Fitch Ratings assigned a ‘BBB’ rating to the 10-year senior unsecured notes of $250 million to be issued by Whirlpool Corporation (WHR). The company plans to spend the proceeds for general corporate purposes and repay short-term debt. The issue will rank at par with the other senior unsecured debts which the company has on its books. The Rating Outlook was kept at ‘Stable’ by Fitch.
The ratings and the outlook conferred by Fitch takes into account the company’s diversification and leading position in various markets. The company’s large size and presence in markets across the globe help it enjoy both economies of scale and benefits arising out of geographical diversification.
Whirlpool has been making efforts to be more efficient and is pursuing its margin expansion strategies. It has initiated cost-control measures along with cost-based price increments, the combination of which will probably help it achieve the desired target.
Moreover, Fitch is upbeat about the prospects of the global appliance industry. The agency is of the opinion that even though there will be headwinds in the form of uncertainty in the European market, escalating costs and sluggishness in the U.S. housing sector, the short-term outlook remains bright. It expects demand for appliances to improve in the U.S. and in the emerging markets of Latin America and Asia.
In addition, Whirlpool’s liquidity position is quite strong. The company had cash of $583 million at its disposal as of March 31, 2012 and $1.725 billion of unutilized revolving credit facility, which will mature in June 2016.
Whirlpool has to pay off a considerable amount of debt over the next four years. The company’s debt of $1.3 billion would mature between 2013 and 2015. But Fitch believes that the company is well-positioned to meet its obligations and it might go for debt financing in order to repay some of its debts.
However, Fitch stated that Whirlpool’s free cash flow would be slightly negative in 2012. The negative free cash flow would be primarily attributable to the final installment of $275 million to be paid for settling a Brazilian collection dispute, pension contributions worth $250 million, $110 million for antitrust settlements and approximately $280 million for restructuring measures.
The company is also involved in a number of regulatory issues, antitrust investigations with governments around the world. Investigations in Brazil, Europe and the U.S. have been closed by the authorities, with Whirlpool incurring around $323 million in charges so far, out of which $195 million remains accrued. The company could not provide a definitive guidance as to how much it might incur in charges due to investigations that are still under progress.
Whirlpool is the largest manufacturer of home-appliances in the world, ahead of the likes of ElectroluxAB (ELUXY), LG, Samsung and General Electric Co. (GE). It is a market leader across the globe, ranking first in North America and Latin America, second in India and third in Europe.
Whirlpool’s cost and capacity reduction initiatives are noteworthy, resulting in improved margins. However, we are concerned about the ongoing weakness in Europe, where the company expects sales to decline this year.
Whirlpool currently retains Zacks #1 Rank, reflecting a short-term (1 to 3 months) Strong Buy rating. This is in line with our long-term (more than 6 months) Outperform recommendation on the stock.
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