Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Whirlpool Corp (WHR, Financial) demonstrated strong sequential global margin expansion in the second quarter, with a 100 basis point increase.
- The company's pricing actions in North America delivered as expected, improving sell-through trends and maintaining market share.
- Whirlpool Corp (WHR)'s SDA global business saw strong top-line growth and margin expansion, driven by new product launches and direct-to-consumer growth.
- The company successfully completed its organizational simplification, putting it on track to achieve its full-year cost takeout guide of $300 million to $400 million.
- Whirlpool Corp (WHR) generated $275 million in cash from working capital and inventory management, with an expected free cash flow of approximately $500 million for the full year.
Negative Points
- Whirlpool Corp (WHR) revised its ongoing EBIT margin guidance to 6% from 6.8%, citing continued discretionary demand pressure from a soft housing market.
- The company experienced a 6% year-over-year decline in net sales for its MDA North America business, driven by unfavorable price mix.
- Foreign currency negatively impacted margins due to the weakening of the Brazilian real and the Canadian dollar relative to the US dollar.
- Whirlpool Corp (WHR) noted that the challenging macro environment in the US, including elevated mortgage rates, has led to continued weakness in home sales and overall discretionary demand.
- The company expects to deliver on the lower end of its $300 million to $400 million cost savings range for 2024, indicating slower realization of incremental cost actions.
Q & A Highlights
Q: How long do you figure it will take to return the North America MDA segment to a 10-11% margin exit rate, and what specifically would have to happen for those levels to be achieved?
A: Marc Bitzer, Chairman and CEO: The revised guidance now targets roughly a 9% exit margin, driven by the delay of a housing recovery. The housing market needs to recover for us to achieve double-digit margins. In the meantime, we are focusing on promotion price increases and aggressive cost actions.
Q: Can you talk about the competitive response you've seen so far in North America, particularly regarding promotional activity?
A: Marc Bitzer, Chairman and CEO: We see the full positive impact of our promotional price program changes starting in June. While there was some volatility in market share initially, it has stabilized. We are confident in our full-year market share, supported by strong product launches in Q3 and Q4.
Q: Can you provide more details on the realization of the promotional price increase in North America and whether the 1-2% realization target is still reasonable?
A: Marc Bitzer, Chairman and CEO: We had significant negative carryover from last year's promotional environment, but we see that turning positive now. We are fully on track towards the net impact we previously communicated and feel very good about the sequential pricing trends in North America.
Q: How do you think about the cash generation of the business given the global footprint and the path to deleveraging over time?
A: James Peters, CFO: Both our Asia and Latin America businesses are positive cash generators, supporting their own investments without requiring significant restructuring. We expect these businesses to continue generating positive cash flow, contributing to our overall deleveraging strategy.
Q: Can you bridge the path to achieving 9% consolidated margins by 2026, given the 2024 guide of 6%?
A: Marc Bitzer, Chairman and CEO: The biggest move from 7% to 9% will come from cost reductions. The difference between 6% and 7% is due to lower discretionary demand in North America. We expect an improvement in discretionary demand over time, along with continued cost takeouts.
Q: Have you seen any meaningful shift in the mix of your North American business by major appliance category or brand?
A: James Peters, CFO: The shift is driven by a stronger replacement market, moving away from selling suites and super-premium products. This has led to a mix shift towards lower-margin products like refrigeration and laundry, which are essential for immediate replacement.
Q: When should we start to see improvement in raw material costs?
A: Marc Bitzer, Chairman and CEO: We didn't see a significant change in raw material costs in the quarter. While there is some movement in cold-rolled steel prices, it's not massive. We don't expect a significant tailwind from raw materials in 2024, but there might be a small benefit in 2025.
Q: Can you help us understand the margin difference between the replacement business and the discretionary business, and how depressed is the discretionary mix today?
A: James Peters, CFO: Replacement is now over 60% of our business, up from 50-55%, while discretionary is down to the mid-20s. The shift to a replacement market drives lower margins due to a higher mix of value brands and essential products like refrigeration and laundry.
Q: How do you balance maintaining an investment-grade credit rating with capital returns to shareholders?
A: James Peters, CFO: We are confident in our ability to handle upcoming debt maturities and continue to prioritize dividends and debt reduction. As our EBITDA grows, it will help us achieve our deleveraging targets by 2025-2026.
Q: What is your strategy for holding or gaining market share in North America in the back half of the year?
A: Marc Bitzer, Chairman and CEO: We plan to hold our market share, supported by strong product launches and a stable promotional environment. Our strong product pipeline and potential positive market impact from the builder business will help us maintain market share.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
