Whirlpool Corporation (WHR) Earnings Call Transcript & Summary

So I think we'll begin. Good morning. I'm Sam Darkatsh, and on behalf of Raymond James, we'd like to welcome you to the Whirlpool Corporation presentation for today. With us from Whirlpool is Roxanne Warner, Executive Vice President and Chief Financial Officer; as well as Scott Cartwright, Head of Investor Relations and Treasury. Roxanne, I think your prepared remarks maybe 20 minutes or so, I think in...

Yes, I checked, it's about 20...

Perfect, which should leave us about 5, 10 minutes for Q&A in this room and then there will be a following breakout session in Amarante 2 immediately following. So with that, Roxanne, welcome back.

Thank you. Thanks. Thanks a lot Sam. Hey, everyone, good morning. Hi, everyone. Good morning. Good morning. Thanks for taking the time to step in with us today and to hear about Whirlpool. I am very excited to share with you a little bit about our wonderful story. So with that, let's get started. Well, I don't have to, you guys know all of the warnings and everything. So in terms of today's agenda, we will go through a little bit of overview about Whirlpool for those of you that may not be familiar with the company. And then we will talk a little bit about why we're well positioned to win. And you're going to hear that as a consistent theme throughout this message. And then thirdly, capital allocation priorities, some of you may have either heard or participated in our very recent successful equity offering, and I will touch on it as part of the overall capital allocation priority. So with that, let's get started. So overall, Whirpool is a global company, roughly $16 billion of revenue, approximately 66% of our business is our North American business unit, and then we have our Latin America business unit and then followed by our KitchenAid, SDA Global. We underwent portfolio transformation started about 5 years ago. And I think what's really great about what you're seeing on this chart is we're now made up of three #1 business units. So we're #1 in terms of share position in North America, #1 in Latin America with $3.3 billion of revenue. And then SDA, while you see the picture muscle over Europe from a global perspective, we are #1 in terms of the mixer brand in the world. And this leadership is founded on 4 key areas. So one, starting from our premier brand and product portfolio, anything from our mass, when you think about Whirpool lets you. When you think Whirpool and Maytag to premium, when you think about KitchenAid and JennAir, we are across the spectrum. You will not find another appliance company that is covering the spectrum from master premium to premium in the way that we do. Secondly, we're going to touch on the proven track record of innovation. And really, we're coming on the back of the Kitchen and Bath Show, where we won 23 awards, one of which was the best of the best in show. And so we're really, really proud of continuing to have that legacy of innovation. And then thirdly, you will hear me talk about our strong cost position, and that really starts from our strong manufacturing position that we have across the world, and I will touch on that in a few. So why is Whirpool well positioned? And we stay well positioned, but frankly, and I'm a little bit biased, I would say, uniquely positioned to win. One, starting in North America, we have 3 catalysts of growth. In 2025, you may have heard that we changed over 30% of our product portfolio. And not only did we change 30% of our product portfolio, we had over 30% of flooring gains tied to those product portfolio. And that's really critical for us because with those flooring gains starting in 2025, we saw share gains. And that is absolutely critical as we get prepared for you what you will hear us talking about in terms of the housing recovery. But frankly, starting now in terms of driving discretionary mix is important for us. The next piece I will touch on is really our manufacturing footprint. And I'll stop on this one for a while because the manufacturing footprint is so critical in terms of us winning in this tariff environment. And why do we believe that we would win? One, 80% of what we sell in America, we make in America. That's absolutely critical. And not only 80% of what we sell in America, we make in America, but we also use 96% of U.S. steel. This is very important when you think about the tariff environment, which is one that is focused on protecting U.S. business. And so with us having this manufacturing footprint, we really believe that we are absolutely positioned to win. The next piece I would touch on, and for those of you that may have been here last year, yes, I covered the housing recovery, and we are waiting. And what are some of the key drivers that we talk about as it relates to the housing recovery is one, existing home sales. I probably don't have to tell you guys, yes, in 2023, we had a 30-year unit low, and it continues to persist. And we're really waiting. But while we're waiting, we're making sure that we are positioned to win when it does rebound. And so as you hear us talking about investing in products, this is absolutely critical because the drop in existing home sales, obviously, is also impacting discretionary demand. And so it's really important for us to