During Whirlpool's (WHR +0.51%) first-quarter earnings call in late April, CEO Marc Bitzer said he believes his company will be a "net winner of a new tariff policy." He has a strong case for thinking so, and it looks likely the appliance maker has real potential to see better days ahead.
That said, is the stock worth buying now? And how sustainable is its dividend, which at the current share price yields a hefty 9.2%?
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Near-term headwinds, longer-term tailwinds
Matters could get worse for Whirlpool before they get better. Starting with the near-term headwinds, there are two related things to consider.
- The demand destruction coming from the economic uncertainty created by President Donald Trump's trade war and its impact on interest rates and the housing market.
- Trump's election win induced Whirlpool's Asian competitors to act aggressively and push more appliances into the U.S. market in 2024's fourth quarter and 2025's first quarter, creating a challenging competitive environment.
The first point is significant because even if a new tariff environment favors Whirlpool's competitive positioning versus its peers, the company may still have to deal with weak overall demand. Unfortunately, market interest rates on U.S. Treasuries haven't come down enough to reduce mortgage rates, and existing home sales (one of the best gauges for the state of the housing market) remain relatively low.
This not only pressures overall sales -- Whirlpool's major domestic appliance sales in North America declined by 0.1% year over year (excluding currency impacts) in the first quarter -- but it also means that a smaller share of those sales will come from the higher-margin discretionary segment, such as fitted kitchens and bathrooms.
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Turning to the second issue, Bitzer addressed it on the earnings call: "Imports from Asian producers, again, not just China, all Asian producers ... was up 30% in January, February also reached the same level, up 30%." He went on to say there's "a fairly sizable amount of inventory in the country." He expected "similar market dynamics" in the second quarter.
The bottom line is that Trump's imposition of tariffs has created a challenging end-demand environment for Whirlpool, and the expectation that they were coming prompted its Asian competitors to preload the market, meaning that Whirlpool faces a difficult first half of 2025 in its core U.S. market.
Whirlpool will be a net winner from the new tariffs ... eventually
In the long term, Whirlpool's outlook should get a lot better for two key reasons.
First, about 80% of what Whirlpool sells in the U.S. is produced in the U.S. By contrast, only about 25% of the rest of the industry's production is domestic, Bitzer said on the earnings call. In addition, only 5% of what Whirlpool sells in the U.S. is sourced in China.
This gives the company a key edge in tariffs imposed on imports to the U.S.
Second, Whirlpool's management believes the Trump administration will close a loophole under Section 232 that has allowed Asian producers to avoid paying tariffs on Chinese steel (which is notably cheaper than U.S. steel) used in their appliances (Whirlpool uses U.S. steel in domestic products) and also in steel used in components (LED panels, motors) that Whirlpool imports.
The end result -- between the cost differential and the lower tariffs -- is a $70 per product advantage for Asian producers, which translates into a $150 difference in the retail price. If Bitzer's confidence in the Trump administration closing the loophole is well-founded, then that gap will close. Moreover, if that leads to a pick-up in sales volume for Whirlpool, the company has the spare capacity in its U.S. factories to ramp up production, which should lead to margin expansions due to scale.
NYSE: WHR
Key Data Points
A high-yield stock to buy?
While there is still a lot of uncertainty about which tariffs will stay and at what levels, the deals being negotiated to end the tariffs could eventually result in a more level playing field for U.S.-based manufacturers like Whirlpool. That said, the near-term environment is challenging, as is the company's balance sheet: It has $4.8 billion in long-term debt and $1.85 billion in debt maturing this year.
Management expects Whirlpool will generate $500 million to $600 million in free cash flow this year, which will help it repay $700 million worth of debt and refinance $1.1 billion to $1.2 billion. However, these plans could come unstuck if it misses its estimates, and given the near-term challenges, that could happen. Reducing its $380 million annual dividend payout would help in that scenario and refocus investor attention on Whirlpool's long-term opportunity to regain market share from Asian competitors.
All told, Whirlpool is not a stock to buy for its dividend, but if and when management decides to cut it, it could become extremely interesting as a stock.
