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WIKI ANALYSIS
Whirlpool (NYSE: WHR) is a manufacturer and marketer of major home appliances with $17 billion in revenue. Its products are mainly found in the kitchen and the laundry room. Whirlpool sells its products to retailers, distributors and directly to builders and installers. Whirlpool is a major appliance supplier in North America and Latin America and has a growing influence in markets throughout Europe and India.
Whirlpool owns 13 brands, including: Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, Consul, Bauknecht, and Gladiator. Whirlpool has the largest presence in North America, which makes up 55% of 2009 revenue, but also is well established in Latin America (22% of 2009 revenue), Europe (19% of 2009 revenue), and Asia (4% of 2009 revenue).
Whirlpool's products are exposed to the cyclical nature of the housing market. Since most Whirlpool products are durable goods, consumers often delay purchases of these products during periods of economic hardship. Additionally, Whirlpool sales are tied to the housing market. In the U.S., the "new install" channel constitutes 15% of WHR's sales.[1] When new home sales slow, so too do Whirlpool's "new install" sales. This partially explains the 9.5% decrease in units sold in North America in 2009.[1]
Despite weakness in the North American and European markets, Whirlpool announced an increase in net income of 141% and an increase in revenue of 20% percent from the first quarter of 2009 to the first quarter of 2010.[1] This growth is largely due the strong demand for Whirlpool products in Latin America and Asia. Unit sales in Latin America and Asia increased by 14.5% and 20.8%, respectively, from 2008 to 2009.[1]
Company Overview
Whirlpool's main products are laundry appliances, refrigerators/freezers, cooking appliances, dishwashers, mixers and other small household appliances. WHR employs more than 130 industrial designers in four design centers and 3,500 engineers in 26 research centers. The design of Whirlpool's highest end products focuses around "6th Sense" technology, which adapts appliances to their surroundings. For example, "6 Sense" refrigerators adjust conditions to best keep food fresh, and driers adjust their timing and heat depending on the load size.[2]
Business and Financial Metrics
First Quarter 2010 Results[3]
Whirlpool announced an increase in net income of 141 percent to $164 million, or $2.13 per diluted share, compared to $68 million, or $0.91 per diluted share reported during the same period last year. Sales of $4.3 billion increased 20 percent from the $3.6 billion reported in the first quarter of 2009.
First-quarter operating profit totaled $241 million compared with $166 million in the prior year. Results were favorably impacted by cost reduction and productivity initiatives, increased sales volume and favorable foreign currency effects.
Whirlpool continues to invest a large percentage of its operating budget on research & development.
Business Segments[1]
Whirlpool reports business units by geography as it considers each to be nearly a free standing business, with its respective manufacturing and distribution arms. Brands are localized by region as well. Top line revenues provide a cursory overview of growth opportunities for a country. North American growth has slowed dramatically, while Asian and Latin American growth have accelerated noticeably. The only region which saw margin erosion was North America.
North America (55% of 2009 revenue)
North America net sales decreased in 2009 by 11.0% compared to 2008 primarily due to a 9.5% decrease in units sold. The decline in units sold is due to decreased industry demand resulting from continued weak economies in the U.S., Mexico and Canada in 2009. Additionally, net sales were negatively impacted by the unfavorable impact of foreign currency. Excluding the impact of foreign currency, North America net sales decreased 9.4% in 2009.
Latin America (22% of 2009 revenue
Latin America net sales were consistent in 2009 compared to 2008 as the unfavorable impact of foreign currency and lower BEFIEX credits recognized were fully offset by a 14.5% increase in units sold. The increase in units sold was a result of favorable economic conditions and the Impostos sobre Produtos (“IPI”) sales tax holiday in Brazil. The IPI sales tax holiday was the primary driver of the reduction of BEFIEX credits monetized. This sales tax holiday was declared by the Brazilian government on certain appliances in the Latin America region beginning in the second quarter and extended through the remainder of 2009. During this holiday, we monetized reduced amounts of BEFIEX credits because our BEFIEX credits are monetized through the offset of IPI taxes due. The IPI sales tax holiday expired January 31, 2010. Excluding the impact of foreign currency, Latin America net sales increased 7.1% in 2009.