have the product that's ready so that when that discretionary demand comes, we're here, we're ready. We have the right products and then it will drive mix. The second one that's even more alarming is what you see with new housing. So we believe that new housing is undersupplied and has been for decades. And what is the key thing for us, again, you're going to hear this theme of us making sure that we are prepared for recovery is that we're making sure that we have the leadership within the builder business. So we do have the #1 share in the builder business, approximately 60%. So when that housing rebounds from a new housing standpoint, we are ready. But our catalysts for growth do not only stop at being the net winner for the tariffs and ensuring the housing recovery. It is critical for us as a company to control what is in our control. And so as a result of that, we have a path to margin improvement, and you would see us really focus on these first 2. The first one being cost takeout. We have decades of demonstration of positive cost takeout. It is something in our company that's really ingrained in this focus of continuous improvement. At the same time, we are aware. And if you look at 2021 and 2022, yes, there was significant inflationary costs that came in and we still haven't taken out enough of that. And so that provides a key opportunity for us. And that's why you hear us talking about vertical integration, automation, always on cost improvement. If you heard in the January earnings call, we also touched on strategic sourcing initiatives, design to value. There is a heavy focus right now within the company on driving this cost out. The second piece is around organic growth. The organic growth really is -- it's really driven by that brand portfolio that I touched on, and the strong product portfolio, given the fact that in 2025, as I said, we turned over 30% of the product portfolio. So with the strong brand, strong product, there is an expectation of share gains. And if you heard on the Q1 earnings call in January, we talked about having about 0.5 point of share gains driven by these new products. And then, of course, when you think about our mid-cycle target, which we've put out of EBIT margin of approximately 9%, it's critical that the U.S. demand fundamentals from a housing perspective comes back, okay? So those are the 3 key areas that we're really focused on cost takeout and organic growth, we're doing it now. And then when you shift gears from North America and then you go into Latin America, which is also a very exciting part of our business, what is really great about Latin America is we believe that there is a low appliance penetration, which is for us a fundamental of a great growth opportunity and a growth opportunity that will be driven by very strong brands. So in Brazil, we have the #1 and the #3 brand with Brastemp and Consul. With brand Brastemp, frankly, it's a brand that has gone and surpassed appliances. You would hear in Brazil a comment such as -- and I'm going to totally butcher it, but it's like [indiscernible] Brastemp, which means it's good, but it's no Brastemp, right? And that is used well beyond appliances. And so to have a brand that has surpassed the plans, it's [indiscernible] and the penetration of that brand in Brazil. The other piece for us is very exciting in Latin America is that Whirpool is #1 in Mexico. So again, when we talk about preferred brands and our opportunity for growth in Latin America, it's up to us. And then, frankly, with the SDA Global business, I could have just put a picture of the stand mixer and just stay silent on this one because I think we all know about the iconic presence of the KitchenAid stand mixer. It's one -- this is a [indiscernible] of our business. It's one that has double-digit growth and double-digit margins. So from a finance perspective, I'm a little bit in love with this one, and we want to make sure we bring all the other business segments to a similar level. But for us, it's not about stopping at the stand mixer. We're really focused on taking the legacy that we have in the stand mixer and having adjacent category growth. And so we've been launching. We had the espresso machine, which has been successful. We've had blenders that we've launched at the end of last year. And so we're really excited about the growth potential and the long-term value creation of the overall KitchenAid SDA business. It's currently a $1.1 billion business, and we have aspirations to go even further. So with that, we go to capital allocation priorities. And given the equity offering last week, I would tell you that I've been a little bit excited to really take a step back and message this to you guys today. We were fortunate that we had Raymond James at the same time. So let's dive into it. In terms of our capital allocation priorities, they haven't necessarily changed. I mean it's the same thing that we have been messaging probably for about a year now Scott? The main priority that we have as #1 always on invest in the business. And this is approximately $400 million of CapEx, and the other thing is, yes, you heard me talk about all of these product launches that we did in 2025, great. We have another $100 million that we'll be launching in 2026 that we're also excited about. Then the other piece