Whirlpool Looks to Spin More Profits in 4Q
The appliance manufacturer is expected to report improved results for the quarter and its first quarterly earnings growth in two years, thanks to cost-cutting, growing sales abroad and slightly better sales in the U.S.Analysts are looking for earnings of $1.32 per share for the quarter, more than double last year's 60 cents and the first year-over-year growth since the fourth quarter of 2007. Much of the improvement comes from cost-cutting; Whirlpool has been shrinking its manufacturing operations in the U.S, cutting shifts and closing down factories. In his last call with analysts, CEO Jeff Fettig said the effect of the cost-cutting wasn't really felt in 2009, but should boost profitability in 2010 and 2011.
Like most manufacturers of household goods, Whirlpool has taken a beating during the recession. It posted a 47% drop in earnings during the third quarter of 2009, but even that was better than the 64% drop analysts had expected. The company already was feeling the effects of increased competition from foreign rivals such as LG and Samsung, and underwent a painful restructuring that included large workforce reductions after acquiring rival Maytag in 2006.
The maker of KitchenAid and Amana appliances is expected to turn things around this quarter. Whirlpool has been upgrading its product to boost sales, especially in markets abroad that have not been hit as hard by the recession. During the analyst call, Fettig noted rising sales in Asia and Latin America had partially offset double-digit declines in the U.S. and Europe. The company raised its full-year 2009 forecast to $4.25 per share, from its previous guidance of $3.50 to $4, but that is still lower than the $5.50 it posted in 2008 and half the $8.10 it posted in 2007.
During the third quarter call, Michael Todman, president of Whirpool North America, said product shipments in North America had improved through the third-quarter and the company expected the improvement to continue during the fourth.
Appliance manufacturers also expect to benefit in the first and second quarter of 2010 from a federal cash-for-clunkers program offering rebates to encourage homeowners to trade in old appliances for energy-efficient ones. But it's hard to put a number on the anticipated improvement, because the programs will vary by state. Whirlpool has made a play for those rebates by adding an online tool to its websites that helps shoppers find which appliances are eligible in their zip codes.
Whirlpool's stock has rebounded sharply from a 52-week low of $19.19 to close at $75.18 on Friday. It has been trading not far from its high of $85.17 set Jan. 11, but the share price tumbled in the last week, as some investors took out their profits.
However, some analysts still think Whirlpool has more potential. A recent report from Zacks Investment Research upgraded the stock from Neutral to Outperform and set a target price of $92 for the shares, saying the company's cost-cutting efforts are helping cash liquidity and its new products are helping its brand image.