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Whirlpool Earnings To Take Hit from Circuit City Majap Pullout

Benton Harbor, Mich. – Circuit City’s decision to abandon the major appliance category has come back to haunt one of the leading U.S. major appliance market-share leaders, Whirlpool Corp., which announced late last week that third- and fourth-quarter earnings would fall short of Wall Street forecasts.

Targeting Circuit City’s decision in July — when the retailer said it would no longer sell white goods, due to “significant degradation” in its appliance business — as the primary reason for its earnings hit, Whirlpool now expects third quarter earnings to come in between 95 cents to $1.05 a diluted share. The company expects fourth-quarter earnings to be between $1.45 and $1.55 a diluted share. The third-quarter estimate is 40 cents to 55 cents per-diluted-share below what Whirlpool earlier had expected.

As a comparison to what analysts polled by First Call, a Wall Street forecast tracking firm, had predicted, third- and fourth-quarter earnings expectations are well below First Call’s anticipated third-quarter earnings of $1.52 per share and fourth-quarter earnings of $1.68 per share.

With the earnings announcement last week, Whirlpool’s stock tumbled over 6 percent, but rebounded the same day to recover a good part of earlier losses.

Whirlpool expects to lose between 90 and 120 days of previously expected shipments to Circuit City, as the nation’s No. 2 white-goods merchant liquidates inventories and other majap retailers pick up the consumer demand. This one-time loss of about 250,000 to 300,000 units — along with the associated effects of adjusting manufacturing production levels and the impact of corresponding competitive pricing dynamics — has directly led to the supplier’s nearly half-a-dollar-per-diluted-share earnings reduction in the third quarter, according to Whirlpool.

In addition, Whirlpool is having its troubles across the seas in a European majap industry environment that the company said is becoming more challenging. Because of varied and volatile levels of consumer demand in a number of markets there, Whirlpool said pricing pressures are becoming more evident. In addition, materials costs are continuing to rise, and the strength of the dollar is expected to reduce both sales and earnings monetary translations. The European fallout is expected to cost the company a reduction in earnings of 20 cents to 25 cents per-diluted-share in the second half of the year, said Whirlpool.

Looking at the bright side of recent majap developments, Jeff M. Fettig, Whirlpool president/COO, said, “We believe that consumer demand for our brands, combined with significant growth commitments from the nation’s top appliance retailers, will allow us to more than replace the business we are doing with Circuit City.

“We are also aggressively addressing the competitive pricing issues we face in North America and Europe, and we expect to return to more normal revenue and earnings trends during the fourth quarter.”