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Whirlpool Feels Full Wrath Of Rising Commodity Prices As Operating Profit Plunges 61%

Tyler Durden's picture




 

Our expectations for not only a gross profit percentage plunge due to increasing input costs, but for downward EPS revisions for the S&P is slowly starting to materialize. Today, we received the first official validation courtesy of Whirlpool and Electrolux, both of which were slammed by surging input prices and an inability to offset these in the top line. Furthermore, with SG&A already trimmed to the bone, companies are now unable to lay anymore workers off to preserve net income numbers whispered lovingly to sell side analysts. Whirlpool is down big today after the company beat earnings but entirely due to accounting gimmicks: from the WSJ: "Whirlpool Corp.'s fourth-quarter earnings increased 80%, but that was almost entirely because of changes in tax benefits and other nonoperating items. Whirlpool, based in Benton Harbor, Mich., said Wednesday that operating profit increased 1.5% to $202 million from $199 million a year earlier." All good, yet judging by the stock price in WHR today, not even robotic investors were dumb enough to be fooled by this. Here is the punchline: "Raw material inflation is driving costs higher and we expect to mitigate these costs with improvements in cost productivity, innovation and recently announced price increases," Whirlpool Chairman and Chief Executive Jeff Fettig said.  Revenue from Whirlpool's North American segment fell 1% amid a 61% drop in operating profit caused by a lower production volume and higher materials costs." We can't wait to discover just what "innovation" improvements will offset 100% increases in virtually all input goods...

And lest one thinks this is a purely US phenomenon, Europe biggest home appliance maker, reported a comparable plunge in margins:

Electrolux said operating income in North America and Europe declined as the company was hit by higher costs for raw materials and lower sales prices. Operating profit for the Stockholm-based company dropped 15% to 1.71 billion kronor from 2.02 billion kronor last year.

Electrolux expects raw-material costs to increase by between 1.5 billion kronor and two billion kronor in 2011. The raw materials to which Electrolux is mainly exposed are steel, plastics, copper and aluminum.

"The costs for our most important raw materials continue to increase. In addition to increased costs for steel, we also see considerable increases in resins and base metals. We have signed contracts for a significant part of this year's raw material requirements," Electrolux Chief Executive Keith McLoughlin said in a written statement.

Electrolux also said it is experiencing price pressures, including a number of promotions in North America during the fourth quarter.

"The price pressure that we experience is a short term headache that will cause some headwind in the first quarter," Mr. McLoughlin said.

Sorry Mr. McLoughlin, since QE3 will arrive some time in June, your headache will be very, very long-term. We are 100% confident in that.

 

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Wed, 02/02/2011 - 10:55 | 927170 financeguru500
financeguru500's picture

Where I live, they closed the local whirlpool factory. I am not sure where they even produce whirlpool appliances anymore. If it isn't overseas yet it might soon be lol.

Wed, 02/02/2011 - 11:41 | 927357 equity_momo
equity_momo's picture

Exactly - qe seems to be failing at creating job growth , in fact its possible companies will relocate part of their business due to US policy.  The US is one of the least attractive countries in the developed World right now for starting a business. Who'd have thought that possible 20 years ago.

Wed, 02/02/2011 - 11:47 | 927389 financeguru500
financeguru500's picture

Also consider that the current government officials in place are considering taxing the rich to help with budget problems, this will just further send the money away to other countries. I would be interested to find out when some of the major U.S. brands finally decide to put their corporate headquarters in other countries all together.

Wed, 02/02/2011 - 14:11 | 928047 Djirk
Djirk's picture

Don't worry QE is going to drive full employment!

Let me see, inflation crimps corporate profits, reduces volume of goods consumers can buy....then jobs are created, riiiigght

Wed, 02/02/2011 - 12:09 | 927506 Midas Mulligan
Midas Mulligan's picture

I speak from experience when I state that "Whirlpool" label dehumidifiers are "manufactured" in Los Estados Unidos Mexicanos. Why the quotation marks you ask ? The unit promptly died one month out of warranty.

Viva Mexico. Viva Whirlpool.

Wed, 02/02/2011 - 13:02 | 927752 ghostfaceinvestah
ghostfaceinvestah's picture

Yup, they are moving just about everything to Mexico.

