Will Cost-Containment Efforts Continue to Support Whirlpool?
Shares of Whirlpool Corporation WHR surged 58.7% in the past three months, outperforming the industry’s growth 56.1%. The stock’s bullish run on the bourses can be attributed to its positive earnings surprise streak for the seventh straight quarter in first-quarter 2020. Whirlpool’s cost-containment efforts have provided some cushion to its otherwise soft performance due to the impacts of the novel coronavirus
The company is on track with its cost-based price increments and cost-reduction initiatives, which focus on improving business efficiency and boosting margins. Stringent cost-discipline actions, including restructuring actions, plant optimizations and the exit of certain non-profitable product segments, helped nearly offset COVID-19-related disruptions of about 150 basis points (bps) in the last reported quarter.
In a bid to mitigate the COVID-19 impact further, the company is undertaking actions such as curtailing structural and discretionary costs, capturing raw-material deflation opportunity, effectively managing working capital, and syncing supply chain and labor levels with demand. This is likely to generate cost savings of $500 million.
Apart from these, the company remains well positioned to capture increasing demand of customers for the home and kitchen products. One home appliance that might boost the company’s performance is the HEPA Air Purifier, which is capable of removing as much as 99.97% of particles from the air. With the onset of the coronavirus, the market for air purifiers has gained traction over the past few months. Air purifiers may be a certain way to shield oneself against the disease, especially when used in the right manner, accompanied by the right precautions.
Moreover, the company remains focused on enhancing e-commerce and improving direct-to-consumer capabilities as most consumers have shifted to online shopping habits due to the virus.
However, it is still reeling under supply-chain disruptions, a slowdown in production activities and reduced demand for several commodities stemming from the coronavirus outbreak. This led to a sales decline across all regions. Notably, first-quarter net sales fell 9.1% and 20.2% year over year on a reported and currency-neutral basis, respectively. As a result, management envisions a net sales decline of approximately 13-18% for 2020. Also, organic net sales are expected to decrease 10-15%.
All said, the endeavors to protect margins and enhance liquidity position will help this Zacks Rank #3 (Hold) stock offset COVID-19 hurdles and get back on track in the near term.
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Whirlpool Corporation (WHR): Free Stock Analysis Report
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