Whirlpool Corporation 2022 Q3 Form 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 nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $4.784 billion | $5.488 billion | $14.801 billion | $16.170 billion |
| Gross margin | $680 million; 14.2% | $1.108 billion; 20.2% | $2.428 billion; 16.4% | $3.347 billion; 20.7% |
| Operating profit | $221 million | $552 million | $376 million | $1.854 billion |
| Net earnings available to Whirlpool | $143 million | $471 million | $85 million | $1.485 billion |
| Diluted EPS | $2.60 | $7.51 | $1.51 | $23.47 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $310 million | $1.294 billion |
| Free cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(24) million | $988 million |
Q3 ongoing EPS was $4.49 versus $6.68 in the prior-year quarter, and ongoing EBIT margin was 5.5% versus 11.1%. Management attributed the deterioration to weaker demand and volumes, cost inflation, inventory-reduction actions and foreign-exchange effects, partly offset by price/mix improvements.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $1.794 billion at September 30, 2022, down from $3.044 billion at December 31, 2021.
- Current assets were $7.919 billion and current liabilities were $6.809 billion. Inventories increased to $2.884 billion from $2.717 billion at year-end.
- Long-term debt was $4.722 billion and current maturities were $248 million, for reported debt of approximately $4.970 billion excluding notes payable and lease liabilities.
- Whirlpool had approximately $6.2 billion of committed borrowing capacity, including a $3.5 billion revolving facility, a $2.5 billion delayed-draw term loan and approximately $197 million of facilities in Brazil and India. No borrowings were outstanding under these committed facilities at September 30, 2022.
- The delayed-draw term loan was arranged primarily to fund the planned $3.0 billion InSinkErator acquisition; no amounts were drawn at quarter-end. The revolving facility requires a rolling interest-coverage ratio of at least 3.0 to 1.0, and Whirlpool reported compliance at September 30, 2022.
- Whirlpool repurchased approximately 4.8 million shares for $903 million during the first nine months and paid $295 million of dividends. Approximately $2.6 billion remained authorized for repurchases at September 30, 2022.
Material changes versus the prior comparable period
- Sales declined 12.8% in Q3 and 8.5% for the first nine months. Excluding foreign currency, sales declined 9.7% and 6.3%, respectively.
- Gross margin contracted by 600 basis points in Q3 and 430 basis points for the first nine months, primarily from inflation, lower volume and inventory-reduction actions.
- Q3 net earnings available to Whirlpool fell 69.6%; nine-month earnings fell 94.3%. The nine-month decline also reflects 2022 EMEA impairments and the Russia divestiture loss, as well as favorable 2021 gains from business disposals.
- North America Q3 sales declined 7.7% and EBIT margin fell to 9.8% from 17.7%. EMEA sales declined 28.1%, and EBIT margin was negative 3.1% versus positive 2.2% in the prior year.
- Operating cash flow fell $984 million year over year, while free cash flow decreased from $988 million to negative $24 million.
- Whirlpool completed the sale of its Russian business to Arcelik on August 31, 2022. The transaction generated a final loss of $348 million, including a $333 million write-down of net assets.
- Whirlpool recorded $384 million of EMEA goodwill and trademark impairments in the second quarter, consisting of $278 million of goodwill and $106 million related to Indesit and Hotpoint trademarks.
Guidance, outlook and management commentary
- For full-year 2022, management estimated GAAP diluted EPS of approximately $5.00, subject to a projected adjusted tax rate of 14% to 16%.
- Management projected approximately $1.50 billion of operating cash flow and approximately $950 million of free cash flow, based on approximately $550 million of capital expenditures and approximately $50 million of restructuring cash outlays.
- Expected industry demand ranges were North America down 9% to 7%, EMEA down 7% to 5%, Latin America down 5% to 3%, and Asia up 5% to 6%.
- Management stated that the strategic assessment of EMEA was nearing completion and that it was in advanced negotiations with two potential strategic investors.
- Whirlpool announced the planned $3.0 billion cash acquisition of Emerson’s InSinkErator business, expected to close in the fourth quarter of 2022, subject to customary conditions.
Risks, contingencies and unusual items
- Key operating risks include weak consumer demand, inflation in steel, resins, copper and aluminum, supply-chain and component shortages, foreign-exchange volatility, COVID-19 disruptions, and the continuing Russia-Ukraine conflict.
- EMEA goodwill was fully impaired, while Indesit and Hotpoint trademarks remained sensitive to revenue, royalty-rate and discount-rate assumptions. Management disclosed that further deterioration could result in additional material impairment charges.
- Whirlpool disclosed approximately $390 million of Brazilian tax assessments related to BEFIEX credits, approximately $50 million related to an IPI matter and approximately $59 million related to PIS/COFINS input credits. The company has not accrued amounts for these assessments and is contesting them.
- Other contingencies include Embraco antitrust matters, the French Competition Authority investigation, product-liability and class-action litigation, and Grenfell Tower-related proceedings. Potential losses are not clearly estimable for several matters.
- Product warranty reserves were $235 million at September 30, 2022, including $150 million current and $85 million noncurrent.
- Whirlpool had approximately $398 million outstanding under bank guarantees, letters of credit and surety bonds, primarily associated with Brazilian tax matters and other obligations.
- The company is pursuing a business-interruption insurance claim related to the 2021 Texas freeze; any potential recovery could be material, but the amount and timing are not provided.
Important facts for investors to verify
- Whether the planned InSinkErator acquisition closed and the amount and terms of debt drawn to fund it after September 30, 2022.
- Actual fourth-quarter demand, pricing, inflation, inventory and foreign-exchange trends relative to management’s full-year outlook.
- Progress and outcome of the EMEA strategic review and any resulting divestiture, investment or restructuring charges.
- Potential additional impairment of the remaining Indesit, Hotpoint and Maytag intangible assets.
- Cash conversion and liquidity after the $903 million of share repurchases, dividends and planned acquisition funding.
- Developments in Brazilian tax proceedings, product-liability matters, the Russia-Ukraine conflict and related sanctions.