 

http://www.economyincrisis.org/content/whirlpool-moving-jobs-mexico

 

Wed, 02/02/2011 - 15:05 | 928247 SteveNYC
SteveNYC's picture

This is a mistake of epic proportions by Ben. Anyone who still manufactures in the USA will outsource in order to get some margin back that is being annihilated by increasing commodity prices and the inability to soak people with higher prices all while maintaining volume.

If we write this enough and it gets published enough, perhaps one day Ben will really have to eat his words.....possibly more than words.....

Wed, 02/02/2011 - 10:59 | 927180 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Does Bernanke's printing press make 'get out of jail free' cards?

Wed, 02/02/2011 - 11:09 | 927222 whatz that smell
whatz that smell's picture

stock up on bricks and exercise those throwing arms bitchez.

Wed, 02/02/2011 - 11:17 | 927264 snowball777
snowball777's picture

Surgical tubing and a piece of canvas...brick-a-pult.

Wed, 02/02/2011 - 12:23 | 927576 LowProfile
LowProfile's picture

Use a pitching machine.

Wed, 02/02/2011 - 12:17 | 927540 Midas Mulligan
Midas Mulligan's picture

Yes, and plenty of "money" of varying colors and convenient denominations. The new currency resembles that colorful scrip which our friends across the pond circulate throughout the Continent.

http://3.bp.blogspot.com/_AZNq2Yv_gxg/SZADYLQUxnI/AAAAAAAACBw/xHLreXbG5R...

Wed, 02/02/2011 - 10:59 | 927183 Josh Randall
Josh Randall's picture

and so it begins to become official..consider those tea leaves read my friend

Wed, 02/02/2011 - 11:02 | 927184 Johnny Lawrence
Johnny Lawrence's picture

FYI - my firm is offering a structured product that tracks the price of Corn, Wheat, and Soybeans over the course of 1 year.  150% participation on the upside, 100% participation on the downside.

These structured products typically come out very late in a trend, as the firm tries to capitalize on the headlines.

Just sayin'.

 

Wed, 02/02/2011 - 15:09 | 928254 SteveNYC
SteveNYC's picture

+1. This is good info, thanks.

Wed, 02/02/2011 - 11:03 | 927193 emsolý
emsolý's picture

'Headwind' and snow are synonymous these days, aren't they?

Wed, 02/02/2011 - 11:24 | 927296 RacerX
RacerX's picture

It's the new terminology:

SNOW storm ~= SNOW job

Wed, 02/02/2011 - 11:04 | 927199 tickhound
tickhound's picture

"Innovative" wage cuts coming

Wed, 02/02/2011 - 11:13 | 927242 Cognitive Dissonance
Cognitive Dissonance's picture

Let's see if they "innovate" away some of upper management.

Wed, 02/02/2011 - 12:43 | 927681 Flakmeister
Flakmeister's picture

Cute... spot on and succintly put

Wed, 02/02/2011 - 11:05 | 927207 Caviar Emptor
Caviar Emptor's picture

Those of us who believe in biflation have been warning about this for over a year. There's no pricing power into a constrained US consumer. Input costs will continue to rise because of a fateful combination of demand-pull and cost-push inflation involving not just reckless Fed monetary policy but global competition for resources. And the US consumer's real income and net worth will continue to sink through structurally high unemployment, offshoring and downsizing of entire industries, the continued effects on the housing market, and declining retirement benefits which are competing with the rising cost of middle class existence. 

The disconnect between the Fed's view of the economy and the reality will continue to cause biflation and crush consumer buying power as well as business margins. 

Wed, 02/02/2011 - 11:45 | 927379 equity_momo
equity_momo's picture

+1

Although i prefer the old fashioned term Stagflation

Wed, 02/02/2011 - 11:53 | 927425 Bearster
Bearster's picture

There is no "cost push" inflation.  If Whirlpool thinks they can raise prices in this environment, unless there is another cash-for-appliances subsidy or the Fed starts handing out checks to consumers, good luck.  We will see how it works out for them.

Wed, 02/02/2011 - 12:52 | 927715 Caviar Emptor
Caviar Emptor's picture

Not downstream cost-push, upstream: Reckless monetary policy put so many dollars in so many hands that the stuff that industrial raw materials, energy and natural resources will keep going through the roof. The people in the middle will get squeezed hard

Wed, 02/02/2011 - 11:05 | 927214 Fritz
Fritz's picture

The prior 3 days of large red distribution candles on the WHR chart makes it seem almost like somebody knew this was coming - but that never happens does it?

