Questions linger about Whirlpool, Sears relationship

Questions continue about the possibility of Whirlpool Corp. losing its contract to manufacture refrigerators for Sears, with Whirlpool officials continuing to manufacture vague answers to the questions.

In February, Whirlpool employees told The City Wire they were told the Sears contract was in jeopardy. During a Feb. 12 series of meetings at Whirlpool’s Fort Smith plant, Whirlpool managers, including plant chief Ken Thompson, told Fort Smith employees that 2009 marks the last year of the refrigerator contract with Sears.

Whirlpool spokesman Jill Saletta said in February that Whirlpool would continue to produce products for Sears but refused to say if that would include refrigerators. Whirlpool makes several products for Sears in addition to refrigerators.

Now comes David MacGregor, a research analyst at Independence, Ohio-based Longbow Research, who asked Whirlpool officials during a July 22 second-quarter earnings conference call about the Sears contract.

“I wonder if I could just get you to address a point that you didn’t cover in the call, and that is the Sears relationship and what happens with Kenmore in 2010? That’s probably the issue on most investor’s minds these days and just wondering if you could give us some sense of magnitude with respect to earnings and revenue impact,” MacGregor asked in this transcript from Seeking Alpha.

Michael Todman, the president of Whirlpool-North America, said the “relationship with Sears is strong” but that the company does not have a contract in place for 2010.

“And just to point out, we still have a contract in place for 2009 and we do except that we won’t see any significant change in volumes from that this year. As we talked about earlier, we said that we expected to see some small volume decline in our OEM businesses as we went into 2010,” Todman said according to the transcript. “The other thing we ought to note is that this business that we have with them, we evaluate on an ongoing basis. It’s not at any point in time fixed and so we feel good about our position in 2010.”

Still curious, MacGregor pushed a second question on the topic.

“Is it definitive at this point or is the volume of the impact still up in the air? To what extent is there still some uncertainty around this?” he asked.

Todman: “There’s always ongoing discussions and there’s always ongoing evaluations of the business and the opportunities that are available, and both companies evaluate that based on our abilities to create value and that will continue to happen.”

CHINA MOVES
Whirlpool Chairman and CEO Jeff Fettig also provided some detail about a new joint venture manufacturing plant the company formally opened July 15 in an industrial park in the Zhejiang Province in China.

“The facility will produce both washing machines and refrigerators for the Chinese markets and for export. This new manufacturing center is significant for us because it provides us with increased manufacturing scale for us and adds refrigeration to our Chinese product portfolio. It also represents an important component of a global offering platform and solidifies our presence in markets with strong growth potential like we’re seeing in China,” Fettig said during the conference call.

The new facility is expected to annually produce one million refrigerators and two million washing machines, according to a Hisense press release.

And while the company is expanding in China, it continues to cut costs in North America, Fettig said the company cut its SG&A costs (costs typically associated with personnel) by 27% in North America.

Second-quarter sales in Whirlpool’s North American segment were $2.4 billion, down 17% from the same quarter in 2008. The company said its shipments of major appliances were down 14% compared to the 2008 period. Based on current economic conditions, Whirlpool expects full-year 2009 U.S. industry unit shipments to decline between 10% and 12%.

The downturn in product sales is noted by the company as a key reason Whirlpool has reduced employment at its Fort Smith plant from about 4,500 in early 2006 to about 1,350 today.