Europe (19% of 2009 revenue)
Europe net sales decreased in 2009 by 16.9% compared to 2008, primarily due to an 11.7% decrease in units sold due to lower appliance industry demand and the unfavorable impact of foreign currency. Excluding the impact of foreign currency, Europe net sales decreased 11.2% in 2009.
Asia (4% of 2009 revenue)
Asia net sales increased 10.3% in 2009 compared to 2008 primarily due to a 20.8% increase in units sold offset partially by the impact of unfavorable foreign currency. Excluding the impact of foreign currency, Asia net sales increased 18.4% in 2009.
Trends and Forces
International growth and higher margins abroad present opportunities for WHR
WHR has sales in over 170 countries worldwide. WHR has focused on adding depth to its international presence, growing sales to Latin America and Asia, which grew 14.5% and 20.8% respectively in 2009.[1] Management's success so far in growing international revenues lends confidence in the face of WHR's decreasing sales to the U.S. market, which is characterized by declining appliance industry demand and lower original equipment manufacturer sales.
Brand equity will aid in revenue growth and margin expansion
Whirlpool is a top brand in the appliance market across all of its markets, in terms of unit sales and average sales price per unit. There is little cannibalization between the brands in Whirlpool's portfolio, and Whirlpool's higher and lower end brands serve distinct markets, such as KitchenAid vs. Ropper. Whirlpool's future growth is likely to target higher-end and higher margin products, moving into markets previously the realm of appliance manufacturers such as Sub-Zero.[4]
U.S. Housing Market related woes will slow down domestic growth
Whirlpool's products are exposed to the up-and-down nature of the housing market. Current concern over a drop in house construction and sales threatens sales through the "new install" channel to new housing installers, which constitutes 15% of WHR's sales.[5] Moreover, in a "virtuous cycle" where U.S. Housing Market prices are rising, individuals can borrow against home equity in order to finance home appliance purchases. This is no longer as fiscally responsible in a declining market, as purchases to improve home value against home equity are swamped by the decrease in equity. This partially explains WHR's severe North American unit volume decrease and revenue slowdown as the U.S. Housing Market bubble burst.
Raw Material Costs and Inflation will continue to hurt WHR's margins unless it aggressively passes-through costs
The primary inputs into WHR's business are steel, oil and resin, and other base metals.[6] Whirlpool believes that it can begin passing through costs to customers, as its Gross profit margin is significantly lower, but it is unclear how the competition and customers will respond. If competitors are willing to continue operating at a lower margin, and customers value prices more than Whirlpool's features, the company will lose share.[7]
Material costs make up about 65% of Whirlpool's operating expense. The main components of material costs, in order of importance, are steel, oil & related products (plastics, resins, etc.), logistics (transport costs) and base metals.
Competitors
In addition to Whirlpool's traditional competitors such as Electrolux, General Electric, and Kenmore in North America, there has been an emergence of strong global competitors such as LG, Bosch Siemens, Samsung and Haier.
- General Electric Company (GE)
- Electrolux
- Kenmore
- Haier
- Samsung
- LG Electronics
- Siemens AG (SI)
There is price pressure from all these competitors for a somewhat commoditized product, so winners in this market have the best cost structure. Points of differentiation largely lie in technology and marketing attempts by the companies. Whirlpool has segmented its brands into higher, midrange, and lower-market brands that have cost structures to match. Whirlpool's chief future growth opportunities lie in Latin America, which does not have a compelling domestic alternative, and Asia, which is characterized by stiff competition with Korean, Japanese, and Chinese manufacturers. Its American operations are also under attack by threats of import, and its European options have strong local competition.
On an overall scale, as can be seen in the Market Share section, Whirlpool's revenues have a larger Revenue share than unit volume share, implying that Whirlpool's products contribute more to global market revenues than to unit volume, implying higher sell prices. This places Whirlpool's brand in the higher-end of the market on an overall basis.
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 Whirlpool 2009 Annual Report
- ↑ Datamonitor Company Report. "Whirlpool" June 28, 2007
- ↑ "Whirlpool Corporation Reports First-Quarter 2010 Results"
- ↑ Whirlpool FY 2007 10-K "Products and Markets" pg.2
- ↑ MarketWatch "A Wrinkle in Whirlpool's growth story" Feb. 10, 2008
- ↑ Whirlpool FY 2007 Earnings Call Transcript
- ↑ Whirlpool FY 2007 Earnings Call Transcript
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