Wed, 02/02/2011 - 11:08 | 927219 Slartebartfast
Slartebartfast's picture

All major appliances have been produced in China for years.  Whirlpool is just another scum sucking outsourced (formerly) US corp.  Watch them twist in the wind and die.  Laugh if you like.  They contribute nothing to the USA except maybe their executive salaries.

Wed, 02/02/2011 - 15:35 | 928334 RKDS
RKDS's picture

They contribute nothing to the USA except maybe their executive salaries.

 

And they never seem to stop crying about that either... 

Wed, 02/02/2011 - 11:09 | 927220 Slartebartfast
Slartebartfast's picture

Innovation?  How about cardboard washing machines produced in North Korea?

Wed, 02/02/2011 - 11:13 | 927240 Sudden Debt
Sudden Debt's picture

I've got another good one.

These last 2 Q's in our company, sales is picking up really strong.

So strong actually that now our problem is that since we fired about 1500 people those last 2 years, we can't follow anymore and everybody is so stressed out that there isn't a single day without 20 confrontations on the workfloor and people who constantly quit their job to go somewhere else.

And now we have to refuse orders because of the workload, but we can't refuse them because we need those for our topline.

And it's not possible to hire people fast because the jobs are very technical.

THERE ARE SO MANY COMPANIES THAT JUST CAN'T KEEP UP WITH ANY GROWTH BECAUSE THEY ARE STILL OPERATING ON A SKELETON CREW!

 

Like scotty would say: THE ENGINE IS WORKING AT 120% CAPACITY CAPTAIN BUT SHE'S GONE BLOW ANY TIME NOW! SCREW YOU GUYS I'M TAKING THE LAST EMERGENCY LIFE POD!

 

Wed, 02/02/2011 - 11:14 | 927241 gwar5
gwar5's picture

At least they have a profit, eh?

Wed, 02/02/2011 - 11:22 | 927289 Cognitive Dissonance
Cognitive Dissonance's picture

(Accounting) paper profit from the looks of things.

Of course, that is driving the banks higher as well. All those funds set aside for write downs that are magically brought back on to the profit side of the ledger even though the risk of write downs are once again increasing. 

I wish I could have my cake and sell it and eat it too.

Wed, 02/02/2011 - 11:15 | 927251 Grifter
Grifter's picture

LG posts Q4 results, 2010 profit down 93 percent, cellphone sales down 15 percent:

http://www.engadget.com/2011/01/27/lg-posts-q4-results-2010-profit-down-...

Nokia smartphone market share shrinks to 31 percent, operating profit takes a beating too

http://www.engadget.com/2011/01/27/nokia-smartphone-market-share-shrinks...

 

Wed, 02/02/2011 - 11:15 | 927254 snowball777
snowball777's picture

Simple: they're going to start stealing their inputs instead of buying them!

Wed, 02/02/2011 - 11:21 | 927256 virgilcaine
virgilcaine's picture

Also a lack of demand for their machines and lower sales price & you have a prfct storm.

Like ch11 perfect. They can't raise prices  and in fact their  machines are 50% lower than they were 3 yrs ago.. wow.

Wed, 02/02/2011 - 11:18 | 927268 The Axe
The Axe's picture

ITW and CMI said the exact same thing this week, and after a small dip in the stock..boom right back up.....the Fed bid is just to strong to pay attention to any other metric

Wed, 02/02/2011 - 11:19 | 927272 Quinvarius
Quinvarius's picture

Look at MCD teetering on the daily chart.  LOL.  You know it.

Wed, 02/02/2011 - 11:23 | 927292 AccreditedEYE
AccreditedEYE's picture

Sorry Mr. McLoughlin, since QE3 will arrive some time in June, your headache will be very, very long-term. We are 100% confident in that.

Given enough time, perhaps Ripplewood will get Maytag (and a lot more) after all...  

Wed, 02/02/2011 - 11:27 | 927306 Caviar Emptor
Caviar Emptor's picture

WHR is a great barometer of the health of a post-recession recovery: in good times, new household formation, new home construction and upgrade cycles provide huge demand for appliances. 

This 'recovery' sucks, in a word. Prices are surging BEFORE demand had a chance to surge. That's a KEY point. It means normal forces of the business cycle aren't operative. Reckless Fed money printing is one thing ultimately pushing input costs. But global economics are too. 

