One week post-BREXIT (June 24), attention given to safe haven investments had noticeably increased.
Observing the investors’ money flow through exchange-traded funds (ETF), which usually represents the ongoing investors’ sentiment, can be quite revealing. From June 24 to June 30, there was a massive amount of money coming in to invest in gold and high-yield bonds. Accordingly, $1.4 billion and $1.2 billion were invested in SPDR Gold Trust (GLD, Financial) and iShares iBoxx $ High Yield Corporate Bond (HYG, Financial) ETF.
(Falling market prices, image source)
On the other hand, ETF investors pulled their money out of the Standard & Poor's 500, largely capitalized companies and banks. Heavy redemption came from the following ETFs: SPDR S&P 500 (SPY, Financial) ETF Trust, PowerShares QQQ Trust (QQQ, Financial) and Financial Select Sector SPDR Fund with $6.3 billion, $1.3 billion and $1 billion outflows.
In contrast, the S&P 500 was actually up 3% despite this pessimistic fund flow data. This is a clear sign that a billion or more funds had just missed a trivial 3% return, in a one-week timeframe. Nonetheless, it is always good to seek good investments and just ignore the market trepidation.
Whirlpool Corporation (WHR, Financial)
(Whirlpool Home Appliances, image source)
In the midst of the BREXIT phenomenon, Whirlpool reiterated its adjusted earnings-per-share (EPS) guidance for fiscal year 2016 of an average of $14.38 a share. This indicated that the company looks forward to delivering a diluted EPS between $11.25 and $12, or $11.63 per share (on average)Â –Â 18% growth from last year. To add, Whirlpool stated that United Kingdom operations contributed 5% to its total sales in fiscal year 2015.
It is easy to assume that Whirlpool sees itself as unaffected by the political consternation in the U.K. Reviewing Whirlpool’s recent annual report gave a slight concern. The company groups its sales by continent, and it's instructive to observe the growing contribution of sales in Europe, Middle East and Africa (EMEA) to the company’s sales in the last three years.
(Whirlpool Net Sales by Reportable Segment, p. 16, Whirlpool 2015 10-K Filing)
Whirlpool’s EMEA sales contribution grew from 16% of sales to 27% in the past three years. With some half of sales being collected from overseas, a strong dollar would definitely hurt Whirlpool sales, as most people would have to think hard whether it is the right time to replace their depreciating refrigerators among other home appliances.
Nonetheless, no one can fail to recall how the pound sterling dropped against the U.S. dollar in the midst of the BREXIT. The pound plunged to its 30-year low against the dollar.
(British Pound to USD by XE.com, image source)
In contrast, the dollar, when weighed against a basket of other currencies, interestingly enough, underperformed year to date at -3%. This just means that most companies that have global footprints that have minimal exposure to the U.K. can definitely demonstrate improving earnings in fiscal year 2016 – considering a steady organic sales growth.
Whirlpool business overview
According to its 10-K filing, Whirlpool Corporation is the world’s leading global manufacturer and marketer of major home appliances. The company was incorporated in 1955 under the laws of Delaware as the successor to a business that traced its origin to 1898Â –Â 118 years. The company’s leading portfolio includes the following familiar brands: Whirlpool, Maytag, KitchenAid, Embraco, Brastemp, Consul and Indesit.
Whirlpool performed two recent acquisitions in two key countries, namely Italy and China. The company paid about $965 million in 2013 for Italy’s Indesit and $551 million for a 51% stake in China’s Hefei Sanyo. There was an unquestionable improvement in sales brought by these two acquisitions. Whirlpool revealed that it grew its EMEA sales by 43% in 2014 primarily because of Indesit, and Asia sales grew by 74% because of Hefei Sanyo.
No question, this old company is not slowing down.
Book value, debt and cash
According to Whirlpool’s recent quarterly filing, the company had an unaudited book value of $5.7 billion, total debt of roughly $5 billion and total cash of $699 million. Further, the company had a debt-to-equity ratio of 1.05.
Free cash flow, dividends, share repurchases
Whirlpool expects that it will be able to deliver somewhere between $700 million and $800 million free cash flow in fiscal year 2016. That would indicate some 40% growth from last year. Further, the company demonstrated confidence in an otherwise tough year of earnings brought by several economic uncertainties found worldwide.
According to Whirlpool CEO Jeff M. Fettig, “We remain confident in our ability to deliver our 2016 guidance as we capitalize on robust demand in the U.S., new product introductions and strong productivity around the globe.”
On share repurchase and dividends, “In addition to our strong business performance, with our $1 billion share repurchase program and increased dividend we have appropriate flexibility to deliver on our capital allocation priorities.”
In summary, Whirlpool increased its dividends by 20% compared to last year’s first quarter, from 75 cents to 90 cents. The company also announced a $1 billion share buyback program.
Dividend yield
Unfortunately for dividend seekers, Whirlpool’s dividend yield has been close to flat over the past decade; if not flat, actually declining compared to 2006’s 2.6% and TTM’s 2.1%. Nonetheless the company has been growing its dividends. Dividend growth averages for the past three and five years were 20% and 15.5%.
Valuations
As of July 4, the U.S.’s Independence Day, Whirlpool had a market value of 12.92 billion. The company also had a trailing 12-month (ttm) sales of $20.7 billion and profits of $742 million, according to GuruFocus. With these figures, Whirlpool is currently being valued at 17 times its earnings, 2.2 times its book value and 0.6 times its ttm sales.
These valuations can be considered at almost par with the S&P 500’s multiples which were 19 times earnings, 2.7 times book and two times sales.
In summary
Whirlpool Corporation definitely has been more of a safe haven to the investors. The company’s share price returned 14% to its shareholders year to date; this compared to the S&P 500’s returns of just 3%. The company’s dividend is just a bonus. It probably was a good time to accumulate some Whirlpool shares when it dropped some 14% post-BREXIT event. Only downside in Whirlpool is its current balance sheet, which was a result of the previous two acquisitions. Nonetheless, a borderline aggressive investor may consider Whirlpool's shares given its track record.
Accompanied by the company’s reliable and competent executives, the company is worth watching from the sidelines and probably a good buy whenever it reaches some 16 times earnings.
Happy investing!
Mark
Disclosure:Ă‚ I do not own any WHR shares, nor am I planning to initiate a position any time soon.
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