We are downgrading our long-term recommendation on
) to Neutral. The company might face significant headwinds due to
its high customer concentration, rising input costs and price
increments of its products.
Following the rise in material costs (mainly the price of steel),
Whirlpool has increased the price of its products. This strategy
might be detrimental to the company's market share, provided some
of its major competitors from Korea, including LG Electronics and
Samsung, retain their existing prices.
In addition, the company has a high level of customer
concentration. Its large trade customers include
), Casas Bahia,
) and Ikea, that command significant leverage as buyers and can
demand favorable pricing from Whirlpool at the cost of its
Also, most of Whirlpool's products are not sold through
long-term contracts to these customers. Sales volumes undergo
frequent adjustments and might affect operations.
Whirlpool posted mixed results in the first quarter of 2012. The
company saw its adjusted earnings increase to $1.41 per share from
64 cents last year, surpassing the Zacks Consensus Estimate of
$1.12 in the process.
Also, revenues in the quarter dipped slightly to $4.35 billion from
$4.40 billion last year, as an improvement in product price/mix was
offset by unfavorable currency, lower industry demand and lower
monetization of tax credits. As a result, Whirlpool failed to meet
the Zacks Consensus Estimate of $4.37 billion.
However, we are not discounting Whirlpool completely, keeping in
mind its industry-leading position. Whirlpool is the largest
manufacturer of home-appliances in the world, ahead of companies
), LG, Samsung and
General Electric Co.
The company's operations are spread across the globe. It derived
51% of its revenues from North America, 27% from Latin America, 17%
from Europe, the Middle East and Africa, and 5% from Asia last
year. This geographic diversification has enabled Whirlpool to keep
its top line stable in difficult economic times as it eliminates
some of the risks arising from concentration in one region.
Moreover, Whirlpool is highly focused on product innovation. The
company's consistent investment in research and development
(R&D) is reflected by its R&D spending of $500 million in
2009, $532 million in 2010, and $578 million in 2011. Whirlpool's
R&D efforts are bearing positive results as its new products
are gaining acceptability among consumers and driving the company's
positive price-product mix.
Our recommendation on Whirlpool is backed by a Zacks #3 Rank,
reflecting a short-term (1 to 3 months) Hold rating.
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