Rising Commodities Put Profits Through the Wringer

Barrons ^ | 2/4/2011 | ANDALL W. FORSYTH

[FromLori]

Whirlpool's shrunken margins could be a warning. Could higher costs thwart hiring?

Rising commodity prices, which are depressing real living standards and are contributing to the social unrest spreading around the globe, also are beginning to be felt at the top end of the economic pyramid as shrinking profit margins. And as higher costs eat into earnings, will companies to try to compensate by curtailing hiring?

Whirlpool's (ticker: WHR) earnings report, released Wednesday, provides a good example of the stresses Corporate America increasingly faces. While the appliance maker's sales are booming abroad, especially in the rapidly growing emerging economies such as Latin America, its North American profit margins shrank sharply in the fourth quarter because of rising costs, especially for materials.

Excluding special items, Whirlpool reported adjusted net earnings of $2.11 per share for the quarter, up substantially from $1.67 a year ago, but well short of analysts' consensus forecast of $2.27. As a result, its shares got wrung out by 2% Wednesday. That echoed a similar market reaction to an earnings miss by Ford (F) last week as a result of surging expenses, including for rising commodities prices.

Whirlpool's margins were hurt by a $217 million rise in the cost of materials, notably steel, resins used in plastics, and copper, which hit another record Wednesday, the company noted in the earnings conference call. The appliance maker is projecting another $250 million-$300 million in cost increases, which an executive said on the earnings conference said the company hopes to offset with "productivity initiatives," higher sales volumes and price increases it hopes to push through this year.

[FromLori]

"Officially, core inflation excludes food and energy costs, which, of course, are what's up."

[Nick Danger]

"productivity initiatives"

I do hope that's not just some new duckspeak for "layoffs."

[Wurlitzer]

The destroy America crowd led by George Soros and their “Story of Stuff” will be quite happy if they can raise the price of everything so as to reduce our consumption.

They could not care less that this forced reduction of consumption will force more on the unemployment rolls as this will just speed up the Cloward and Piven strategy of collapsing the system.

We have most of the world and almost half of the US population working towards our demise.

I just question who will continue to feed the world, adopt the most orphans of the world, give all that foreign aid to the world once the EVIL USA is brought to its knees. What a great way to level the playing field by destroying the producers. Maybe we can look to Cuba, N. Korea, Venezuela for aid.