Whirlpool Corporation

Good morning and welcome to Whirlpool Corporation's fourth 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 a 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 non-GAAP measures outlined in further detail at the beginning of our earnings presentation. We believe the measures are important indicators of our operations as they exclude items that may not be indicative of results from 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 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. As we look back at 2024, we have to acknowledge that our financial performance has not yet been at the level where we all expect it to be. At the same time, we are pleased with the progress we made throughout the year in improving our operational performance and accelerating our portfolio transformation. The completion of a Europe transaction was a key milestone in our ongoing portfolio transformation, unlocking significant value creation opportunities. Operationally, we delivered substantial cost reduction initiatives of approximately $300 million, while at the same time stabilizing and in some cases reversing the negative input cost trends we had experienced before. We also simplified our organization and enabled business unit autonomy, delivering structural cost savings of more than $100 million. As a result, since the first quarter, we have sequentially increased ongoing EBIT margin by 170 basis points achieving three consecutive quarters of margin expansion. This sequential margin expansion in combination with a favorable tax rate allowed us to deliver over $12 of ongoing earnings per share. We executed our capital allocation priorities and returned approximately $400 million of cash to shareholders in dividends, while paying down $500 million of debt, reinforcing our commitment to reducing our debt levels. We achieved significant working capital efficiency, resulting in $385 million in free cash flow. As we look into 2025, we do not anticipate a sudden improvement of what has been a very challenging macro environment, in particular in the U.S. We are highly optimistic about the mid- and long-term prospects of the U.S. housing market, at the same time realistic about the pace of recovery and expect only a slow and gradual improvement in 2025. We are following the various initiatives and ideas coming from the new administration. While some of these might be favorable for our business, we have not factored them into our outlook and instead we remain focused on what is within our control. As you will hear later in more detail, we will stay very disciplined in our cost controls. While we're not assuming significant raw material cost savings, we have already lined up cost actions amounting to $200 million and have started to develop additional opportunities to exceed the target. In the US, we have just recently announced a further reduction in the depth of our promotion pricing program. This, in combination with a compelling lineup of new and innovative products, is expected to help drive favorable price and mix in 2025. I'm confident that our expected 2025 margin expansion and free cash flow improvement puts us firmly on our path to a higher growth, higher margin company. Turning to slide six, I will provide an overview of our fourth quarter results. We had a fourth quarter with 2% organic growth, which, as a reminder, excludes currency and the Europe transaction, driven by strength in our SDA, global, and international business. Global EBIT margins expanded both sequentially and year-over-year, driven by previously announced promotional program and pricing actions in MDA North America and MDA Latin America. We delivered ongoing earnings per share of $4.57 and maintained our dividends of $1.75. Turning to slide seven, I will provide an overview of our fourth quarter ongoing EBIT margin drivers. Price and mix unfavorably impacted margin by 100 basis points, slightly falling short of our initial expectation. Price and mix was negatively impacted by a retailer destocking in our MDA North American business, coupled with very strong sellout as consumer confidence rebounded following the U.S. presidential election. Aside from this one-time impact, our price and mix saw the expected benefit from the pricing actions in MDA North America and MDA Latin America. Our cost takeout actions delivered 175 basis points year-over-year, led by our continued manufacturing supply chain efficiencies and our organizational simplification actions. Raw materials were essentially flat as expected. Marketing and technology had an unfavorable 50 basis point impact as we increased investments in our new products. Currency reduced margin by 25 basis points year-over-year as the Brazilian real weakened relative to US dollar. The European transaction positively impacted the fourth quarter by 75 basis points as expected. Ultimately, we're pleased to have expanded margins year-over-year by 80 basis points. And now I will turn it over to Jim to review our Q4 and full-year segment results and our perspective on 2025, including our capital allocation priorities.

