Whirlpool Corporation 10-Q Summary: Period Ended September 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly and nine-month periods ended September 30, 2009, for Whirlpool Corporation, a global manufacturer of major home appliances. The company operates through four geographic segments: North America, Europe, Latin America, and Asia. The reporting period reflects significant macroeconomic challenges, including financial market instability and reduced consumer demand, particularly in North America and Europe.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|---|
| Net Sales ($ millions) | $4,497 | $12,235 | $4,902 | $14,592 |
| Operating Profit ($ millions) | $189 | $489 | $177 | $539 |
| Net Earnings to Common Stockholders ($ millions) | $87 | $233 | $163 | $374 |
| Diluted EPS ($) | $1.15 | $3.10 | $2.15 | $4.89 |
| Cash from Operating Activities ($ millions) | N/A | $652 | N/A | ($6) |
| Cash and Equivalents ($ millions) | $725 | $725 | N/A | $425 |
| Total Debt ($ millions) | $2,919 | $2,919 | N/A | N/A |
| Gross Margin % | 13.8% | 13.9% | 14.0% | 14.1% |
Note: Total Debt calculated as Current maturities of long-term debt ($371M) + Long-term debt ($2,503M) + Notes payable ($45M) as of Sep 30, 2009.
Material Changes vs. Prior Period
- Revenue Decline: Consolidated net sales decreased 8.2% for the quarter and 16.1% for the nine-month period compared to 2008. This was driven by unfavorable foreign currency impacts and a decline in units sold, particularly in North America (-9.0% Q3) and Europe (-17.2% Q3).
- Profitability Pressure: Net earnings available to common stockholders dropped significantly (47% for the quarter, 38% for the nine months) due to lower sales volumes, higher legal costs related to antitrust investigations, and restructuring charges.
- Improved Cash Flow: Cash provided by operating activities turned positive at $652 million for the nine months ended September 30, 2009, compared to a use of $6 million in the prior year period. This improvement was driven by lower inventory payments and working capital management.
- Accounting Change: The company changed its depreciation method for production machinery to a modified units of production method in Q1 2009, reducing depreciation expense by $20 million for the quarter and $64 million for the nine months.
Guidance, Outlook, and Risks
- Updated Guidance: Management raised full-year 2009 diluted EPS guidance to approximately $4.25 (previously $3.50–$4.00) and free cash flow guidance to $500–$600 million (previously $300–$400 million).
- Demand Outlook: North America industry demand is expected to decline ~10% from 2008 levels. Brazilian appliance shipments are expected to increase >15%, and Asia demand is expected to increase ~10%.
- Restructuring: The company announced the closure of its Evansville, Indiana facility in mid-2010, eliminating approximately 1,100 jobs with estimated total costs of $51 million. Ongoing global restructuring initiatives are expected to continue through 2010.
- Legal Contingencies: Significant risks remain regarding antitrust investigations into the global compressor industry (Embraco). A settlement in Brazil resulted in a $56 million contribution, with $43 million expensed in Q3. The company has accrued $72 million for related claims but notes costs could be material and unpredictable.
- Product Recalls: A voluntary recall of 1.8 million refrigerators (announced March 2009) has an estimated cost of $58 million, with approximately $4 million remaining in the accrual as of September 30, 2009.
Key Facts for Investor Verification
- Verify the sustainability of the improved operating cash flow ($652M YTD) given the continued decline in sales volumes.
- Monitor the final resolution and potential additional costs of the global compressor antitrust investigations and related lawsuits.
- Assess the impact of the Evansville facility closure on North America operating margins and restructuring cash outflows in 2010.
- Review the monetization of Brazilian BEFIEX export credits, which are currently limited by the IPI sales tax holiday.
- Confirm the company's ability to maintain liquidity and meet debt covenants, particularly the Leverage Ratio (max 3.5:1) and Interest Coverage Ratio (min 2.5:1) under the amended credit facility.