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🔌 Whirlpool: Revising Priorities?
The world’s largest appliance manufacturer Whirlpool Corporation (WHR), is reprioritizing its business. Like any other consumer durables company, it faces cost and supply-side issues. Shares are at a 52-week low. Can Whirlpool continue rewarding shareholders as it has in the past?
Realigning Geographies
In 1911, Louis Upton, an insurance salesman, came up with the idea of adding an electric motor to a manual clothes washer. Upton Machine Company thus produced the first electric motor-driven wringer washer. Just before The Great Depression in 1929, Upton Machine Company merged with the Nineteen Hundred Washer Company and became Nineteen Hundred Corporation.
In 1947, the company introduced the automatic, spinner-type washer, sold under the brand name “Whirlpool.” The Nineteen Hundred Corporation was renamed Whirlpool Corporation in 1949 and launched other home appliances, including automatic washers, dryers, and irons.
Today, Whirlpool is a $20+B revenue company employing ~70K people and home to brands such as JennAir, KitchenAid, Maytag, and Amana. Along with 33 manufacturing sites across ten countries, Whirlpool also has multiple technology and research centers.
Whirlpool is now embarking on a path to transform its portfolio and position itself for the “new world.” With rising geopolitical tensions, cost of freight, and increasing trade barriers, the company wants to emphasize regional and local scale over global presence.
As part of its revised strategy, the company will focus on high-growth, high-margin businesses. It will focus its efforts within the Americas, where most of its revenue comes from, and India, where it has a significant presence. Whirlpool of India has a 22.8% market share in the direct cool segment, 17.5% share in the frost-free segment, and 14% share in the washer segment.
Baby steps in this direction began in 2021 when Whirlpool sold a majority stake in its China business to local home appliance giant Galanz for $316M. Whirlpool is undertaking a strategic review of its EMEA (Europe, Middle East, and Africa) business in light of the Russia-Ukraine war.
EMEA is the second-largest market for Whirlpool behind the Americas, with $5B in sales for 2021, 10 manufacturing and R&D centers, along with 17.4K employees. The review is likely to be completed by Q3 this year.
Will Generous Payouts Continue?
The plot is none too different from the rest of corporate America. Higher input costs. Supply chain snarls. Whirlpool has already raised its costs forecast by another $600M to $1.8B for 2022. The impact of inflation and shortage of critical components spilled over into Whirlpool’s earnings, as evident from its Q1 results, which it released last month.
The quarter saw net sales decline 8.2% Y-o-Y. Profits fell 28% Y-o-Y to $313M. Latin America was the only region where sales grew (up 4%). The result: a recalibration of the 2022 guidance.
Whirlpool’s 2022 Guidance:
- Revenue: 2-3% growth, down from 5-6%
- North America: Flat from 2-3% growth
- EMEA: Decline of 3-5% from growth of 0-2%
- Latin America: Decline of 2-4%
- Asia: 5-6% growth
The company hiked prices by as much as 12% last year across the board to combat inflation. This year, it aims to increase prices enough to offset the entire input cost inflation witnessed so far. The big question is whether demand will fall as prices rise.
The company is betting people will continue to stay in their current homes rather than buy new homes, which means remodeling existing homes will pick up. Replacement of appliances being half of its business, Whirlpool is looking to capitalize on this trend despite a shortage of microchips and other critical components for many products.
Production and inflation issues apart, Whirlpool has been a consistent performer as far as shareholders are concerned. The company has grown its annual EPS from $5 in 2012 to a record $26.6 in 2021.
The topline has also grown from $18B to $22B, while free cash flow has jumped from $200M to $2B. The quarterly dividend was up 25% in Q1 to $1.75, the 10th straight year of hikes, and returned $1.4B to shareholders in 2021.
On the valuation front, Whirlpool trades at 6.7x (trailing twelve months price-to-earnings ratio), below its peers that range between 8x and 14x. Shares are trading near their 52-week low. While the company believes demand for its products in the second half of 2022 will make up for a slow start in the first half, investors may be circumspect about potential EPS and dividend cuts.
There is light at the end of the tunnel. Is that a freight train carrying the household appliances from Whirlpool is the big question!
Market Reaction
WHR ended at $173.87, up 3.55%.
Company Snapshot 📈
WHR $173.87 +5.96 (3.55%)
Analyst Ratings (09 Analysts) BUY 33% HOLD 56% SELL 11%
Newsworthy 📰
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Later Today 🕒
- Alibaba Group Holdings Ltd. Earnings (BABA)
- Costco Wholesale Corp. Earnings (COST)
- Dell Technologies Inc. Earnings (DELL)
- Dollar General Corporation Earnings (DG)
- Dollar Tree Inc. Earnings (DLTR)
- Macy’s Inc. Earnings (M)
- Autodesk Inc. Earnings (ADSK)
- Baidu Inc. Earnings (BIDU)
- Brady Corp. Earnings (BRC)
- The Buckle Inc. Earnings (BKE)
- Burlington Stores Inc. Earnings (BURL)
- Evogene Ltd. Earnings (EVGN)
- Gap Inc. Earnings (GPS)
- Medtronic Plc. Earnings (MDT)
- Royal Bank of Canada Earnings (RY)
- VMware Inc. Earnings (VMW)
- Zscaler Inc. Earnings (ZS)
- 6:00 PM IST: Initial Jobless Claims
Today’s Fun Fact
The six reactors in the 2011 Fukushima Nuclear Power Plant catastrophe had been designed by General Electric
