Whirlpool Corporation

Good morning, and welcome to Whirlpool Corporation's second quarter 2024 earnings call. Today's call is being recorded. Joining me today are Mark Bitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial and Administrative Officer. Our remarks today track with the presentation available on the investor section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool 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 of results from our ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in 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 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 Mark.

Thanks, Scott. And good morning, everyone. We demonstrated strong sequential global margin expansion in the second quarter. This global margin expansion of 100 base points is an important step towards continued margin expansion throughout 2024. MDA North America also delivered sequential margin expansion supported by our pricing actions announced in our first quarter earnings call. Our pricing actions in North America delivered as expected, with sell-through trends improving throughout the quarter. This reflects our execution capabilities and confirms the strength of our products and brands. We're confident in our ability to execute the pricing actions while maintaining our MDA North America market share for a full year. We continue to be very pleased with the performance of our SDA Global and International MDA business. Our SDA Global business saw strong top-line growth and margin expansion as we benefited from a momentum of new product launches and continue to grow our direct-to-consumer business. We're excited about the future potential of this business. In our MDA Latin America and MDA Asia business, we continue to gain share in key countries and we continue to see meaningful long-term growth potential in most businesses. We were disciplined with our cost management and successfully completed our organizational simplification this quarter. putting us on track to achieve our full year cost takeout guidance of $300 to $400 million. We are confident there are additional cost takeout opportunities ahead as we shared at our investor day, such as manufacturing supply chain efficiencies, including automation across our business, and continuing to optimize our input costs back to pre-COVID levels. Turning to our full year guidance, we are reiterating flat net sales of $16.9 billion driven by new product launches, strong replacement demand, previously announced MDA North America pricing actions, and continued strength in our international businesses. Offsetting the challenging macro environment in the U.S. given elevated mortgage rates, which have led to continued weakness in home sales and overall discretionary demand. We are revising our ongoing EBIT margin to 6% from 6.8% previously, as we expect continued discretionary demand pressure from a soft housing market impacting fully your price mix negatively. However, at the same time, the previously announced pricing and cost takeout actions are expected to deliver sequential margin expansion with a solid exit rate of approximately 7.5% ongoing EBIT margin in Q4. In turn, we expect to deliver $12 ongoing earnings per share this year. As we look ahead, we're confident in our strategy and the favorable long-term fundamentals of our business. Our view of the housing market remains unchanged, given the well-documented structural undersupply of houses in the U.S., existing home sales at multi-decade lows, elevated home equity values, which are near all-time highs, and our strong position with eight of the top 10 U.S. builders. We are very well positioned to benefit from eventual housing rebounds, and we continue to innovate and have a strong lineup of new products this year that I'm personally excited about, which will support the strength of our brands. Turning to slide six, I will provide an overview of our second quarter results. Organic net sales, excluding the Europe divestiture, increased by over 1% in the quarter. The growth across our international businesses and SDA global offset the expected decline in North America, which was impacted by the carryover of the second half 2023 normalized promotion environment that still resulted in unfavorable price mix in the second quarter, along with continued suppressed discretionary demand. This negative micro-environment was partially offset by our pricing actions taken within the quarter, which are fully on track. We delivered ongoing earnings per share of $2.39 with ongoing EBIT margin of 5.3%, representing solid sequential margin expansion of 100 base points, which we expect to continue throughout the second half of the year. Within McWalter, we made meaningful progress on our working capital and inventory management, resulting in $275 million of cash generation. We remain confident in our ability to improve free cash flow in the second half of the year to deliver approximately $500 million on a full year base. As a reminder, free cash flow year to date was negatively impacted by non-recurring cash outflows associated with a year transaction of $250 to $300 million in the first quarter. This cash consumption will no longer impact our results in 2025, structurally strengthening our free cash flow delivery going forward. Our free cash flow delivery enables us to continue to return cash to shareholders with our capital allocation priorities unchanged. Finally, continuing our nearly 70-year history of steady or increasing dividends, we paid $1.75 per share in the second quarter and expect to return $400 million to shareholders in the form of dividends this year. Turning to slide seven, I will review second quarter ongoing EBIT margin drivers. Price mix impacted margin unfavorable by 300 base points, with a negative mix resulting from lower discretionary demand. And as we look ahead, we expect the second half price mix comparison to sequentially improve with our executed pricing actions, in addition to lapping a more normalized promotion environment from the second half of 2023. Our cost takeout actions delivered 100 base point margin expansion, led by the completion of our organizational simplification actions. As expected, raw materials did not have a meaningful impact on the quarter. We continue to invest in marketing and technology, supporting product launches such as the fully and semi-automatic KitchenAid espresso machine. Finally, foreign currency negatively impacted margin as the Brazilian real and the Canadian dollar experienced some weakening relative to the US dollar. Ultimately, we delivered 100 basis point ongoing EBIT margin expansion sequentially to 5.3% in the second quarter. And now I will turn it over to Jim to review our segment results and full year guidance.

