Whirlpool Corporation shares were falling like a rock shortly after the market closed today after the company reported third quarter earnings and revenue that both missed Wall Street estimates. The stock, which actually closed the day up by 4-cents a share, started taking a beating shortly after the street began to break apart the numbers reported 30-minutes after the closing bell.
The company also cut guidance numbers for the balance of the year, blaming rising costs and what new CEO Marc Bitzer called “slow progress on our European integration.”
The Benton Harbor-based appliance giant announced today third-quarter GAAP net earnings of $276 million, or $3.72 per diluted share, compared to $238 million, or $3.10 per diluted share, reported for the same prior-year period. GAAP net earnings were positively impacted by lower income tax expense of approximately $65 million, compared to the same prior-year period, driven by the timing of tax planning activities in the current-year period. Third-quarter ongoing earnings per diluted share totaled $3.83 compared to $3.66 in the same prior-year period.
Both earnings per share and revenue came in below analyst expectations. The $3.83 per share earnings go up against expectations of $3.94 per share, while Wall Street had expected $5.51-billion in sales when Whirlpool delivered $5.42 billion.
After hours reporting of the shortfall by national media largely fell in the “disappointing results” column, leading to a sharp drop in after hours of trading with pricing off as much as 8-percent in the first hour after the earnings release. It rebounded a bit, settling in a range of 6 to 6.5-percent down from the day’s close two hours later.
Bitzer says, “We are pleased with our revenue growth and free cash flow improvement but are not satisfied with our operating margins, which were impacted by raw material inflation, unfavorable price/mix and slow progress on our European integration.” He added, “Thus, we are implementing strong actions to deliver our long-term goals, including recently-announced global cost-based price increases and a fixed cost reduction initiative.”
Third-quarter net sales were $5.4 billion, compared to $5.2 billion in the same prior-year period, an increase of more than 3-percent. Excluding the impact of currency, sales increased 2-percent.
Third-quarter GAAP operating profit totaled $331 million, or 6.1-percent of sales, compared to $374 million, or 7.1-percent of sales, in the same prior-year period. Third-quarter ongoing operating profit totaled $376 million, or 6.9-percent of sales, compared to $417 million, or 7.9-percent of sales, in the same prior-year period. On a GAAP and ongoing basis, cost productivity and unit volume growth were more than offset by the unfavorable impacts of raw material inflation and product price/mix.
For the nine months ended September 30, 2017, Whirlpool Corporation reported cash used in operating activities of $(33) million compared to $(175) million in the same prior-year period. The Company reported free cash flow of $(348) million for the first nine months of 2017 compared to $(466) million in the same prior-year period, driven by the Company’s focus on working capital optimization.
THIRD-QUARTER REGIONAL REVIEW
Whirlpool North America
Whirlpool North America reported third-quarter net sales of $3.0 billion, compared to $2.9 billion in the same prior-year period. Excluding the impact of currency, sales increased 4-percent.
The region reported third-quarter operating profit of $350 million, or 11.7-percent of sales, compared to $346 million, or 12.1-percent of sales, in the same prior-year period. The operating profit increase was driven by strong unit volume growth and cost productivity, which offset raw material inflation and foreign currency impacts; the operating margin decrease was primarily driven by raw material inflation.
The Company continues to expect full-year 2017 industry unit shipments in the U.S. to increase by 4-to-6-percent.
Whirlpool Europe, Middle East and Africa
Whirlpool Europe, Middle East and Africa reported third-quarter net sales of $1.3 billion, compared to $1.3 billion in the same prior-year period. Excluding the impact of currency, sales decreased there by 8-percent.
The region reported third-quarter GAAP operating profit of $11 million, or 0.8-percent of sales, compared to GAAP operating profit of $40 million, or 3.0-percent of sales, in the same prior-year period. Ongoing segment operating profit totaled $11 million, or 0.8-percent of sales, compared to $48 million, or 3.7-percent of sales, in the same prior-year period. During the quarter, unfavorable product price/mix, raw material inflation and unit volume declines more than offset favorable cost productivity and restructuring benefits.
The Company continues to expect full-year 2017 industry unit shipments to be flat to up 2-percent.
Whirlpool Latin America
Whirlpool Latin America reported third-quarter net sales of $849 million, compared to $800 million in the same prior-year period. Excluding the impact of currency, sales increased 5-percent.
The region reported third-quarter operating profit of $53 million, or 6.3-percent of sales, compared to $46 million, or 5.8-percent of sales, in the same prior-year period, driven by cost productivity and unit volume growth, which more than offset raw material inflation and unfavorable product price/mix.
The Company continues to expect full-year 2017 industry unit shipments in Brazil to be flat.
Whirlpool Asia
Whirlpool Asia reported third-quarter net sales of $357 million, compared to $338 million in the same prior-year period. Excluding the impact of currency, sales increased 4-percent.
The region reported third-quarter GAAP operating profit of $2 million, or 0.6-percent of sales, compared to GAAP operating profit of $15 million, or 4.4-percent of sales, in the same prior-year period. Ongoing segment operating profit totaled $2 million, or 0.6-percent of sales, compared to $17 million, or 4.9-percent of sales, in the same prior-year period. On a GAAP and ongoing basis, favorable impacts from cost productivity were more than offset by raw material inflation and unfavorable product price/mix in China.
The Company continues to expect full-year 2017 industry unit shipments to be flat to up 2-percent.
In 2017, the Company experienced significantly elevated raw material prices which are now expected to further increase through 2018.
As a result, in October the Company announced to its trade customers global cost-based price increases expected to cover a majority of its business, to be implemented during the fourth quarter of 2017 and the first quarter of 2018.
Additionally, the Company announced an initiative to reduce fixed overhead costs by $150 million, which will be implemented in early 2018. This initiative is in addition to the Company’s ongoing cost productivity efforts.
The impact of these actions on 2018 guidance will be discussed during the year-end earnings call.
OUTLOOK
For the full-year 2017, the Company now expects to generate cash from operating activities of $1.55 to $1.6 billion and free cash flow of approximately $900 million. Included in this guidance are primarily acquisition-related restructuring cash outlays of up to $175 million, legacy product warranty and liability costs of $70 million, pension contributions of $45 million and, with respect to free cash flow, capital spending of $650 to $700 million.
For the full-year 2017, Whirlpool Corporation now expects GAAP earnings per diluted share of $11.10 to $11.40 and ongoing earnings per diluted share of $13.60 to $13.90.
Jim Peters is Executive Vice President & CFO at Whirlpool. He says, “We reaffirm our 2020 goals and are confident that our existing and newly-announced actions will put us firmly back on track to deliver our commitments.” Peters adds, “As we continue to execute our plans for value creation, we will continue returning strong levels of cash to our shareholders.”
