Whirlpool Q1 Earnings Miss but Up Y/Y - Analyst Blog

Whirlpool Corporation's WHR adjusted earnings per share came in at $2.20 in the first quarter of 2014, way below the Zacks Consensus Estimate of $2.30.  However, the reported figure was up 11.7% from the prior-year quarter.

The year-over-year improvement was primarily driven by the company's sustained focus on cost and capacity reduction and revenue growth. However, reported earnings fell 35.3% year over year to $2.02 per share.

Revenues in the quarter increased 2.7% year over year to $4,363.0 million. The top-line growth was primarily attributable to increased demand for the company's innovative products. Region-wise, North America and Europe, the Middle East and Africa (EMEA) contributed significantly to total revenue.

Moreover, Whirlpool registered year-over-year sales growth of nearly 6%, after excluding the impact of foreign currency translation and lower monetization of Brazilian (BEFIEX) tax credits. The company's revenues surpassed the Zacks Consensus Estimate of $4,222.0 million.

Gross profit improved 4.0% year over year to $755.0 million. Gross margin increased 20 basis points (bps) to 17.3%. Adjusted operating profit rose 7.9% to $302.0 million. Consequently, adjusted operating margin expanded 30 bps to 6.9% versus 6.6% in the first quarter of 2013.

Q1 Regional Performance

Revenues from North America grew 4.5% year over year at $2.3 billion. Operating profit increased 4.6% to $228.0 million in the quarter.

The year-over-year growth in operating profit was due to higher sales and better cost productivity, which was partly offset by increased material costs and investments in marketing, technology and products. Going ahead, the company expects its U.S. industry shipments to increase by 5%–7% in fiscal 2014.

Revenues from Latin America were $1.2 billion, remaining flat year over year. Moreover, excluding the effects of currency translation and Brazilian tax credits, revenues were up over 11%. Adjusted operating income was down 4.4% to $109.0 million, as increased material costs and unfavorable foreign currency exchange rate more than offset higher sales, better product price and mix as well as cost productivity initiatives. The company expects flat appliance industry shipments in Latin America in fiscal 2014.

Revenues from EMEA grew 7.8% to $720.0 million in the quarter. First-quarter adjusted operating income for the region was $7.0 million, as against operating loss of $8.0 million in the year-ago quarter, benefiting from higher sales as well as cost and capacity reduction measures. Whirlpool expects industry unit shipments in fiscal 2014 to range between flat to a 2% increase.

Revenues from Asia fell 11.2% to $166.0 million in the first-quarter of 2014. Excluding the negative impact of currency translation, revenues fell nearly 4%. Operating income rose 66.7% year over year to $5.0 million as the benefit from improved product price and mix, along with ongoing cost productivity initiatives, more than offset the higher material costs, unfavorable foreign currency translation and lower unit volumes. The company expects industry shipments in the region to range from flat to a 3% increase in fiscal 2014.

Financial Position

Whirlpool had cash and cash equivalents of $1,672.0 million as of Mar 31, 2014, compared with $1,380.0 million as of Dec 31, 2013. Long-term debt was $2,662.0 million as of Mar 31, 2014 against $1,846.0 million as of Dec 31, 2013.

This largest home-appliances manufacturer in the world, which comes ahead of ElectroluxAB, LG, Samsung, General Electric Co. GE and Haier Electronics Group Company Ltd., reported cash used in investing activities of $339.0 million in the first quarter of 2014. Meanwhile, the company spent $123.0 million toward capital expenditure during the year. Currently, Whirlpool has a negative free cash flow of $456.0 million.

Outlook

Whirlpool has reiterated its guidance for 2014. For full-year 2014, the company expects earnings per share (on a GAAP basis) in the range of $11.05–$11.55. However, considering the impact of restructuring charges, Brazilian tax credits and investment expenses, adjusted earnings per share are anticipated to be $12.00–$12.50.

Moreover, for 2014, the company expects to generate $700 million of free cash flow.

Other Stocks That Warrant a Look

Currently, Whirlpool carries a Zacks Rank #3 (Hold). However, some better-ranked retail stocks include Aaron's, Inc. AAN and Rite Aid Corp. RAD. Rite Aid sports a Zacks Rank#1 (Strong Buy) while Aarons has a Zacks Rank #2 (Buy).