Whirlpool Corporation 2024 Q1 Form 10-Q Summary
Business Context and Reporting Period
Whirlpool Corporation reported results for the three months ended March 31, 2024. The company operates through MDA North America, MDA Latin America, MDA Asia, MDA Europe, and SDA Global. On April 1, 2024, Whirlpool completed the contribution and sale of its European major domestic appliance and MENA businesses to an entity majority-owned by Arçelik; Whirlpool retained approximately 25% of the resulting European appliance company.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $4.490 billion | $4.649 billion | Down 3.4% |
| Gross margin | $642 million; 14.3% | $763 million; 16.4% | Margin down 210 bps |
| Operating profit (loss) | $(116) million | $43 million | Declined |
| Net loss available to Whirlpool | $(259) million | $(179) million | Loss increased |
| Diluted loss per share | $(4.72) | $(3.27) | Loss increased |
| Ongoing EBIT | $195 million; 4.3% margin | $251 million; 5.4% margin | Margin down 110 bps |
| Ongoing diluted EPS | $1.78 | $2.66 | Down 33% |
| Cash used in operating activities | $(873) million | $(477) million | Cash use increased |
| Free cash flow | $(988) million | $(573) million | Cash use increased |
Reported GAAP results included a $247 million loss on the European disposal group, $23 million of restructuring costs, and higher income tax expense. Interest expense rose to $90 million from $75 million, primarily because of higher short-term debt and interest rates.
At March 31, 2024, cash and cash equivalents were $1.231 billion. Total debt comprised $500 million of notes payable, $500 million of current long-term debt maturities, and $6.674 billion of long-term debt. The company had $3.5 billion of revolving credit capacity and a $2.0 billion term loan outstanding; the $500 million term-loan tranche due April 2024 was repaid in April 2024. Whirlpool reported compliance with its interest coverage covenants.
Material Changes Versus the Prior Comparable Period
- Sales decreased 3.4%, primarily because of unfavorable product price and mix, partly offset by favorable currency and higher volume.
- Gross margin declined to 14.3% from 16.4%, principally due to unfavorable price and mix, partly offset by cost productivity.
- MDA North America sales declined 8.1% and EBIT margin fell to 5.6% from 10.1%, reflecting weaker industry demand and unfavorable price/mix.
- MDA Latin America sales increased 12.0% and EBIT margin improved to 7.8% from 4.8%.
- MDA Asia sales declined 2.4%, while EBIT margin improved to 4.6% from 3.3%.
- SDA Global sales increased 7.1% and EBIT margin improved to 18.1% from 11.2%.
- Operating cash use increased by $396 million, driven primarily by lower cash earnings and working-capital movements, including higher receivables and lower accounts payable.
- Whirlpool sold 24% of Whirlpool India, reducing its ownership from 75% to 51% and generating $462 million of proceeds. The transaction was accounted for as an equity transaction.
- The company issued $300 million of 5.750% senior notes due 2034 and used the proceeds, together with cash, to repay $300 million of notes due March 2024.
- Whirlpool repurchased approximately $50 million of common stock and paid $95 million of dividends during the quarter.
Guidance, Outlook, Risks, and Unusual Items
- Full-year 2024 GAAP diluted EPS outlook is $5.00 to $7.00. The outlook includes estimated impacts of $5.00 per share from M&A transactions, $1.00 from restructuring, and $2.00 from a normalized tax-rate adjustment.
- Management expects approximately $1.150 billion to $1.250 billion of operating cash flow, $600 million of capital expenditures, and $550 million to $650 million of free cash flow for 2024. The outlook includes approximately $50 million of restructuring cash outlays.
- Expected 2024 restructuring charges are approximately $50 million, compared with $23 million incurred in the first quarter. Follow-on actions remain under evaluation.
- The European transaction generated cumulative disposal losses of approximately $1.9 billion through the first quarter. Management expects to recognize additional deferred tax assets of approximately $100 million to $300 million in the second quarter related to the transaction closing.
- Demand, pricing, product mix, commodity and component costs, supply-chain and logistics constraints, foreign currency, tariffs, interest rates, global conflicts, and macroeconomic conditions remain material risks.
- Maytag and InSinkErator trademarks remain at risk, although no impairment-triggering events were identified in the quarter. Future deterioration in demand or performance could result in impairment charges.
- Brazilian tax assessments related principally to BEFIEX credits totaled approximately $461 million, with additional IPI and PIS/COFINS assessments of approximately $58 million and $68 million, respectively. Whirlpool has not accrued amounts for these assessments.
- The company disclosed ongoing competition, product liability, warranty, cybersecurity, environmental, tax, and other litigation risks. Unfavorable outcomes could materially affect results in a particular reporting period.
Important Facts for Investors to Verify
- Reconcile reported GAAP losses with ongoing EPS and EBIT, particularly the treatment of the European disposal, restructuring, transaction costs, and tax adjustments.
- Verify completion accounting for the April 1 European and MENA transaction, including the retained 25% interest and expected $100 million to $300 million deferred tax asset.
- Assess liquidity after the April repayment of the $500 million term-loan tranche, including commercial paper and other short-term borrowings.
- Evaluate whether the projected full-year operating cash flow and free cash flow are achievable given the substantial first-quarter cash use.
- Monitor North American demand, pricing and promotional activity, as well as progress toward the announced $300 million to $400 million of 2024 cost takeout actions.
- Review the potential exposure from Brazilian tax matters, European legal matters, product-quality investigations, and warranty reserves of $201 million at quarter-end.
- Consider the comparability limitations of non-GAAP ongoing metrics and confirm the company’s reconciliation to GAAP measures.