A Down Cycle for Whirlpool

Shares declined Wednesday after the appliance giant reported weaker quarterly profit

Whirlpool (WHR) posted weaker quarterly earnings on Feb. 7, as the Benton Harbor (Mich.) appliance maker took hits amid lower demand in the U.S. and higher costs.

Net earnings during the quarter ended Dec. 31 amounted to $109 million, compared to $126 million during the previous year. But fourth-quarter net sales increased 25% from the prior year to $5 billion, driven primarily from the recent acquisition of the company's rival Maytag and strong international growth.

"Fourth-quarter margins were negatively affected by lower industry demand in the United States and higher material prices," CEO Jeff M. Fettig said in a press release Feb. 7. Fourth-quarter operating profit of $148 million was down from $79 million in the 2005 quarter, with the decline coming amid "significant increases in material costs, lower production as the company adjusted inventory levels with reduced industry demand, acquisition integration costs and increased merchandising expense."

Industry unit shipments of major appliances in North America, which fell around 8% in the quarter, hurt margins. For the year, industry unit shipments declined approximately 1%. The company expects 2007 industry unit shipments to decline approximately 2% to 3%.

"We expect to benefit from the ramp up of acquisition efficiencies, new product introductions to revitalize the Maytag brand, continued improvements in our international operations and product innovation during 2007, said Fettig.

Investors sold the stock more than 3% to $91.87 per share in afternoon trading Feb. 7 on the New York Stock Exchange.

After the news Standard & Poor's Corp. analyst Tom Smith reiterated a buy opinion the stock. "We expect integration of the Maytag acquisition to aid margins and provide cash for debt reduction," Smith said in a research note. The analyst expects Whirlpool to earn $9.00 per hare in 2007 and $10.25 in 2008. Smith has a 12-month target price on the stock of $108.(S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.)

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