Whirlpool Corporation 2023 Q2 Form 10-Q Summary
Business context and reporting period
Whirlpool manufactures and sells home appliances globally through four geographic segments: North America, EMEA, Latin America and Asia. This report covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The filing was dated July 25, 2023.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $4.792 billion | $5.097 billion | $9.441 billion | $10.017 billion |
| Gross margin | $816 million; 17.0% | $897 million; 17.6% | $1.579 billion; 16.7% | $1.748 billion; 17.5% |
| Operating profit | $303 million | $(306) million | $346 million | $155 million |
| Net earnings available to Whirlpool | $85 million | $(371) million | $(94) million | $(58) million |
| Diluted EPS | $1.55 | $(6.62) | $(1.71) | $(1.00) |
| Ongoing EBIT | $352 million; 7.3% | $461 million; 9.0% | $603 million; 6.4% | $924 million; 9.2% |
| Operating cash flow | Not separately provided | Not separately provided | $(370) million | $(180) million |
| Free cash flow | Not separately provided | Not separately provided | $(587) million | $(397) million |
At June 30, 2023, cash and cash equivalents were $1.309 billion, compared with $1.958 billion at December 31, 2022. Inventories increased to $2.484 billion from $2.089 billion. Current maturities of long-term debt were $1.300 billion and noncurrent long-term debt was $6.393 billion. The company had approximately $6.2 billion of committed credit facilities, including a $3.5 billion revolving facility and a $2.5 billion term loan; $2.5 billion was drawn on the committed facilities. Whirlpool was in compliance with applicable interest-coverage covenants.
Dividends declared were $1.75 per share for the quarter. No shares were repurchased during the first six months of 2023, and approximately $2.6 billion remained available under the repurchase authorization.
Material changes versus the prior comparable period
- Second-quarter sales declined 6.0%; six-month sales declined 5.8%. Excluding currency effects, sales declined 5.6% and 4.7%, respectively.
- Gross margin contracted because of unfavorable product price/mix, partially offset by cost-reduction actions.
- GAAP earnings improved from the prior-year loss, primarily because 2022 included $384 million of EMEA goodwill and intangible-asset impairments and a $346 million Russia disposal charge.
- Ongoing EBIT and ongoing EBIT margin declined, reflecting lower demand and unfavorable price/mix despite cost takeouts and InSinkErator acquisition benefits.
- Interest expense increased to $89 million in the quarter and $164 million year to date, principally due to debt incurred for the InSinkErator acquisition.
- Operating cash flow and free cash flow worsened year to date, driven by lower cash earnings and unfavorable working-capital movements, including higher inventories and receivables.
- Regional sales trends were mixed: North America declined 4.7%, EMEA declined 15.3%, Latin America increased 4.1%, and Asia declined 12.7% in the quarter.
Guidance, outlook, commentary and risks
Management maintained 2023 guidance for GAAP diluted EPS of $13.00 to $15.00, operating cash flow of approximately $1.4 billion, capital expenditures of approximately $600 million and free cash flow of approximately $800 million. The company expects less than $50 million of restructuring charges for 2023 and an adjusted full-year tax rate of 10% to 15%.
Management expects industry demand in 2023 to decline 6% to 4% in North America and EMEA, decline 3% to 1% in Latin America, and increase 2% to 4% in Asia. The European major domestic appliance transaction with Arcelik is expected to close in the fourth quarter of 2023, subject to closing conditions. Whirlpool expects to retain approximately 25% of the newly formed European appliance company.
- The European transaction generated an additional $240 million loss during the first six months of 2023, including $18 million in the second quarter; cumulative loss was $1.761 billion.
- Whirlpool accrued approximately $69 million in the first half of 2023 for a French Competition Authority investigation, including $41 million accrued in the first quarter. Finalization is expected in late 2023 or early 2024, with payment expected in 2024.
- JennAir and Maytag trademarks remain at risk of future impairment, although no impairment trigger was identified in the second quarter.
- Brazilian tax assessments related primarily to BEFIEX credits totaled approximately $458 million, with additional assessments of approximately $58 million and $66 million related to other tax matters. No accrual was recorded for these disputed matters.
- Key risks include weak global appliance demand, competition, product price/mix, raw-material and component costs, foreign-exchange volatility, supply-chain disruption, interest rates, debt refinancing, litigation, tax disputes, cybersecurity, product liability and the Russia-Ukraine conflict.
- The company is pursuing a business-interruption insurance claim related to the 2021 Texas freeze; any recovery could be material, but timing and amount are unclear.
Most important facts for investors to verify
- Whether the Arcelik transaction closes as expected in the fourth quarter of 2023 and whether additional fair-value adjustments or transaction costs arise.
- Whirlpool’s ability to generate the approximately $1.4 billion of 2023 operating cash flow and $800 million of free cash flow targeted in guidance.
- Refinancing or repayment plans for the $1.3 billion of debt maturing within the next twelve months.
- The effect of elevated debt and interest expense on covenant compliance, liquidity and dividend sustainability.
- The ultimate resolution and cash cost of the French competition investigation and Brazilian tax disputes.
- Whether demand, price/mix, margins and impairment risks improve in EMEA and other weaker markets.
- Reconciliation and comparability of management’s non-GAAP ongoing EPS, EBIT and free-cash-flow measures with GAAP results.