Whirlpool (WHR) once drew customers with a memorable TV ad campaign that featured a forlorn Maytag repair man waiting for maintenance calls that never came. Unfortunately, nowadays, it’s the Maytag salesman who’s more likely twiddling his thumbs due to a thinning stream of buyers in stores.
On Apr. 24, The Benton Harbor, Mich.-based company reported a 24% drop in earnings for the first quarter, with strong results overseas offset by declines in its North American business.
The appliance manufacturer posted earnings from continuing operations of $94 million, or $1.22 per share, down from $124 million, or $1.55 per share in the first three months of 2007, on a 5% gain in revenue to $4.6 billion. The results fell far short of analysts’ expectations of $1.57 per share. Besides rising material and oil-related costs, higher selling, general and administrative costs related to new product launches and advertising spending also reduced the company’s operating profit.
“The combination of unprecedented material cost increases and seven consecutive quarters of lower U.S. demand have resulted in one of the most challenging operating environments we have seen in three decades,” Jeff Fettig, the chairman and chief executive, said in a news release.
The company also cut its full-year earnings forecast to $7.00 to $7.50 per share from a prior estimate of $8.50 to $9.00, and now expects to generate free cash flow of $500 million to $550 million. The new forecast is far below the low end of analysts’ estimates of $8.25 and a consensus forecast of $8.58 for 2008.
Investors promptly disapproved, pushing the shares down 10% to $73.89 on Apr. 24.
Whirlpool’s earnings miss comes at a time when U.S. consumers are feeling the pinch from higher energy and food prices and worry about how long and deep a recession may be. Consumer sentiment hit a 25-year low in March.
Whirlpool lowered its forecasts for industry unit shipments in the U.S. and Europe for 2008. The company now expects U.S. unit shipments to fall by about 5% to 6% from 2007 levels, vs. a prior estimate of a 3% to 5% decline. For Europe, Whirlpool now expects 2008 unit shipments to fall 2% to 3% from last year, compared with earlier expectations for flat unit volume.
But the company still projects a 5% to 8% increase in 2008 shipments in Latin America, and a 5% to 10% rise in Asia.
Despite turbulent economic conditions in the near term, CEO Fettig said he was confident that Whirlpool’s consumer brand following and new products would help the company take advantage of global growth opportunities over the long run.
In fact, first-quarter operating profit improved in all three major geographic regions outside of North America, the company said. In the quarter, sales in Europe rose 13% from the year-ago period, but were down 2% when currency effects were excluded, while better productivity drove a 17% increase in operating profit. A 24% gain in sales in Latin America – roughly 9% excluding currency effects – along with higher shipments and productivity gains caused operating profit in the region to jump 41% to $119 million. In Asia, a 19% increase in sales – 9% excluding the currency impact – resulted mostly from higher volume in India.
Whirlpool also said that its board authorized on Apr. 24 a new repurchase program for $500 million worth of stock. The company bought back $97 million of common stock during the first three months of 2008, completing its prior repurchase program.