Whirlpool Stock: A Potential Buy for Value Investors Amid Challenges and Opportunities
Current Challenges Facing Whirlpool
The past year has not unfolded as management had anticipated, leading to a decline of over 15% in stock value. The Federal Reserve’s delayed decision to cut interest rates has significantly affected the housing market, thereby reducing demand for major home appliances. Whirlpool’s management now expects flat comparable sales for 2023, a stark adjustment from earlier projections. The company recently reduced its full-year EBIT margin guidance, lowering the expectation from 6.8% at the year’s start to a more modest 6%.
Factors Pressuring Whirlpool’s Margins
While sales guidance remains unchanged, Whirlpool’s margin forecasts have been under pressure due to several factors:
- Promotional Shortfalls: Whirlpool’s promotional activities last winter and spring did not generate the anticipated sales momentum. In response, the company raised its promotional pricing by 5% in May, a move intended to bolster margins by year-end.
- High Interest Rates Impacting Discretionary Spending: Elevated interest rates have suppressed consumer spending on discretionary purchases, particularly in high-margin categories such as premium kitchen and bathroom products. Consequently, sales are shifting toward lower-margin replacement markets, where consumers are opting to replace broken appliances instead of purchasing new, high-end models.
- Inflation in Supply Chain Costs: Initially, management expected to cut costs by $300 million to $400 million this year, but persistent inflation in supply chain costs has caused the company to revise this estimate to $300 million.
Future Guidance and Market Outlook
Given these challenges, there is a reasonable expectation that Whirlpool may miss its full-year guidance. Despite maintaining its overall sales guidance during the third-quarter earnings call, management has had to adjust expectations for its most critical segment, MDA North America, down from an initial EBIT margin forecast of 9% to a current range of 8% to 9%.
Moreover, CFO Jim Peters indicated that a further decline in discretionary demand is anticipated in the first half of 2024. While recent improvements in new single-family home sales have positively responded to lower interest rates, the latest uptick in rates could adversely affect future sales.
Is Whirlpool a Stock Worth Buying?
Despite these headwinds, Whirlpool could still represent a solid investment opportunity. Even if it slightly misses its annual guidance, the stock remains attractively priced. Wall Street anticipates earnings per share of $11.88 for 2024, translating to a price-to-earnings ratio of just 8.7.
This suggests that there is room for upside potential. If you’re willing to look beyond short-term risks and are seeking a stock that may see substantial growth by 2025, Whirlpool could be a worthwhile addition. However, investors who cannot tolerate short-term volatility should approach this stock with caution, as meeting the full-year guidance could prove challenging.