is debt pay down. So in the Q4 earnings call, you probably heard us talk about paying down about $400 million of debt. For us, when we look to the balance sheet, we knew that, that would not be enough. It is important for us as we go into the next phase of our organization, a phase of growth, that we have a balance sheet that is a little bit more deleverage, that is absolutely critical, and you're going to hear me talk about that in a few. And so not only would we pay down $400 million in debt in 2026, but we've decided that we will be paying more than $900 million in 2026 on the back of the successful equity offering that we did last week. Our long-term net debt leverage target remains 2x. When I say long term, I mean like in very few years because, as I said, the priority is to accelerate the deleveraging. And then in terms of funding dividends, we have a goal of continuing to fund a healthy and sustainable dividend and one that we will review quarterly with the Board. So with that said, let's take a step back, and let me just go through why equity offering? Why did we do it? And I wouldn't go through again the high-level points about what is exciting and compelling about Whirpool right now. We fundamentally believe that we have the right strategy that would create value moving forward. At the same time, about a year ago, we took a step back with the Board looked at the balance sheet and we acknowledge that the balance sheet that we had did not provide the financial flexibility that we need to lean into the recovery and/or protect us in terms of downside risk, particularly given the uncertainty that's happening even right now. And so what we did is we created a very integrated plan that had a number of levers, and you've seen us execute some of them. One, we've already divested some of the India business. We went from 51% to 40% as part of this strategy. The second piece was maybe what we call rightsizing the dividend, which you saw us do last year. So we cut the dividend by approximately 50%. And then this step that we executed last week was about providing an equity offering that had a balance between MCP and common, which would give us proceeds that we would use to accelerate the debt pay down, ending the year of last year with a net debt leverage of 5.5 and using the fact that we would have paid down $400 million of debt, you still would have ended with a net debt leverage that started with 5. And so as we think about accelerating deleveraging, for us, it's critical at the end of 2026 that we get to that number that starts with the 4 and gets us not only at the high 4s, but trending towards the middle 4 in terms of our net debt leverage. And so we did execute the equity offering. The equity offering allowed us to raise approximately $1.1 billion in capital. Some of the stuff that we have not shared was shared today, the book was 5x oversubscribed. We spoke to over 110 investors of the calls that we had with investors, we had 90% convert into the book. And so during the discussions, actually, it was really exciting to hear from investors about their belief in the recovery and their belief in the strategy in terms of us getting the balance sheet in a stronger, more fortified way as we go into the recovery. In terms of use of proceeds, we would use 85% to 90% to pay down debt. And then we will use 10% to 15% to invest in vertical integration and automation. So this is the cost takeout and getting ready to expand the margins that I talked about within our control. And frankly, with the vertical integration, some of it, we already have the projects lined up. And so we're ready to go. And so overall, the transaction itself reduces our net debt leverage from 5.5 to a number around 4.7. The other thing that the overall proceeds would do is our debt level in total is roughly $6.5 billion and so this puts us in a position to end with a number that's closer to $5.5 billion. And as a company, we have operated within that $4.5 billion, $5 billion debt level in the past. And so we know that with this transaction, we now have the dry powder, the financial flexibility for us to go into the next phase of Whirpool. And so with the equity offering completed and all of the key drivers that I touched on in terms of our growth, we look at our long-term shareholder value creation thesis. And we believe that it is extremely strong. One, we have been over the last 5 years, as I touched on refocusing this portfolio. We are a smaller company, but a company made up of #1 business units. Strength in North America, strength in Latin America and strength in SCA. In terms of best brands and products again, we feel very confident with our portfolio of brands that I just touched on as well as the product portfolio that has been winning Best in Show and frankly, winning the floor. In terms of being the domestic producer, as I touched on, in the U.S., 80% of what we sell here we produce here. The same actually goes with small domestic appliances. 75% of what we sell here we make here. And in Latin America, we are the largest domestic producer. And then lastly, the U.S. housing market recovery needless to see because we've been saying when it comes, we are absolutely ready. So with that, thank you guys for taking the time to meet with us today, and I'll open it up for questions.

