Whirlpool Corporation 10-Q Summary
Business context and reporting period
Whirlpool Corporation manufactures and markets kitchen and laundry appliances through four geographic segments: North America, EMEA, Latin America and Asia. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $5.097 billion | $5.324 billion | $10.017 billion | $10.682 billion |
| Gross margin | 17.6% | 20.5% | 17.5% | 21.0% |
| Operating profit | $(306) million | $683 million | $155 million | $1.301 billion |
| Net earnings available to Whirlpool | $(371) million | $581 million | $(58) million | $1.014 billion |
| Diluted EPS | $(6.62) | $9.15 | $(1.00) | $15.96 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(180) million | $646 million |
| Free cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(397) million | $462 million |
Q2 ongoing EPS was $5.97 versus $6.64 in the prior-year quarter. Ongoing EBIT margin was 9.0% versus 11.4%. Reported Q2 net loss margin was 7.3%, compared with a 10.9% net earnings margin in Q2 2021.
At June 30, 2022, cash and cash equivalents were $1.642 billion, down from $3.044 billion at December 31, 2021. Total debt, including current maturities and notes payable, was approximately $5.098 billion. Long-term debt, including current maturities, had a reported fair value of $4.73 billion. The company had approximately $3.7 billion of committed credit capacity and no borrowings outstanding under those committed facilities.
Inventories increased to $3.218 billion from $2.717 billion at year-end 2021, while total assets declined to $18.352 billion from $20.285 billion. Capital expenditures were $217 million in the first six months. Financing cash outflows included $833 million of share repurchases and $200 million of dividends paid.
Material changes versus the prior comparable period
- Sales declined 4.3% in Q2 and 6.2% year to date, primarily because of lower volume and foreign-currency effects, partly offset by favorable pricing and mix.
- Gross margin declined due mainly to raw-material and other cost inflation and lower volume, despite price increases.
- Q2 results included $384 million of impairment charges, comprising $278 million of EMEA goodwill impairment and $106 million of Indesit and Hotpoint trademark impairments.
- The company recorded a $346 million loss related to the pending sale of its Russian operations, including a $333 million write-down and $13 million of cumulative currency translation adjustments.
- EMEA sales declined 19.4% in Q2 and its EBIT margin fell to 0.2% from 2.5%. North America EBIT margin declined to 14.1% from 18.3%, while Latin America declined to 7.2% from 9.7%. Asia EBIT margin improved to 6.8% from 1.7%.
- Operating cash flow changed from $646 million provided in the first six months of 2021 to $180 million used in 2022, driven by lower earnings and unfavorable working-capital movements, including higher inventories.
- On May 3, 2022, Whirlpool amended its long-term credit facility, retaining $3.5 billion of borrowing capacity and removing the prior debt-to-capitalization covenant. The company remained in compliance with its interest-coverage covenant.
- The quarterly dividend increased 25% to $1.75 per share. The company repurchased approximately 4.4 million shares for $833 million during the first six months.
Guidance, outlook, commentary and risks
Management forecast 2022 diluted EPS of $22.00 to $24.00, operating cash flow of approximately $1.85 billion and free cash flow of approximately $1.25 billion, based on approximately $600 million of capital expenditures. The outlook assumes an adjusted full-year tax rate of 21% to 23%. Management expected less than $50 million of restructuring charges for 2022.
Management projected industry demand changes of negative 7% to negative 5% in North America, negative 5% to negative 3% in EMEA, negative 4% to negative 2% in Latin America and positive 5% to 6% in Asia. The filing does not provide a specific full-year revenue or EBIT forecast.
Whirlpool entered into an agreement to sell its Russian business to Arcelik, with closing expected in the third quarter of 2022 and consideration including contingent payments. The company was also conducting a strategic review of EMEA, expected to conclude by the end of the third quarter.
Principal risks include the Russia-Ukraine conflict and sanctions, COVID-19 disruptions, supply-chain constraints, component shortages, raw-material inflation, weaker consumer demand, foreign-exchange volatility, competition, customer credit risk, cybersecurity, product liability, litigation and potential additional impairment of EMEA assets. The EMEA goodwill balance was fully impaired at June 30, 2022; Indesit and Hotpoint trademarks remain sensitive to weaker revenue, lower royalty rates or higher discount rates.
Material contingencies include Brazilian tax assessments of approximately $396 million related to BEFIEX credits, approximately $51 million related to an IPI matter and approximately $60 million related to PIS/COFINS inputs. Whirlpool has not accrued amounts for these disputed assessments. Other legal matters, product claims and regulatory investigations could also materially affect results in a particular period.
Important facts for investors to verify
- Whether the Russian divestiture closed on expected terms and whether contingent consideration is ultimately realized.
- Whether EMEA operating performance stabilizes following the goodwill and trademark impairments and strategic review.
- Whether inflation, supply constraints and weaker demand continue to pressure gross margin and volumes.
- Whether management achieves the $1.85 billion operating-cash-flow and $1.25 billion free-cash-flow targets despite the first-half cash deficit.
- Upcoming debt maturities, refinancing or repayment plans, and continued compliance with the 3.0x interest-coverage covenant.
- The status and potential exposure from Brazilian tax assessments, product-liability matters and other litigation.
- The sensitivity of Indesit and Hotpoint trademark values to revenue forecasts, royalty rates and discount rates.