Whirlpool’s Profits Zoom on Cost and Capacity Reduction Initiatives

Appliances maker achieves record operating profit of $435 million, or 8.4% of sales

Source: Whirpool
Source: Whirpool

Home appliances giant Whirlpool Corporation (NYSE: WHR) released its FY16 Q2 financial results on July 22nd, 2016. The Benton Harbor, Michigan-based company manufactures and markets home appliances including laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers, and other portable household appliances through a combination of direct sales to appliance retailers and chain stores as well as full-service distributors and retail stores. It also produces hermetic compressors for refrigeration systems. The Company manufactures products in approximately 15 countries and markets products under the Whirlpool, KitchenAid, Maytag, Consul, Brastemp, Amana, Bauknecht, Jenn-Air, and Indesit brand names. Its segments include North America, Latin America, EMEA (Europe, Middle East and Africa) and Asia. Read more about Whirlpool’s financial results below.

Q2 FY16 financial highlights

Whirlpool reported solid Q2 FY16 performance with both revenues and profits surpassing expectations. Revenues was almost flat at $5,198 million versus the comparable year-ago quarter revenue of $5,208 million. However, on a currency-neutral basis, Whirlpool registered Y-o-Y sales growth of nearly 3% during the reporting quarter.

Source: Whirpool
Source: Whirpool

Whirlpool reported record GAAP operating profit of $366 million, or 7% of sales in Q2 FY16, compared to $273 million, or 5.2% of sales, in the same prior-year period. Ongoing business operating profit during Q2 FY16 jumped 22.5% to a record $435 million, or 8.4% of sales, compared to $355 million, or 6.8% of sales, in the same prior-year period, while operating margin expanded 160 bps to 8.4%. On a GAAP and ongoing basis, operating profit was driven by unit volume growth, synergies generated from acquisitions, ongoing cost productivity and benefits from cost, and capacity reduction initiatives, which more than offset the negative impact from foreign currency.

As a result, Whirlpool reported Q2 FY16 GAAP net earnings of $320 million, or $4.15 per diluted share, compared to $177 million, or $2.21 per diluted share, reported for the prior-year period. Ongoing business earnings per diluted share totaled $3.50 compared to $2.70 in the same prior-year period.

Source: Whirpool
Source: Whirpool

 

Segmental highlights

North America

Whirlpool’s North America Q2 FY16 revenues grew 3.7% Y-o-Y to $2.8 billion, and rose 4% on a currency-neutral basis. Adjusted operating profit jumped 17.2% Y-o-Y to $340 million, while operating margin expanded 150 bps to 12.3%. During Q2 FY16, the segment reported gains from ongoing cost productivity and higher revenues, which more than offset the negative impact of foreign exchange rates. The Company expects its North America unit shipments to grow by 5%-6% in FY16.

Latin America

Whirlpool’s Latin America Q2 FY16 revenues declined 3.3% Y-o-Y to $826 million, and rose 4% on a currency-neutral basis. Operating profit jumped 38.9% to $50 million from $36 million in the year-ago quarter, driven by favorable price/mix, unit volume growth, and gains from cost and capacity reductions actions. Segment operating margins expanded 190 bps to 6.1%. However, Whirlpool expects its Latin America unit shipments to fall by about 10% in FY16.

EMEA

Whirlpool’s EMEA Q2 FY16 revenues declined slightly to $1.3 billion from the prior-year quarter, and remained flat on a currency-neutral basis. Adjusted operating income rose to $60 million compared to $56 million in the year-ago quarter, while operating margins expanded 40 bps to 4.6%. Operating profit growth was driven by acquisition synergies, ongoing cost productivity, and unit volume growth, partially offset by currency headwinds. Whirlpool expects its EMEA unit shipments to be in the range of flat to a 2% increase during FY16.

Asia

Whirlpool’s Asia Q2 FY16 revenues declined 4.7% to $363 million from $381 million in the prior year’s quarter, and remained flat on a currency-neutral basis. Adjusted operating profit declined to $29 million as against $31 million reported a year ago, while operating margin was flat at 8.1%. Operating profit growth was driven by ongoing cost productivity and volume gains. Whirlpool expects its Asia unit shipments to be flat in FY16.

Stock repurchases and Dividend Payment

Whirlpool repurchased $100 million in common stock during Q2 FY16 and intends to continue repurchasing stock throughout the remainder of FY16.

Consistent with its balanced capital allocation approach, the Company paid an increased quarterly dividend of $1 per share.

Other highlights

Source: Whirpool
Source: Whirpool

On June 22nd, 2016, Whirlpool announced that Larry Venturelli, Executive Vice President and Chief Financial Officer, plans to retire in early 2017, after a 15-year tenure with Whirlpool. As part of the planned transition, Venturelli will remain in his current capacity until August 1st, 2016, at which time Jim Peters, currently Vice President, Corporate Controller, and Chief Accounting Officer, will succeed Venturelli as Executive Vice President and Chief Financial Officer of Whirlpool.

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

During H1 FY16, Whirlpool used $404 million of cash in operating activities, and its capital expenditure was $206 million. As of June 30th, 2016, Whirlpool had negative cash flow of $547 million.

Guidance for Q3 FY16

Source: Whirpool
Source: Whirpool

Following its Q2 FY16 results, Whirlpool raised the lower-end of its earnings guidance for FY16, as per which it now expects GAAP earnings in the range of $11.50 to $12.00 per share, compared to $11.25 to $12.00 predicted earlier. Earnings from its ongoing business are forecasted at $14.25-$14.75 per share, versus the previous expectation of $14.00-$14.75.

Whirlpool continues to expect free cash flow in the range of $700 to $800 million for FY16. 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 FY16.

Stock Performance

W6Whirlpool’s stock finished the day at $189.38, down 1.43%, at the close on Tuesday, August 2nd, 2016, having vacillated between an intraday high of $192.43 and a low of $188.98 during the session. The stock’s trading volume was at 647,165 for the day. The Company’s market cap was at $14.29 billion as of Tuesday’s close.

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