Market Overview

Whirlpool Shares Soar on 4Q11 Earnings, Cost Cuts


Whirlpool Corporation (NYSE: WHR) shares have soared this morning as the company posted rising profits despite a drop in sales for the fourth quarter of 2011. Investors focused their attention on the company's aggressive cost cutting initiatives in order to counteract falling demand and macroeconomic headwinds to arrive at an increase in net earnings on an unadjusted basis.

In its press release, Whirlpool noted fourth quarter net earnings of $205 million versus $171 million in the same quarter in 2010. On a diluted-share basis, that was $2.62 for 2011 as compared to $2.19 for the previous year. The company was able to move $4.9 billion worth of products in the fourth quarter, down from $5.0 billion it sold last year.

Whirlpool noted its results were adversely affected by a weaker demand for its products, higher raw material costs, a notably stronger dollar as well as higher restructuring expenses. The company has faced market share pressure from lower cost competition from South Korea and Mexico, which have undercut its pricing by as much as 72 percent. A stronger dollar also affected the monetization of a Brazilian tax credit, which was less favorable to the bottom line than previously planned.

Whirlpool has adjusted to these headwinds by aggressively cutting costs by reducing production capacity to adjust to the weaker demand. So far, the company has cut about one tenth of its workforce in North America and Europe and has shifted production to lower cost countries. It has also implemented the use of common parts across production lines to maximize economies of scales in manufacturing. On the top line, the company has sought to adjust to lower demand by implementing previously announced price increases. To this end, it has initiated petitions with the US Department of Commerce and the International Trade Commission to seek relief from unfair pricing pressures from aforementioned South Korean and Mexican competition.

Going forward, Whirlpool expects to report full-year 2012 earnings of $5 to $5.50 per share, or $6.50 to $7 a share on an adjusted bases, excluding restructuring charges and Brazilian tax credits. It is a goal Goldman Sachs (NYSE: GS) things is overly optimistic. A note to investors, which reiterates a Sell rating on Whirlpool, reads: “In our opinion the guidance looks aggressive as the company's industry demand forecasts are weaker than our expectations and requires a 2 point increase in margins that we think is unachievable.” JP Morgan (NYSE: JPM) was similarly reluctant to take such estimates on face value, as it remains Neutral-rated on Whirlpool. It currently estimates a $6-flat EPS for 2012, which is slighly higher than the Street consensus of $5.81, but still lower than Whirlpool's own outlook.

Regardless, Whirlpool has seen a so-far untempered growth in today's trading. Shares are up $63.11, a 16.11 percent boost on yesterday's.s $54.32/share closing.

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