Thanks, Mark. Good morning, everyone. Turning to slide eight, I'll review fourth quarter and full year results for our MDA North America business. Net sales declined 1% in the fourth quarter, driven by negative price mix. This was primarily driven by the impact of the structural retailer destocking previously mentioned. In addition, following the U.S. presidential election, we saw consumer sentiment improve with strong sellout. With many trade customer incentives tied to sell-out volume during the Black Friday period, we saw a negative price mix impact within the quarter, resulting in EBIT margins of 6.7%, which was below our expectations for the quarter. Overall, the segment delivered a full-year EBIT margin of approximately 6.5%, largely in line with our most recent full-year guidance. Turning to slide 9, I'll review the results for our MDA Latin America business. In the fourth quarter, the segment had strong net sales growth of 7% year over year, excluding currency. Driven by industry growth in Brazil and Mexico, along with pricing actions implemented in the quarter. Fourth quarter EBIT margin of 7.6% expanded by 240 basis points year over year, driven by pricing, cost actions, and fixed cost leverage. Overall, we are pleased with the 140 basis points of margin expansion to deliver a 7% full-year EBIT margin meeting guidance expectations. Turning to slide 10, I'll review the results of our MDA Asia business. In the fourth quarter, the segment saw net sales growth of 9% year-over-year, excluding currency. As share gains and strong industry drove volume growth, the segment delivered a 1.2% EBIT margin in the quarter with 170 basis points of margin expansion year-over-year from fixed cost leverage. Overall, MDA Asia delivered a 3.9% EBIT margin for the full year, with 160 basis points of expansion year over year. Turning to slide 11, I'll review the results of our SDA global business. The segment had multiple exciting launches in 2024, with new products introduced in high potential growth categories for our business. These new products, along with strong direct-to-consumer sales, delivered year-over-year net sales growth of 6% for the quarter. The segment delivered an EBIT margin of 12.5% in the quarter, impacted by increased marketing investments in our new products. Overall, SDA Global delivered a strong EBIT margin of 14.3% for the full year. Turning to slide 12, I will review our guidance for 2025. We have provided a reset baseline for 2024 results, excluding both the European Major Domestic Appliance Business from Q1 of 2024 and India's July through December 2024 consolidated results from the anticipated Whirlpool of India market sale transaction that I will review in more detail shortly. The reset baseline excludes approximately $1.2 billion in net sales and approximately $6 million of EBIT, creating a like-for-like comparison for 2025 guidance. On a like-for-like basis, 2024 net sales were approximately $15.4 billion, with an ongoing EBIT margin of approximately 5.8%. We expect growth of approximately 3% to $15.8 billion in net sales in 2025, driven by a strong product launch pipeline expected to deliver share growth in MDA North America and continued strength in our SDA global and international businesses. On a like-for-like basis, we expect a 100 basis point ongoing EBIT margin expansion to be approximately 6.8%. Free cash flow is expected to deliver $5 to $600 million, a 3.5% cash conversion of net sales, driven by improved earnings while sustaining lower working capital levels. We expect full-year ongoing earnings per share of approximately $10. This includes an adjusted effective tax rate of 20 to 25%, which is an increase compared to 2024 and impacts 2025 ongoing earnings per share by approximately $7. Turning to slide 13, we show the drivers of our 2025 ongoing EBIT margin guidance. We expect a positive impact of 75 basis points from price mix from previously announced pricing actions in the Americas and new product launches. In North America, this reflects recently announced promotional pricing actions and the carryover pricing actions from Q2 2024, as well as the carryover pricing actions implemented in Latin America from Q4 2024. We also have a very exciting lineup of higher-mixed products and over 100 new products launching this year. In MDA North America, we expect to transition over 30% of our products, the largest one-year transition in over a decade. We do not expect a material catalyst for existing home sales in 2025, and as a result, we expect stable demand year over year. Therefore, we are not factoring in an improvement in the mix from a discretionary demand rebound. We will drive further reductions to our fixed cost structure and expect 125 basis points of net cost margin benefit from more than $200 million of cost takeout actions. Based on previously executed supply agreements, we expect minimal to no impact on EBIT margin from raw materials this year. With a strong cadence of new product introductions this year, we plan to increase investments in marketing and technology, which will impact margin by approximately 50 basis points. Currency is expected to negatively impact margin by approximately 50 basis points, as the Brazilian RIAI has weakened relative to the U.S. dollar. Finally, we expect our portfolio transformation to provide approximately 50 basis points of margin expansion due to the closure of the Europe transaction and anticipated India market sale transaction. Turning to slide 14, I will review our segment guidance. Starting with industry demand, we expect the global industry to be approximately flat in 2025. In the US, we expect to see similar demand trends that we saw throughout 2024. Resilient replacement demand creates a solid foundation for industry volumes while consumer discretionary demand continues to be negatively impacted by elevated mortgage rates, resulting in weak existing home sales. Overall, we expect the MDA North America industry to be approximately flat. 2024 saw a significant industry improvement in Latin America, with the strength decelerating later in the year. We expect the MDA Latin America industry to be up slightly between 0 and 3%. India has one of the fastest growth rates globally, and we expect MDA Asia industry volumes to continue accelerating at 3 to 5% in 2025. Finally, we expect the SDA global industry to be approximately flat with our volume growth driven by new products and continued investments in our direct-to-consumer business. For MDA North America, we expect to deliver a full year margin of approximately 7.5%. Previously announced pricing actions are expected to positively impact the first half margin, and additional cost actions are expected to ramp up throughout the year. For MDA Latin America, we expect EBIT expansion and a strong margin of approximately 7.5% from previously announced pricing actions and continued cost takeout. For MDA Asia, we expect approximately 6% EBIT margin. As a reminder, the Asia guidance excludes Whirlpool of India in the second half of 2025 as the minority stake would no longer be consolidated. And for SDA Global, we