The stock of major appliance maker Whirlpool (WHR 163.87, -18.57, -10.2%) has seen better days and this isn't one of them. Shares are getting hit hard after the company came up short of analysts' average expectations for the third quarter and cut its full-year outlook. In addition, The Wall Street Journal reported that Sears is no longer going to sell Whirlpool appliances due to a pricing dispute.
Whirlpool clarified on its earnings conference call that Sears represents about 3% of its total revenue; nevertheless, in this competitive day and age, it doesn't help to have a sales channel cut off, particularly one that has existed for more than 100 years.
Whirlpool, then, is going to have some lost sales ground to make up for and that could prove difficult as it attempts to pass through price increases on a global basis to help offset the raw material inflation that cut into its profit margins in the third quarter and contributed to its disappointing earnings result.
For the third quarter, Whirlpool reported net sales of $5.42 billion, up 3.2% from the year-ago period, aided by a 3.5% jump in net sales in North America, a 6.1% increase in Latin America, and a 5.6% increase in Asia. Net sales in Europe, Middle East and Africa were flat.
Ongoing earnings per diluted share of $3.83 were up 4.6% from last year, yet they were compressed by an 80 basis points contraction in the ongoing EBIT margin of 6.6% that stemmed from an unfavorable price/mix, slow progress on its European integration, and raw material inflation.
The third quarter marked the fifth consecutive quarter that Whirlpool has come up well shy of analysts' average earnings expectation and the third straight quarter it has cut its FY17 guidance.
The latest guidance calls for ongoing earnings per diluted share to be in the range of $13.60 to $13.90. The preliminary forecast issued in January called for FY17 ongoing earnings per diluted share to be between $15.25 and $16.25.
The repeated downward revisions to guidance have created some credibility issues for management, which were cited by the analyst at RBC Capital Markets as a factor in the decision to downgrade WHR to Sector Perform from Top Pick. Separately, Bank of America/Merrill Lynch downgraded the stock to Neutral from Buy following the third quarter report.
None of this has set well with investors who are expressing their disappointment by selling the stock.
The losses today have pushed WHR below its 50-day and 200-day simple moving averages, which will be regarded as an adverse technical development. The added problem for Whirlpool, though, is that it has some fundamental issues standing in the way of delivering stronger earnings growth.
Accordingly, it is falling into the realm of being a "show-me stock," which is to say the burden of proof is going to be on the company to win back investor confidence that translates into an upward-trending stock price. Including today's loss, WHR is down 9.9% year-to-date.