Whirlpool in Crossroads: Can Strategies Keep Hurdles at Bay?

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Whirlpool CorporationWHR is among the few stocks that are displaying mixed sentiments. While the company's long-term goals and strategies hold promise, recent quarterly performances and near-term view keep us on the sidelines.

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation Price, Consensus and EPS Surprise | Whirlpool Corporation Quote

Evidently, the company's shares have declined as much as 22.3% in the past year due to its negative earnings surprise trend in six of the last seven quarters, with sales miss in four straight quarters. However, the share performance fared better than the industry 's decline of 32.9%. The company's stock has been getting momentum from its stringent focus on long-term goals for 2020, innovation strategy as well as global cost-based pricing and fixed cost-reduction strategies. Meanwhile, the industry continues to face a downturn, due to the volatility in commodity prices.

Let's analyze the pros and cons of this Zacks Rank #3 (Hold) stock.

Strategies to Aid Growth

Whirlpool's robust product pipeline, solid innovations and cost productivity initiatives keep it on track to deliver on long-term goals. The company has outlined significant long-term targets through 2020, backed by brand strength and product portfolio. It aims to deliver organic revenue growth of 3-5% every year. Additionally, the company targets EBIT margin to exceed 10% by 2020 and envisions earnings per share to grow by 10-15% each year. Furthermore, Whirlpool anticipates free cash-flow generation of 5-6% of revenues by 2018.

Additionally, Whirlpool is striving to improve margins through a series of measures, including cost-based price increments and cost-reduction initiatives focused on improving business efficiency. Recently, the company introduced global cost-based pricing for its trade customers, to mitigate raw material inflation. Moreover, it is on track with the initiatives to cut down fixed overhead expenses by $150 million, which will add to its ongoing cost productivity program.

The company's efforts to boost consumer demand led to 100 basis points (bps) improvement in global price/mix for first-quarter 2018. This marked the company's second straight quarter of positive global price/mix since fourth-quarter 2015. Positive global price/mix, along with significant progress on cost-saving initiatives, is likely to result in margin expansion in 2018. These margin recovery actions, along with renewed focus on inventory management, are also likely to boost earnings and free cash flow in the coming years.

Dismal Surprise Trend & Soft Margins Remain Deterrents

As stated, Whirlpool has been delivering dismal top- and bottom-line performances for the past few quarters. Though Whirlpool's top and bottom lines improved year over year, both earnings and sales lagged estimates in first-quarter 2018. This could be mainly attributed to the fall in unit volumes, unfavorable currency and raw material inflation. Also, the company witnessed soft demand for washers and refrigerators along with weak global demand for compressor.

Further, Whirlpool's operating results continued to be hurt by significant raw material cost inflation. Though operating margin remained flat year over year, it was somewhat marred by raw material inflation, unit-volume declines and unfavorable currency. 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.

Moreover, the company's earnings estimates continue to roll down as the company reduced its earnings view for 2018. In the last seven days, the company's Zacks Consensus Estimate of $15.30 and $17.52 for 2018 and 2019 moved south by 12 cents and 5 cents, respectively. Management now envisions GAAP earnings per share of $12.30-$13.30 compared with $12.45-$13.45 expected earlier.

Bottom Line

Nonetheless, Whirlpool's ongoing strategic initiatives and cost-saving programs provide visibility for growth in the future. This is further supported by the company's long-term earnings growth rate of 9.5% and a Value Score of B.

Looking for Attractive Consumer Discretionary Stocks? Check These

Some better-ranked stocks in the Consumer Discretionary sector are Columbia Sportswear Company COLM , Guess?, Inc. GES and G-III Apparel Group, LTD. GIII , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Columbia Sportswear has pulled off an average positive earnings surprise of 18.1% in the last four quarters. The company has long-term earnings growth rate of 11.1%.

Guess?, with an impressive earnings growth rate of 17.5%, has delivered an average positive earnings surprise of 29% in the trailing four quarters.

G-III Apparel has long-term earnings growth rate of 15%. Further, the company's earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 190.8%.

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Whirlpool Corporation (WHR): Free Stock Analysis Report

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G-III Apparel Group, LTD. (GIII): Free Stock Analysis Report

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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.

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

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