Court Settlements Whack Whirlpool's Bottom Line
Benton Harbor-based Whirlpool Corp. (NYSE: WHR) Thursday reported a second quarter loss of $161 million or $2.10 a share, vs. net income of $205 million or $2.64 a share in the same period a year ago.
The company said the results reflect settlement of a collection dispute in Brazil for the equivalent of $3.78 a share, and increased accruals related to an antitrust case amounting to $1.08 a share.
The Brazilian dispute involved an unauthorized loan entered into in 1989 by an employee of Embraco, which subsequently became part of Whirlpool's Brazilian subsidiary. The employee was terminated in that same year, and the loan has been the subject of two decades of court dispute in Brazil. The antitrust case involves allegations of price-fixing in the manufacturing of compressors, a crucial component of refrigerators and air conditioners.
Sales in 2011 were $4.7 billion, up from $4.5 billion reported in the second quarter of 2010, a 4 percent increase driven by favorable currency trends. Despite the difficult economic environment, global shipments were up year over year.
Second-quarter operating profit totaled $223 million compared with $331 million in the prior year. Results were favorably impacted by cost reduction and productivity initiatives and increased monetization of tax credits. These favorable factors were offset by significantly higher material and oil-related costs and unfavorable product price/mix.
"While the challenging economic environment has kept us from achieving our targeted margins, we delivered a solid quarter," said Jeff M. Fettig, Whirlpool Corporation chairman and CEO. "Our continued cost and productivity initiatives coupled with strong product innovation have helped mitigate a volatile demand environment and record levels of material cost inflation. Additionally, our recently announced price increases in key countries around the world help position us for stronger second half performance."
By region, the company's performance:
Whirlpool North America: Second-quarter sales of $2.4 billion decreased 7 percent from the prior year. Overall, North America unit shipments decreased 5 percent, while U.S. industry unit shipments of major appliances decreased 10 percent. The North America region reported operating profit of $76 million compared to $200 million in the previous year. Results were favorably impacted by cost reduction and productivity initiatives as well as lower incentive compensation. These factors were offset by lower industry volumes, higher material costs and unfavorable product price/mix. Based on the current economic outlook, the company now expects full-year 2011 U.S. industry unit shipments to decrease between 1 percent and 2 percent.
Whirlpool Europe, Middle East and Africa: Whirlpool Europe, Middle East and Africa reported second-quarter sales of $841 million, a 14 percent increase from the prior year. Unit shipments for the region increased approximately 2 percent. Excluding currency translation, sales decreased approximately 2 percent. Operating profit totaling $20 million in the second quarter was in line with prior-year results. Unfavorable product price/mix and higher material costs were offset by cost reduction and productivity initiatives. The company now expects full-year 2011 industry unit shipments to increase approximately 1 percent to 2 percent.
Whirlpool Latin America: Whirlpool Latin America reported second-quarter net sales of $1.3 billion, an increase of 25 percent from the prior year. Latin America unit shipments increased approximately 21 percent. Excluding currency translation, sales increased approximately 16 percent. The region reported operating profit of $166 million compared to $165 million in the previous year. Results were favorably impacted by increased monetization of tax credits and cost reduction and productivity initiatives. These factors were offset by lower product price/mix and significantly higher material costs. The company continues to anticipate full-year 2011 appliance industry shipments in the Latin America region will increase approximately 5 percent to 10 percent.
Whirlpool Asia: Whirlpool Asia reported second-quarter sales of $257 million, a decrease of 2 percent from the prior year primarily due to slowing industry demand in India. Asia unit shipments decreased approximately 4 percent. Excluding the impact of currency, sales decreased approximately 5 percent. Operating profit was essentially unchanged from the prior year as favorable product price/mix offset lower unit volumes and higher material costs. The company now expects full-year 2011 industry unit shipments in Asia to increase approximately 4 to 6 percent.
The company is reaffirming its annual operating earnings per share of $12.00 to $13.00 and free cash flow guidance in the range of $400 million to $500 million. Given the current operating environment, Whirlpool is guiding EPS to the low end of the range.
As a result of the non-operating charges incurred during the second quarter, Whirlpool Corporation now sees its outlook for 2011 GAAP diluted earnings per share in the range of $7.25 to $8.25, and free cash flow between $160 million and $260 million. This guidance maintains the $300 million to $350 million of U.S. energy tax credits and now includes $250 million to $300 million of BEFIEX credit monetization. U.S. cash pension contributions are expected to remain at approximately $300 million.
