Wednesday, October 27, 2010

Bookkeeping: Closing Whirlpool (WHR) on Adverse Earnings Reaction

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I am completely ambivalent about Whirlpool (WHR) the stock; I went long the name only because each time I shorted it, it worked against me.  In a great piece of irony, now as I went long, it worked against me as well.

Technically, the stock had broken over resistance but was just 'hanging around' the past 2 weeks, not building on its gains.  If the market continues its non stop melt up I am sure it will get back over technical resistance but since I have no strong attitude towards the stock, and have since added other positions I am going to exit with about a 5% loss.


As for the earnings report there was nothing great, nor terrible about it.  They actually beat by a wide margin, but like many companies have been helped by federal government largesse, and without it they have had to cut forecasts in the United States.  
  • U.S. shipments of major appliances declined 3 percent in the quarter. Whirlpool lowered its forecast for the year, saying it now expects U.S. shipments to climb about 3 percent. It previously predicted a 5 percent increase.
  • U.S. demand for Whirlpool's washers, dryers and other appliances was hurt by the recession but began to pick up earlier in the year because of federal rebates for energy-efficient appliances. The federal home buyer tax credit of up to $8,000 that helped spur home sales in the first half of the year also may have helped appliance makers, as people were more likely to buy appliances when they were moving into a new house.
  • With the tax credit expired, Whirlpool continues to face challenges with a soft housing market and high unemployment levels.

Rising commodity costs are beginning to hurt them... a theme we will begin hearing more and more as Bernanke's idea of recovery is to crush corporate margins via commodity inflation. In turn more "cost cutting" will be necessary to protect margins, which means more U.S. workers on the chopping block as the Fed's "success" continues. But no worries - stock prices will inflate so we "all win".  How you punish your people with inflation in a time of such economic duress is beyond me, but I'm not an economic super genius like the Bernanke fella.  When the stock market finally makes this connection, I expect some panic in the quarters to come.  This is a repeat of what happened in first half 2008, but for now - as in late 2007, the market is drinking the Kool Aid in huge gulps.
  • Whirlpool said its quarterly results were hurt by increased material costs and lower selling prices, but somewhat offset that by cutting costs and improving productivity.
The U.S. consumer is so weak (excluding the "stock market class"), you just cannot pass higher prices on to them.  Hence with commodities prices flying, margin compression is in the future for a lot of companies.

To be fair, on a valuation basis Whirlpool is pretty darn cheap and they do have some nice metrics (wait for it) overseas.

No position

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