Whirlpool Sparkles (News) October 13, 1999

Whirlpool Sparkles

By Richard McCaffery (TMF Gibson)
October 13, 1999

Strangely unaffected by the year 2000 computer crisis or Internet volatility, major home appliance maker Whirlpool (NYSE: WHR) reported earnings (from continuing operations) of $1.40 per diluted share, up 36% from last year and way ahead of the First Call/Thomson mean estimate of $1.34.

Strong sales growth in North America and Europe helped the maker of KitchenAid, Roper, and other name brand appliances hit the record mark. Net income totaled $107 million, up from $78 million a year ago.

The growth is being spurred by new products and a robust economy that has Americans buying lots of new appliances for lots of new homes. (I just bought a snazzy Whirlpool washer and dryer myself.) Total sales for the quarter hit $2.7 billion, up 7% from last year.

The company's 17% quarterly sales gain in North America is especially impressive considering rival Maytag's (NYSE: MYG) recent struggles. Early last month Maytag warned investors to expect flat earnings for the quarter because of slow sales in its low-end and midrange product lines. For more on this excellent company's current problems, check out Brian Graney's recent article.

Analysts expect Whirlpool to earn $5.16 for the year, and, based on the strength of its recent quarter and previous comments from management, hitting that number should be a piece of cake. This would represent 21% year-over-year EPS growth for Whirlpool, which sports a forward price-to-earnings ratio of 12.3. In other words, the company is trading at a little more than half its expected growth rate. (Maytag is also trading at a discount to its expected growth rate, by the way, thanks to the recent clubbing.)

All this P/E mumbo jumbo aside, investors should take a closer look at the efficiencies Whirlpool's been squeezing out of its laundry, which help tell the story of robust earnings growth.

In the third quarter, gross margins grew nearly 1% and operating margins grew more than 1.5%. Whirlpool has held inventory and receivables levels flat, trimmed long-term and short-term debt, and is currently buying back $250 million in shares with extra cash. The company's return on equity stands at a respectable 17% this quarter, in line with what it achieved last year, and well above the 1995 level of 11.6%.

Going forward, Whirlpool's push to expand globally -- its major strategy this decade -- has it well-positioned for future growth. Whirlpool is the number one appliance maker in Latin America (as well as North America), number three in Europe, and is ready to capture market share in Asia. The company has manufacturing operations in 11 countries and sells products in over 170 countries. Last year the company took care to improve profitability overseas and boosted operating profit 73% in Asia and 125% in Europe.

Investors should range over the company's latest financial statements for a closer look.

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