One question from [ Christoph ].

Yes, a question on the leverage. I mean, you mentioned that your target is to reach 2x debt leverage in the long term, but can you detail on the usage of future free cash flow, I mean, for deleveraging?

So I think everyone heard the question, although the last piece I didn't got you. So maybe we couldn't...

Use of free cash flow to support the deleveraging?

Absolutely. So moving forward, one, we're going to get the net debt leverage to that mid 4.5, right, as we think about 2026. When we think about 2027 and 2028, we have guided to a mid-cycle EBIT margin of approximately 9%. We have also guided to free cash flow of approximately 7%, and it is our expectation that with that mid-cycle performance, it will give us the free cash flow that would also help us to further pay down debt so that we move from that mid 4x net debt leverage to the 2x that we're expecting.

Questions for Roxanne. So this morning, I think you mentioned that you are updating your guidance for the year. Originally, it was a range of around $7 a share now after the equity offering at $6 a share, presumably Scott and Roxanne that implies that you're reiterating all your other expectations for the year. Talk about what you're currently seeing in the marketplace from a volume standpoint and perhaps more importantly from a pricing standpoint and mix?

Yes. So if in case everyone have not seen it yet, we did put out an 8-K to be in preparation for Raymond James that highlights what our guidance for EPS was and then the changes post-equity offering because for us, it was important that we had the transparency for the investors to see what it is from a share perspective as well as the impact from interest expense. Given that we just provided our guidance at the end of January, as of this time, we don't have any further changes beyond the post equity offering. And so that's why we wanted to make sure that we put that out. In terms of what we're seeing in the marketplace, from a volume perspective, I will acknowledge that the winter storm that came in January, maybe 2 of them. From a volume perspective, I believe even the trade customers would say it did impact sellout significantly. What for us was exciting is that while we saw a significant downturn during that time because, of course, we had folks who are not going out to the stores, our new products had strong POS sellout during that time. And so that was good to see. I mean overall, we still have guided for the industry to be overall flat and so we're still expecting that, and we are still expecting from a volume perspective to get our gains to the new products. I think from a pricing perspective, which for us is even more critical right now. As we did touch on in the earnings call, we were expecting to see, I would say, pricing improve as we go into the President's Day. And that is something that we did see when you look year-over-year, we did see, and I think some of the analysts also rolled it up, that there was improved pricing going into President's Day. So for us, that was good. And then as it relates to mix, as I touched on, still strong in terms of the new products, as evidenced by the fact that the POS, the sell-through for those new products remain strong even during the winter storm.

Question here, yes.

[indiscernible].

So the question was what level of existing sales do we view as normal. For our mid-cycle targets, we're aiming for 5 million, 5.5 million units is what our target assumes.

Other questions in the back of the room in the corner. Yes.

[indiscernible] can you just help us understand what's the [indiscernible].

So that is a point of clarification because when we say share gains and market share flooring, the comment is specifically referring to flooring, okay? So on the floor, when you look across our overall portfolio, we were able to gain approximately 30% more of flooring across our customers. And then from a market share perspective, resulting in market share gains in 2025, and we're expecting about 0.5 point of share in from it in 2026.

[indiscernible].

Correct.

