Lower interest rates will help Whirlpool’s restructuring plans.
Whirlpool’s 6% dividend yield can’t be ignored
Lee Samaha: It hasn’t been an easy year for home appliances companies. Rising interest rates have put the brakes on the housing market, and it’s no surprise to see Whirlpool stock around 18% this year. It’s a move that took the stock down to a level more than 53% below its all-time high.
In addition to a slowing housing market, Whirlpool has suffered margin pressure from rising raw material costs and ongoing pressure from many supply chain issues that have plagued manufacturers since the lockdowns negatively impacted supply chains.
That said, management isn’t standing still. In fact, it’s responding to the difficult trading conditions by taking cost out – management is targeting $800 million in 2023, with potentially more to come in 2024. Additionally, Whirlpool has an agreement to sell its Middle East and African businesses to a Turkish company, Arcelik. In addition, Whirlpool will contribute its European domestic appliance business to create a European-focused company with Arcelik, with Whirlpool gaining a 25% stake in the new company. Arcelik will contribute its “domestic appliance, consumer electronics, air conditioning, and small domestic appliance businesses” according to the press release announcing the deal.
It all adds up to a company in restructuring mode, and with management expecting $500 million in free cash flow this year, the plan to distribute $400 million in dividends to shareholders in 2023 looks easily achievable. Throw in the possibility of lower interest rates turning around conditions in its core North American market in 2024. Whirlpool is an excellent option for investors who are willing to take a contrarian view.
