February 05, 2008 – Business Management Article

Whirlpool’s fourth-quarter results 2007

Whirlpool, the appliance maker announced its fourth-quarter results. Its net income rose 72% to $187 million up from $109 million, a year earlier. Revenue increased 7.5% to $5.33 billion from $4.95 billion. Gross profit margin rose to 15.7% from 14%.

Chairman and Chief Executive Jeff M. Fettig of Whirlpool Corporation said, “We delivered record financial results in the face of both the most challenging U.S. industry demand environment in more than two decades and unprecedented global material price inflation.”

Whirlpool benefits from strong International sales and its 2006 Maytag Acquisition

Whirlpool benefited from its Maytag acquisition, an improved product mix, and robust international sales. Whirlpool’s had bought Maytag for $1.68 billion in order to gain market share and ward off competition from Asian manufacturers like Samsung Electronics and LG Electronics. When Whirlpool acquired Maytag in March 2006, Maytag was struggling with high fixed costs and nothing to show as investments in product innovation. In 2005, even retailer Best Buy had stopped selling Maytag appliances. But it was a turnaround this quarter, as Maytag gained market share after it received a boost when retailer Best Buy began selling Maytag appliances again last year. On the other hand, sales dropped in 2007 from 14% last year to 12% with its biggest retail customer, Sears Holdings Corp. (Also see: Restructuring at Sears, Can the retailer turnaround its business) Whirlpool makes some appliances that are sold under Sears’ proprietary Kenmore label.

Whirlpool’s North American earnings rose 41% to $175 million (benefiting from cost-cutting as part of the 2006 acquisition of Maytag and sales of higher-margin products), European earnings rose 22% (benefiting from higher sales on favorable currency exchanges) and Latin American 73% (benefiting from volume, pricing and an asset sale gain). North America sales dropped less than 1% compared to the 6% drop industry-wide. Other American manufacturing companies which benefited from strong International sales include Caterpillar (Also See: From a sluggish Caterpillar to an alert CAT) and Honeywell International, benefiting from strong international results. IBM also reported strong International figures.

Expensive name-brand home products are having a tough time with rising product prices and the home credit crisis risk affecting the market badly. Then there are other macroeconomic challenges like increasing raw material costs, unprecedented global material price inflation and expected lower product demand in U.S. and Europe. Companies need to adjust their cost structure to the lower expected industry demand levels.

Last month, Whirlpool had announced that it would get rid of two of its North American factories to face the challenges better and counter the economic downturn. Whirlpool is planning to offset increasing material and oil-related costs through cost-based pricing adjustments and productivity improvements.

Whirlpool expects 2008 appliance industry shipments for Latin America to increase 5% to 8%, Europe to be same as in 2007, U.S. to decrease 3% to 5% and Asia up by 5% to 10%.

Whirlpool is in a better position to counter any economic downturn than many as a major portion of its business is not new home-oriented, but essentially a replacement business. Moreover, many of the products it makes are not considered optional items anymore like the vacuum cleaners, dishwashers and refrigerators are necessities to any home. And if an old washing machine breaks down, then it can supply customers a new washing machine, which in many cases might be a better bargain for customers than high repair costs.

History of Whirlpool

In 1911, Whirlpool was a small firm manufacturing wringer washers. It was founded by three brothers – Frederick, Louis and Emory Upton in Michigan, USA. In 1916, Upton entered into a business partnership with Sears, Roebuck and Co. Sears marketed the washers manufactured by Upton under the brand name ‘Allen’. By early 2000, Whirlpool became one of the most well-established brands and leading manufacturer and marketer of home appliances. Whirlpool manufactured refrigerators, microwave ovens, washers, dryers and air conditioners. It then marketed its products under the names Kenmore, KitchenAid, Roper, Inglis and Speed Queen, in addition to the brand name ‘Whirlpool’. Whirlpool’s other brands included Amana and Jenn-Air.

Appliance Makers, Maytag, Mergers and Acquisitions, Whirlpool