Whirlpool Corporation 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 months ended March 31, 2021, with comparisons to the three months ended March 31, 2020. Prior-period amounts were retrospectively adjusted for the U.S. inventory accounting change from LIFO to FIFO.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $5.358 billion | $4.325 billion | 23.9% increase |
| Gross margin | $1.148 billion; 21.4% | $703 million; 16.3% | Margin up 510 bps |
| Operating profit | $618 million | $263 million | Increase |
| Net earnings available to Whirlpool | $433 million | $154 million | Increase |
| Diluted EPS | $6.81 | $2.45 | Increase |
| Net earnings margin | 8.1% | 3.6% | Up 450 bps |
| Operating cash flow | $182 million | $(814) million | Improved by $996 million |
| Free cash flow | $132 million | $(870) million | Improved by $1.002 billion |
Management reported ongoing diluted EPS of $7.20 versus $2.86 and ongoing EBIT margin of 12.4% versus 6.2%. Results benefited from strong global demand, higher volume, favorable price/mix and cost reductions, partly offset by raw-material inflation, higher marketing expense and unfavorable currency effects.
At March 31, 2021, cash and cash equivalents were $2.447 billion, or $2.764 billion including cash held in assets classified as held for sale. Total debt comprised $298 million of current maturities, $4.982 billion of long-term debt and $10 million of notes payable. Long-term debt fair value was approximately $5.75 billion. The Company had $4.2 billion of committed credit facilities, including a $3.5 billion facility, a $500 million 364-day facility expiring April 26, 2021, and approximately $189 million of facilities in Brazil and India. No committed facilities were drawn at quarter-end, and Whirlpool stated that it was compliant with its debt-to-capitalization and interest-coverage covenants.
Material Changes Versus the Prior Comparable Period
- All geographic segments reported higher sales and EBIT. North America sales increased 19.8% and EBIT margin rose to 19.9% from 12.0%; EMEA sales increased 33.2% and EBIT margin improved to 1.8% from negative 1.7%; Latin America sales increased 18.4% and EBIT margin rose to 8.5% from 5.1%; Asia sales increased 42.7% and EBIT margin improved to 5.1% from negative 5.6%.
- Operating cash generation recovered sharply from the prior-year working-capital outflow, driven by higher earnings, lower promotional spending and working-capital initiatives.
- Restructuring charges increased to $20 million from $5 million. The Company expects up to $100 million of restructuring charges in full-year 2021.
- U.S. inventories changed from LIFO to FIFO effective January 1, 2021. The retrospective change increased December 31, 2020 inventories by $114 million and retained earnings by approximately $86 million; the Q1 2021 earnings impact was immaterial.
- Whirlpool China was classified as held for sale. Assets held for sale totaled $1.176 billion and liabilities held for sale totaled $535 million at March 31, 2021. If the partial tender offer is completed, Whirlpool expects to retain approximately 20% of Whirlpool China and deconsolidate the business.
- Whirlpool repurchased 767,500 shares for approximately $150 million during the quarter. On April 19, 2021, the Board authorized an additional $2 billion repurchase program. The quarterly dividend was subsequently increased from $1.25 to $1.40 per share.
Guidance, Outlook, Risks and Unusual Items
For full-year 2021, management estimated diluted EPS of $23.10 to $24.10, including expected impacts of $(1.57) per share from restructuring, $2.37 per share from gains or losses on business sales and $(0.20) per share from the income-tax impact of adjustments. The Company forecast operating cash flow of approximately $1.70 billion and free cash flow of approximately $1.25 billion, including approximately $225 million of restructuring cash outlays and $600 million of capital expenditures.
Expected 2021 industry demand growth was 6% or more in North America, 2% to 4% in EMEA, 2% to 4% in Latin America and 6% to 8% in Asia. Management cited strong demand and confidence in its long-term financial goals, while noting continued uncertainty from COVID-19.
- Supply-chain constraints, including a global semiconductor shortage, raw-material inflation, transportation disruption and potential supplier interruptions, could increase over the next one to two quarters and materially affect results.
- Goodwill in the EMEA reporting unit and the Indesit, Hotpoint, Maytag and JennAir trademarks remained at risk of future impairment. No impairment-triggering event was identified in Q1 2021.
- The Company expects a book gain of at least $150 million in Q2 2021 if the Whirlpool China transaction closes, although the amount could change materially with the share price and foreign-currency movements.
- Significant contingencies include Brazilian tax assessments of approximately $348 million related to BEFIEX credits, approximately $45 million related to IPI credits and approximately $53 million related to PIS/COFINS credits. Whirlpool has not accrued amounts for these assessments and is contesting them.
- Other risks include product-liability and class-action litigation, the Grenfell Tower-related proceedings, the ongoing EMEA washer recall, competition investigations, foreign-currency exposure, cybersecurity, tariffs and the potential financial effects of COVID-19.
- U.S. safeguard tariffs on certain imported large residential washers were extended through February 2023; beginning February 7, 2021, the applicable rates included 15% on the first 1.2 million units and 35% above that threshold, subject to specified allocations and conditions.
Facts Investors Should Verify
- Whether the Whirlpool China partial tender offer closed in Q2 2021 and the final gain, retained ownership percentage and deconsolidation effects.
- Whether raw-material, semiconductor and supply-chain pressures offset the Company’s pricing, productivity and demand gains.
- Progress toward the full-year EPS, operating-cash-flow and free-cash-flow outlook, including restructuring cash payments and capital spending.
- Liquidity after expiration of the $500 million 364-day facility and compliance with debt covenants.
- Potential impairment exposure for EMEA goodwill and the Indesit, Hotpoint, Maytag and JennAir trademarks.
- Developments in Brazilian tax disputes, product recalls, litigation and other unrecorded contingencies.