Whirlpool Corporation: Q3 2023 Form 10-Q Summary
Business context and reporting period
Whirlpool manufactures and markets home appliances globally through four geographic segments: North America, EMEA, Latin America and Asia. This Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. The statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net sales | $4.926 billion | $4.784 billion | $14.367 billion | $14.801 billion |
| Gross margin | $799 million; 16.2% | $680 million; 14.2% | $2.378 billion; 16.6% | $2.428 billion; 16.4% |
| Operating profit | $257 million | $221 million | $603 million | $376 million |
| Net earnings available to Whirlpool | $83 million | $143 million | $(10) million | $85 million |
| Diluted earnings per share | $1.53 | $2.60 | $(0.18) | $1.51 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(322) million | $310 million |
| Free cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(660) million | $(24) million |
Q3 ongoing, non-GAAP EBIT was $322 million, with a 6.5% ongoing EBIT margin, compared with $265 million and 5.5% in Q3 2022. Ongoing diluted EPS was $5.45 versus $4.49. These measures exclude selected transaction-related, tax and other items and are not substitutes for GAAP results.
At September 30, 2023, cash and cash equivalents were $1.123 billion, compared with $1.958 billion at December 31, 2022. Inventories were $2.388 billion and accounts receivable were $1.841 billion. Total debt, including current maturities and notes payable, was approximately $7.664 billion, consisting principally of $1.300 billion of current maturities and $6.341 billion of long-term debt. The company had approximately $6.2 billion of committed credit facilities, including a $3.5 billion revolving facility and a $2.5 billion term loan, with $2.5 billion drawn on committed facilities.
Whirlpool declared dividends of $1.75 per share in Q3 and $5.25 per share for the first nine months. No shares were repurchased during the first nine months, leaving approximately $2.6 billion authorized for future repurchases.
Material changes versus the prior comparable period
- Q3 sales increased 3.0%, driven by higher volume, favorable currency and the InSinkErator acquisition, partly offset by unfavorable product price and mix. Nine-month sales declined 2.9%.
- Q3 gross margin improved to 16.2% from 14.2%, primarily due to cost-reduction actions and raw-material deflation, partly offset by unfavorable price and mix.
- Q3 GAAP earnings available to Whirlpool declined 42% to $83 million, despite higher operating profit, primarily reflecting higher interest expense and income taxes.
- Interest expense increased to $95 million in Q3 and $259 million for nine months, compared with $40 million and $126 million, respectively, due to higher debt and interest rates.
- Nine-month operating cash flow declined from an inflow of $310 million to an outflow of $322 million, mainly because of lower cash earnings and unfavorable working-capital movements, including increases in receivables and inventories.
- EMEA sales declined 4.4% in Q3 and 13.0% for nine months, while Asia sales declined 11.2% and 11.4%, respectively. North America and Latin America delivered Q3 sales growth of 3.6% and 14.3%.
- Q3 included a $46 million loss related to the planned European major domestic appliance transaction; nine-month loss on sale and disposal of businesses was $286 million. The cumulative loss recorded for the transaction was approximately $1.8 billion.
- The prior-year nine-month period included $384 million of goodwill and intangible-asset impairment charges and $348 million of losses related to the Russia disposal, neither of which was recorded in the comparable 2023 period.
Guidance, outlook, risks and unusual items
Management’s current 2023 outlook calls for approximately $9.00 of GAAP diluted EPS, operating cash flow of approximately $1.1 billion and free cash flow of approximately $500 million, based on approximately $600 million of capital expenditures and approximately $25 million of restructuring cash outlays. The company expects a full-year adjusted tax rate between negative 5.0% and 0%.
Expected 2023 industry demand ranges are North America up 1% to 2%, EMEA down 8% to 6%, Latin America flat to up 2%, and Asia down 3% to 2%. Management expects less than $50 million of restructuring charges for the full year.
Whirlpool expects the European major domestic appliance transaction with Arcelik to close by April 2024, subject to remaining conditions, including U.K. regulatory approval. Whirlpool is expected to retain approximately 25% of the newly formed European appliance company, with Arcelik owning approximately 75%.
Key risks include weak or volatile consumer demand, intense competition, unfavorable product mix, raw-material and component costs, foreign-exchange movements, higher interest rates, supply-chain disruptions, geopolitical conflicts and sanctions, cybersecurity events, product liability and recalls, litigation and tax matters, and risks associated with the European transaction. JennAir and Maytag trademarks remain at risk for future impairment, although management reported no current impairment trigger.
Notable contingencies include approximately $448 million of Brazilian BEFIEX tax assessments, approximately $64 million of additional Brazilian PIS/COFINS assessments and approximately $56 million related to an IPI Amnesty assessment; the company has not accrued amounts for these matters based on advice from its tax and legal advisers. The company also recorded a preliminary $69 million charge for the second phase of a French Competition Authority investigation.
Facts investors should verify
- Whether the company achieves its approximately $1.1 billion operating-cash-flow and $500 million free-cash-flow 2023 outlook after reporting negative nine-month cash flow.
- The refinancing or repayment plan for $1.3 billion of debt maturing within the next twelve months.
- The timing, regulatory status, final valuation and additional transaction costs associated with the Arcelik European transaction.
- Progress in reducing leverage and interest expense following the $2.5 billion InSinkErator acquisition financing.
- Whether JennAir or Maytag performance results in future impairment charges.
- Potential cash exposure from Brazilian tax assessments, French competition matters, product-liability litigation and other legal contingencies.
- The sustainability of Q3 margin improvement, particularly in light of unfavorable price/mix trends and weaker EMEA and Asia demand.