October 28, 2011
By Bob Tita
Of DOW JONES NEWSWIRES
Whirlpool Corp. (WHR) plans to eliminate more than 5,000 jobs and close an Arkansas plant in response to weakening demand for household appliances.
The world's largest appliance maker by sales slashed its earnings outlook for 2011, as its third-quarter earnings fell short of analysts' expectations. As a result, investors abandoned Whirlpool's stock, which was recently down 11.9% at $53.27 a share.
Whirlpool, whose brands include Amana, KitchenAid and Maytag, has struggled to increase U.S. sales and profit against persistently high unemployment, tight credit conditions and falling real estate values that have left consumers reluctant to make investments in their homes.
Whirlpool characterized the U.S. appliance market as driven largely by consumers replacing worn out appliances, rather than discretionary purchases of washers, refrigerators and dishwashers. Rising costs for materials and intense competition from upstart U.S. competitors have added to Whirlpool's profit misery.
Strong international sales growth, particularly in Brazil, has helped offset some of the weakness in Whirlpool's domestic business in recent years. But the company acknowledged Friday that the uncertain economic climate worldwide and higher costs are now taking a toll on Whirlpool's overseas operations, prompting its aggressive cost and capacity reductions.
"Weak demand levels and high inflation [for materials] typically don't go together, but that's the way it's been," said Chairman and Chief Executive Jeff M. Fettig during a conference call Friday with analysts. "We are taking necessary actions to address a much more challenging global economic environment."
The more than 5,000 positions Whirlpool plans to eliminate represent about a 10% cut in its work force in North America and Europe. Whirlpool intends to close its Fort Smith, Ark., plant by the middle of next year and relocate the plant's refrigerator production to other sites. In addition, the company will move dishwasher production from Neunkirchen, Germany, to Poland early next year. The company also intends to trim about 1,200 white-collar positions.
The moves are aimed at eliminating high-cost plants engaged in assembling low-profit appliance models. Whirlpool said the reductions will reduce its production capacity by about 6 million units, or about 10%, saving an estimated $400 million a year by the end of 2013.
"Our No. 1 priority is to expand operating margins,' Fettig said. "We're not particularly interested in selling appliances at a loss."
The new round of expense cuts is Whirlpool's second major production realignment since 2008. The company has closed U.S. plants in Indiana, Mississippi, Tennessee and Michigan in recent years as it consolidated operations in Ohio and Mexico. Whirlpool also revamped its warehouse-distribution network.
The latest restructuring will cost Whirlpool $500 million. The expense will begin showing in the company's fourth quarter results with $280 million of charges coming in 2012 and $115 million in 2013.
Rival appliance maker Electrolux AB (ELUXY, ELUX-B.SK) on Friday cut its demand expectations, citing tough conditions and deteriorating consumer confidence in the U.S. and Europe. The Swedish company reported a drop in third-quarter net profit on higher raw material costs.
"Electrolux has been tangibly affected by the decline in consumer confidence in the mature markets," Chief Executive Keith McLoughlin said.
Whirlpool's margins this year have been under pressure by rising prices for steel, copper, plastic resin and other materials. The company has announced two price increase this year to counter higher material expenses. Fettig described the recent reductions in commodity prices as having a minimal effect on Whirlpool's expenses.
"They've stabilized at a high level," Fettig said about material prices. "They haven't gone down."
The Benton Harbor, Mich., company also has faced intense price competition from South Korean rivals LG Electronics Inc. (066570.SE) and Samsung Electronics Co. (SSNHY, 005930.SE) as they attempt to expand their market shares in the U.S. by offering steep discounts on high-end appliances.
The U.S. Commerce Department on Thursday issued a preliminary determination that found Samsung, LG and other appliance manufacturers sold imported refrigerators in the U.S. at prices below the refrigerators' production costs. The department said anti-dumping fees ranging from 4% to nearly 37% could be imposed on refrigerators with bottom-mounted freezers unless the manufacturers increase their prices. Whirlpool filed a product dumping complaint against the companies earlier this year.
Whirlpool's third-quarter revenue from North America, its largest-selling market, fell 2.3% from a year earlier as operating profit plunged 45.4%. Whirlpool's operating margin from the region shrank to 2.6% from 4.7% a year ago.
Sales increased 6% in Europe, the Middle East and Africa, but the company lost $12 million because of rising material costs and elevated sales of lower-profit appliance models.
In Latin America, which been Whirlpool's best-performing market, sales in the quarter rose 7.6% and operating profit increased 2.9%.
Overall for the quarter, Whirlpool reported a profit of $177 million, or $2.27 a share, up from $79 million, or $1.02, a year earlier. Excluding costs for items such as Embraco compressor antitrust case, earnings rose to $2.35 from $2.22. Sales increased 2.3% to $4.63 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of $2.68 on revenue of $4.69 billion.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; email@example.com
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