Whirlpool Corporation 2020 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation manufactures and markets major kitchen and laundry appliances through four geographic segments: North America, Europe, Middle East and Africa (EMEA), Latin America, and Asia. The company operated in 13 countries, marketed products globally, employed approximately 78,000 people, and generated approximately $19.5 billion of sales in 2020.
The filing covers the fiscal year ended December 31, 2020. Although the request references 2020 Q4, this document is an annual Form 10-K; fourth-quarter data is included only in the unaudited quarterly information.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $19.456 billion | $20.419 billion | (4.7%) |
| Gross margin | $3.850 billion | $3.533 billion | +9.0% |
| Gross margin percentage | 19.8% | 17.3% | +250 bps |
| Operating profit | $1.623 billion | $1.571 billion | +3.3% |
| Operating profit margin | 8.3% | 7.7% | +60 bps |
| Earnings before taxes | $1.455 billion | $1.552 billion | (6.2%) |
| Net earnings available to Whirlpool | $1.081 billion | $1.184 billion | (8.8%) |
| Diluted earnings per share | $17.07 | $18.45 | (7.5%) |
| Cash from operating activities | $1.500 billion | $1.230 billion | +$270 million |
| Free cash flow | $1.246 billion | $912 million | +$334 million |
Management reported ongoing, non-GAAP earnings per diluted share of $18.55, compared with $16.00 in 2019, and ongoing EBIT margin of 9.1%, compared with 6.9%. Organic net sales increased 1.1% after excluding foreign-currency effects and the divested Embraco compressor business.
- North America sales declined 2.3%; EBIT margin improved to 15.8% from 12.7%.
- EMEA sales increased 2.1%; EBIT margin improved to 0.0% from negative 0.7%, returning the region to profitability on an ongoing basis.
- Latin America reported sales of $2.592 billion, down 18.4% as reported because of the Embraco divestiture and currency effects; organic sales increased 22.8%. EBIT margin improved to 8.4% from 5.4%.
- Asia sales declined 16.5%; EBIT margin fell to negative 0.5% from 2.2%.
Liquidity, capital structure and cash deployment
- Cash and cash equivalents were $2.924 billion at December 31, 2020; cash, cash equivalents and restricted cash totaled $2.934 billion.
- Total debt was $5.369 billion, including $298 million of current maturities and $5.059 billion of long-term debt. Notes payable were $12 million.
- Current assets were $9.015 billion versus current liabilities of $8.330 billion, producing a current ratio of approximately 1.1.
- The company had approximately $4.2 billion of committed credit facilities and no borrowings outstanding under those facilities at year-end.
- Capital expenditures were $410 million, compared with $532 million in 2019.
- Dividends paid were $311 million, or $4.85 per share. The quarterly dividend was increased 4.2% to $1.25 per share in October 2020.
- Whirlpool repurchased 902,000 shares for approximately $121 million and had approximately $531 million remaining under its authorization.
Material changes versus the prior comparable period
- Reported sales decreased primarily because of the July 2019 divestiture of Embraco, lower volumes in certain regions, and unfavorable currency translation. Price/mix and organic demand were favorable.
- Gross and operating margins expanded because of price/mix, cost-reduction actions, raw-material deflation, lower selling and administrative expenses, and a $113 million sale-leaseback gain.
- Restructuring costs increased to $288 million from $188 million, including U.S. workforce reductions, international workforce reductions, and the exit from the Naples, Italy manufacturing plant.
- Operating cash flow and free cash flow improved substantially, driven by stronger cash earnings, working-capital actions, and lower capital expenditures.
- Net earnings and GAAP EPS declined partly because 2019 included a $511 million pre-tax gain on the Embraco sale, while 2020 included higher restructuring costs.
- The company recorded a $7 million impairment of the EMEA Hotpoint trademark; no goodwill impairment was recorded.
- The company completed a $500 million senior-notes offering due 2050 and a €500 million, 0.50% senior-notes offering due 2028, while repaying maturing and revolving-credit borrowings.
Guidance, outlook, commentary and risks
For 2021, management projected diluted EPS of $17.80 to $18.80, including an estimated $1.59 per-share restructuring expense and a $0.39 per-share tax impact. The company expected industry demand growth of 4% to 6% in North America, 2% to 4% in EMEA, 2% to 4% in Latin America, and 6% to 8% in Asia.
Management expected 2021 operating cash flow of approximately $1.6 billion and free cash flow of at least $1.0 billion, including approximately $225 million of restructuring cash outlays and approximately $600 million of capital expenditures. The outlook is subject to change because of COVID-19, supply constraints, inflation, currency movements, demand, competition and other uncertainties.
- COVID-19 continued to create risks involving factory shutdowns, labor availability, supply-chain disruptions, logistics, customer credit, remote work, cybersecurity and demand volatility. The company ended 2020 with an elevated order backlog expected to normalize during 2021.
- Management expected significant raw-material inflation and freight-cost increases in 2021, following raw-material deflation in 2020.
- Goodwill in EMEA and the Indesit, Hotpoint, Maytag and JennAir trademarks were identified as at risk of future impairment. The EMEA goodwill fair value exceeded carrying value by approximately 11%.
- Unfunded pension and postretirement obligations exceeded plan assets by approximately $0.7 billion, including $0.5 billion for pensions and $0.2 billion for postretirement health care.
- Whirlpool faced ongoing legal and tax matters, including Brazilian tax assessments, a U.S. IRS dispute, French competition matters, Embraco antitrust liabilities retained after divestiture, product-related litigation, and Grenfell Tower-related claims.
- Brazilian tax assessments related to BEFIEX credits were approximately 2.0 billion Brazilian reais, or approximately $381 million, and additional assessments were disclosed for IPI and PIS/COFINS matters. The company had not accrued amounts for these assessments based on its legal and tax advisers’ assessments.
- A U.S. safeguard tariff on certain imported residential washers was extended through February 2023, with tariffs of 15% on the first 1.2 million units and 35% above that threshold during the fourth year.
Most important facts for investors to verify
- Reconcile GAAP EPS of $17.07 with ongoing EPS of $18.55 and assess the recurring nature of restructuring, sale-leaseback and other adjustments.
- Evaluate whether the 2021 outlook adequately reflects expected raw-material, freight and supply-chain inflation.
- Monitor EMEA performance and impairment sensitivity for EMEA goodwill and the Indesit, Hotpoint, Maytag and JennAir trademarks.
- Review debt maturities, including approximately $298 million of long-term debt due in 2021, and the company’s refinancing or repayment plans.
- Assess the sustainability of the $1.5 billion of 2020 operating cash flow and $1.246 billion of free cash flow after normalization of working capital and capital expenditures.
- Review the status and potential exposure from Brazilian tax assessments, the IRS appeal, French competition proceedings, product claims, and retained Embraco liabilities.
- Confirm the effects of COVID-19-related backlog normalization, component shortages, factory capacity constraints and customer concentration, including Lowe’s at approximately 13% of consolidated sales.