Costs seen taking toll on Whirlpool and Electrolux

Respectively the number one and number two white goods makers in the world, the firms are bellwethers for how consumers are feeling. Both have been relying more on growth in emerging markets than in crisis-hit developed nations.

David MacGregor, an analyst at Longbow Research, cut his 2011 earnings forecast for Whirlpool this week, raising concerns about recent rises in the cost of energy and raw materials as well as weak January sales volumes.

Whirlpool has forecast 2010 energy/raw materials cost inflation towards the lower end of the USD 200 million to USD 300 million range.

"We suspect that in 2011, this figure may revert to the 2007 level of USD 500 million to USD 600 million, driven by high levels of inflation in steel, plastics and paint, non-ferrous metals, components, diesel (logistics), etc," MacGregor said.

Current Wall Street estimates for Whirlpool remain "unrealistically high", MacGregor said. He backed his fourth-quarter profit estimate of USD 2.32 a share, but cut his 2011 estimate to USD 8 a share from USD 8.75 a share.

Analysts on average are expecting Whirlpool to earn USD 2.26 a share, before items, on revenue of USD 4.84 billion, according to Thomson Reuters I/B/E/S.

"We view Whirlpool as a strong, well-managed franchise within the global consumer durables sector, but one that faces very difficult fundamentals for at least another 12 months," he said. He has a "neutral" rating on the stock.

The story is similar for Electrolux.

The average forecast in a Reuters poll was for core Electrolux earnings to fall to 1.78 billion Swedish crowns (USD 277.6 million) in the fourth quarter of 2010, from 2.02 billion a year earlier. Sales were also seen down.

But investors are also expecting a hefty payout from the Swedish company due to a strong balance sheet.

The average forecast is for an ordinary dividend of 6.42 crowns and a special payout of 9.40 crowns.

Rising costs have been flagged by both companies. Electrolux said it expected raw materials costs to rise 1.5 billion crowns this year and some analysts expect it to raise that forecast on Wednesday.