Whirlpool Corporation (WHR) has revealed a 47% drop in its profit to $87 million or $1.15 per share for the third quarter of the year, from $163 million or $2.15 per share in the prior-year quarter. Excluding special items, earnings were 65 cents per share, below the Zacks Consensus Estimate of 77 cents per share.

Net sales decreased 8% to $4.5 billion. Excluding the impact of foreign exchange translation, the sales decline was estimated at 3%.

Operating profit increased 8% on a year-over-year basis. It was favorably impacted by cost reduction and productivity initiatives. However, it was partially offset by lower global sales and production volumes, unfavorable foreign currency impact and lower monetization of certain tax credits.

Regional Performance

Sales in North America fell 9% to $2.5 billion. Excluding the currency effects, the decline was 7%. Unit shipments in the U.S. industry of major appliances declined 6% during the quarter. The region reported an operating profit of $140 million compared to $74 million in the previous year. This was attributed to cost reduction and productivity initiatives. Whirlpool expects full-year unit shipments in the region to decline 10% compared to its prior expectation of 10%-12%.

Sales in Europe shrank 17% to $899 million; excluding currency effects, the decline was 11%. Overall industry unit demand during the quarter decreased 10%. The region reported an operating profit of $14 million during the quarter compared to $52 million in the prior-year quarter.

This was attributed to substantially lower volumes and the non-recurrence of an asset sale and insurance settlement recorded in the previous year. The company continues to expect full-year industry unit shipments in the region to decline 13% from the year-ago level.

Sales in Latin America rose marginally to $992 million from $989 million in the prior-year quarter. Excluding currency translation, sales increased 12%. The rise was driven by a strong increase in Brazilian appliance demand. During the quarter, the company’s Brazilian appliance sales increased 40% in local currency.

Operating profit totaled $93 million, compared to $116 million in the year-ago quarter. This can be attributed to significantly lower monetization levels of certain tax credits and unfavorable foreign currency fluctuations. The company currently anticipates full-year Brazilian appliance shipments in the region to increase more than 15% compared to the previous expectation of more than 10%.

Sales in Asia increased 18% to $162 million and excluding the impact of currency, sales increased 26%. Operating profit during the quarter totaled $8 million, an increase of $8 million from the prior year. This was attributed to higher unit volume, higher productivity, cost reductions and a $3 million asset sale gain. The company anticipates full-year industry unit shipments in the region to move up 10% compared to the previous expectation of unit shipments of flat to up 5%.

Financial Position

Whirlpool had cash and cash equivalents of $725 million as of Sept. 30 2009. Long-term debt amounted to $2.5 billion on that date. The long-term debt to capitalization ratio stood at 41%.

In the first nine months of 2009, Whirlpool had a net cash flow from operating activities of $652 million. Meanwhile, capital expenditures totaled $348 million during the same period.

Outlook

For the full year, Whirlpool raised its anticipated earnings per share to $4.25 from the prior expectation of $3.50 to $4.00 per share. The revised figure is higher than the Zacks Consensus Estimate of $4.00 per share. The company also raised its expectation to generate free cash flow of $500-$600 million from the prior expectation of $300-$400 million.

We recommend the shares of Whirlpool as Neutral.
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