WHR Whirlpool Corp

We are upgrading our long-term recommendation on Whirlpool Corporation (WHR) to Outperform from Neutral based on its effective cost-control measures, product innovation strategies and solid quarterly results.

Whirlpool’s operations are spread worldwide. The company derived 51% of its revenues from North America, 27% from Latin America, 17% from Europe, the Middle East and Africa and 5% from Asia last year. The geographic diversification has enabled Whirlpool to keep its top line more or less stable in difficult economic times as it cuts out some of the risks arising from concentration in one region. 

In addition, Whirlpool is focused on improving its margins. It has implemented a number of cost-control measures along with cost-based price increments. This particular strategy will probably help it withstand the uncertain economic environment.

Moreover, Whirlpool is a company which stresses product innovation. Its investment in research and development (R&D) has been consistent over time as shown by the R&D spending of $500 million in 2009, $532 million in 2010 and $578 million in 2011. Whirlpool’s R&D efforts are bearing positive consequences as the new products are gaining acceptability among consumers and driving the company’s positive price-product mix.

Whirlpool had posted solid results in its recently reported first quarter. The company’s adjusted net income jumped to $1.41 per share in the quarter from 64 cents in the same period last year, surpassing the Zacks Consensus Estimate of $1.12 by a healthy 25.89%.

However, revenues in the quarter dipped slightly to $4.35 billion from $4.40 billion last year as improving product price/mix was offset by unfavorable currency, lower industry demand and lower monetization of tax credits. As a result, revenues failed to meet the Zacks Consensus Estimate of $4.37 billion.

Going forward, the company expects to earn $6.50 to $7.00 per share on an adjusted basis in 2012, ahead of the Zacks Consensus Estimate of $6.42 for the year.

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 has a Zacks #1 Rank, reflecting a short-term (1 to 3 months) Strong Buy rating, which is in line with our long-term (more than 6 months) recommendation. 

 
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WHIRLPOOL CORP (WHR): Free Stock Analysis Report
 
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