Whirlpool to Cut 5,000 Jobs

Bloomberg is reporting on Friday that appliance maker Whirlpool WHR is to cut more than 5,000 jobs after lowering its earnings targets. Whirlpool will also reduce capacity by six million units. The drastic measures come in the wake of vastly reduced consumer spending. The company said in a statement that the plan will result in a charge of $500 million, of which $160 million will be booked in 2011. “During the quarter, we experienced weaker than expected global industry demand and elevated material costs,” CEO Jeff M. Fettig said in the statement. “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.” According to the article, “Whirlpool follows European rival Electrolux AB with a more muted outlook for the year. The Swedish company said today that it will deepen cost cuts after lowering a forecast for growth in Europe and North America this year. Whirlpool said reductions in Europe and North America account for about 10 percent of all employees in those regions. The company has a global workforce of 71,000 at 66 manufacturing and research sites.” In addition, WHR will be closing its refrigeration manufacturing site in Fort Smith, Arkansas by the middle of next year. These measures will result in $400 million in annual cost savings by the middle of 2013, though those figures will not be of any comfort to the 5,000 families who are about to lose their source of income. ACTION ITEMS:

Bullish:
Traders who believe that Whirpool's cost restructuring will help in 2012 and beyond might want to consider the following trades:

• Whirpool shares have lost a significant amount of value. If the housing market modestly rebounds, in addition to the cost savings, Whirpool'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 Whirpool.

Bearish:
Traders who believe that the housing market, and Whirpool's emerging market weakness signal more downside may consider alternate positions:

• Emerging markets are generally thought to be healthy economies. If Whirpool 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.
  
  

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