On Monday, JPMorgan updated its outlook on Whirlpool Corporation (NYSE:WHR), raising the price target to $103.00 from the previous $98.00, while keeping a Neutral rating on the stock. The adjustment follows Whirlpool's second-quarter conference call, where the company revised its 2024 margin and Operating EPS guidance. Whirlpool now anticipates a margin of approximately 6.0% and an Operating EPS of $12.00, marking a decrease of 80 basis points and 14% respectively, due to continued soft discretionary demand in North America.
Despite a slight downgrade in the global industry shipment forecast, from flat to +1% compared to the former flat to +2%, Whirlpool reaffirmed its 2024 sales guidance. This confidence is supported by robust replacement demand and pricing strategies in North America, international market strength, and upcoming product launches. The company also expects to maintain its market share in the North American Major Domestic Appliance (MDA) sector while benefiting from new product introductions slated for the third and fourth quarters.
However, Whirlpool's profitability projections have been adjusted, with the 2024 EBIT margin guidance reduced to around 6.0% from the previous estimate of 6.8%. This is primarily attributed to the North American market, where margins are now expected to be around 7% rather than the prior 9%, affected by weak discretionary demand and other factors such as the promotional environment's impact and a slightly lower industry shipment outlook.
In terms of cash flow, Whirlpool has lowered its Operating Cash Flow (OCF) and Free Cash Flow (FCF) forecasts to approximately $1.05 billion and $500 million, respectively, from the earlier projections of $1.15-1.25 billion and $550-650 million. Regarding the second quarter results, sales decreased by 17%, slightly better than expected, with declines in North America being partially offset by growth in other regions. Operating margins fell year-over-year but met estimates when excluding the EMEA region.
Following these updates, JPMorgan has revised its 2024 and 2025 Operating EPS estimates for Whirlpool to $11.74 and $13.10, down from $12.48 and $14.34, respectively. The new price target of $103 is based on a target EV/EBITDA multiple of approximately 7.5x the firm's 2025 estimated EBITDA. This valuation reflects the company's recent challenges, including North American margin pressures, the broader promotional environment, and its high leverage position, while also considering the potential for lower interest rates and increased housing activity over the next year.
In other recent news, Whirlpool Corporation reported a robust second quarter with a 100 basis point sequential global margin expansion and strong top-line growth in its small domestic appliance (SDA) global business. Despite pressures from the U.S. housing market, the company reiterated its flat net sales guidance of $16.9 billion for the year and adjusted its ongoing EBIT margin down to 6%. Whirlpool also plans to return $400 million to shareholders in dividends and expects a free cash flow of approximately $500 million for the year.
The company's MDA North America and SDA global businesses experienced margin expansion and top-line growth. Furthermore, Whirlpool is confident in its strategy and the long-term fundamentals of its business, with a forecasted ongoing EBIT margin of approximately 7.5% in Q4. The company expects the MDA North America industry to be down about 2%, but anticipates growth in the MDA Latin America industry by 5% to 7%.
Despite revising its ongoing EBIT margin guidance downward due to continued discretionary demand pressure in the U.S. housing market, Whirlpool's international businesses in Asia and Latin America are generating positive cash flow. The company also expects margin expansion to about 9% by year-end. These are the recent developments in the company's performance and outlook.
InvestingPro Insights
As Whirlpool Corporation navigates through market challenges and revised financial forecasts, current data from InvestingPro provides additional context for investors. With a market capitalization of $5.46 billion and a P/E ratio that stands at 10.02, Whirlpool shows a valuation that could appeal to value-oriented investors. The company's commitment to shareholder returns is evident as it has maintained dividend payments for an impressive 54 consecutive years, currently offering a substantial dividend yield of 7.03%. This is particularly noteworthy in today's investment climate where consistent income streams are highly valued.
InvestingPro Tips also highlight that while analysts have revised their earnings expectations downwards for the upcoming period, they still predict Whirlpool to be profitable this year. This aligns with the company's own projections of an Operating EPS of $12.00. Moreover, despite analysts anticipating a sales decline in the current year, Whirlpool has a history of profitability over the last twelve months, which may provide some reassurance to investors concerned about short-term headwinds.
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