing Sales View: First-quarter net sales of $4,325 million declined 9.1% from the year-ago period. We note that sales declined across all regions, except North America that witnessed a marginal growth. While net sales slid 12.4% (or 10.2% on a currency-neutral basis) in EMEA, the metric fell 29.4% (or 20.7% on a currency-neutral basis) in Latin America. Net sales from Asia decreased 22.3% to $288 million from the prior-year quarter’s figure thanks to COVID-19 that hurt demand in China and disrupted business activities in India. On a currency- neutral basis, sales for the region fell 20.2%. The coronavirus outbreak has hurt the company’s sales performance. While the impact of the same on the business is difficult to ascertain, management envisions net sales decline of approximately 13-18% for the full year. The company projects organic net sales to decrease in the band of 10-15%.