Whirlpool sinks into the deep
Whirpool's earnings missed estimates. Are shares getting pulled under?
Whirlpool (WHR) reported quarterly earnings last week that were nothing short of shocking, missing Wall Street estimates and sending shares down more than 11% Friday. Shares fell another 1.4% Monday.
The maker of refrigerators and other home appliances reported a third-quarter profit of $2.35 per share on $4.63 billion in revenue -- broadly missing analyst expectations of $2.75 per share on $4.73 billion in revenue. The company also cut guidance for 2011 to between $4.75 and $5.25 per share in profit, down from its previous view of $7.25 to $8.25 per share.
"Our results were negatively impacted by recessionary demand levels in developed countries, a slowdown in emerging markets and high levels of inflation in material costs," said chief executive Jeff Fettig in a statement.
JP Morgan has a neutral rating on shares, and was mixed in its reaction on the report. "While we view this as a material disappointment, at the same time, we believe a likely negative stock reaction should be moderated by the company's aggressive restructuring program announced today, which represents roughly $3.85/share of annualized savings (assuming a 25% tax rate) to be achieved through 2013-end," analysts wrote in a note.
Whirlpool's results are likely the result of global economic uncertainty and a housing market that has still not recovered. In the past 52 weeks, Whirlpool has lost nearly half of its market cap, suggesting that consumers just are not buying new washers and dryers.
When people move, they purchase new home appliances. When people renovate their homes, as we are seeing now, they do not purchase as many new home appliances. A new washer and dryer are not what people think about when renovating their home. Whirlpool is just not seeing any follow through in the mini-renovation boom, and the share price has been halved as a result.
Whirlpool has relied on strong demand in the emerging markets in the past, and to see a weakened emerging market as well as domestic does not bode well for the short- and medium-term future of the company. The company is heavily exposed to Brazil, and to suggest that emerging market demand is weakening signals something is wrong with the company, not in that demand itself.
The dividend, a 3.5% yield currently, could be cut as the company attempts to save money during these hard times. Shares are trading at less than eight times 2012 earnings.
Whirlpool's stock has become just that, a whirlpool. Investors would be wise to stay away from getting caught in the undertow, and sinking below the surface where they can not be rescued.
Traders who believe that Whirlpool's cost restructuring will help in 2012 and beyond might want to consider the following trades:
- Whirlpool shares have lost a significant amount of value. If the housing market modestly rebounds, in addition to the cost savings, Whirlpool's earnings could be better than most expect in 2012.
- Traders could also look to Electrolux AB, which operates at the high end of the market. If Electrolux is signaling positive signs, that could be a good indication for Whirlpool.
Traders who believe that the housing market, and Whirlpool's emerging market weakness signal more downside may consider alternate positions:
- Emerging markets are generally thought to be healthy economies. If Whirlpool can not do well in Brazil, which is experiencing an infrastructure boom, then this could be a company specific issue. Traders may want to short it aggressively until signs change.
Neither Benzinga nor its staff offer investment advice, nor do they recommend that you buy, sell, or hold any security.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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