Whirlpool (WHR) Q2 Earnings & Sales Beat, Adjusts View

Whirlpool Corporation (NYSE:WHR) delivered a solid performance in second-quarter 2016 as both top and bottom line surpassed estimates.

Whirlpool’s quarterly adjusted earnings per share of $3.50 were ahead of the Zacks Consensus Estimate of $3.35 and surged 29.6% year over year. Earnings were mainly driven by the company’s sustained focus on cost- and capacity-reduction initiatives, synergies generated from acquisitions, and constant cost productivity.

On a reported basis, the company’s earnings were up 87.8% to $4.15 per share from $2.21 earned in the prior-year quarter.

Revenues came in at $5,198 million, almost flat with the comparable year-ago quarter revenue of $5,208 million. Also, revenues surpassed the Zacks Consensus Estimate of $5,101 million. On a currency-neutral basis, however, Whirlpool registered year-over-year sales growth of nearly 3%.

Adjusted operating profit in the quarter rose 22.5% to $435 million from $355 million in the year-ago quarter, while operating margin expanded 160 basis points (bps) to 8.4%. Operating results improved due to unit volume gains, acquisition synergies, ongoing cost productivity and cost- and capacity-reduction initiatives, slightly offset by foreign currency headwinds.

Regional Performance

Revenues from North America went up 3.7% year over year to $2.8 billion, while revenues grew 4% on a currency-neutral basis. Adjusted operating profit increased 17.2% year over year to $340 million, while operating margin expanded 150 bps to 12.3%. During the quarter, gains from ongoing cost productivity and improved revenues overshadowed the negative impact of unfavorable foreign exchange rates. The company expects its North-American industry shipments to enhance by 5–6% in 2016.

Revenues from Latin America were down 3.3% year over year to $826 million. Excluding the negative effects of currency translation, revenues rose 4%. Operating profit of $50 million increased 38.9% from $36 million reported last year, on the back of favorable price/mix, unit volume growth and gains from cost and capacity reductions actions. Segment operating margin expanded 190 bps to 6.1%. However, the company expects industry unit shipments in Latin America to be down by nearly 10% in 2016.

Revenues from EMEA declined marginally from the prior-year quarter to $1.3 billion. However, on a currency-neutral basis, revenues were flat. Second-quarter adjusted operating income was $60 million, compared with $56 million in the year-ago quarter, while operating margin expanded 40 bps to 4.6%. Growth in the quarter was driven by acquisition synergies, ongoing cost productivity and unit volume growth, partially offset by currency headwinds. Whirlpool expects industry unit shipments in 2016 in the range of flat to a 2% increase.

Revenues from Asia dipped 4.7% to $363 million in second-quarter 2016 from $381 million in the prior-year quarter. Excluding currency effects, revenues remained flat. Adjusted operating profit was $29 million as against $31 million reported a year ago, while operating margin was flat at 8.1%. Results gained from ongoing cost productivity and volume gains. The company expects industry shipments in the region to be flat in 2016.

Financial Position

Whirlpool had cash and cash equivalents of $959 million as of Jun 30, 2016, and long-term debt of $3,712 million.

This largest home-appliances manufacturer in the world used $404 million of cash in operating activities in first-half 2016. Meanwhile, the company’s capital expenditure in the period was $206 million. As of Jun 30, 2016, Whirlpool had free cash flow of $(547) million.

Guidance

Following the results, Whirlpool raised the lower-end of its earnings guidance for 2016, thus narrowing the range. The company now expects GAAP earnings in the range of $11.50–$12.00 per share, compared with $11.25–$12.00 guided earlier. Earnings from its ongoing business are envisioned in the band of $14.25–$14.75 per share, versus the previous forecast of $14.00–$14.75.

The company continues to expect free cash flow in the range of $700–$800 million for 2016. This guidance includes restructured cash outlays of up to $200 million, legacy product warranty and liability costs of $155 million and capital expenditures of $700–$750 million. The company expects to generate operating cash flows of $1,400–$1,550 million in 2016.

Zacks Rank

Currently, Whirlpool carries a Zacks Rank #3 (Hold). Some better-ranked consumer discretionary stocks include Callaway Golf Co. (NYSE:ELY) , Carter's Inc. (NYSE:CRI) and Diamond Resorts International Inc. (NYSE:DRII) , each with a Zacks Rank #1 (Strong Buy).