Whirlpool isn't without risk, but the upside potential is significant, and an improving housing market will help.
Whirlpool is a value option for income-seeking investors
Lee Samaha (Whirlpool): I'm not going to sugarcoat this. Whirlpool's first-quarter earnings disappointed, raising the risk that the company won't hit its full-year earnings expectations. However, if the company merely meets management's full-year guidance, there's a strong chance the stock will be materially higher.
Let's put it this way: the guidance calls for flat like-for-like earnings before interest and taxation (EBIT) margin and net sales resulting in ongoing EBIT of $1.15 billion page 21 dropping down into $550 million to $650 million in free cash flow (FCF). The current market cap of $5.08 billion implies a price-to-FCF multiple of just 8.5 times the midpoint of guidance. Moreover, FCF would provide ample coverage for the current dividend payout of $384 million , which puts the stock on a dividend yield of 7.5%.
This is fine, but Whirlpool's first-quarter earnings report revealed disappointing developments. Sticky supply chain inflation led management to tell investors it's trending towards the low end of the expected $300 million to $400 million in cost cuts. Meanwhile, raw material price inflation also threatens margins, and management abandoned its promotional investments in North America as it failed to achieve "our value-creation expectations," according to CFO Jim Peters on the earnings call.
On a brighter note, the other three segments, major domestic appliances (MDA) Latin America, MDA Asia, and Global small domestic appliances (SDA), all grew margins and EBIT in the first quarter. In addition, Whirlpool announced a 5% price increase in MDA North America. If the price increases stick and the other three segments continue trending, Whirlpool can hit its targets. Throw in the possibility of an improved housing market driving discretionary spending on MDA, and Whirlpool's upside potential is significant.
