What happened
Shares of Whirlpool Corporation (WHR 6.74%) were going down the drain this morning as the appliance manufacturer lowered its earnings guidance, and Sears Holdings (SHLD +0.00%) said it would no longer carry the company's products after a pricing dispute.
As of 11:49 a.m. EDT, the stock was down 10.2%. The drop also came as the dishwasher maker missed estimates in its third-quarter earnings report last night.
Image source: Whirlpool.
So what
Overall revenue increased 3% to $5.42 billion, which was short of expectations at $5.5 billion, while continuing operating profit fell 10% to $376 million. On the bottom line, adjusted earnings per share (EPS) improved from $3.66 to $3.83 with the help of a tax benefit, below the consensus at $3.93.
CEO Marc Bitzer said, "We are pleased with our revenue growth, and free cash flow improvement but are not satisfied with our operating margins, which were impacted by raw material inflation, unfavorable price/mix and slow progress on our European integration."
The divorce with Sears came after the two companies had partnered for a century, and means Sears will no longer sell Whirlpool brands including Maytag, KitchenAid, and Jenn-Air after it depletes its current inventory. In a memo, Sears said, "Whirlpool has sought to use its dominant position in the marketplace to make demands that would have prohibited us from offering Whirlpool products to our members at a reasonable price."
Now what
Looking ahead, Whirlpool slashed its full-year earnings-per-share guidance from $13.60-$13.90 to $11.10-$11.40, due to elevated raw material prices, which the company sees increasing through 2018 as well. Management also announced a cost-cutting initiative to reduce overhead costs by $150 million in addition to ongoing productivity efforts. It was the third quarter in a row that management cut guidance. However, the company maintained its 2020 goals, which included EBIT margin of at least 10% and annual EPS growth of 10 to 15% by next year.
Shares deserve to fall on the earnings report, guidance cut, and Sears split, but if raw materials are the biggest headwind, the stock should eventually bounce back.
