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Will Raw Material Costs Mar Whirlpool's (WHR) Q3 Earnings?


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Whirlpool Corp. WHR is slated to release third-quarter 2018 results on Oct 24, after the closing bell. In the last reported quarter, the company reported a negative earnings surprise of 11.9%.

Further, Whirlpool missed estimates in three of the last four quarters, with an average negative earnings surprise of 3.8%. Notably, the company  delivered a negative earnings surprise in seven of the last eight quarters. Moreover, it delivered a negative sales surprise in the trailing five quarters.

Whirlpool Corporation Price and EPS Surprise

Whirlpool Corporation Price and EPS Surprise | Whirlpool Corporation Quote

Primary concerns for the company in recent quarters are raw material cost inflation and unfavorable price/mix. Let's see how things are shaping up for this announcement.

What to Expect?

The question lingering in investors' minds now is whether Whirlpool will be able to post a positive earnings surprise in the to-be-reported quarter. The Zacks Consensus Estimate for the quarter under review is $3.88, reflecting year-over-year growth of 1.3%. However, we note that the Zacks Consensus Estimate declined in the last 30 days. Analysts polled by Zacks expect revenues of $5.48 billion, up nearly 1.2% from the year-ago quarter.

Moreover, we note that the stock has decreased 12% in the past month, wider than the sector 's decline of 5.6%. This reflects a negative sentiment on the stock ahead of earnings.



Factors at Play

Whirlpool looks troubled due to dismal top and bottom-line trends. Its top and bottom lines declined year over year due to higher raw material costs, lower sales volumes and currency headwinds. Additionally, higher raw material costs and a struggling EMEA segment due to charges booked in the European operations and an antitrust settlement in France weighed on results in the last reported quarter. This apart, the company felt the pressure of a trucker strike in Brazil, which hurt both sales and EBIT of the Latin America segment.

Furthermore, increased steel tariffs due to the global trade war are hurting Whirlpool, as steel is its main raw material. In second-quarter 2018, it witnessed significantly higher raw material costs in three of its four regional markets, including North America, Asia and EMEA. Though operating margin expanded year over year, it was somewhat marred by raw material inflation, unit-volume declines and unfavorable currency. While management expects to gain from a favorable product price/mix through the rest of the year, this will be partly offset by lower global revenue growth and increased raw material inflation.

While management expects favorable product price/mix to aid earnings in 2018; this will be partly offset by lower global revenue growth and increased raw material inflation. In fact, management raised its raw material inflation outlook by nearly $50 million for 2018, mainly owing to U.S. tariffs on steel and aluminum. Raw material cost inflation is expected to be $250-$300 million.

Consequently, management trimmed its GAAP earnings per share forecast but retained adjusted earnings view for 2018. Let's wait and see if the company's efforts can turnaround the top line and margin-related constraints.

However, Whirlpool's commitment toward long-term goals - supported by robust product pipeline, solid innovations and cost-productivity initiatives - bodes well. Moreover, the company outlined significant long-term targets through 2020, driven by brand strength and product portfolio.

Through 2020, Whirlpool aims to deliver organic revenue growth of 3-5% annually. Moreover, it targets EBIT margin to exceed 10% by 2020 and envisions earnings per share to grow 10-15% each year. By 2018, the company anticipates free cash flow generation of 5-6% of revenues.

What the Zacks Model Unveils

Our proven model does not conclusively show that Whirlpool is likely to beat on estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Whirlpool's Zacks Rank #4 (Sell) and Earnings ESP of -5.13%, makes surprise prediction for the upcoming release impossible.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Columbia Sportswear Company COLM has an Earnings ESP of +0.97% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Amazon.com, Inc. AMZN has an Earnings ESP of +6.56% and a Zacks Rank #2.

Tractor Supply Company TSCO has an Earnings ESP of +0.78% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: AMZN , WHR , TSCO , COLM



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