expect a strong EBIT margin of approximately 15%. Overall, we expect 150 basis point margin expansion year over year with an ongoing EBIT margin of approximately 6.8%. On slide 15, let me review how we are well positioned and expect to deliver growth and margin expansion in 2025. Our organic growth of approximately 3% will be fueled by our new product introductions. As mentioned, we have a very strong lineup of launches this year, with MDA North America transitioning over 30% of its products. Our refrigeration category will see a significant impact with approximately 40% turnover of our current products across all of our brands. With the new refrigeration products, we will not only appeal to a wide range of consumers, but also reduce manufacturing complexity. Launching in Q1, the new Maytag Top Load Laundry Pair improves functionality with an innovative deep fill option and adds efficiency and ease to consumers with a wrinkle prevent drying option. Finally, we recently launched our Whirlpool Spin and Load Dishwasher Rack, a revolutionary accessory built with inclusivity in mind. With an easy-to-use 360-degree spinning rack, this product increases accessibility for a wide range of our consumers. These products are just a few examples of how Whirlpool is improving life at home for our consumers. Our new product launches and best-in-class logistics capabilities support direct-to-consumer and builder channel growth, which we expect will deliver value-creating share gains in 2025. Turning to cost, as we look back at 2021 and 2022, we had unprecedented inflation of approximately $2.5 billion. However, we have not seen cost deflation to this magnitude yet, making our cost takeout priorities critical for our continued margin expansion. We've demonstrated our ability to deliver on our priorities by eliminating approximately $800 million of net cost over the past two years. We will continue to deliver cost actions of over $200 million this year, driven by our ongoing portfolio transformation that enables us to take additional cost actions to simplify our organization, product design changes that optimize cost while delivering innovative solutions, and further manufacturing efficiencies through our world-class manufacturing and automation solutions. To further highlight how we are investing in product leadership, on slide 16, I'm excited to review the new launches in our premium brands. The upcoming KitchenAid launch is the first full product redesign in a decade. Not only does this launch unlock a world of possibilities with customizable touch points, such as knobs and handles, to better integrate the appliance into consumers' homes, but it also will include new features and solutions that speak to consumer needs and creativity. 2025 also marks a very exciting launch in GenAir. The innovative induction downdraft cooktops not only enable infinite design potential, but also flexible induction cooking zones and a powerful and effective extraction that is quieter than a hood. The downdraft ventilation liberates your kitchen space from bulky updraft hoods, clearing the view for windows and open concept designs. Turning to slide 17, I will provide the drivers of our free cash flow guidance. We expect cash earnings of $1 to $1.1 billion, driven by earnings improvement and the closure of the Europe transaction, which, as a reminder, consumed $275 million of cash in 2024. We expect approximately $450 million of capital expenditures as we continue to invest in our products and fund organic growth. We plan to sustain the efficient working capital levels we achieved in 2024 and do not expect a material change in 2025. We expect approximately $75 million of restructuring cash outlays related to previously executed actions and further complexity reduction with our simplified organizational model. Overall, we expect to deliver free cash flow of $500 to $600 million or approximately 3.5% of net sales. Turning to slide 18, I will review our refresh capital allocation priorities. Funding our organic growth is critical to delivering innovative products that meet our consumer needs. We will continue to invest in new products with approximately $450 million of CapEx expected this year. Secondly, we are strongly committed to maintaining our investment-grade credit rating and reducing debt levels. We expect to pay down $700 million of debt in 2025, taking a significant step on our path to our two-times net debt leverage target. Thirdly, we are committed to returning cash to shareholders, and last year marked the 69th year of steady or increasing dividends. We will continue to evaluate our dividend funding and ensure it aligns with our progress towards our long-term goals. As a reminder, the dividend is approved quarterly by the Board of Directors. Lastly, share buybacks and M&A are not a priority for 2025. Turning to slide 19, let me review our commitment to improving our net debt leverage. Since 2022, we have paid down $1 billion of the insincerator term loan debt and are strongly committed to further reducing our debt. We expect to pay down another $700 million in 2025 and expect to improve our net debt leverage to approximately 3.4 times. We are confident in our ability to further reduce our net debt leverage beyond 2025. Turning to slide 20, we have clear actions to address the upcoming debt maturities. $1.85 billion of debt is maturing in 2025, of which $350 million is a senior note due in May, and $1.5 billion is the remaining term loan from the insincerator acquisition due in October. With the meaningful debt repayment of approximately $700 million expected in 2025, we expect to refinance the remaining $1.1 to $1.2 billion. As we look ahead, we have ample space in our flexible debt ladder to optimize our refinancing plans. In addition to our free cash flow generation of five to $600 million in 2025, we expect to generate cash from the anticipated India market sale transaction. Turning to slide 21, let me review the benefits of this potential India transaction. We currently hold a 51% stake in Whirlpool of India and intend to reduce our ownership stake to approximately 20%. This transaction, subject to board approval, aligns with our ongoing portfolio transformation. We hold number one positions in all our business segments outside of MDA Asia, and this will allow us to focus on our leading share and brand portfolio positions. However, we continue to believe Whirlpool of India has a strong long-term trajectory for growth. This transaction will enable Whirlpool of India to focus on growth acceleration as an independent business, along with utilizing their well-funded business to invest further in products and innovation. We believe these actions will also deliver value to Whirlpool of India shareholders. This transaction is expected to not only accelerate growth in Whirlpool of India, but also allow us to utilize the $550 to $600 million of net cash generation towards our debt repayment. We would also have continued revenue from our Whirlpool brand license in India. This transaction is expected to close mid to late 2025. Now I will turn the call over to Mark.