The largest manufacturer of home-appliances in the world, has reported unattractive earnings results yesterday. Whirlpool CEO said that Brexit and the U.S. presidential elections craze are to blame for that.
After the announcement of the Q3 earnings on Tuesday, Whirlpool's (NYSE: Whirlpool Corporation [WHR]) shares plummeted whopping 13% reacting to the missed earnings targets. According to FactSet, the company missed the earnings per share expectations by as much as 20 cents, reporting earnings per share of $3.66 instead of the expected $3.86. In addition to that, Whirlpool has downgraded its annual core EPS guidance from $14.25-$14.75 to $14-$14.25 and estimated the full year GAAP earnings to be somewhere between $11.50 – $11.75. These numbers did not make WHR investors any happier.
Zacks Investment Research says that the company had to revise their earnings guidance so significantly because of the tightening market conditions Whirlpool has been experiencing in both the U.S. and the U.K. According to the experts, the company has been dealing with a serious drop in demand in the largest markets that was only further aggravated by the devaluation of the British Pound.
The domestic U.S. market also demonstrated a 5% drop in demand for home appliances during the summer months of July and August that affected all producers including Whirlpool. However, the U.K. market has been particularly problematic for the company this quarter as they had to deal with increased costs caused by the weakness of the national currency in the post-Brexit months. Whirlpool CEO Jeff Fettig said that the main problem for his company was balancing between weakening pound and growing prices for the appliances imported from abroad. Considering that roughly 85% of Whirlpool's appliances are not U.K.-produced, the company logically decided to increase the prices for their products that only further impeded demand, reported Barron's.
As a result of the weakening pound and drop in demand, Whirlpool's earnings fell by as much as $40 billion, stealing about 40 cents per share from the profits, said Fettig. These were the main factors that contributed to the disappointing earnings results this quarter.
"For the full-year 2016, Whirlpool Corporation now expects GAAP earnings per diluted share of $11.50 to $11.75 and ongoing business earnings per diluted share of $14.00 to $14.25. These changes are primarily related to demand softness in the U.S. and the U.K., along with the continued devaluation of the British Pound," the company wrote in the statement.
In the late trading session yesterday WHR lost almost $20 dropping to $151.41, or 11% from its previous value. However, despite the disappointing results, Fettig appeared to have a positive outlook of his company's future:
“In a market like this, a perceived miss means you’re gonna have a reaction. It’s usually temporary. I suspect this will be as well. At this level we’re hugely undervalued,” he told Barron's in an interview following the earnings results announcement.
Apart from the general underperforming of the company's Q3 results, Fettig says that Whirlpool managed to boost its market share and expand margins in the North and South America during this quarter. At the same time, in Asia, the company is working on growing its distribution network but still experiencing a tough competition from the biggest Asian manufacturers in Asia and in Whirlpool's domestic market, the U.S.
Barron's said that the company filed "anti-dumping" cases against Samsung (OTC: SSNLF) and LG (KS: 066570), Whirlpool's main rivals, back in December 2015 that received attention of the U.S. Department of Commerce and International Trade Commission. The Asian manufacturers were accused of "ongoing unlawful dumping of clothes washers into the United States" that distressed the domestic manufacturers.
"Today's ruling is an important step forward in an effort to stop serial dumping practices by Samsung and LG and uphold free and fair trade practices. At Whirlpool, we know that open, rules-based trade ensures the highest level of innovation and choice for consumers," said Marc Bitzer, Whirlpool's Chief Operating Officer.
Whirlpool's Chief added that in "more normal times" Whirlpool can earn "well over $20 a share".
Anyway, these are the main Whirlpool's concerns at the moment that are weighing down the company's earnings and stock. Maybe Fettig is right and Whirlpool's troubles are just temporary but the company's adjusted EPS and GAAP outlook suggests that the effect of this quarter might last longer than the management wants it to.