Whirlpool Corporation

Good morning and welcome to Whirlpool Corporation's third quarter 2023 earnings release call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Corey Thomas.

Thank you and welcome to our earnings conference call. Joining me today are Mark Pitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial Officer. Our remarks today track with a presentation available in the investor section of our website at warpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we'll be making forward-looking statements to assist you in better understanding Warpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q, and other periodic reports. We also want to remind you that today's presentation includes the non-GAAP measures outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative results from our ongoing business operations. We also think the adjustment measures will provide you with a better baseline for analyzing trends and our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. At this time, All participants are in a listen-only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions. With that, I'll turn the call over to Marc.

Thanks, Corey, and good morning, everyone. Before we discuss our Q3 results in more detail, I want to acknowledge the great news that we received earlier this week. On Tuesday, the European Commission announced their unconditional approval of our European transaction with Archelic. The first decision In earlier clearances from Austria, Germany, and China, we passed a major regulatory hurdle and are now fully focused on obtaining Phase 2 approval from the UK's CMA. While a transaction closure within this year is unlikely, we are confident that we can close by April next year. A transaction closure will unlock significant value for us, largely coming from an improved free cash flow of $250 million per year. Later during this call, we will give you more detail about the expected regulatory process and the value creation of this transaction. Looking more short term at our Q3 results, we are pleased with our operational progress and our top line growth in what is still a very challenging environment. The bottom line showed solid progress over last year, but is essentially flat from prior quarters. Our operational progress during the entire year has been sustained and even accelerated during Q3. We improved our supply chain execution. We accelerated our cost takeout actions and are fully on track towards our full year cost targets. And we launched several innovative products across multiple categories. As a result, we were able to gain market share in almost all of our major businesses. As I mentioned earlier, the market environment is still challenging. Market demand in the Americas has been solid, but this is entirely driven by a very strong replacement demand. related to increased appliance usage at home, a trend which we expected and which we expect to continue. The other side of demand, discretionary purchases have been even softer than anticipated as a result of increased mortgage rates and low consumer confidence. The low discretionary demand sparked a more intensive promotion environment, in particular in North America. Essentially, we're back to a pre-COVID promotional environment. Being back to a pre-COVID promotion environment is not surprising. However, we expected this to occur one or two quarters later. Looking into a fourth quarter, we do not anticipate this environment to fundamentally change, and we do expect our business to perform on a similar level as Q3. As a result, we're updating our full-year guidance. We now expect full-year EBIT margins of 6.25% to 6.5%. At the same time, we're able to achieve additional tax benefits. Putting both together allows us to remain at the lower end of our original guidance of approximately $16, but with a lower free cash flow of $500 million. Turning to slide six, I will provide an overview of our solid third quarter. We delivered 3% of top line growth, both year over year and sequentially. Promotions, which were normalizing sooner than expected, were more than offset by over a point of share gains in North America, strong and growing replacement demand, our builder channel benefiting from a shortage of existing homes, and the insincerator acquisition. We realized $300 million of cost takeout benefits in McArthur and are fully on track to deliver over $800 million of cost takeout in 2023. Our actions drove 100 basis point margin expansion year over year, with solid EBIT margin of 6.5%, and ongoing earnings per share of $5.45. Now turning to slide seven, I will share more details on our 100 basis points margin expansion. Sequentially priced mix negatively impacted margins by 150 base points and 375 basis points year over year. Driven from a normalization of a promotion switch was largely absent in recent years and reemerged in the third quarter of 2022. The promotional environment is now reflecting return to historical levels faster than previously expected and normal seasonal patterns, which are weighted more towards the second half of each year. In addition, mix was negatively impacted in the quarter due to over-indexed share gains in laundry, as our laundry share was disproportionately impacted by supply chain disruptions during the pandemic. Our strong cost actions delivered both sequential and year-over-year benefit of 100 and 625 basis points respectively. Both year-over-year and sequentially, we invested more in marketing and technology. Ultimately, we delivered ongoing EBIT margin of 6.5%. Turning to slide eight, you will see operational priorities are fully on track. Our resilient and adaptive supply chain has delivered share gains throughout the Americas. We have addressed recent supply challenges, significantly reducing the risk of supplier-driven disruptions by expanding dual sourcing and reducing parts complexity by more than 50% since 2021. We're fully on track to deliver over 800 million of cost reductions in 2023, even with some raw material cost benefits coming slightly later than originally expected. And while we're not providing guidance for 2024, we're increasingly confident about sustained cost progress well into 2024 due to a number of factors. A significant cost takeout during the second half of 2023 will obviously create sizable carryover benefits. But recent trends in raw materials, in particular steel, and freight rates, which have been favorable throughout the year, are likely to continue to create tailwinds. Now I will turn it over to Jim to review our regional results.