As competition swirls in the home-appliance market, some critics are growing agitated at what they call the Whirlpool ( WHR) spin machine. The company got its real start and its name more than half a century ago supplying Sears & Roebuck with modern washing machines, complete with automatic spin cycles. Soonn after Whirlpool established itself as the dominant force in the most lucrative appliance market in the world. Since then Whirlpool has put together a formidable record of success. Recently the Benton Harbor, Mich., appliance maker managed to top quarterly profit expectations even as some big competitors -- notably Maytag ( MYG) -- drew up short. And while Whirlpool joined its peers in scaling back full-year guidance, it didn't give voice to familiar industry concerns. Rather, the company says its business is holding up quite well. Indeed, it seems to marvel that its rivals are having such a hard time, and continues to see opportunity where others see peril. "We're hearing and reading a lot from various participants in the industry about a significant pricing decline," a Whirlpool executive confessed in a recent conference call with analysts. But Whirlpool had "record revenues in North America, with significantly higher profitability that our major U.S. competitors. ... "That's really important in this kind of environment, where some of our competitors are reporting the opposite." But to critics, Whirlpool's escape from industry pressures is downright inexplicable. These people believe the only real constant in America's cutthroat appliance market is Whirlpool's confidence that it will remain on top -- even as brash new competitors mount a new challenge to an industry increasingly threatened by price stagnation. These people see more than a little spin in Whirlpool's past financial reports, and an outlook for the future that doesn't wash at all. Whirlpool shares ended last week at $53.37, down 31% from a year ago. The company didn't respond to questions on Friday.
analyst questions to management was that Q1 earnings benefited in an artificial fashion from an inventory build that was abnormal and above that of last year," Darkatsh said. In the end, Darkatsh concluded that Whirlpool had fumbled questions about the dramatic rise in inventories on the company's latest cash flow statement. But he found reasons to trust the company anyway. He ultimately justified the inventory jump by saying that beginning inventories were too low so management simply stepped up its routine seasonal buildup to address the shortfall. But Whirlpool bears were already criticizing the company's financial statements even before the latest eruption. Most notably, they believe that Whirlpool's reported cash flow and sustainable cash flow are two very different things. As evidence, they point out that the vast majority -- more than 80% -- of Whirlpool's 2002 cash flow actually came from deferred taxes instead of operations. "Obviously, that is not sustainable cash flow," said one Wall Street critic. "They're going to have to pay their taxes eventually." In the meantime, the critic believes Whirlpool will ultimately fall well short of its cash flow targets for 2003. Although the company recently trimmed its 2003 earnings guidance, dropping it from between $6.20 and $6.40 a share to between $5.90 and $6.10, it kept its crucial cash flow projections in place. The company, which weathered its normal cash drain in the first quarter, expects to rebound and grow free cash flow by 21% to $350 million this year. "They'll have to grow operating profits by 30% to 35% -- something that, historically, they have never done," one critic said. Prudential analyst Nicholas Heymann, who parted with mainstream Whirlpool bulls long ago, shares much of that skepticism. Essentially, Heymann believes Whirlpool is aiming to ramp up its business at the very point when big challenges -- particularly competition and pricing pressures -- could start to knock the giant down. He recommends that clients sell their shares.