Name brand household appliance manufacturer Whirlpool (WHR 1.11%) reported mixed second-quarter earnings yesterday. While revenue of $5.1 billion missed Wall Street expectations of $5.14, an adjusted EPS of $5.97 beat consensus by $0.73. The stock pays a handsome dividend yield of over 4.1%. Can the company keep up its stellar dividend?
The bad news
Whirlpool's European segment took a big hit in the first quarter. Management said that, due to the continuing conflict between Russia and Ukraine and the declining Euro, revenue in the region fell 19%. However, excluding the impact of currency, revenue declined by only 10.3%.
More startling was the 94% drop in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the European region. The company blamed lower volumes and inflation for the eye-popping decline in EBITDA. During the quarter, the company also agreed to sell its Russian business.
The transaction isn't set to close until the third quarter, but Whirlpool booked $346 million in asset write-downs and $384 million in goodwill and intangible asset impairments in the second quarter. The losses are non-cash and non-recurring but still count against generally accepted accounting principles (GAAP) earnings. Non-adjusted GAAP earnings per share was negative $6.62 in the second quarter.
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Inflation also hit the company's North American region. Record high costs caused EBITDA in the region to fall by 25% to $417 million. Inflation appears to be more persistent than the company expected. Management lowered North American revenue guidance for the full year from flat to a range of negative 7% to negative 5%. EBITDA margin guidance in the region was also lowered from 16% to 15%.
Whirlpool also lowered guidance for several metrics at the company level. The company now expects consolidated sales to be about $20.7 billion, down from $22.5 billion. Though management believes inflation is peaking, it lowered EBITDA guidance from 9.5% to 9%. Though bad news was scattered throughout the report, there were bright spots.
The good news
The company successfully raised prices in its Asian region, where revenue was up 26% to $338 million, and its EBITDA margin increased 5.1 percentage points to 6.8%. In the name of full disclosure, management pointed out that last year's COVID-19-related shutdowns in the region provided an easier comparison than normal.
In addition, for the remainder of the year, management expects previously announced price increases to offset inflationary cost increases. In the same vein, free cash flow guidance for the full year remained unchanged at $1.25 billion.
Is the dividend safe?
Customers buy Whirlpool appliances for one of two reasons. They either need one for a new home, or they need to replace an old appliance. New home construction has slowed in 2022, which is a likely reason for the stock's 25% decline this year. On the other hand, if your refrigerator, washer, or dryer breaks down, you need to replace it ASAP. Though appliance sales may take a hit if the global economy slows down, Whirlpool's replacement business should help it weather the storm.
Profits from the company's steady replacement business can also support its dividend. Whirlpool's annual dividend is $7 per share, and it expects to generate $22 to $24 in earnings per share this year. So, the company has plenty of breathing room to continue its dividend, which yields over 4%. Beyond the dividend, the company expects to buy back $1 billion of its stock in 2022.
Interestingly, the stock is up after the earnings report, while the S&P 500 index is down. One day is a tiny sample size, but the stock's reaction may indicate that the bad news is already accounted for in the stock price. Long-term investors may find value in the business and its impressive dividend yield.
