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Can Whirlpool (WHR) Retain Positive Earnings Trend in Q1?


Whirlpool Corp. WHR is slated to release first-quarter 2018 results on Apr 23, after the closing bell. Last quarter, the company reported a positive earnings surprise of 2.2%.

However, Whirlpool missed estimates in three of the last four quarters, with an average negative earnings surprise of 3.2%. Though the company delivered earnings beat in fourth-quarter 2017, it recorded negative surprises in the preceding five quarters. Moreover, the company delivered negative sales surprise in the last three quarters. The primary concerns for the company in recent quarters are raw material cost inflation and unfavorable price/mix. Let’s see how things are shaping up for this announcement.

What to Expect?

The question lingering in investors’ minds now is whether Whirlpool will be able to post positive earnings surprise in the to-be-reported quarter. The Zacks Consensus Estimate for the quarter under review is $3.02, reflecting year-over-year growth of 20.8%. We note that the Zacks Consensus Estimate declined in the last 30 days. Analysts polled by Zacks expect revenues of $5.02 billion, up nearly 5% from the year-ago quarter.

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation Price, Consensus and EPS Surprise | Whirlpool Corporation Quote

Moreover, we note that the stock has declined 2.8% in the past month. However, this compares better than the industry’s 5.7% downside.

Factors at Play

Whirlpool is gaining significantly from its commitment toward long-term goals, supported by robust product pipeline, solid innovations and cost-productivity initiatives. Also, the company outlined significant long-term targets through 2020, driven by brand strength and product portfolio.

Through 2020, Whirlpool aims to deliver organic revenue growth of 3-5% annually. Moreover, it targets EBIT margin to exceed 10% by 2020 and envisions earnings per share to grow by 10-15% each year. By 2018, it anticipates free cash flow generation of 5-6% of revenues.

Additionally, the company is striving to improve margin through several measures, including cost-based price increments and cost-reduction initiatives, which should also boost business efficiency. The company recently introduced global cost-based pricing for trade customers to mitigate raw-material inflation. Furthermore, it is on track to cut down fixed overhead expenses by $150 million, which will add to the company’s ongoing cost-productivity program.

Also, Whirlpool’s focus on boosting consumer demand has increased global price/mix by 50 basis points (bps) in fourth-quarter 2017. This marked the company’s first quarter of positive global price/mix since fourth-quarter 2015. Moreover, its renewed focus on inventory management is expected to boost earnings and free cash flow in the future.

However, Whirlpool has been witnessing soft top-line performance as is clear from the negative sales surprise in the last three quarters. The top-line lag can be attributed to weaker demand in the United States and certain countries in Europe. Further, its operating margins continue to be hurt by unit-volume declines and raw-material inflation.

Though management expects improved global price/mix and cost savings to benefit margins in 2018, this is likely to be offset by continued raw material inflation. In 2018, the company expects the combined 125 bps margin improvement from favorable price/mix, fixed cost reduction and improved cost productivity, to be more than offset by nearly $200-$250 million increase in raw-material inflation from the prior-year.

Let’s wait and see if the company’s strategic efforts can turnaround the top line and margin-related constraints.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Whirlpool is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Whirlpool has an Earnings ESP of +0.33%. However, the company’s Zacks Rank #4 (Sell) lowers the chances of a beat in the ensuing release. We caution against stocks with Zacks Rank #4 and 5 (Strong Sell).

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

KAR Auction Services Inc. KAR has an Earnings ESP of +1.35% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Macy’s Inc. M currently has an Earnings ESP of +5.14% and a Zacks Rank #1.

Nordstrom Inc. JWN currently has an Earnings ESP of +11.91% and a Zacks Rank #2.

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