Whirlpool Corporation: FY2022 Form 10-K Summary
Business context and reporting period
Whirlpool manufactures and markets major and small home appliances globally through North America, EMEA, Latin America and Asia. The filing covers the fiscal year ended December 31, 2022; although the request references 2022 Q4, this is an annual Form 10-K. Whirlpool had approximately $20 billion of sales and 61,000 employees in 2022.
Portfolio transformation was a central theme. Whirlpool acquired InSinkErator for approximately $3.0 billion, completed the sale of its Russian operations, and classified its European major domestic appliance business as held for sale. In January 2023, Whirlpool agreed to contribute that European business to a newly formed entity with Arcelik, in which Whirlpool expects to retain approximately 25% ownership. Closing was expected in the second half of 2023, subject to customary conditions.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $19.724 billion | $21.985 billion | (10.3)% |
| Gross margin | $3.073 billion | $4.409 billion | (30.3)% |
| Gross margin percentage | 15.6% | 20.1% | Down 450 bps |
| Operating profit/(loss) | $(1.056) billion | $2.348 billion | Unfavorable |
| Net earnings/(loss) available to Whirlpool | $(1.519) billion | $1.783 billion | Unfavorable |
| Diluted EPS | $(27.18) | $28.36 | Unfavorable |
| Ongoing EPS | $19.64 | $26.59 | Down 26% |
| Ongoing EBIT margin | 6.9% | 10.8% | Down 390 bps |
| Cash provided by operating activities | $1.390 billion | $2.176 billion | Down $786 million |
| Free cash flow | $820 million | $1.651 billion | Down $831 million |
Results were pressured by lower volumes, raw-material and other cost inflation, supply-chain disruption, unfavorable foreign exchange and the Russia divestiture. Favorable price/mix, lower selling, general and administrative costs and working-capital improvements partially offset these pressures.
Fourth-quarter and full-year GAAP results included approximately $1.9 billion of primarily non-cash charges associated with the Russia divestiture and the planned European transaction. These included a $1.521 billion loss on the European disposal group, a $348 million loss on the Russia sale, and $384 million of goodwill and intangible-asset impairment charges.
Segment performance
| Segment | 2022 sales | Sales change | 2022 EBIT margin | 2021 EBIT margin |
|---|---|---|---|---|
| North America | $11.474 billion | (8.1)% | 11.5% | 17.8% |
| EMEA | $4.023 billion | (20.9)% | (1.4)% | 2.0% |
| Latin America | $3.127 billion | (1.3)% | 6.4% | 8.4% |
| Asia | $1.100 billion | (11.2)% | 4.9% | 5.4% |
North America revenue was affected by lower volume and a one-off fourth-quarter supply-chain disruption. EMEA reflected lower volume, foreign-exchange pressure, cost inflation and the Russia divestiture. Latin America and Asia also experienced lower volumes and inflationary pressure.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.958 billion at December 31, 2022, down from $3.044 billion.
- Long-term debt, including current maturities, was $7.611 billion, compared with $5.227 billion in 2021. The increase primarily funded the InSinkErator acquisition.
- $248 million of long-term debt was scheduled to mature within 12 months; total contractual debt maturities were $1.297 billion in 2024 and $1.847 billion in 2025.
- Whirlpool had approximately $6.2 billion of committed credit facilities and had drawn $2.5 billion at year-end. The company reported compliance with applicable interest-coverage covenants.
- Capital expenditures were $570 million. Investing cash outflows included the $3.0 billion InSinkErator purchase.
- Whirlpool returned approximately $1.3 billion to shareholders, including $390 million of dividends and approximately $903 million of share repurchases. The quarterly dividend was increased 25% to $1.75 per share, and approximately $2.6 billion remained authorized for repurchases at year-end.
Material changes versus the prior comparable period
- Sales fell 10.3%, while gross margin declined from 20.1% to 15.6% and ongoing EBIT margin declined from 10.8% to 6.9%.
- The company moved from $1.783 billion of net earnings to a $1.519 billion net loss available to Whirlpool, primarily because of portfolio-transformation losses and impairment charges.
- Operating cash flow and free cash flow declined substantially, despite favorable working capital and hedge settlements.
- Debt increased by approximately $2.4 billion following the InSinkErator acquisition.
- Goodwill increased to $3.314 billion, including approximately $1.1 billion from InSinkErator, while EMEA goodwill was fully impaired by $278 million.
- The Maytag and JennAir trademarks were identified as carrying impairment risk. Their carrying values were approximately $1.021 billion and $304 million, respectively.
Guidance, outlook, commentary and risks
For 2023, Whirlpool guided to GAAP diluted EPS of $16.00 to $18.00, operating cash flow of approximately $1.4 billion and free cash flow of approximately $800 million. The outlook assumes subdued demand with gradual improvement, approximately $500 million of net cost takeout benefits, and approximately $800 million to $900 million of combined raw-material inflation tailwinds and other cost benefits. Management projected a 14% to 16% tax rate and approximately $600 million of capital expenditures.
Expected 2023 industry demand ranges were North America down 6% to 4%, EMEA down 6% to 4%, Latin America down 3% to 1%, and Asia up 2% to 4%. The company expected revenue and operating margins to be more heavily weighted to the second half of 2023.
Principal risks include weak consumer demand, inflation, interest rates, foreign-exchange volatility, supply-chain and component shortages, geopolitical conflict and sanctions, customer concentration, intense competition, product liability and recalls, cybersecurity and privacy incidents, impairment of goodwill or trademarks, tax disputes, environmental regulation, labor relations and execution risk related to acquisitions and divestitures.
Material contingencies include approximately $410 million of Brazilian BEFIEX tax assessments, approximately $52 million of Brazilian IPI-related assessments, approximately $59 million of PIS/COFINS assessments, ongoing French competition-authority proceedings, product-related class actions and the Grenfell Tower-related litigation. Management states that many claims are without merit, but unfavorable outcomes could materially affect a reporting period.
The filing also notes a potential business-interruption insurance claim related to the 2021 Texas freeze; the amount and timing of any recovery were not clear.
Important facts for investors to verify
- Confirm the timing, final terms, ownership percentage and accounting treatment of the planned Arcelik transaction.
- Assess the company’s ability to reduce leverage while maintaining dividends, repurchases and planned capital expenditures.
- Evaluate whether the 2023 demand, cost-takeout and raw-material assumptions support the $16.00 to $18.00 EPS outlook.
- Review sensitivity of the Maytag and JennAir trademarks to revenue, royalty-rate and discount-rate assumptions.
- Review the final purchase-price allocation and integration performance of InSinkErator.
- Monitor Brazilian tax matters, French competition proceedings, product claims and other legal contingencies.
- Assess customer concentration, particularly Lowe’s, which represented approximately 14% of 2022 sales and 37% of year-end accounts receivable.
- Reconcile non-GAAP ongoing EPS and free cash flow with GAAP results, recognizing that the company’s definitions may not be comparable with other issuers.