Is Whirlpool Circling The Drain?

Inflation Cuts Into Whirlpool’s Outlook 

Shares of Whirlpool NYSE: WHR are moving higher in the wake of the Q4 earnings report and guidance for 2022 but we aren’t betting the house on this move. The company is still in good shape and on track to continue increasing its capital returns but there is a drag on results in the form of inflation. The company’s price hikes and cost-mitigation efforts fully offset the impacts of inflation in 2021 but inflationary pressures increased in Q4 and the outlook for 2022 includes margin compression. We don’t think this is going to lead the stock to any kind of melt-down, the fundamentals are certainly in place for the stock to move higher, but we do think it will remain range-bound until later in the year. 

Whirlpool Had A Good Year Despite Inflation 

Whirlpool had a great quarter there is no doubt about it but there are reasons for shareholders to be concerned. The company reported $5.82 billion in net revenue for a gain of 0.5% over last year but missed the consensus by 100 basis points. The revenue was driven by gains in all segments but at a slightly slower pace than expected coupled with the impact of rising inflation. Inflation rose by double-digits in all segments but high-double-digit paces in both EMEA and Latin America that have yet to peak. 

Moving down to the income portion of the statement, the company reported a record FY GAAP operating margin of 8.1% but there was a contraction in Q4. The Q4 GAAP margin fell to 5.1% from higher levels in the previous year and previous quarter and may shrink further if pricing efforts are not resumed. On an adjusted basis, however, the margin came in at 8.6% and helped to drive better than expected earnings on the bottom line. The adjusted $6.14 is down $0.50 from last year but beat the Marketbeat.com consensus by $0.21.

Looking forward the guidance is favorable versus the Marketbeat.com consensus estimates but there has been no discernible movement in the analyst’s outlook since the fall of 2021. The revenue is expected to grow at a 5-6% clip and deliver $27.00 to $29.00 in adjusted earnings versus the $25.40 consensus and the $26.59 posted in 2021. This means the analysts will up their estimates or Whirlpool will beat the consensus but a problem still remains. The company is forecasting only $2.2 billion in cash flow and $1.5 billion in FCF which are only slightly higher and much lower than 2021 respectively. 

Whirlpool Forecasts An Increase In Capital Returns 

Whirlpool is forecasting an increase in its capital return program but it is not enough, in our opinion, to get the stock to new highs right now. The company is forecasting $1.5 billion in returns versus the $1.4 billion seen in F21 which is an increase of only 7%. Because most of the $1.4 billion spent in 2021 went to repurchases we see that happening again this year and there is a risk the company will miss its targets. In that light, the company is likely to up its dividend too, but at a mid to low single-digit rate which we think may already be priced into the stock. Whirlpool yields about 2.7% and pays out less than 30% of its earnings as dividends so it is an attractive yield regardless of share price movement.

The Technical Outlook: Whirlpool Moves Higher On Short-Covering 

Shares of Whirlpool are moving higher in early action due to short-covering and the outlook for growth. The move has the stock up about 3.5% but still well below the short-term 30-day EMA so there is a risk in getting too bullish. The stock has been range-bound for the last year and may remain so this year. The first target for resistance is the EMA and it may produce a strong reaction. If prices can’t get above the EMA a move down to the $195 to $200 range is expected. If price action can get above the EMA the next target for strong resistance is in the range of $235 to $240.