Whirlpool Corporation (WHR) recorded an increase in adjusted net income to $1.41 per share for the first quarter of 2012 from 64 cents in the same period last year, beating the Zacks Consensus Estimate of $1.12. However, before adjustments, net income slumped 46% to $92 million, or $1.17 per share in the quarter, from $169 million, or $2.17 in the first quarter of 2011.
Revenues in the quarter fell marginally to $4.35 billion from $4.4 billion as improving product price/mix was offset by unfavorable currency, lower industry demand and lower monetization of tax credits. Revenues were slightly lower than the Zacks Consensus Estimate of $4.37 billion.
Operating profit (adjusted) rose 42% to $232 million from $163 million in the first quarter of 2011. The significant increase in operating income was a result of continued improvement in price mix, cost reduction and capacity reduction measures.
Regional Results
Revenues in North America fell 1% to $2.2 billion from the first quarter of 2011. Operating profit improved to $151 million from $52 million in the previous year. It was favorably affected by the implementation of previously announced price increases, improved product mix and cost and capacity reduction efforts that more than offset the impact of lower industry volumes and higher material costs. Whirlpool expects U.S. industry unit shipments to increase in the lower end of 0%-3% in 2012.
Revenues in Europe, Middle East and Africa fell 8% to $688 million. The region had an operating profit of $5 million in the quarter compared to $25 million in the prior-year period.
The decline in operating profit was attributable to the ongoing financial crisis in Europe, which led to weak consumer demand across the Euro zone, higher material costs and lower production in order to adjust to lower industry demand. As a result, the company expects industry unit shipments to decrease in the range of 2%-5% in 2012.
Revenues in Latin America increased 3% to $1.3 billion. Operating profit decreased to $121 million compared with $174 million in the previous year quarter as favorable product price/mix and current productivity initiatives was offset by lower monetization of tax credits, higher material costs and unfavorable currency. However, the company expects appliance industry shipments in the region to increase towards the higher end of 2%-5% for full-year 2012.
Revenues in Asia decreased 3% to $202 million. Operating profit in the quarter went down to $9 million from $11 million in the first quarter of 2011 as favorable product price/mix, volume growth and continuing productivity measures were more than offset by higher material costs and unfavorable currency. However, the company expects industry unit shipments in Asia to increase at the low-end of its previous guidance of 2%-4% in 2012.
Financial Position
Whirlpool had cash and cash equivalents of $583 million as of March 31, 2012 compared with $1.0 billion as of March 31, 2011. Long-term debt was $1.6 billion as of March 31, 2012 compared with $2.2 billion as of March 31, 2011.
The company used cash flow of $423 million in operations in the quarter compared with $224 million in the same period last year. Meanwhile, capital expenditures decreased to $92 million from $115 million in the first quarter of 2011.
Free cash flow in the quarter slipped deeper into the red — $515 million compared with $336 million in the year-ago period. For full-year 2012, Whirlpool expects to generate free cash flow between $100 million and $150 million.
Outlook
For full year 2012, Whirlpool expects to report earnings per share of $5.00 to $5.50. However, excluding restructuring charges and Brazilian tax credits, the company anticipates earnings per share of $6.50 to $7.00.
Our Take
Whirlpool is considered the largest home-appliances manufacturer in the world, ahead of ElectroluxAB (ELUXY), LG, Samsung and General Electric Co. (GE). The company is placed among the leading home appliances makers in India and Europe.
Whirlpool’s cost and capacity reduction initiatives are noteworthy, resulting in improved margins. However, we are concerned about the ongoing weakness in Europe, a region where it expects sales to decline this year.
As a result, Whirlpool currently retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating and we have a long-term (more than 6 months) recommendation of Neutral on the stock.
