Whirlpool Corporation 2012 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, 2012, compared with the corresponding 2011 periods.
Financial performance and liquidity
| Metric | Three months ended June 30, 2012 | Three months ended June 30, 2011 | Six months ended June 30, 2012 | Six months ended June 30, 2011 |
|---|---|---|---|---|
| Net sales | $4.511 billion | $4.730 billion | $8.860 billion | $9.130 billion |
| Gross margin | $729 million; 16.2% | $669 million; 14.1% | $1.380 billion; 15.6% | $1.291 billion; 14.1% |
| Operating profit | $195 million; 4.3% | $223 million; 4.7% | $400 million; 4.5% | $450 million; 4.9% |
| Net earnings available to Whirlpool | $113 million | $(161) million | $205 million | $8 million |
| Diluted earnings per share | $1.43 | $(2.10) | $2.60 | $0.10 |
| Cash used in operating activities | Not separately provided | Not separately provided | $(355) million | $(234) million |
- Six-month net sales declined 2.9%, while units sold declined 3.1%. Excluding foreign-currency effects, sales increased 1.4%.
- Gross margin improved 150 basis points for the six months, reflecting pricing, product mix, restructuring benefits, productivity, and a $49 million postretirement curtailment gain. Higher material costs and lower BEFIEX credits were offsets.
- SG&A increased to $852 million from $805 million, or 9.6% of sales versus 8.8%, primarily due to employee benefits and higher international consumer advertising.
- Cash and equivalents were $426 million at June 30, 2012, down from $1.109 billion at December 31, 2011. Inventories increased to $2.583 billion from $2.354 billion.
- Total debt, including current maturities, was $2.435 billion; long-term debt was $1.922 billion and current maturities were $510 million. The fair value of long-term debt, including current maturities, was $2.617 billion.
- Whirlpool issued $300 million of 4.70% notes due 2022 and repaid $350 million of 8.00% notes that matured in May 2012. No borrowings were outstanding under credit facilities or commercial paper at quarter-end, and the company was in compliance with financial covenants.
- Six-month capital expenditures were $187 million versus $259 million in 2011. Dividends paid were $77 million, and the quarterly dividend remained $0.50 per share.
Material changes versus the prior comparable period
- Profitability improved substantially below operating income because 2011 included significant Brazilian collection-dispute settlement charges. Interest and sundry expense improved by approximately $515 million year over year.
- Six-month net earnings available to Whirlpool rose to $205 million from $8 million, despite lower sales and operating profit, while diluted EPS increased to $2.60 from $0.10.
- North America sales increased 1.6% for the six months and operating profit increased to $386 million from $134 million, supported by pricing, productivity, restructuring, and the curtailment gain.
- Latin America sales declined 4.8% and operating profit declined to $224 million from $339 million, primarily because BEFIEX credits monetized fell to $9 million from $145 million and foreign exchange was unfavorable.
- EMEA sales declined 12.9% and operating profit fell to a $21 million loss from $44 million of profit, reflecting weak European demand, lower production, foreign exchange, and material costs.
- Restructuring charges increased to $113 million for the six months from $22 million. The company expects approximately $500 million of total charges through 2013, with approximately $337 million of future cash expenditures identified in the filing.
- Comprehensive income declined to $67 million from $224 million for the six months, largely because of unfavorable currency translation, pension-related items, and cash-flow hedge losses.
Guidance, outlook, risks, and unusual items
- For 2012, management maintained guidance for diluted EPS of $5.00–$5.50, including an estimated $0.80–$1.00 contribution from BEFIEX credits and a $(2.30)–$(2.50) impact from restructuring expense.
- Management expects 2012 free cash flow of $100–$150 million, based on projected operating cash flow of $600–$700 million and capital expenditures, net of asset-sale proceeds, of $500–$550 million.
- The free-cash-flow outlook includes approximately $275 million for the final Brazilian collection-dispute payment, $110 million for antitrust settlements, pension contributions of up to $250 million, and restructuring cash outlays of up to $280 million.
- Expected 2012 industry-demand ranges were flat to down 2% in North America, up 5%–7% in Latin America, down 2%–5% in EMEA, and flat to up 2% in Asia.
- Embraco antitrust matters resulted in approximately $335 million of cumulative charges; $174 million remained accrued at June 30, 2012, including $149 million of installment payments plus interest through 2015. Additional litigation and investigations could materially affect liquidity or results.
- Whirlpool disclosed $181 million of product warranty and recall reserves at June 30, 2012, compared with $197 million at June 30, 2011, and stated that it was investigating a limited number of potential quality and safety issues.
- Whirlpool entered into an agreement to support the restructuring of Alno AG. Receivables of $84 million existing at June 30, 2012 were given extended payment terms, and Whirlpool could ultimately own more than 50% of Alno following the proposed restructuring.
- Principal risks include weak appliance demand, the European debt crisis, competition, material and commodity costs, foreign-exchange volatility, restructuring execution, customer and supplier risks, product liability and recalls, pensions, litigation, regulatory matters, information-technology failures, and labor relations.
Important facts for investors to verify
- Whether pricing and productivity actions can offset declining units, higher material costs, currency pressure, and weak EMEA demand.
- The timing and cash impact of the approximately $500 million restructuring program and whether the expected benefits are realized.
- Actual BEFIEX credit monetization and the collectability and timing of the approximately $215 million of future BEFIEX-related cash benefits.
- Progress and ultimate cost of Embraco antitrust settlements and related private litigation.
- Liquidity headroom given low quarter-end cash, negative first-half operating cash flow, approximately $500 million of debt maturities over the following 12 months, pension funding, and restructuring payments.
- The outcome of the Alno restructuring and the potential consolidation, credit, supply-chain, and receivable exposure.
- Final outcomes of product-related class actions, warranty and recall investigations, and pending washer and refrigerator trade-remedy proceedings.