Whirlpool Corporation — Q3 2021 Form 10-Q Summary
Business context and reporting period
Whirlpool manufactures and markets home appliances globally through four geographic segments: North America, EMEA, Latin America and Asia. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $5.488 billion | $5.291 billion | $16.170 billion | $13.658 billion |
| Gross margin | $1.108 billion; 20.2% | $1.148 billion; 21.7% | $3.347 billion; 20.7% | $2.476 billion; 18.1% |
| Operating profit | $552 million | $563 million | $1.854 billion | $897 million |
| Net earnings available to Whirlpool | $471 million | $392 million | $1.485 billion | $576 million |
| Diluted EPS | $7.51 | $6.19 | $23.47 | $9.14 |
| Operating cash flow | Not separately provided | Not separately provided | $1.294 billion | $407 million |
| Adjusted free cash flow | Not separately provided | Not separately provided | $1.296 billion | $170 million |
Q3 net sales increased 3.7%, while nine-month sales increased 18.4%. Q3 net earnings margin was 8.6%, compared with 7.4% in the prior-year quarter; nine-month margin was approximately 9.2%, compared with 4.2%. Q3 ongoing EPS was $6.68 and ongoing EBIT margin was 11.1%, compared with $6.83 and 11.9%, respectively, in Q3 2020.
At September 30, 2021, cash and cash equivalents were $2.875 billion. Total debt, including current maturities, was approximately $5.271 billion, comprising $298 million of current maturities, $4.961 billion of long-term debt and $12 million of notes payable. The company had approximately $3.7 billion of committed credit capacity and no borrowings outstanding under its committed credit facilities. Inventory was $2.876 billion, up from $2.301 billion at December 31, 2020.
Material changes versus the prior comparable period
- Q3 gross margin declined because raw-material inflation and lower volume more than offset favorable price/mix. Nine-month gross margin improved substantially because of favorable price/mix and higher volume.
- North America Q3 sales rose 5.1%, but EBIT declined due to inflation and lower volume. EMEA sales were approximately flat and EBIT declined; Latin America sales rose 17.0%, while EBIT declined. Asia sales fell 21.3%, principally because Whirlpool China was deconsolidated.
- For the first nine months, sales increased across all segments, led by Latin America and EMEA. Segment EBIT improved materially, particularly in North America, EMEA and Asia.
- Whirlpool China was partially divested in May 2021. Whirlpool received approximately $193 million in cash, retained an approximately 20% equity interest and recorded a $284 million gain.
- The Turkish subsidiary was sold in June 2021 for approximately $93 million. Total recorded loss on disposal was $177 million, including a $13 million third-quarter adjustment.
- Whirlpool acquired an additional 38% of Elica PB India for $57 million, obtaining approximately 87% ownership and recognizing a $42 million gain on the previously held interest.
- Operating cash flow increased to $1.294 billion from $407 million, driven by higher earnings, lower promotional spending and improved working capital. Inventory growth partly offset these benefits.
- The company issued $300 million of 2.400% senior notes due 2031 and used the proceeds to redeem $300 million of higher-cost 4.850% notes due 2021.
- Whirlpool repurchased approximately 3.0 million shares for $641 million during the first nine months and had approximately $1.9 billion remaining under its current authorization at September 30, 2021. The quarterly dividend was increased 12% to $1.40 per share.
Guidance, outlook and management commentary
- Full-year 2021 diluted EPS outlook was approximately $27.80, including estimated benefits and charges from restructuring, divestitures, the Elica PB India acquisition and tax items.
- Management forecast operating cash flow of approximately $1.95 billion and adjusted free cash flow of approximately $1.70 billion for 2021, including approximately $600 million of capital expenditures and $175 million of restructuring cash outlays.
- Expected industry demand growth was North America 10% or more, EMEA 2%–4%, Latin America 2%–4% and Asia 6%–8%.
- Management cited strong consumer demand, favorable price/mix, cost-based price increases and productivity actions, while noting that raw-material inflation, component shortages and supply-chain constraints remain significant pressures.
- Restructuring charges were $35 million for the first nine months; full-year 2021 charges were expected to be up to $50 million.
Risks, contingencies and unusual items
- COVID-19 effects, global component shortages, supplier disruptions, transportation delays, labor issues and raw-material cost inflation could adversely affect production, sales and margins.
- The EMEA reporting unit and the Indesit, Hotpoint, Maytag and JennAir trademarks remained at risk of future impairment. No third-quarter 2021 impairment-triggering event was identified.
- Significant unresolved matters include Embraco antitrust claims, Brazilian tax assessments, the French Competition Authority investigation, Grenfell Tower litigation, product-related class actions and a U.S. federal tax dispute. The filing states that potential unfavorable outcomes could materially affect results in a particular reporting period.
- Brazilian tax assessments related to BEFIEX credits were approximately $368 million, with additional assessments of approximately $48 million for IPI credits and $56 million for PIS/COFINS matters. Whirlpool had not accrued amounts for these assessments based on its legal and tax advice.
- Product warranty reserves were $311 million at September 30, 2021. The Indesit washer recall in the United Kingdom and Ireland remained ongoing.
- Off-balance-sheet bank guarantees, letters of credit and surety bonds totaled approximately $343 million. Brazilian customer credit guarantees totaled approximately $202 million.
- The company had approximately $1.3 billion issued to participating financial institutions under supply-chain financing programs, recorded within accounts payable.
Important facts for investors to verify
- Reconcile GAAP EPS of $7.51 with ongoing EPS of $6.68 and assess the sustainability of gains from divestitures and the Elica PB India remeasurement.
- Evaluate whether price increases and productivity can offset continuing raw-material inflation, supply constraints and lower volumes.
- Monitor inventory growth, working-capital trends and the conversion of projected operating cash flow into adjusted free cash flow.
- Review leverage, debt maturities, covenant compliance and the availability of committed credit facilities.
- Assess impairment sensitivity for the EMEA reporting unit and the identified brands.
- Track developments in Brazilian tax matters, product litigation, recalls, antitrust proceedings and other contingencies.
- Confirm the effect of the Whirlpool China deconsolidation and Turkey divestiture on future revenue, earnings, cash flow and segment comparisons.