Whirlpool Summary

Whirlpool (ticker: WHR) is a company in the home appliance industry. Manufacturing and marketing these appliances is how they gain most of their business. Their primary products are refrigerators, laundry appliances, and cooking appliances. They are an international company that sells products all across the world. Our recommendation is to short Whirlpool. Their profit has fallen 16% in the past year and their operating profit has dropped 23% over the past year. There are many reasons why to short, such as commodity costs, post retirement liability, and weak housing data.

According to CEO Jeff Fettig, the costs of raw materials will be approximately $150 million greater that what they anticipated three months ago. This will clearly cut into profits and weaken the company. Also, their post-retirement obligations exceed their pension funds by $2.21 billion. This is equal to 29.7% of the Enterprise Value of the entire company, another reason to stay away from this stock.

The outlook for emerging markets is also not that optimistic. The China market, home to about 9% of global unit sales, is dominated by local companies, making it hard for Whirlpool to make their presence felt. Also, China’s biggest appliance importer is not Whirlpool, but a German company, GmbH. However, even GmbH is not making significant money in China, which is the case for all western exporters. The local manufacturing and cutthroat prices has made expansion into China difficult for the entire appliance market, which will severely limit Whirlpool’s opportunities for global expansion.

The weak housing market is also very detrimental to Whirlpool. The Mortgage Bankers Association gauge of loan applications dropped 5.6%, and the gauge of purchases dropped 14%. This shows how North American homeowners are purchasing less and less homes and taking out fewer loans than they had been. The drop in home purchases, which is Whirlpool’s biggest revenue stream, clearly affects Whirlpool and the chances of...