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Whirlpool warns on 3Q, 4Q
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August 30, 2000: 12:58 p.m. ET
Home appliance maker blames Circuit City's exit from large appliance sales
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NEW YORK (CNNfn) - Whirlpool Corp. warned Wednesday that results over the next two quarters would fall far short of Wall Street forecasts because retailer Circuit City decided to stop selling major appliances recently. Whirlpool's stock fell more than 6 percent on the news.
Whirlpool -- known for its washers, dryers and refrigerators -- also cited stiff competition in the United States and Europe.
Jeff Fettig, the company's president, said the shortfall is only a temporary setback and that Whirlpool's relationships with retailers and new products will help it to make up lost ground by 2001.
Analysts however, remained skeptical.
 Whirlpool, based in Benton Harbor, Mich., said it expects third-quarter earnings of 95 cents-to-$1.05 a diluted share and fourth-quarter earnings of $1.45-to-$1.55 a share. Analysts polled by First Call, which tracks Wall Street forecasts, had expected third-quarter earnings of $1.52 a share and fourth-quarter earnings of $1.68 a share.
The announcement caused Whirlpool (WHR: Research, Estimates) stock to tumble $2.31, or 6.11 percent, to $35.56 in trading Wednesday. But the shares had recovered some of its earlier losses by midday, trading down 19 cents to $37.69.
Electronics retail chain Circuit City (CC: Research, Estimates), faced with slumping appliance sales, said in July it would no longer sell appliances and would focus on computers and other electronic equipment.
Circuit City said last month it was getting out of the appliance business because it carries high fixed costs and tends to be more cyclical than other retail categories.
Whirlpool said it would lose between 90 and 120 days of previously expected shipments to Circuit City as the chain liquidates its inventories and other appliance retailers pick up the consumer demand. The company estimates a one-time loss of 250,000-to-300,000 units.
Volatile consumer demand for appliances in Europe -- combined with competition, a weak euro and rising material costs -- will reduce the company's second-half earnings by 20-to-25 cents a share, officials said.
But Whirlpool remains confident it will recover during the fourth quarter despite decreased consumer spending and other signs of a slowing economy.
"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 were doing with Circuit City," Fettig said in a statement Wednesday. "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."
Fettig reassured analysts during a conference call Wednesday that it ultimately stands to benefit from Circuit City's absence because of its relationship with other major appliance retailers such as Sears and Loews.
Fettig said he expects to see 15-to-20 percent earnings growth by the end of the year.
"It is our expectation that our current retail distribution will benefit from Circuit City's exit," Fettig said. "We're going through a process where we're analyzing every market where Circuit City has stores and comparing this to other distribution networks."
However, analysts expressed concerns that stiff competition from General Electric (GE: Research, Estimates), which has entered an agreement to sell appliances through No. 1 U.S. retailer Wal-Mart (WMT: Research, Estimates), could put further pressure on the company.
Analysts also questioned Whirlpool about its as yet unsuccessful efforts to reach a distribution agreement with Home Depot (HD: Research, Estimates), which began selling appliances earlier this year.
Whirlpool's stock hit record 52-week lows this week, seeing shares plummet to the $30 range from $70 in nine months. The shares dipped sharply this week following a research note issued Monday by Prudential Securities analyst Nicholas Heymann, in which he reduced his rating on the company to sell, a move rarely chosen by analysts.
Heymann said Whirlpool faces decreasing available retail space to sell its products in a market that is quickly becoming crowded with competitors. And two of the major retailers, Wal-Mart and Home Depot, do not carry Whirlpool, but do carry GE and Maytag.
"We have decided to take the unusual step and reduce our rating on WHR to Sell to reflect what we strongly believe is the potential for significant near-term downside risk due to a series of massive changes rapidly altering the historic ways the appliance business is conducted in North America," Heymann said in the note. "The net result of this change will, in our opinion, be a slow, but steadily building decline in market share for WHR, accompanied by steadily increasing pricing pressures, which we believe could far disproportionately impact Whirlpool versus other manufacturers."
Whirlpool dismissed the report Wednesday as highly speculative and inaccurate, and other analysts agreed.
However, analysts do agree with Heymann's observation that the large appliance category faces uphill challenges and that the retail landscape for these products is changing.
Slower consumer spending, a slowdown in overall home sales, and mounting consumer debt are causing people to think twice about whether they really need that new washer or refrigerator, Parker/Hunter Inc. analyst Lawrence Horan said.
"I've been negative on the industry outlook for quite some time. I think next year is going to be a down year with competitive pricing," said Horan, who maintains a hold rating on Whirlpool. "The economy is slowing and housing, which tends to be the swing factor, is slowing. I think it's going to be more of a replacement market next year." 
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Whirlpool
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