What to Expect When Whirlpool Reports Earnings

Appliance manufacturer Whirlpool (WHR 3.65%) will report its first-quarter results on Monday, April 22, after the market closes, followed by a conference call with analysts the next morning. Whirlpool is feeling some pain from raw material inflation and tariffs, and currency translation effects are knocking down its revenue growth rate. But the company still expects to improve its operating margin this year despite those headwinds.

What happened last time

Whirlpool suffered a small revenue decline in the fourth quarter. Currency played a role, but sales were weak in Europe, the Middle East, and Africa even after adjusting for currency.

Data source: Whirlpool.

Sales in North America, Whirlpool's most important region, were up 5.4% year over year adjusted for currency. Profitability also improved, with the company generating an adjusted segment operating margin of 11.8%, up 0.4 percentage points over the prior-year period. While raw material inflation, tariffs, and higher freight costs acting as headwinds, they were more than offset by improvements in pricing and product mix.

In the meantime, sales in Europe, the Middle East, and Africa tumbled 6.3% year over year adjusted for currency. The company reported a small operating loss for the segment, down from a small profit in the prior-year period. Pricing, product mix, and restructuring benefits were swamped by raw material inflation and the effect on productivity of lower unit volumes.

While reported sales in Latin America dwindled, sales were up 1.1% year over year on a currency-adjusted basis. Profitability did take a hit, though, with operating margin slumping 0.6 percentage points to 5.9%. The margin drop was driven by the impact of tax credits in the prior-year period.

Asia is Whirlpool's smallest region, but it reported the strongest growth adjusted for currency. Sales were up 11.2% year over year, although profitability fell. Segment operating margin was just 1.9%, down 0.8 percentage points year over year, due to raw material inflation and increased bad debt provisions.

Image source: Whirlpool.

What analysts are expecting

Analysts see a small revenue dip and a small earnings increase in the first quarter of 2019:

Data source: Yahoo! Finance.

For the full year, Whirlpool expects to produce revenue of $20.3 billion and non-GAAP earnings per share between $14 and $15. Analysts are forecasting revenue of $20.31 billion and non-GAAP EPS of $14.56.

Whirlpool's bottom line is sensitive to prices of raw materials like steel and plastic, as well as tariffs. The company predicts a $300 million cost increase in 2019 related to raw material and tariff inflation. However, it anticipates pricing and product mix improvements to lead to a small boost in operating margin compared to 2018.

Whirlpool is also sensitive to the U.S. housing market and remodel activity. The company is expecting the U.S. housing market to remain largely stable. "[T]he fundamental driver of consumer confidence in housing we considered to be intact. It doesn't mean that we will have strong growth but we just don't see right now the scenario that you would have a significant quarterly contraction of the market," said Whirlpool CEO Mark Bitzer during the fourth-quarter earnings call.

Shares of Whirlpool have soared roughly 30% so far this year, bouncing off lows carved out during the market sell-off in December. The stock, trading for less than 10 times earnings guidance,looks cheap, but it's important to remember that the company operates in a cyclical industry. Earnings could decline if Whirlpool's outlook for the housing market turns out to be overly optimistic or if trade tensions escalate.

Whirlpool's management will likely have more to say about its outlook during the earnings call on Tuesday morning.