Why Is Whirlpool (WHR) Down 11.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Whirlpool (WHR). Shares have lost about 11.3% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Whirlpool Q4 Earnings Beat, Sales Lag Estimates
Whirlpool posted fourth-quarter 2022 results, wherein earnings beat the Zacks Consensus Estimate, while sales lagged the same. Both metrics declined year over year. Results were hurt by the ongoing challenging environment and sluggish demand from rising inflation. The headwinds are likely to recover in the second half of fiscal 2023. Consequently, management issued the 2023 view.
Notably, management concluded the strategic review of EMEA. As part of this, the company’s Europe major domestic appliance business will form a new entity with Arçelik. The deal is expected to close in the second half of 2023. The company announced the successful buyout of InSinkErator, which has had no material impact on Q4 results.
Insight Into Q4
The appliance maker delivered adjusted earnings of $3.89 per share, declining 37% from $6.14 in the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate of $3.23 and our estimate of $3.23.
Net sales of $4,923 million dropped 15.3% from the year-ago quarter. The top line lagged the Zacks Consensus Estimate of $5,047 million and our estimate of $5,254.2 million. Excluding the unfavorable impacts of foreign exchange, net sales amounted to $5,059 million, down 13% year over year. The downside is mainly due to a one-off supply disruption in North America and drab demand, which somewhat offset favorable price/mix.
The gross profit for fourth-quarter 2022 was $645 million, down 39.3% from $1,063 million reported in the year-ago quarter.
Ongoing EBIT of $171 million declined 66% from $502 million in the year-ago quarter. The ongoing EBIT margin of 3.5% contracted 510 bps year over year.
Net sales for the North America segment decreased 13.6% year over year to $2,874 million. Excluding the currency impact, sales in the region dropped 13%. The segment’s EBIT plunged 67.1% year over year to $166 million, while the EBIT margin contracted 950 bps to 5.8% due to elevated cost inflation and one-off supply-chain disruption.
Net sales for the EMEA segment were down 27.2% year over year to $1,028 million. Excluding currency impacts, sales in the region dipped 18.1%. The metric was hurt by drab demand in key countries. The segment’s EBIT was at a loss of $4 million compared with the year-ago quarter’s earnings of $20 million due to lower volume, cost inflation and unfavorable currency, which offset cost-based pricing actions.
Net sales from Latin America remained flat year over year to $831 million, owing to a sequential demand rise in Mexico and Brazil, which offset cost-based pricing efforts. Excluding the currency impacts, sales in the region fell 3.1%. The segment’s EBIT of $49 million declined 12.5% from the year-ago period’s $56 million. The EBIT margin contracted 80 bps to 5.9%, mainly affected by inflation, somewhat offset by cost-saving efforts.
Net sales in Asia fell 22.1% year over year to $219 million mainly due to muted consumer demand, which was partly offset by cost-based pricing. Excluding the currency impacts, sales for the region were down 15.9%. The segment’s EBIT of $6 million reflected a 65% plunge from the $17 million reported in the year-ago quarter. The segment’s EBIT margin of 2.7% contracted 320 bps from the prior-year quarter, driven by cost inflation and a top-line decline.
Other Financial Details
As of Dec 31, 2022, the company had cash and cash equivalents of $1,958 million, long-term debt of $7,363 million and a stockholders’ equity of $2,336 million, excluding non-controlling interests of $170 million.
As of Dec 31, 2022, Whirlpool provided cash of $1,390 million from operating activities. It reported a free cash flow of $820 million. WHR incurred a capital expenditure of $570 million in the same period. Notably, capital expenditure is likely to be $600 million for 2022.
The company returned $1.3 billion in cash to shareholders with $900 million in share repurchases.
For 2023, Whirlpool envisions a net sales decline of 1-2% to $19.4 billion. On a GAAP and ongoing basis, Whirlpool expects earnings per share of $16-$18. Management anticipates a tax rate of 14-16% on a GAAP basis and adjusted basis. For 2023, Whirlpool expects cash used in operating activities of $1.4 billion and a free cash flow of $800 million.
That said, management is on track with its cost takeout actions and expects $800 to $900 million related to gains from the aforementioned measures and eased raw material inflation.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -37.52% due to these changes.
Currently, Whirlpool has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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