Thanks, Mark. Good morning, everyone. Turning to slide eight, I'll review second quarter results for our MDA North America business. Net sales were down 6% year over year, driven by unfavorable price mix. Our pricing actions are fully on track as evidenced by price mix turning positive in June. These actions drove approximately 70 basis points of sequential EBIT margin expansion. Overall, the segment delivered a 6.3% EBIT margin for the quarter. We expect that our pricing and cost takeout actions will continue to drive greater than 100 basis points of sequential margin expansion each quarter in the second half of 2024 and expect a Q4 EBIT margin of approximately 9%. Turning to slide 9, I will provide an update on our pricing actions and cost actions which remain on track. As you may recall, last quarter we discussed the promotional investments in the U.S. that were not achieving the expected incremental volume lift. The current environment of strong replacement demand typically brings a lower mix and limits promotional effectiveness. To address the environment, we announced a 5% weighted average increase to our promotional pricing programs in MDA North America, which went into effect on April 25th, demonstrating our commitment to only participate in value creating promotions. We are confident in our pricing actions. Although we have continued to see discretionary demand impacted by a depressed existing home sales and a weary consumer, we have already driven 70 basis points of sequential margin expansion in the second quarter and expect the net margin benefit from our price actions to be fully realized in the third quarter. As noted in our first quarter earnings, with persistently high inflation impacting manufacturing and supply chain, we are experiencing a slower realization of our incremental cost actions. While we remain on track to deliver $300 million to $400 million of cost savings in 2024, we continue to trend towards the lower end of the range. The North America MDA portion of this is approximately 60%. We completed our organizational simplification in early May and expect to fully realize the margin benefit from these actions in the third quarter. Despite the macro environment, we delivered approximately $150 million of cost takeout globally in the first half of 2024. And we expect our manufacturing and supply chain initiatives to deliver the majority of the cost takeout in the second half. Turning to slide 10, I'll review the results of our MDA Latin America business. The segment saw strong net sales growth of 15% year over year, excluding currency, driven by industry growth and continued share gains in both Brazil and Mexico, more than offsetting unfavorable price mix. We delivered a solid EBIT margin of 5.8% in the quarter. Turning to slide 11, I'll review the very strong quarter from our MDA Asia business. The segment saw significant net sales growth of 21% year over year, excluding currency, driven by industry growth and continued share gains. We delivered a 6.2% EBIT margin, driven by our strong cost actions and fixed cost leverage, delivering significant year-over-year and sequential margin expansion. Turning to slide 12, I'll review the solid results for our SDA global business. Despite industry decline, net sales increased 12%, excluding currency year-over-year, driven by new product launches and growth in our direct to consumer business. We delivered a solid EBIT margin of 13.9% through cost actions and volume growth, partially offset by incremental marketing investments for our recent Espresso product launches. The SDA business is well positioned for the selling season in the second half of the year, where we expect approximately two thirds of its demand and profitability to occur. Turning to slide 13, I'll review our revised full year 2024 guidance. Our net sales guidance of $16.9 billion is unchanged. We are revising our full year ongoing earnings per share to approximately $12 and refining our free cash flow guidance to approximately $500 million. In addition, our product mix in North America is impacted by low consumer sentiment and suppressed existing home sales. As a result, we now expect to deliver a full-year ongoing EBIT margin of 6%. Our guidance also includes updated expectations for our adjusted effective tax rate. Now that we have closed the Europe transaction, we are able to more appropriately estimate the benefits of our tax planning strategies. We now expect an ongoing full-year tax rate of approximately negative 8%. On slide 14, we show the strong progression of our quarterly ongoing EBIT