Question here? Yes.

Can you talk about the timing of the equity offering why now -- why not waiting for sort of a better market [indiscernible]?

Yes. No, good question. So first, as I touched on, this was part of a 1-year plan that we had in the making, and we knew that in 2026, we wanted to go. There were 2 things that we -- just from an overall process standpoint, we're waiting on, one, the filing of the 10-K, and two, the overall Board approval. Just given the uncertainty that we have right now, I think, for us, it was just critical for us to go sooner rather than later, especially given what we've just seen from a geopolitical standpoint as well. We want to go into our next phase of this recovery with a stronger balance sheet and with extremely stronger financial flexibility and for us accelerating the deleveraging was key. And so we executed it as soon as we could at the start of 2026.

Other questions? Roxanne with the replacement of IEEPA with Section 122, I mean, ignoring the time frame and the transition and what have you, just focusing on rates. What does this do to your costs expected on an annualized basis? And then same question, your importer competitors does this improve or pressure the cost...

So that is actually something that we continue to analyze. I would tell you, I had a meeting on Friday around the impact of the change, and we have about 3 different scenarios based on the comments that have been made. So base case, you have a situation where with the section 122, there is the 10% of global tariffs. Is it 10%? Or is it 15%, which has been another question that has come up. And then the other piece is, okay, but there was also a comment related to the fact that countries -- the country-specific negotiated tariffs would not go away, which is another scenario. In those scenarios, what we would say is our position remains very similar in the sense of what is -- what we would pay is relatively still less than what our competitors or competition would pay. We believe that with Section 122, there may be some favorable impact, but you also have to wait for the inventory to draw down for the ones that we had the IEEPA on. So there would be a phasing and a time related to that. I wouldn't at this point in time it's significantly material. It's something that we will continue to monitor because we are expecting maybe some other changes. You have the -- whether it goes to the 15%, whether we have anything from an update it relates to Section 232 has also been mentioned. So it continues to be a moving platform, one with uncertainty, but one way given our overall manufacturing footprint, we continue to be relatively in a stronger position versus our competition.

It was notable. I'm sorry, please.

So if you can get to this mid-cycle 5 million, 5.5 million housing units [indiscernible].

We have guided to that being approximately 9% of EBIT with North America, therefore, being roughly 10%. And you can see that, if needed, in the Q4 earnings call material, we also provide some free cash flow guidance around that as well. And so that is literally the page that I shared with the margin improvement with the 3 boxes where it requires cost improvement, organic growth and the housing fundamentals, those are the key drivers for that mid-cycle target of approximately 9% EBIT.

And what is that transferred into EPS?

[indiscernible].

We did not specifically given EPS guidance on it, but to Roxanne's point, basically, there are 2 buckets on the left are what we call controllable. And then the last bucket is really where you get 1 point to 2 points of margin expansion based on the macro cycle that we would be in. Because remember, you have 2 types of favorable mix with the housing recovery. You have product mix and then you also have within the category, you see consumers mix up into more premium brands and built-in products.

The industry was marked last year by a lot of pre-loading. Does the transition period of IEEPA to 122 allow importers to again preload or is that ship sales, sorry, for the word choice, but yes.

So based on our understanding of how it would work, which is basically the IEEPA would roll off at the same time that the Section 122 comes into effect which was supposed to be last week, Tuesday. So based on that, we expect that transition period to prevent the preloading from coming in. What caused the preloading last time was the fact that we had the announcement in roughly April. And then we had no way, right, in terms of the effective date, which therefore provided a final sale warning every month for our competition to therefore, bring in additional products. And so from April to October, they had the opportunity to, therefore, do the preloading. But we believe that this transition period, which one ends and the other one begins hopefully prevents that from happening again.

Timing is perfect. We'll continue this is Amarante 2 with the breakout. Thank you, Roxanne. Thank you Scott.

Thanks everyone. Thanks for taking the time.