Wed, 02/02/2011 - 11:35 | 927341 SheepDog-One
SheepDog-One's picture

Yep, Ben should have watched Fight Club to know stickin feathers up your butt does not make you a chicken.

Wed, 02/02/2011 - 11:42 | 927367 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I hope this image gets Banzai'd, if it has not been made already.

Wed, 02/02/2011 - 11:30 | 927315 topcallingtroll
topcallingtroll's picture

We are going to need some serious productivity improvements to mitigate this. Roach at morgan stanley used to.discuss the global labor arbitrage and the great rebalancing. Well we are right in the thick of it now. However he neglected the next step which was global margin arbitrage. Unless we have huge productivity numbers these record corporate profits may regress.further to the mean. Hmm....I like that...global margin arbitrage....maybe I can get a job at a bank.

Wed, 02/02/2011 - 11:33 | 927326 Johnny Lawrence
Johnny Lawrence's picture

Does anyone think it's a possibility that commodity prices collapse when the stock market does?  Considering the amount of speculative money that's poured into them, it seems like a strong possibility to me.  Happened in 2008.

Wed, 02/02/2011 - 11:40 | 927352 financeguru500
financeguru500's picture

Stock market won't collapse again. This time it is artifically raised through government money.

Wed, 02/02/2011 - 11:57 | 927448 Johnny Lawrence
Johnny Lawrence's picture

Like in Japan in the 1990s?

Wed, 02/02/2011 - 13:01 | 927730 TheGreatPonzi
TheGreatPonzi's picture

The example of Japan is the only argument in the deflationist camp. And that's quite sad, actually, because there is no other historical example. On the other hand, you have hundreds of hyperinflation examples across modern history.

Japan did not finance its own debt through printed money, Japan did not target stocks through QE, Japan wanted "good" inflation (otherwise they would just have to send a 1 billion yen cheque to every Japanese), the entire financial system of Japan was not risking death, thus demanding strong measures, etc, etc.

And rest assured that the money printed by the Bank of Japan is still there... sleeping in the balance sheets of banks. At the slightest sign the Japan economy is restarting, the ersatz money will flow into the economy and cause hyperinflation (unless the central bank tries to drain liquidity).

Wed, 02/02/2011 - 13:18 | 927824 Slim
Slim's picture

Great Depression - massive deflation there.  Many similar themes (consumer leverage, bank leverage) except this is more global and our response this time is a bit different from the early responses then.  Look at post-war rates too, 3% mortgages deep in the 1950s.

 

Hyper-inflation in a major developed country in modern history is tough too.  Germany but that was kind of an odd setup, okay though.  Others, Russia maybe but classifying their economy as developed at the time would have been a major stretch.

 

At this point I don't think anything is set for sure.  High commodity prices will eventually crush global demand and return them to sustainable levels, it's not like they will continue to rise forever.  Commodities are the governor on any kind of recovery (nicely thought out on QE2 there Ben) and underlying deflation is always waiting.  This is why the Fed fears deflation so much, they went all in during the 1930s, directly revalued the gold standard and everything, and did they really beat it?  Not with the ugly results 1938 when they backed off on stimulus.  Only the war decisively pulled it out and even then inflation was pretty tame despite massive debt/money moving.  Congrats - we live in interesting times.

Wed, 02/02/2011 - 13:24 | 927861 TheGreatPonzi
TheGreatPonzi's picture

"Great Depression - massive deflation there."

No.

The deflation was ridiculous, just look at the CPI for these years.

And I don't know why you bring the Great Depression into the debate, as the gold standard was in place during the crash.

Wed, 02/02/2011 - 13:57 | 927988 Slim
Slim's picture

Not really debating, just pointing it out.  I have looked at the CPI basket - that's why I say it and mention 1938.  Look at the spiral getting continually worse 1930, 31, 32 and then roughly flat after 1933 when they went another direction including on the gold standard (big dip in 1938 when they pulled back). 

 

You figure that if you are on the gold standard, cut the value of said standard massively in a year/1933 (similar to printing money/inflating/default), and the run up massive debt, it's not that dissimilar to today.  The gold standard was not constant during this and was deliberately used.  This is also when they abbrogated contract clauses allowing settlement in gold and prevented private ownership outside dental/jewelry (gold seizure act).

 

Another interesting time.

