Shares of Whirlpool Corporation (NYSE:WHR) have sharply risen by 28% year-to-date. Moreover, in the past year, the company’s stock spiked by 121%. Let’s examine the recent developments in the U.S appliances sector and then turn to Whirlpool’s outlook for 2013.
Are appliances sales rising?
Based on the latest retail sales report, U.S retail sales slightly increased by 0.1% in April compared to March and by 3.7% compared to the same month last year. On the other hand, the full report reveals that electronics and appliance-store sales declined during the first four months of 2013 by 0.7% compared to the first four months of 2012.
Conversely, in April this sector’s sales rose by 0.8% compared to March. This means U.S electronics and appliance-sector sales have declined in the first quarter of 2013 but have rallied in April. If this trend persists, then in the following quarters the revenue of leading electronics and appliance stores and manufacturers is likely to reflect this growth.
Outlook for 2013 and first-quarter performance
According to Whirlpool Corporation (NYSE:WHR)’s 2013 outlook (opens pdf) most of the growth in revenue will come from Latin America (3% to 5% gain) and Asia (3% to 5%). Moreover, the company also projects its revenue in North America will rise by 2% to 3%.
Based on first-quarter results for 2013, the company’s net revenue slipped by 2.3% (year-over-year); Whirlpool’s revenue in Latin America fell by 5% and in Asia by 8%. In North America, revenue remained flat. These results are much different than what the company is projecting for 2013.
On the other hand, the company still has many strong points: the company’s gross profits rose from 15% in Q1 2012 to 17% in Q1 2013 due to a drop in sales expenses; the decrease in expenses is a good sign that the company is finding ways to augment its profits, which could eventually lead Whirlpool Corporation (NYSE:WHR) to raise its dividend again; in April, the company raised its dividend by 25% to reach an annual yield of 1.9%.
Whirlpool is also financially stable with a debt-to-equity ratio of 0.5. The company’s negative free cash flow in the first quarter of 2013 that reached more than $418 million isn’t likely to raise its risk (for now) considering it has more than $750 million in cash.
But turning back to the drop in sales, this issue could impede the progress of Whirlpool Corporation (NYSE:WHR)’s stock; specifically, the company’s fall in revenue in Latin America and Asia. In this regard, its growth in sales in these regions is likely to be affected by two issues: The economic progress in these regions and competition from other leading appliances and electric companies. Let’s take these issues in order.
In Latin America, the IMF projects that the leading economies such as Brazil will grow in 2013 at a faster pace than in 2012: Brazil’s GDP will grow by 3% (year-over-year; in 2012 the growth rate was only 1.3%). In Asia, the IMF expects China’s GDP growth will exceed 8% in 2013 (in 2012, GDP grew by 7.8). Japan’s GDP will grow by 1.6% (in 2012, it was only 0.2%).
If these projections come through and if they also reflect growth in the appliances and electronics sector, than Whirlpool Corporation (NYSE:WHR) is likely to reflect this growth in its revenue in 2013.
Competition
The strong competition the company faces from leading brands such as General Electric Company (NYSE:GE) and Panasonic Corporation (ADR) (OTCMKTS:PCRFY) could keep Whirlpool from reaching its revenue goals for 2013. These companies also haven’t increased their sales in the first quarter of 2013: Panasonic’s revenue slipped by 1% (year-over-year); GE home and business solutions’ revenue remained nearly unchanged, while appliances’ net revenue increased by 3%.
On the other hand, GE’s operating profit rose in this segment, reaching 4%; meanwhile Panasonic’s operating profit in Q1 2013 reached 2%, an increase from the same quarter in 2012. This means Whirlpool’s operating profit is among the highest at 6%. For GE, the home and business solutions’ segment accounts for only 5.6% of total revenue. So GE has much “bigger fish to fry” and the appliances and electronics sector isn’t its prime interest as opposed to Whirlpool Corporation (NYSE:WHR)’s.
For Panasonic the recent developments in Japan, including the sharp depreciation of the Japanese yen, is likely to help pull up the company’s revenue. If the Japanese yen continues to depreciate against leading currencies including the Euro and US dollar, this could only raise the revenue of this company and increase the competition with Whirlpool Corporation (NYSE:WHR).
Takeaway
The strong competition from other leading appliances and electronics brands is likely to make it difficult for Whirlpool to reach its objectives in 2013. But if leading economies rise in 2013 as the IMF projects, this could be reflected in Whirlpool’s revenue growth. The company’s strong financial situation and rise in profitability are making it a solid investment. The next quarterly report will reveal if Whirlpool Corporation (NYSE:WHR) is back on track in terms of revenue growth.
The article Is Whirlpool Still a Good Investment? originally appeared on Fool.com.
Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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