Whirlpool cuts outlook as China sales plunge ahead of merger
(Reuters) - Whirlpool Corp on Wednesday posted a lower-than-expected quarterly profit and cut its full-year earnings outlook, citing a sales drop triggered by its pending acquisition of a Chinese rival.
The U.S. appliance maker said its sales in China plummeted 80 percent last quarter as retailers in that country, anticipating its pending merger with Hefei Rongshida Sanyo Electric Co and the new line the merged entity will produce, stopped buying Whirlpool-branded products.
"Trade partners are liquidating their old inventory and getting ready for the new inventory, which will come from the combined company," Whirlpool CEO Jeff Fettig told Reuters in an interview.
Whirlpool and Hefei Sanyo can't officially merge until Chinese regulators sign off on the deal -- a process that Fettig said is taking longer than anyone expected and may drag on through the end of 2014.
"In the meantime we're ratcheting down our fixed costs as fast as we can and we're preparing for the integration and waiting for the approval," he said. "And when we get it, and we merge ... this will all be behind us and we should see the flip side of this, which will be good sales because they will not have bought from us for months."
Whirlpool's fixed costs in China are tied up in two plants, one in ChangXing and another in Shunde.
Whirlpool said it now expected to report full-year net earnings of $10.30 to $10.80 a share, down from a previous forecast range of $11.50 to $12.00.
S&P Capital IQ equity analyst Efraim Levy said that while Whirlpool's China business isn't huge -- the company generated just $200 million of its $18.8 billion in global sales there last year -- it has significant fixed costs in the country. As a result, the temporary drop in Chinese sales "just destroys margins.”
Hefei Sanyo's Chinese sales were about $850 million last year, Fettig said.
Whirlpool said the outlook cut also reflected investment banking, legal and accounting costs associated with its pending acquisition of a majority stake in Italian rival Indesit.
The news came as Whirlpool, the world's largest maker of home appliances, reported disappointing earnings. The Benton Harbor, Michigan-based company posted a second-quarter profit of $179 million, or $2.25 a share, down from $198 million, or $2.44 a share, a year earlier.
That was well below the $2.91-a-share profit that analysts had expected, according to Reuters estimates.
Whirlpool, which sells its washers and dryers, stoves, and refrigerators under its own name as well as brands including Maytag, KitchenAid and Jenn-Air, said it had sold $4.7 billion in goods during the quarter, unchanged from a year earlier.
It said that sales gains in North America were offset by weakness in the rest of the world, including Latin America, Europe and Asia.
In early afternoon trading on the New York Stock Exchange, Whirlpool shares were up 51 cents, or 0.3 percent, at $143.71.
(Reporting by James B. Kelleher in Chicago; Editing by Lisa Von Ahn and John Pickering)
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