September 13, 2011

Whirlpool Corporation 

 

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market downturn. Several negative forces (weak housing fundamentals, low consumer confidence, etc.) have 

been meaningful headwinds for WHR sales and profits. In addition, historic increases in raw material costs 

have served to exacerbate the downward pressure on profits (key raw materials include steel, oil, plastic 

resins, and base metals such as aluminum, copper, nickel, and zinc). Not surprisingly, WHR shares have fallen 

out of favor as investors have adjusted to this new reality (stock is down about 50% from its pre-recession 

highs).  

In our view, WHR management has taken several important steps to mitigate the difficult fundamentals 

of the current marketplace and position itself for long-term success. The Company has maintained its solid 

market share position throughout its key product categories and markets. Moreover, WHR has retained an 

investment grade balance sheet, and enacted several programs to improve its overall efficiency and cost 

structure. Although these initiatives have shown substantial progress, a return to more normalized conditions 

for the housing market and economy remain essential to Whirlpool realizing its true earnings potential. 

Assuming such a recovery is attainable during the coming years, WHR should be well positioned for significant 

sales growth, margin expansion, and share appreciation.  

History 

WHR’s history of being a high quality provider of appliances in the U.S. and abroad is a key aspect of 

its brand identity and competitive position. The Company was founded in 1911 in St. Joseph, Michigan, and 

has roots that date back to the late 19

th

 century. Lou Upton, and his uncle Emory Upton, founded Upton 

Machine company, acquired the patent for electric wringer washers (an early form of laundry washing 

machine), and began manufacturing these washers on a mass scale. The washers were well received by the 

marketplace, and the Company was soon filling orders for hundreds of washers. By 1916, the Company 

became a provider of washers to Sears Roebuck, and Company.  

Innovation continued to play a key role within the Company’s growth and culture as Whirlpool created 

increasingly diverse and sophisticated lines of appliances throughout the 20

th

 century. The Company officially 

changed its name to Whirlpool Corporation in 1949, and built its market presence through both organic means 

and acquisitions. In 1958, WHR made its first foray into foreign markets via a joint venture with Brazil’s 

Basmotor. Among the most noteworthy acquisitions are WHR’s purchase of KitchenAid in 1986, and its 2006 

purchase of Maytag. One century after its founding, WHR now holds the top global position within the major 

home appliance market, with a manufacturing presence in 12 countries and nearly a worldwide sales presence.  

WHR’s current management team is led by CEO Jeff Fettig (age 54), a 30-year veteran of Whirlpool 

(appointed CEO in 2004). As the following table shows, the WHR executive team consists of many seasoned 

executives with substantial industry experience. It is important to note that CFO Roy Templin recently 

announced his retirement (scheduled for April 2012). Templin will be succeeded by Larry Venturelli, who 

currently holds the positions of senior vice president, corporate controller, chief accounting officer, and CFO of 

WHR International. Venturelli has been with the Company since 2002. 

 

Name 

 

Position 

Years on 

Management Team 

Jeff Fettig 

Chairman & CEO 

17 years 

Michael Todman 

President, WHR International 

10 years 

Marc Bitzer 

President, WHR North America 

5 years 

Bracken Darrell 

Exec. V.P. & President, WHR Europe 

2 years 

Jose Drummond 

Exec. V.P. & President, WHR Latin America 

3 years 

David Szczupak 

Exec. V.P., Global Product Organization 

3 years 

Roy Templin 

Exec. V.P. & CFO 

7 years 

 

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Whirlpool Corporation 

 

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Financial Results Illustrate Current Challenges 

WHR reported 2Q 2011 results that were largely in line with expectations. Revenue increased 4% year 

over year to $4.7 billion, while EPS totaled $2.76 excluding non-recurring items, down 2% from 2Q 2010. 

However, the business challenges being faced by WHR and the rest of the industry remained apparent. 

Revenue trends continue to be sluggish in most of the Company’s markets, reflecting weak consumer activity, 

and difficult conditions within both the housing market and the overall economy. These conditions were 

particularly evident within North America, as sales declined by 7%. Similar weakness was also reported within 

other mature markets within Europe. Favorable sales comparisons within the emerging markets remained the 

main source of growth for WHR. In particular, sales derived from Latin America increased 16% (excluding 

currency effects).  

Not surprisingly, this demand weakness has had an adverse impact on margins and profitability, and is 

being exacerbated by strong cost pressures from raw materials and crude oil. The Company’s overall gross 

margin was 14.1% for the quarter, a 270 basis point decline compared to 2Q 2010. Management indicated that 

material costs have been increasing at historic rates, and prices are nearly double WHR’s projection from the 

beginning of the year. The Company has implemented price increases to help mitigate the cost impact on 

margins, and additional price increases are scheduled for later in the year. These price increases, combined 

with WHR’s cost reduction and efficiency initiatives, are expected to produce positive sequential gross margin 

comparisons during the second half of 2011. 

Despite the headwinds experienced during the second quarter, management did not change guidance 

for full-year EPS and free cash flow. EPS is expected to be $12.00-$13.00 in 2011, and free cash flow is 

projected to total $400-$500 million (excluding legal settlement costs). It is important to note that EPS guidance 

includes a total beneficial impact of at least $7.00 in EPS derived from tax credits in the U.S. and Brazil. In 

addition, the free cash flow guidance includes the negative impact of a $300 million contribution to the U.S. 

pension plan. However, full year sales guidance for WHR has been reduced for 2011 as a result of challenging 

market fundamentals (Latin America is the only exception).  

Region 

Previous Forecast 

Updated Forecast 

North America 

+2%-3% 

(1)%-(2)% 

Europe & MENA 

+2%-4% 

+1%-2% 

Latin America 

+5%-10% 

+5%-10% 

Asia +6%-8% 

+4%-6% 

 

It is clear that financial results for WHR will likely remain “noisy” during the coming quarters given the 

various factors that are impacting results. The earnings quality associated with tax credit benefits is far from 

ideal. WHR had earned tax credits in Brazil as part of a past government program to incentivize exports (the 

credits helped to mitigate other taxes incurred by exporters). WHR recognized $225 million in tax credits from 

this program in 2010, and a combined $238 million in credits during the 2008-2009 period. However, less than 

$500 million in credits remain, and its beneficial impact on WHR results will likely dissipate during the coming 

years. The Company also earns tax credits from the U.S. government stemming from the sale of energy 

efficient appliances ($225 million recognized in 2010, and another $300 million is projected for 2011). However, 

it is unclear whether these U.S. tax incentives will remain in place over the long-term. 

Yet, there are many negative headwinds also impacting profits that investors could classify as 

somewhat anomalous from a long-term perspective. Certainly, historically poor housing market fundamentals 

and extremely weak consumer sentiment paired with historic hikes in commodity prices are factors that may 

prove to be transitory from a multi-year perspective. In our view, the many moving parts in near term results 

are clouding the long-term EPS power of WHR’s underlying businesses, and are likely contributing to the 

negative investor sentiment for the stock.  

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