As was expected, Whirlpool have reported losses but more than was expected for the Q2 period of $161 million but there are some mitigating factors despite the underlying trend on greater material costs.
The settlement of a collection dispute helped drive Whirlpool to a loss in the second quarter. While its results excluding that and other unusual items beat Wall Street’s expectations, weaker-than-expected demand and higher-than-anticipated costs mean the company will continue to raise prices and sharpen its cost control efforts.
Whirlpool is not alone in it’s situation as Electrolux reported on Tuesday that its second-quarter profit was nearly halved due to weaker demand in key markets and higher raw material costs. Whirlpool said yesterday that it is contending in particular with rising material and oil-related costs.
These pressures and the uncertain economy prompted the company to announce that it now expects full-year earnings to come in at the low end of its previous guidance.
“What we expected late last year was some economic recovery in our developed markets. We certainly didn’t foresee the extraordinary inflation that we have experienced this year or the weakening of demand levels,” Chairman and CEO Jeff Fettig said during a conference call.
Whirlpool lost $161 million, or $2.10 per share for the three months ended June 30. That compares with net income of $205 million, or $2.64 per share, a year ago.
The appliance maker announced in June that its Brazilian subsidiary would pay $603 million to Brazilian bank Banco Safra S.A. to settle a legal dispute that had spanned two decades. Excluding about $3.78 per share related to the settlement and $1.08 per share for increased accruals tied to developments in antitrust matters related to its Embraco subsidiary, adjusted earnings were $2.76 per share. That exceeded the $2.73 per share that analysts surveyed predicted.
Quarterly revenue climbed 4 percent to $4.73 billion thanks to favorable currency trends, but that is still just shy of Wall Street expectations. Sales rose in Latin America, Europe, the Middle East and Africa, but declined in Asia due to slowing demand in India. North American sales however were down 7 percent to $2.4 billion. with unit shipments of major appliances declining about 10 percent.
Marc Bitzer, president of North America, said that Whirlpool will make some additional price hikes in the region in August because of more material cost increases.
Fettig remains optimistic that price increases in some countries should lead to a stronger performance during the second half of the year.
Whirlpool now says full-year earnings will probably be at the low end of its $12 to $13 per share range. The guidance excludes charges related to the Brazilian settlement and Embraco antitrust matters.
In a call with teh Associated press Mr Fettig was asked, “Where does your confidence come from that you will be able to pass on price increases successfully to consumers if commodity prices continue to come down?”
Mr Fettig replied, “I don’t think I could agree that we’re yet in a down commodity cycle. I know there was a period where we had some peaks, but we never buy at the peak. We never buy at the bottom. The trend is still up. What I said was we expect the second half to be high, in fact, we peak in the third quarter, and then stabilizing. There are a few isolated cases where you have seen small declines.”
“But if you take the material cost increase of the second half of last year plus this (first half), it’s been the biggest commodity and material cost inflation period we have ever seen. So I think the price increases we’re asking for are very justified. We think it’s very predictable between now and the end of the year, simply as I said based on hedging and contract. So if (commodity prices) did turn next year, that’s a different issue, but I’d say margins have been hugely impacted at every level due to this inflation and we have to recap it with pricing.”
So it looks as if price hikes are almost inevitable.
