Whirlpool Corporation 2019 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation manufactures and markets major home appliances through four geographic segments: North America, Europe, Middle East and Africa (EMEA), Latin America, and Asia. The filing covers the fiscal year ended December 31, 2019; fourth-quarter results are included in the annual filing. Whirlpool operated in 13 countries, marketed products globally, and had approximately 77,000 employees.
2019 included the July 1 sale of the Embraco compressor business, the sale of the South Africa business, the exit from Turkish domestic sales operations, and continued EMEA restructuring.
Financial performance and key metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $20.419 billion | $21.037 billion |
| Organic net sales | $20.214 billion; up 1.6% | $19.902 billion |
| Operating profit | $1.571 billion | $279 million |
| Operating margin | 7.7% | 1.3% |
| Net earnings available to Whirlpool | $1.184 billion | $(183) million |
| Diluted EPS | $18.45 | $(2.72) |
| Ongoing EPS | $16.00 | Not clearly provided in the filing text |
| Ongoing EBIT margin | 6.9% | 6.3% |
| Cash from operating activities | $1.230 billion | $1.229 billion |
| Free cash flow | $912 million | $853 million |
| Capital expenditures | $532 million | $590 million |
| Cash and cash equivalents | $1.952 billion | $1.498 billion |
| Total debt | $4.993 billion | $6.027 billion |
| Long-term debt | $4.140 billion | $4.046 billion |
Gross margin improved to 17.3% from 16.8%, reflecting favorable price/mix, EMEA cost reductions, and a sale-leaseback gain, partly offset by lower volumes, raw-material, tariff and freight inflation, foreign currency, and warranty costs. The current ratio was 0.9, with current liabilities exceeding current assets.
Fourth-quarter 2019 net sales were $5.382 billion, net earnings available to Whirlpool were $288 million, and diluted EPS was $4.52. Fourth-quarter operating profit was $424 million, including material unusual items.
Segment performance
- North America: Net sales increased 0.9% to $11.477 billion; EBIT margin improved to 12.7% from 11.8%, despite a 4.7% unit-volume decline.
- EMEA: Net sales declined 5.3% to $4.296 billion; EBIT margin improved to negative 0.7% from negative 2.3%, supported by cost-reduction actions.
- Latin America: Net sales declined 12.2% to $3.177 billion, primarily because of the Embraco divestiture and currency; organic sales excluding Embraco and currency increased 9.3%.
- Asia: Net sales declined 4.5% to $1.515 billion; EBIT margin fell to 2.2% from 5.2%, partly due to China brand investments and unfavorable price/mix.
Material changes versus the prior comparable period
- Reported sales decreased 2.9%, but organic sales increased 1.6% after excluding currency and Embraco.
- Profitability improved sharply from the 2018 loss, when Whirlpool recorded a $747 million EMEA goodwill and intangible impairment and a $103 million French Competition Authority settlement.
- 2019 earnings included a $511 million pretax gain on the Embraco sale, approximately $180 million of Brazil indirect-tax credits, an approximately $105 million warranty accrual for EMEA-produced washers, approximately $74 million of EMEA strategic-action losses, and a $111 million pretax sale-leaseback gain.
- Whirlpool used approximately $1.0 billion of Embraco sale proceeds to repay a term loan. Total debt declined by approximately $1.0 billion year over year.
- Restructuring charges declined to $188 million from $247 million. Up to $100 million of additional restructuring charges were expected in 2020, primarily for EMEA.
- The company adopted the new lease standard, recording approximately $858 million of right-of-use assets at adoption and ending 2019 with $921 million of right-of-use assets and $778 million of noncurrent lease liabilities.
Liquidity, debt and capital allocation
Whirlpool had approximately $3.8 billion of committed credit facilities and no borrowings under those facilities at year-end. The principal committed long-term facility provides $3.5 billion of capacity and matures in August 2024. Approximately $559 million of term debt was scheduled to mature within the next twelve months. Year-end cash was elevated by $274 million of commercial paper that was repaid after year-end; most cash was held by foreign subsidiaries.
The company paid $305 million of dividends and repurchased $148 million of common stock in 2019. The quarterly dividend was increased to $1.20 per share, and approximately $652 million remained authorized under the repurchase program at year-end.
Projected contractual cash outflows totaled $8.352 billion, including $6.172 billion of long-term debt obligations, $1.154 billion of operating lease obligations, and $672 million of purchase obligations. Pension and postretirement obligations exceeded plan assets by approximately $0.9 billion.
Guidance, outlook, risks and contingencies
For 2020, management forecast diluted EPS of $14.80 to $15.80, including an estimated $1.56 per-share restructuring expense and a $0.36 per-share tax impact. Expected operating cash flow was $1.3 billion to $1.4 billion and free cash flow was approximately $800 million to $900 million, including up to $200 million of restructuring cash outlays and approximately $550 million of capital expenditures.
Expected 2020 industry demand was North America down 1% to up 1%, EMEA up 1% to 2%, Latin America up 3% to 4%, and Asia down 1% to up 1%. Management emphasized price/mix, cost reduction, innovation, EMEA profitability recovery, and cash generation.
- Material risks include intense global competition, retailer concentration, e-commerce and direct-to-consumer channel shifts, raw-material and tariff inflation, foreign currency volatility, supply-chain disruption, labor issues, cybersecurity, product liability and recalls, and uncertain consumer demand.
- Lowe's represented approximately 13% of 2019 consolidated sales and approximately 14% of year-end accounts receivable.
- Whirlpool recorded $383 million of product warranty reserves at year-end. A UK and Ireland recall of certain EMEA-produced washers began in January 2020; the related 2019 accrual was approximately $105 million.
- Brazilian tax assessments related to BEFIEX and other matters totaled approximately 2.0 billion Brazilian reais, or approximately $484 million, plus other disputed assessments. The company had not accrued amounts for these matters based on its legal and tax assessments.
- The company retained potential liabilities associated with antitrust matters of the former Embraco business. The filing states that aggregate costs cannot currently be reasonably estimated and could materially affect a reporting period.
- Whirlpool disclosed ongoing product litigation, class-action lawsuits, the Grenfell Tower-related matter, the remaining French Competition Authority investigation, Brexit uncertainty, and tariff exposure.
- EMEA goodwill and certain brand valuations remained sensitive: a 100-basis-point increase in the EMEA discount rate could produce an estimated $180 million impairment, according to the filing’s sensitivity analysis.
Most important facts for investors to verify
- Reconcile GAAP earnings with ongoing EPS and ongoing EBIT, particularly the Embraco gain, Brazil tax credits, sale-leaseback gain, warranty accrual, and restructuring costs.
- Confirm the timing and funding plan for the approximately $559 million of debt maturing within twelve months.
- Monitor whether EMEA achieves the forecast margin recovery and whether additional restructuring costs remain within guidance.
- Assess the sustainability of reported cash flow after excluding divestiture proceeds and other asset-sale proceeds.
- Track the washer recall, warranty reserve adequacy, product litigation, Grenfell Tower claims, and retained Embraco liabilities.
- Review the status and potential financial exposure of Brazilian tax disputes and the April 2020 ICMS-related proceedings.
- Evaluate customer concentration, especially Lowe's, and the effect of tariffs, commodity inflation, foreign exchange, and China brand-transition investments.