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NOTame brand home appliance manufacturer Tourbillon (NYSE: WHR) released mixed second-quarter results yesterday. While revenue of $5.1 billion beat Wall Street expectations of $5.14, adjusted EPS of $5.97 beat consensus of $0.73. The stock pays a handsome dividend yield of over 4.1%. Can the company maintain its excellent dividend?

The bad news

Whirlpool’s European segment was hit hard in the first quarter. Management said that due to the ongoing conflict between Russia and Ukraine and the falling euro, revenues in the region fell by 19%. However, excluding the exchange rate effect, sales fell by only 10.3%.

More surprising was the 94% drop in earnings before interest, taxes, depreciation and amortization (EBITDA) in the European region. The company blamed falling volumes and inflation on the steep decline in EBITDA. During the quarter, the company also agreed to sell its Russian operations.

The transaction is not expected to close until the third quarter, but Whirlpool recorded $346 million in asset write-downs and $384 million in goodwill and intangible asset write-downs in the second quarter. Losses are non-cash and non-recurring, but are still included in earnings under generally accepted accounting principles (GAAP). Unadjusted GAAP earnings per share were negative $6.62 in the second quarter.

Image source: Getty Images.

Inflation has also affected the company’s North American region. Record costs drove the region’s EBITDA down 25% to $417 million. Inflation appears to be more persistent than expected by the company. Management lowered the North American revenue forecast for the full year from flat to a range of minus 7% to minus 5%. EBITDA margin guidance in the region has also been lowered from 16% to 15%.

Whirlpool also lowered its guidance for several company-level metrics. The company now expects consolidated revenue of around $20.7 billion, up from $22.5 billion previously. Although management believes inflation is peaking, it has lowered its EBITDA forecast from 9.5% to 9%. Although bad news was scattered throughout the report, there were positives.

The good news

The company managed to raise prices in its Asian region, where revenue rose 26% to $338 million, and its EBITDA margin increased 5.1 percentage points to 6.8%. In the name of full disclosure, management pointed out that last year’s COVID-19 related shutdowns in the region provided an easier than normal comparison.

Additionally, for the remainder of the year, management expects previously announced price increases to offset inflationary cost increases. Relatedly, the free cash flow forecast for the full year was unchanged at $1.25 billion.

Is the dividend safe?

Customers buy Whirlpool appliances for one of two reasons. Either they need it for a new home or they need to replace an old device. New home construction slowed in 2022, which likely explains the 25% drop in inventory this year. On the other hand, if your refrigerator, washer or dryer breaks down, you need to replace it as soon as possible. Although appliance sales could be hit if the global economy slows, Whirlpool’s replacement business should help it weather the storm.

Earnings from the company’s regular replacement business can also support its dividend. Whirlpool’s annual dividend is $7 per share, and it expects to generate $22 to $24 in earnings per share this year. Thus, the company has sufficient leeway to pursue its dividend, which yields more than 4%. Beyond the dividend, the company plans to buy back $1 billion of its stock in 2022.

Interestingly, the stock is up after the earnings report, while the S&P500 the index is down. One day is a small sample, but the stock’s reaction may indicate that the bad news is already priced into the stock price. Long-term investors may find value in the company and its impressive dividend yield.

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BJ Cook has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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