Whirlpool

[brewer12345]

I have started nibbling at this name. It is hated by the market, with very low valuation (roughly 7X forward earnings, 4.5X EV/EBITDA). Obviously they have leverage to consumer discretionary spending in the US. Yet they have a fantastic stable of brands and (much to my surprise) are a powerhouse in emerging economies, especially Latin America. As a matter of fact, they appear to make the bulk of their profits overseas, where things are growing a lot faster than in the US. The company was walloped by the downturn as they had levered up to buy Maytag, IIRC. Management appears to have ridden out the storm and has stabilized both the business and the balance sheet.

Thoughts? The options on this name are extremely pricy so for my initial stake I have bought shares and written puts 3:1.

 

[spirit]

Have you bought appliances lately

About 3 years ago we were going to update our appliances. 30 years ago we went into a great store, bought all GE appliances that were made in America and were happy with them. This time we went into the stores and found out that Whirlpool bought out all the higher end brands like Jenn Aire, Kitchen Aide etc. and deteriorated the brand by outsourcing manufacture into Mexico and now into other countries. I don't know that much about investing but I would not want to invest in a product that is not well built anymore. I live in Canada and see the quality of American names deteriorating.

 

[clifp]

I started to look at Whirlpool, but I was surprised to see that M* doesn't cover it. The recent write off due a previous legal settlement made it hard for me to do much of analysis comparison with previous quarters, since I could not find out much detail. But you don't certainly don't need to me to do financial analysis.

I am always interested in companies that raise dividends, and WHR recent hike after years of maintain their dividend (presumably due to debt) is promising.

From a marketing perspective, I am not out all surprised they are doing well in developing markets. The old 50, and 60s American premium brands (Maytag and Whirlpool certainly qualify) have a certain cachet in emerging markets. This is true despite the fact that in US/Canada and Western Europe these brand are considered old fashion and over the hill. The classic example is Buick in China (and frankly all of GM has done well in China.) My guess is that that when various countries first started to see American TV in the 60s and 70s, they started with old sitcom. (Think I Love Lucy). They would have had exposure to American brands in those shows, and those images probably persisted for a generations, because they had limited exposure to the actual products. Whatever the failures of American manufacturing, in issues like quality, American marketing is top notch.

 

[MichaelB]

Brewer, this is Valueline's assessment

Whirlpool's international performance has been strong, but a little help from Uncle Sam will go a long way. The company has benefited from higher demand and increased volume abroad. Sales in Europe and Asia are doing well. However, U.S. sales have been challenged by a slowdown in the economic recovery. Heavy promotional activity has hurt pricing in the North American market, as weak housing remains a problem. As a result, performance may be challenged by a modest slowdown in North American volume, coupled with higher raw material costs. Thus, on the domestic side, energy tax credits and cost control have been the primary contributors to bottom-line gains in recent months. This, coupled with tax credits related to Brazilian operations, ought to ensure a solid share-net advance this year. In fact, the aforementioned tax benefits will likely equate to roughly between $3.00 and $4.00 this year.

The likely absence of tax credits next year will probably lead to unfavorable comparisons. The company is facing some challenges in the domestic marketplace, as commodity inflation and high unemployment indicate that the economic recovery has slowed. Although the broader long-term economic outlook is favorable, pricing issues and volatile consumer spending habits may weigh on performance next year.

Still, we like the company's long-term prospects. Whirlpool remains focused on gaining market share in the North American region. Furthermore, management is taking steps to alleviate margin pressure through cost-control measures that ought to help offset rising raw material costs. In addition, increasing demand abroad, especially in Europe, Asia, and Latin America, where new products have been well received, offers considerable promise. Too, we believe that global economic conditions will improve over the long haul. These factors should drive sales growth and bolster profits.

These neutrally ranked shares should appeal to the patient investor. Although the near-term picture is unexciting, total return potential over the next 3 to 5 years is attractive, as we look for profits to advance nicely in the span.

I would imagine housing problems have hurt them, and that should really start to clear up by the middle of next year. Nords linked to an appliance repair website a few weeks ago http://www.early-retirement.org/forums/f27/the-samurai-appliance-repair-man-56799.html and they have a high regard for Whirlpool.

 

[Gotadimple]

Whirlpool makes good products. And they make most of everybody else's "American" label products too! Like Amana? It's made by Whirlpool, along with Maytag and others as mentioned.

 

[wildcat]

Couple things I don't like:

1) appliance replacement cycle has slowed substantially in N America & it is still 50%+ of the business
2) little to no pricing power for its products, esp with the war going on among global competitors who can do produce products at a lower cost from what I can tell (LG has come on the scene in a big way)
3) underfunded pension now w/ plenty of N American workers who are & will be owed
4) + is that they are global but so are its competition
5) raw material cost increases which affect everyone but see #2

I'm not really concerned about the whole sourcing of production & quality issues that often stem from it. This has happened to many producers - even nabbed Toyota. I think what comes from it is a product market w/o a clear differentiation between one company's offering and another. So beyond some features you may or may not want, why not just go with the cheapest offering? IIRC, WHR and Maytag cater more towards the higher end.

Just a few things I noted but sometimes being cheap is enough of a catalyst. Any idea of what its normal earnings power looks like less the tax benefit?

 

[brewer12345]

Normalized earnings power depends on the economic environment. That said, consensus for next year without the tax benefits is $9 and change a share, IIRC.

The pension is fairly easy to factor in. Count the underfunded portion as long term debt and factor it into your EV/EBITDA multiple. Goes for any company.