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

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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