A month has gone by since the las t earnings report for Whirlpool (WHR). Shares have lost about 5.3% 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 the most recen t earnings report in order to get a better handle on the important catalysts.
Whirlpool Q1 Earnings Surpass Estimates & Rise Y/Y
Whirlpool reported mixed first-quarter 2019 results, wherein earnings outpaced the Zacks Consensus Estimate but sales missed the same. Notably, this marked the company's third consecutive quarter of positive earnings surprise, with eighth straight sales miss.
Effective implementation of price increase, margin expansion and cost-containment efforts fueled bottom-line growth. Also, robust margin growth at the company's North America segment despite sluggish industry demand and higher costs aided the quarterly performance. Furthermore, management raised the GAAP earnings view for 2019.
Whirlpool delivered adjusted earnings of $3.11 per share, which outpaced the Zacks Consensus Estimate of $3.04. The bottom line also increased 10.7% from $2.81 per share earned in the year-ago quarter. On a GAAP basis, the company reported earnings of $7.31 per share, significantly up from $1.30 in the prior-year quarter. This upside was mainly driven by gains from certain tax-related items.
Net sales were $4,760 million, down 3.1% from the year-ago period number. The top line also lagged the Zacks Consensus Estimate of $4,884 million. This underperformance can be attributed to sales declines across all of the company's segments, except for the North America division. On a currency-neutral basis, the metric grew 1%.
Adjusted operating profit (EBIT) inched up about 1% to $298 million from $295 million in the year-ago quarter. Also, operating margin expanded 30 basis points (bps) to 6.3%, driven by favorable product price/mix and restructuring benefits. Growth was somewhat offset by cost inflation, lower unit volume and adverse currency. Regional Performance
Sales from North America
remained flat at $2.5 billion while the same grew 1.1% on a currency-neutral basis. Operating profit margin expanded 90 bps to 12.3%, primarily backed by favorable product price/mix that was partly negated by higher costs and decline in unit volume. In dollar terms, operating profit increased 8.3% to $312 million.
Sales from Latin America
declined 2.6% year over year to $875 million. However, excluding currency translations, the metric grew 6.7%. Operating margin of 5.1% contracted 120 bps mainly due to adverse currency, which was offset by higher unit volume and favorable product price/mix. In dollar terms, operating income decreased 21.1% to $45 million.
Sales from EMEA
declined 9.1% to $1 billion. Nonetheless, the metric inched up 1.6% on a currency-neutral basis. Whirlpool incurred operating loss of $21 million in the first quarter compared with operating loss of $27 million in the year-ago quarter. Decline in production levels and inventory liquidation charges in Turkey hurt the segment's performance. This was partly compensated by higher unit volume and gains from restructuring.
Sales from Asia
fell 17.2% to $371 million from the prior-year quarter figure. Excluding currency effects, the metric declined 11.5%. Further, the segmen t report
ed operating profit of $7 million, which plunged 63.2% from the year-ago period. Also, operating margin contracted 230 bps to 1.9% as gains from favorable product price/mix was more than offset by decline in unit volume and adverse productivity in China. Financial Position
Whirlpool had cash and cash equivalents of $1,163 million as of Mar 31, 2019, and long-term debt of $4,137 million. During the first three months of 2019, the company used $895 million in cash in operating activities and reported negative free cash flow of $969 million. Meanwhile, it incurred capital expenditure of $85 million in the first quarter.
Furthermore, Whirlpool bought back shares worth $50 million and paid dividends of $73 million in the first quarter. It also announced a 4.3% hike in the quarterly dividend to $1.20 per share. Management plans to buy back shares throughout the remainder of the year. 2019 Guidance
Whirlpool continues to envision adjusted earnings per share of $14-$15 compared with $15.16 earned in 2018. However, on a GAAP basis, it now anticipates earnings of $14.05-$15.05 per share, up from the prior projection of $12.75-$13.75. Markedly, the GAAP guidance includes restructuring costs of about $100 million and divestiture-related transition expenses of roughly $23 million as well as gains from Brazil indirect tax credit of $127 million.
For 2019, the company continues to expect operating cash flow of $1.4-$1.5 billion and free cash flow of $800-$900 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Whirlpool has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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