Whirlpool Corporation: Q1 2022 Form 10-Q Summary
Business context and reporting period
Whirlpool Corporation manufactures and markets home appliances through four geographic segments: North America, EMEA, Latin America and Asia. The filing covers the three months ended March 31, 2022 and was filed April 26, 2022. Results reflected lower volume, supply-chain disruption, raw-material and other cost inflation, the Whirlpool China divestiture and initial effects of the Russia-Ukraine conflict.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $4.920 billion | $5.358 billion | (8.2%) |
| Gross margin | $851 million; 17.3% | $1.148 billion; 21.4% | Down 410 basis points |
| Operating profit | $461 million | $618 million | (25.4%) |
| Net earnings available to Whirlpool | $313 million | $433 million | (27.7%) |
| Diluted EPS | $5.33 | $6.81 | (21.7%) |
| Ongoing diluted EPS | $5.31 | $7.20 | Down $1.89 |
| Operating cash flow | $(328) million | $182 million | Decrease of $510 million |
| Free cash flow | $(415) million | $109 million | Decrease of $524 million |
Ongoing EBIT was $463 million, with an ongoing EBIT margin of 9.4%, versus $664 million and 12.4% in the prior-year quarter. Selling, general and administrative expense declined to $376 million from $493 million, aided by a sale-leaseback gain, divestitures and prior restructuring actions. Restructuring expense was $5 million versus $20 million.
Cash and cash equivalents were $2.114 billion at March 31, 2022, down from $3.044 billion at year-end 2021. Inventories increased to $3.136 billion from $2.717 billion, primarily reflecting higher input costs and working-capital requirements. Total debt, including current maturities, was approximately $5.179 billion, consisting of $548 million of current maturities, $4.631 billion of long-term debt and $10 million of notes payable. The company had approximately $3.7 billion of committed credit capacity and no borrowings under those facilities at quarter-end.
Financing cash outflows included $533 million of share repurchases and $103 million of dividends paid. The quarterly dividend was increased 25% to $1.75 per share. Whirlpool repurchased approximately 2.7 million shares during the quarter, with approximately $2.9 billion remaining under its authorization.
Material changes versus the prior comparable period
- Revenue declined 8.2%, primarily due to lower volume and the Whirlpool China divestiture, partly offset by favorable pricing and product mix.
- Gross margin fell from 21.4% to 17.3% as raw-material and other cost inflation and lower volume more than offset price and mix benefits.
- North America sales declined 8.3% and EBIT margin declined to 16.3% from 19.9%.
- EMEA sales declined 7.4%; EBIT margin declined to negative 2.5% from positive 1.8%, driven principally by inflation and disruption in Eastern Europe.
- Latin America sales increased 3.8%, while EBIT margin declined to 7.1% from 8.5% because of inflation and lower volume.
- Asia sales declined 30.7%, primarily due to the Whirlpool China sale and lower volume; EBIT margin was 4.8% versus 5.1%.
- Operating cash flow turned negative because of lower cash earnings and unfavorable working-capital changes, including increased inventory and lower accounts payable.
- A sale-leaseback of non-core properties generated approximately $52 million of proceeds and a $44 million pretax gain, or $36 million after tax.
Guidance, outlook, commentary and risks
Management maintained 2022 diluted EPS guidance of $24.00 to $26.00, based on an estimated adjusted tax rate of 24% to 26%. The company expects approximately $1.95 billion of operating cash flow and $1.25 billion of free cash flow, including approximately $700 million of capital expenditures and $50 million of restructuring cash outlays. Industry demand assumptions are approximately 0% in North America, down 5% to 3% in EMEA, down 4% to 2% in Latin America and up 5% to 6% in Asia.
Whirlpool expects less than $50 million of restructuring charges for full-year 2022. Management stated that supply disruptions and cost inflation are expected to continue, while price increases and cost controls are intended to support margins. The company is conducting a portfolio review, including a strategic assessment of its EMEA business, expected to conclude by the end of the third quarter of 2022.
Whirlpool temporarily suspended operations in Ukraine and resumed some sales and distribution activity. It retained limited production in Russia, primarily for essential goods. Russia represented approximately 6% of EMEA net sales in Q1 2022, and Russian net assets were approximately $209 million at March 31, 2022. Management stated that the current consolidated impact was not material, but warned that escalation, sanctions, supply disruption and demand effects could become material.
The Maytag trademark remained at risk of future impairment, although no impairment-triggering event was identified during the quarter. Significant contingencies include Brazilian tax assessments of approximately $431 million related to BEFIEX credits, approximately $56 million related to IPI tax credits and approximately $66 million related to PIS/COFINS inputs; Whirlpool has not accrued amounts for these matters. Other risks include product-liability and class-action litigation, the Grenfell Tower proceedings, antitrust matters, cybersecurity, supplier availability, commodity prices, foreign exchange and customer insolvency.
The company remained in compliance with its revolving-credit covenants. A $548 million long-term debt maturity is due within the next twelve months, and management is evaluating repayment, refinancing, free-cash-flow generation and cash-on-hand alternatives.
Important facts for investors to verify
- Whether supply-chain constraints, inflation and lower volumes improve sufficiently to support the $24.00-$26.00 EPS outlook.
- The sustainability of negative first-quarter operating cash flow and the extent to which inventory normalizes.
- The outcome of the EMEA strategic review and the potential effect on goodwill, trademarks and long-lived assets.
- The financial and operational effects of the Russia-Ukraine conflict, sanctions and Whirlpool’s continuing Russian operations.
- Refinancing or repayment plans for the $548 million debt maturity due within twelve months.
- Potential exposure from Brazilian tax assessments, litigation, product recalls and other unaccrued contingencies.
- The effect of continued share repurchases and the increased dividend on liquidity and leverage.