Whirlpool Corporation 2016 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation designs, manufactures and markets major home appliances and related products worldwide, including laundry appliances, refrigerators, cooking appliances, dishwashers, mixers and compressors. Operations are organized into North America, Europe, Middle East and Africa (EMEA), Latin America and Asia. The filing covers the fiscal year ended December 31, 2016; the source also provides unaudited fourth-quarter results. Whirlpool had approximately 93,000 employees and manufacturing operations in 14 countries.
Key financial metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Net sales | $20.718 billion | $20.891 billion | (0.8%) |
| Gross margin | $3.682 billion | $3.690 billion | 17.8% margin, up 10 bps |
| Operating profit | $1.354 billion | $1.285 billion | +5.4% |
| Earnings before income taxes | $1.114 billion | $1.031 billion | +8.1% |
| Net earnings available to Whirlpool | $888 million | $783 million | +13.4% |
| Diluted EPS | $11.50 | $9.83 | +17.0% |
| Operating cash flow | $1.203 billion | $1.225 billion | Down $22 million |
| Capital expenditures | $660 million | $689 million | Down $29 million |
Net margin was 4.3%, compared with 3.7% in 2015. The effective tax benefit from favorable audits and settlements and valuation allowance releases contributed to lower tax expense of $186 million, compared with $209 million in 2015.
At December 31, 2016, cash and cash equivalents were $1.085 billion, total current assets were $7.339 billion and current liabilities were $7.662 billion. Total debt was approximately $4.470 billion, including $560 million of current maturities and $3.876 billion of long-term debt. Whirlpool had approximately $3.1 billion of committed credit facilities and no borrowings under those facilities at year-end. Whirlpool stockholders’ equity was $4.773 billion.
Cash used in investing activities was $588 million and cash used in financing activities was $278 million. The company paid $294 million in dividends and repurchased $525 million of common stock. The quarterly dividend was increased 11% to $1.00 per share. Approximately $700 million remained available under the share repurchase authorization at year-end.
Material changes versus the prior comparable period
- Reported sales declined modestly because unfavorable foreign currency and product price/mix effects outweighed higher unit volumes. Excluding currency, sales increased 1.6%.
- North America sales rose 3.9%, supported by a 7.7% increase in units sold. EMEA sales declined 8.1%, Latin America declined 4.7% and Asia increased 0.5%.
- Operating profit and EPS improved despite lower reported sales, reflecting cost productivity, acquisition synergies, volume growth and lower SG&A as a percentage of sales.
- Restructuring costs declined to $173 million from $201 million, although the company expects up to $200 million of restructuring charges in 2017.
- Operating cash flow decreased slightly because cash expenditures related to the legacy product corrective action more than offset strong earnings and credit management.
- Debt increased from $3.998 billion to $4.470 billion. Whirlpool issued $500 million of 4.50% notes due 2046 and €500 million of 1.25% notes due 2026, while repaying $494 million of notes that matured in 2016.
- Cash increased by $313 million, compared with a $254 million decrease in 2015.
Guidance, outlook, risks and unusual items
For 2017, management guided to diluted EPS of $13.25 to $14.25, including an estimated $2.62 per share restructuring expense and a $0.58 per share tax impact. Expected industry demand was 4% to 6% in North America, 1% to 2% in EMEA, flat in Latin America and flat to 2% growth in Asia. Management projected operating cash flow of $1.7 billion to $1.75 billion and free cash flow of approximately $1 billion, with capital expenditures of $700 million to $750 million.
Longer-term targets include 3% to 5% annual organic sales growth, 10% to 15% annual EPS growth, EBIT margins above 10% by 2020 and free cash flow equal to 5% to 6% of sales by 2018.
- The principal unusual item was the corrective action for certain Indesit and Hotpoint-branded dryers manufactured before October 2015. Whirlpool had incurred $162 million of related cash expenditures through year-end and expects an additional $69 million in 2017. The related legacy product warranty reserve was $69 million at December 31, 2016.
- EMEA restructuring actions, including proposed changes to dryer manufacturing, are expected to affect approximately 500 positions and be substantially complete in 2018. Estimated total costs are approximately $88 million.
- Brazilian tax disputes include approximately 1.8 billion Brazilian reais, or approximately $541 million, of assessments related to BEFIEX credits, plus other disputed assessments. The company has not accrued amounts for these matters and warns that an unfavorable outcome could materially affect a reporting period.
- Whirlpool had $67 million of receivables and notes associated with Alno AG, including approximately $51 million overdue. Management believes reserves are sufficient but identified bankruptcy and distribution risks.
- Defined benefit pension and postretirement obligations exceeded plan assets by approximately $1.5 billion at year-end, including $1.1 billion for pensions and $0.4 billion for postretirement health care benefits.
- Other significant risks include intense competition, raw-material inflation, foreign currency volatility, international economic weakness, customer concentration, supply disruptions, cybersecurity incidents, product liability, recalls, labor relations and legal or regulatory proceedings.
Most important facts for investors to verify
- Whether 2017 EPS and cash-flow guidance can be achieved while restructuring, warranty and pension-related cash costs remain elevated.
- The pace of EMEA recovery and the effect of currency, Brexit-related weakness and restructuring on margins.
- The ultimate cost and consumer response to the Indesit dryer corrective action and any additional product-quality matters.
- The outcome and potential cash requirements of Brazilian tax disputes and other litigation, including the French competition investigation.
- Debt maturities, refinancing plans for the $560 million due in the next twelve months, and compliance with credit-facility covenants.
- The sustainability of earnings improvement after tax benefits, acquisition synergies and restructuring effects.
- Execution of capital allocation plans, including the remaining $700 million repurchase authorization, dividend growth and capital expenditures.
- Goodwill and trademark impairment sensitivity, particularly the EMEA reporting unit and a North American trademark with limited valuation headroom.
Management and Ernst & Young reported effective internal control over financial reporting, and the independent auditor issued an unqualified opinion on the consolidated financial statements.