Wed, 02/02/2011 - 11:49 | 927402 topcallingtroll
topcallingtroll's picture

I do. I think you can count on it. We need at least a cameo appearance of the deflation monster to hold back the core so that my favorite horse gdp can start to pull ahead. This is the greatest horse race of all time, core versus gdp. It is not a foregone conclusion that core will win. Even a tie for my horse gdp is a win because it allows the great global muddle through to proceed peacefully, except for the third world, but who cares?

Wed, 02/02/2011 - 12:00 | 927465 Johnny Lawrence
Johnny Lawrence's picture

If the thought on ZH is that stocks will eventually collapse because of the speculative runup, I don't know how that same logic doesn't apply to commodities -- particularly industrial and soft.

Plus, I use history to guide lots of my investment decisions.  And if you compare this current crisis to what happened in Japan, the similarities are remarkable.  And while Japan experienced bouts of inflation, the longer trend was deflationary.

 

Wed, 02/02/2011 - 12:27 | 927592 AccreditedEYE
AccreditedEYE's picture

I'm a "deflationist" myself and have been in the losing camp for a while. (However, I do believe in giving mucho props to Caviar's bi-flation call as he has been pretty spot on) My only hold out has been that Benny and the jets will have to cool it before they push too far. (which is debatable that they haven't already). Bruce K's piece last night was encouraging...  what can I say, I love to go against the grain. (no pun intended)

Wed, 02/02/2011 - 13:21 | 927845 ghostfaceinvestah
ghostfaceinvestah's picture

It all depends on Benocide, IMHO, if he even stops growing the Fed balance sheet, not even allows it to shrink, but simply stops growing it, we will see a collapse in all asset prices, the difference between us and Japan is we have a maniac in charge of our central bank, where the Japanese were somewhat restrained, Benocide will stop at nothing, he is literally letting people die in order to maintain his money printing.

Wed, 02/02/2011 - 11:34 | 927331 Wynn
Wynn's picture

Long second-hand and repair shops

Wed, 02/02/2011 - 11:41 | 927335 plocequ1
plocequ1's picture

Whirlpool dont make ipads. They make boring washing machines. Rally on.

Wed, 02/02/2011 - 11:40 | 927350 SheepDog-One
SheepDog-One's picture

What we really need is a Harry Wanger post, explaining how even the biggest dumbasses can clearly see the high spending and rocketing demand for consumer goods.

Wed, 02/02/2011 - 11:56 | 927438 system failure
system failure's picture

No chit, where is that Wanger. Apparently, current policies are not working for normal businesses, nor are they working for the populace. Any neanderthal,  could determine that policies must change if they are not working. Damn Ben, pull your head out of your ass before you swallow yourself inside out.

Wed, 02/02/2011 - 11:42 | 927362 Just Observing
Just Observing's picture

If Whirlpool would JUST FOLLOW the food industry and reduce their washing machines to the size of a large suitcase, this "input cost" thing would be a problem !

Wed, 02/02/2011 - 11:45 | 927383 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ahaha!

Wed, 02/02/2011 - 11:54 | 927430 topcallingtroll
topcallingtroll's picture

Maybe they can figure out a way to make them from extruded plastic with a sonic agitator. That would be a huge productivity improvement. Dont short american ingenuity just yet.

Wed, 02/02/2011 - 11:53 | 927426 Atomizer
Atomizer's picture

Another taxpayer sponsored Cash for Appliances will bail them out

Wed, 02/02/2011 - 13:01 | 927747 cougar_w
cougar_w's picture

"Whirlpool" goes down.

That must be the longest running punchline in the world.

Wed, 02/02/2011 - 14:04 | 928020 Flakmeister
Flakmeister's picture

 Nothing sucks like an Electrolux

Wed, 02/02/2011 - 14:39 | 928156 JustACitizen
JustACitizen's picture

Let's see - Whirlpool outsourced to Mexico, China etc. They bought (I believe) a profitable Maytag - and put a world class employee pool (productivity and quality) out of work. They outsourced Maytag too. The strategy thus far has resulted in numerous recalls (from memory - dishwashers and refrigerators) and a deserved perception of poorer quality. They followed the herd and rewarded their executives well - especially during the "housing boom". We will see how they do during the housing bust...

Wed, 02/02/2011 - 15:25 | 928300 bbucks
bbucks's picture

Where is the Harry Wanger (aka Tiny Timmy) to put a positive spin on this???  Let me page him........

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