margin. The sequential margin expansion of approximately 100 basis points quarterly in the second half is driven by on-track MDA North America pricing actions, incremental global cost takeout actions such as part complexity reductions and manufacturing efficiencies, continued strength across our international businesses, and SDA global seasonality. Our decisive actions and operational execution are expected to deliver a Q4 exit EBIT margin of approximately 7.5%. Turning to slide 15, we show the drivers of our updated full-year ongoing EBIT margin guidance. We have updated our expectation of price mix by 25 basis points to a negative 200 basis point impact, reflecting a negative product mix driven by lower than expected discretionary demand in the U.S., that is expected to continue into the second half. Net cost takeout reflects the expectation of delivering on the lower end of the $300 to $400 million range. Lastly, currency is anticipated to have a slight impact for the full year at 25 basis points due to weakening Brazil HAI and Canadian dollar. We now expect an ongoing EBIT margin of approximately 6% for the year. Turning to slide 16, I'll review our updated segment expectations. Globally, we now expect the total industry to be approximately flat. In MDA North America, the recent restatement of AHAM information has created some quarterly comparability issues. However, we are in alignment with the year-to-date reported AHAM results of down approximately 2% year over year. This links well to the sell-through results we have experienced in the first half of 2024. Replacement demand remains strong. However, discretionary demand continues to experience macro headwinds. As a result, we expect the industry to remain approximately flat for the year. MDA Latin America has seen significant demand recovery in both Brazil and Mexico, more than offsetting a very challenging economic environment that persists in Argentina. We now expect the industry to be up 5% to 7% in Latin America. MDA Asia industry remains unchanged, as we continue to see demand improvement in India as expected. Finally, SDA Global continues to be impacted by discretionary demand weakness in the U.S. and Europe, resulting in the expected industry for the year to be approximately flat. We have adjusted EBIT margin to reflect the discretionary demand softness in the U.S., negatively impacting price mix. we expect full-year MDA North America margins of approximately 7% with a Q4 EBIT margin of approximately 9%. With the strong share growth and cost actions in MDA Latin America and MDA Asia, we now expect higher EBIT margins of approximately 7% and approximately 4% respectively. SDA Global's strong EBIT margin of 15.5% remains unchanged. Turning to slide 17, I'll review our free cash flow guidance. We have updated our cash earnings and other operating accounts consistent with full year EBIT guidance. We have further refined our capital expenditure expectations and remain competent in achieving 100 plus new products launched in 2024. In the second quarter, we made meaningful progress on our working capital leading to an improvement of over $200 million of cash versus the first quarter. As we move through the year, we expect to further reduce inventories. We also expect to see accounts receivable and accounts payable return to similar levels as the end of 2023, allowing us to deliver sequential free cash flow from working capital throughout the back half of the year. Finally, we updated the restructuring impact of the previously announced organizational simplification actions. Overall, we expect free cash flow of approximately $500 million for the year. Turning to slide 18, let me recap our commitment to our capital allocation priorities. We've completed actions to strengthen our balance sheet in 2024. In the first quarter, we completed the sale of 24% of Whirlpool of India's outstanding shares while retaining a majority interest. Additionally, the planned divestiture of our Brastemp-branded water filtration business in Brazil closed on July 1, generating over $50 million of cash. Combined, these two actions generated more than $500 million of cash. Coupled with our beginning cash on hand of $1.6 billion and free cash flow generation of approximately $500 million, we are well positioned to pay dividends of approximately $400 million in 2024 and continue our debt reduction initiatives, demonstrated by a $500 million term loan repayment in April. With these actions, we are fully on track to deliver our 2024 capital allocation priorities. Now, I will turn the call over to Mark.