Another surprise quarterly loss combined with projections of lower growth for the year have delivered a body blow to Whirlpool Corporation in after-hours trading as the market took the company’s stock into free fall by more than 8-percent late today following the latest earnings reports issued by the Benton Harbor-based giant.
While day trading had the stock off by just 0.72-percent, the post trading-day numbers release sent the stock reeling as the company missed Wall Street expectations on seemingly all fronts.
Whirlpool’s 2nd quarter report shows a loss of ($639-million), or ($9.50) per share, as compared to earnings of $189-million or $2.52 per share just a year ago. On top of that news, company executives say they now project lower revenue growth worldwide for the year due to weak numbers in Europe, the Middle East and Africa.
When you factor in the one-time item adjustments, Whirlpool earned $3.20 per share as compared to $3.35 a share in the same period a year ago, while analysts in the street had expected those adjusted earnings to check in at $3.43 a share on what they thought would be sales of $5.3-billion. Reality is that sales fell to $5.1-billion from last year’s $5.3-billion levels. The numbers fell short of analyst’s estimates in both categories.
Whirlpool CEO Marc Bitzer says, “We are taking strong actions to improve our operational execution, and remain confident that we will deliver value for our shareholders in the coming quarters.”
As the numbers were being shared by corporate executives, Bitzer said, “We are pleased to deliver margin expansion in a very challenging cost environment, driven by strong North America margins and significant global price/mix improvement during the second quarter,” but added, “Despite these positives, our performance in EMEA was below expectations.” Excluding the impact of currency, sales decreased 4.5-percent in the quarter.
Second-quarter earnings before interest and taxes were $(562) million, or (10.9)-percent of sales, compared to $251 million, or 4.7-percent of sales, in the same prior-year period. Second-quarter ongoing EBIT was $343 million, or 6.7-percent of sales, compared to $350 million, or 6.5-percent of sales, in the same prior-year period. On a GAAP and ongoing basis, EBIT margin was favorably impacted by product price/mix and restructuring benefits, which more than offset unit volume declines, raw material inflation and unfavorable foreign currency impacts. On a GAAP basis, results were negatively impacted by approximately $860 million due to an asset impairment charge related to the EMEA region and a preliminary settlement with the FCA.
During the second quarter, the Company obtained financing in an amount approximately equal to anticipated proceeds from the sale of its Embraco compressor business, and used such amounts to accelerate share repurchases through a “modified Dutch Auction” tender offer. The Company repurchased 6,269,591 shares at a price of $159.50 per share, for an aggregate cost of approximately $1 billion.
For the six months ended June 30, 2018, the Company reported cash used in operating activities of $(584) million, compared to $(191) million in the same prior-year period. The Company reported free cash flow of $(725) million for the first six months of 2018, compared to $(356) million in the same prior-year period, primarily driven by volume-related working capital timing in addition to the timing of certain payments and accruals compared to the prior year.
SECOND-QUARTER REGIONAL REVIEW
Whirlpool North America
Whirlpool North America reported second-quarter net sales of $2.8 billion, compared to $2.8 billion in the same prior-year period. Excluding the impact of currency, sales decreased 2.2-percent.
The region reported second-quarter EBIT of $331 million, or 11.9-percent of sales, compared to $336 million, or 11.9-percent of sales, in the same prior-year period. During the quarter, the favorable impact of product price/mix was offset by unit volume declines, raw material inflation, and higher freight costs.
Whirlpool Europe, Middle East and Africa
Whirlpool Europe, Middle East and Africa reported second-quarter net sales of $1.1 billion, compared to $1.2 billion in the same prior-year period. Excluding the impact of currency, sales decreased 12.3-percent.
The region reported second-quarter EBIT of $(25) million, or (2.3)-percent of sales, compared to $(2) million, or (0.2)-percent of sales, in the same prior-year period. During the quarter, the favorable impacts of product price/mix and restructuring benefits were more than offset by unit volume declines, raw material inflation and unfavorable foreign currency impacts.
Whirlpool Latin America
Whirlpool Latin America reported second-quarter net sales of $852 million, compared to $986 million in the same prior-year period. Excluding the impact of currency, sales decreased 11.4-percent.
The region reported second-quarter EBIT of $33 million, or 3.8-percent of sales, compared to $57 million, or 5.8-percent of sales, in the same prior-year period. During the quarter, both sales and EBIT were negatively impacted by the trucker strike in Brazil.
Whirlpool Asia
Whirlpool Asia reported second-quarter net sales of $428 million, compared to $373 million in the same prior-year period. Excluding the impact of currency, sales increased 14.5-percent.
The region reported second-quarter EBIT of $43 million, or 10.1-percent of sales, compared to $(30) million, or (8.0)-percent of sales, in the same prior-year period. Ongoing EBIT totaled $43 million, or 10.1-percent of sales, compared to $10 million, or 2.5-percent of sales, in the same prior-year period. On a GAAP and ongoing basis, the favorable impacts of an acquisition-related government incentive and product price/mix were partially offset by raw material inflation and unfavorable foreign currency impacts. Prior year GAAP results were negatively impacted by an out-of-period adjustment in our China business.
OUTLOOK
For the full-year 2018, the Company now expects GAAP earnings per diluted share of $0.15 to $0.75 and ongoing earnings per diluted share of $14.20 to $14.80, as favorable product price/mix and share repurchases are expected to be more than offset by lower global revenue growth, increased expectations for global cost inflation, and weaker than expected performance in the EMEA region.
For the full-year 2018, the Company now expects to generate cash from operating activities of approximately $1.5 billion and free cash flow of approximately $850 million. Included in this guidance are restructuring cash outlays of up to $300 million, pension contributions of $35 million and, with respect to free cash flow, capital spending of approximately $675 million.
Jim Peters, Chief Financial Officer of Whirlpool says, “We expect to drive margin expansion and improved cash conversion this year through positive price/mix and strong actions in EMEA.” He adds, “We remain committed to our long-term value creation strategy, and will continue to fully invest in our business as we execute our balanced approach to capital allocation.”
