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.