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Whirlpool Down 10% in 6 Months: What’s Behind the Decline?


Whirlpool Corporation WHR, once an investors’ favorite, has been losing its sheen of late owing to the recent dismal performances. Though long-term strategy seems to bode well, recent performance suggests trouble down the road.

In the past six months, shares of this Zacks Rank #4 (Sell) company have lost 10.2% compared with the industry's fall of 22.3%. Also, the stock has a Growth Score of D.

Let’s Delve Deep

Whirlpool’s surprise history remains unimpressive as it posted fifth-straight earnings miss in third-quarter 2017. Further, the company’s top line lagged the Zacks Consensus Estimate in four of the last seven quarters. In fact, management slashed its earnings guidance for 2017 and expects it in the range of $13.60-$13.90 compared with $14.50-$15.00, guided earlier.

Moreover, the adverse product price/mix and raw material inflation has been denting the company’s operating margin for the last few quarters. Evidently, adjusted operating margin contracted 100 basis points (bps), 150 bps and 90 bps in the third, second and first quarters of 2017. Unfortunately, these factors are likely to persist, going forward.

Further, we believe that volatility in commodity prices, particularly steel, may adversely affect the company’s operating performance. Additionally, Whirlpool derives a significant portion of its revenues from international operations, which exposes it to risks in global market. Whirlpool’s customer concentration is also high that might hurt the company’s margins.

Can the Tables Turn?

Whirlpool’s robust product pipeline, solid innovations and cost productivity initiatives keep it on track to deliver long-term goals. In fact, the company has outlined significant long-term targets through 2020 backed by brand strength and product portfolio. It aims to deliver organic revenue growth of 3-5% every year. Further, it anticipates growth efforts to boost consumer demand and lead to enhanced price mix, which encouraged management to target its EBIT margin to exceed 10% by 2020.

Moreover, Whirlpool has been riding on its innovation strategy that helps it to tap additional sales and gain market share. Also, the company is striving to improve its margins through a series of measures including cost-based price increments and cost-reduction initiatives focused on improving business efficiency.

Bottom Line

Though Whirlpool’s long-term plans and solid innovation strategy reflect strength, we cannot ignore the near-term challenges hurting the results. That said, let’s wait and see if the company’s strategic growth endeavors can spark a turnaround.

Meanwhile, you can consider some better-ranked stocks in the broader Consumer Discretionary space that include Ralph Lauren Corporation RL, Guess?, Inc. GES and Michael Kors Holdings KORS. While Ralph Lauren sports a Zacks Rank #1 (Strong Buy), Guess? and Michael Kors carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren has a long-term earnings growth rate of 15%. Also, the company’s earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters by an average of 11.6%.

Guess? has a long-term earnings growth rate of 17.5%. Further, the company has delivered an average positive earnings surprise of 28.2% in the last four quarters.

Michael Kors with a long-term earnings growth rate of 7.5% has pulled off an average positive earnings surprise of 23.7% in the trailing four quarters.

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