Whirlpool Corporation 2013 Q2 Form 10-Q Summary
Business context and reporting period
Whirlpool Corporation is a global manufacturer of major home appliances, operating through North America, Latin America, EMEA, and Asia. This unaudited Form 10-Q covers the three and six months ended June 30, 2013, with comparisons to the corresponding 2012 periods.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $4.748 billion | $4.510 billion | $8.996 billion | $8.858 billion |
| Gross margin | $817 million; 17.2% | $728 million; 16.1% | $1.543 billion; 17.1% | $1.378 billion; 15.6% |
| Operating profit | $328 million; approximately 6.9% margin | $194 million; approximately 4.3% | $582 million; approximately 6.5% | $398 million; approximately 4.5% |
| Net earnings available to Whirlpool | $198 million | $113 million | $450 million | $205 million |
| Diluted EPS | $2.44 | $1.43 | $5.56 | $2.60 |
| Cash used in operating activities | Not separately presented for the quarter | $(196) million | $(355) million |
Q2 sales increased 5.3% and six-month sales increased 1.6%. Q2 net earnings available to Whirlpool increased 75.4%, while six-month earnings increased 119.6%. Consolidated gross margin expanded by 1.1 percentage points in Q2 and 1.5 points for the six-month period, primarily from productivity and restructuring initiatives, with six-month results also benefiting from product price/mix.
At June 30, 2013, cash and equivalents were $670 million, compared with $1.168 billion at December 31, 2012. Total debt, including current maturities, was approximately $2.451 billion, consisting of $509 million of current maturities and $1.936 billion of long-term debt. The fair value of long-term debt was approximately $2.6 billion. Whirlpool had no borrowings under committed credit facilities and no commercial paper borrowings outstanding.
Six-month investing cash outflow was $215 million, including $180 million of capital expenditures. Financing cash outflow was $69 million, including $89 million of dividends paid and $30 million of share repurchases. Cash declined by $498 million during the six months, including an $18 million foreign-exchange effect.
Material changes versus the prior comparable period
- Unit sales increased 7.6% in Q2 and 2.4% year to date. North America, Latin America, and EMEA contributed to growth; Asia units declined 2.2% year to date.
- Q2 operating profit increased by $134 million, and six-month operating profit increased by $184 million. Improvements reflected productivity, restructuring benefits, improved volume, and favorable product price/mix.
- Restructuring costs declined to $31 million in Q2 and $73 million year to date, from $79 million and $113 million, respectively, in 2012. Selling, general and administrative expense increased modestly, primarily due to higher consumer advertising investment.
- The six-month 2013 income tax benefit of $28 million included $100 million of U.S. energy tax credits, including $75 million related to 2012 production and $25 million related to estimated 2013 production. The 2012 period included a $55 million valuation allowance release.
- Interest expense declined to $44 million in Q2 and $90 million year to date, primarily because of lower average long-term debt rates.
- Whirlpool issued $500 million of notes in February 2013 and used the proceeds, together with other funds, to repay $500 million of notes maturing in March 2013. S&P upgraded the company’s credit rating to BBB in March 2013.
- The quarterly dividend increased 25%, from $0.50 to $0.625 per share. Whirlpool repurchased 241,000 shares for $30 million during Q2, with $320 million remaining under the authorization.
Guidance, outlook, commentary, and unusual items
- 2013 diluted EPS outlook was $10.05 to $10.55. The outlook included estimated impacts of restructuring expense of $1.75 per share, BEFIEX credits of $0.91, U.S. energy tax credits of $1.50, and antitrust, contract, and investment expenses of $(0.11) per share.
- 2013 free cash flow guidance was $650 million to $700 million, based on projected operating cash flow of $1.25 billion to $1.35 billion and capital expenditures and asset-sale effects of $(600) million to $(650) million.
- Expected 2013 industry demand was North America up 6% to 8%, Latin America up 1% to 3%, EMEA flat to down 2%, and Asia flat.
- Whirlpool expected approximately $185 million of restructuring costs in 2013, approximately $175 million of 2013 benefits, and approximately $155 million of future cash expenditures. Total 2011 Plan costs remained estimated at $500 million, with substantial completion expected by year-end 2013. The company announced plans to cease refrigeration production at two European facilities by 2014.
- BEFIEX credits increased reported Latin American sales and gross margin. Whirlpool monetized $24 million in Q2 and $40 million year to date, with approximately $141 million of future cash monetization remaining, including $53 million of court-awarded fees.
- Embraco antitrust matters had generated approximately $363 million of cumulative charges through June 30, 2013. Approximately $103 million remained accrued, including $68 million of installment payments plus interest due to government authorities through 2015. Additional claims could be material.
- Brazilian tax disputes included approximately $550 million of BEFIEX-related assessments and approximately $54 million of potential controlled-foreign-corporation tax exposure; no additional reserves were recorded for these matters based on management’s and advisers’ assessments.
- Other risks include intense competition, uncertain global and Eurozone conditions, material and commodity cost volatility, foreign-exchange exposure, customer and supplier concentration, product liability and recalls, litigation, pension obligations, labor matters, regulatory changes, cybersecurity, and execution of productivity and restructuring plans.
Important facts for investors to verify
- Whether operating cash flow converts to the guided $650 million to $700 million of 2013 free cash flow after seasonal working-capital needs and restructuring spending.
- The sustainability of margin gains after removing restructuring benefits, BEFIEX credits, and U.S. energy tax credits.
- Progress and final cash cost of the $500 million restructuring plan, including the European facility closures.
- Outcomes and potential cash exposure from Embraco antitrust litigation and the Brazilian tax assessments, particularly the approximately $550 million BEFIEX-related assessments.
- Liquidity available to fund operations, dividends, share repurchases, pensions, restructuring, and the $500 million debt maturity scheduled for the second quarter of 2014.
- Demand trends by region, especially continuing weakness in EMEA and the year-to-date decline in Asia unit sales.