WHIRLPOOL CORP /DE/ Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Delivered global sequential EBIT margin expansion, with North America achieving 100 basis points of sequential margin expansion led by pricing actions.
• Challenging macro environment in the US due to low consumer confidence, uncertain elections, and constrained housing market with elevated mortgage rates.
• Housing market structurally undersupplied by 3-4 million units, with expectation of eventual rebound. Strong position with 8 of top 10 US homebuilders and new product lineup.
• Cost takeout actions delivered 25 basis points of sequential margin expansion and 50 basis points year-over-year, led by organization simplification.
• Product innovation: New KitchenAid small appliances launched, including Evergreen Stand Mixer, Go Cordless system, and new kitchen tools; notable launches in MDA North America laundry and refrigeration categories.
• Capital allocation: Completed actions to strengthen balance sheet, generated over $500M in cash from sales and divestitures, on track for debt reduction and dividend payments.

Segment Performance

• MDA North America: Net sales down 4% year-over-year, driven by unfavorable price/mix due to strong replacement environment and weak discretionary demand. Delivered 100 basis points of sequential EBIT margin expansion led by pricing actions and cost takeout, achieving 7.3% EBIT margin for the quarter.
• MDA Latin America: Continued strong net sales growth of 9% year-over-year (excluding currency), driven by industry in Brazil and Mexico. Delivered a solid 6.9% EBIT margin with 110 basis points of sequential margin expansion from improved price/mix.
• MDA Asia: Another quarter of double-digit net sales growth of 10% year-over-year (excluding currency), with 2.9% EBIT margin from price/mix and fixed cost leverage.
• SDA Global: Net sales decreased 3% year-over-year, impacted by industry declines in the US. Delivered 14.2% EBIT margin, impacted by marketing investments for new product launches.

Guidance

• Reaffirmed full-year net sales guidance of approximately $16.9 billion, ongoing EBIT margins ~6%, ongoing earnings per share ~$12, and free cash flow ~$500 million.
• Adjusted effective tax rate expected to be approximately -18% to 22% for the full year, with an expected shift to 20% to 25% starting in 2025 due to tax planning strategies and completion of European transaction.
• Confident in delivering guided financials despite challenging macro environment, with focus on margin expansion and cost management.

Risks

• Macro environment challenges in the US including low consumer confidence, constrained housing market with elevated mortgage rates, and pre-election uncertainty impacting discretionary demand.
• Currency impact on margins due to weakening of Brazilian real and Mexican peso relative to US dollar.
• Weak macro environment in Europe affecting the European transaction, with negative impact of 25 basis points on third quarter results due to equity and affiliates impact from Beko Europe B.V. and integration-related efforts.

Question and Answer

• Q: On consolidated EBIT margin progression, A: Discussion on margin drivers including price/mix, cost takeout, currency impact, and EMEA transaction impact; North America margin improved with 100 basis points sequential expansion.
• Q: On SDA segment, A: Seasonality in small domestic appliances, with Q3 sales impacted by marketing investments for new product launches, but confident in full-year guidance of ~7.5% net sales growth and ~15%+ margin.
• Q: On North America MDA margin, A: Price/mix dynamics with positive pricing but negative mix due to replacement demand, and impact of consumer sentiment and housing market on discretionary demand.
• Q: On balance sheet, A: Update on cash balance, including non-US cash and ability to repatriate, with focus on debt reduction and capital allocation priorities.
• Q: On steel prices, A: Raw material hedging strategies, with steel contracts typically locked in Q3/Q4, and impact of raw material costs on overall cost structure.
• Q: On 4Q guidance, A: Expectation of revenue growth in 4Q due to seasonality, market share recovery, and benefit from cost absorption and leverage from normalized production levels.
• Q: On market share and promotions, A: Market share trends in different regions, with focus on margin expansion and limited promotion lift due to election year consumer sentiment, while maintaining focus on margin improvement.