Whirlpool Corporation 2021 Q2 Form 10-Q Summary
Business context and reporting period
Whirlpool Corporation manufactures and markets home appliances through four geographic segments: North America, EMEA, Latin America and Asia. This Form 10-Q covers the three and six months ended June 30, 2021, compared with the same periods in 2020. The filing was dated July 22, 2021.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $5.324 billion | $4.042 billion | $10.682 billion | $8.367 billion |
| Gross margin | $1.090 billion; 20.5% | $625 million; 15.5% | $2.238 billion; 21.0% | $1.328 billion; 15.9% |
| Operating profit | $683 million | $71 million | $1.301 billion | $334 million |
| Net earnings available to Whirlpool | $581 million | $30 million | $1.014 billion | $184 million |
| Diluted EPS | $9.15 | $0.47 | $15.96 | $2.93 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $646 million | $(745) million |
| Free cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $769 million | $(873) million |
- Q2 net earnings margin was 10.9%, compared with 0.7% in the prior-year quarter. Six-month net earnings margin was 9.5%, compared with 2.2%.
- Q2 ongoing EBIT was $607 million, or an 11.4% margin, compared with $204 million and 5.0% in Q2 2020. Ongoing diluted EPS was $6.64 versus $2.07.
- SG&A increased to $509 million in Q2 and $1.002 billion for the six months, primarily from higher employee compensation accruals and marketing investment, but declined as a percentage of sales to 9.6% and 9.4%, respectively.
- Cash and cash equivalents were $2.968 billion at June 30, 2021. Total debt consisted primarily of $5.001 billion of long-term debt and $298 million of current maturities, plus $10 million of notes payable.
- Whirlpool had approximately $3.7 billion of committed credit capacity, including a $3.5 billion revolving facility, with no borrowings outstanding under the committed facilities. The company was in compliance with its debt-to-capitalization and interest-coverage covenants.
- Inventories increased to $2.652 billion from $2.301 billion at December 31, 2020, while accounts payable were $4.874 billion.
Material changes versus the prior comparable period
- Sales increased 31.7% in Q2 and 27.7% for the first six months. Excluding foreign currency, sales increased 28.3% and 26.2%, respectively, driven by higher volume and favorable price/mix.
- Gross margin expanded substantially despite raw-material inflation and higher marketing spending. Management attributed the improvement primarily to price/mix and volume.
- All regions reported higher EBIT and improved EBIT margins. Q2 margin changes were North America to 18.3% from 12.4%, EMEA to 2.5% from negative 7.9%, Latin America to 9.7% from 2.5%, and Asia to 1.7% from negative 6.6%.
- Operating cash flow improved from an outflow of $745 million to an inflow of $646 million for the six months, reflecting higher earnings, reduced promotional spending and improved working capital. Inventory growth partially offset the improvement.
- Restructuring costs declined to $8 million in Q2 and $28 million year to date, compared with $118 million and $123 million in the prior-year periods.
- Whirlpool changed U.S. inventory accounting from LIFO to FIFO effective January 1, 2021, with prior periods retrospectively adjusted.
- Whirlpool China was deconsolidated following a partial tender offer completed May 6, 2021. Whirlpool received approximately $193 million and retained an approximately 20% equity interest valued at $214 million. The transaction generated a reported $284 million gain before the $164 million loss on the Turkey divestiture and other effects, resulting in a net $120 million gain on sale and disposal of businesses in the income statement.
- The Turkish subsidiary was sold on June 30, 2021 for approximately $93 million and generated a $164 million disposal loss, including $124 million of cumulative foreign-currency translation adjustments.
- The quarterly dividend increased 12% to $1.40 per share. Whirlpool repurchased approximately $200 million of common stock during the first six months and had approximately $2.3 billion remaining under authorized repurchase programs.
Guidance, outlook, commentary and risks
- Management projected approximately $26.95 of 2021 diluted EPS, approximately $1.95 billion of operating cash flow and approximately $1.70 billion of free cash flow. The outlook includes approximately $600 million of capital expenditures and approximately $225 million of restructuring cash outlays.
- Expected 2021 industry demand growth was North America 10% or more, EMEA 2% to 4%, Latin America 2% to 4%, and Asia 6% to 8%.
- Management stated that sustained consumer demand, price/mix actions and productivity were offsetting raw-material inflation and expressed confidence in achieving long-term financial goals.
- COVID-19 continued to create uncertainty through potential demand disruption, manufacturing interruptions and supply-chain constraints. The company also identified a global semiconductor shortage, raw-material inflation and transportation or supplier disruptions as significant risks.
- Whirlpool’s EMEA reporting unit and the Indesit, Hotpoint, Maytag and JennAir trademarks remained at risk of future impairment. No impairment-triggering events were identified in Q2.
- Material contingencies include Brazilian tax assessments of approximately $398 million related to BEFIEX credits, approximately $52 million related to IPI tax matters, and approximately $61 million related to PIS/COFINS inputs. Whirlpool had not accrued amounts for these matters and is defending them.
- Other risks include the Grenfell Tower litigation, French competition investigations, product-liability and washing-machine class actions, product recalls, trade-customer insolvency, foreign-exchange exposure and potential changes to LIBOR-related contracts.
- The company had approximately $375 million outstanding under bank guarantees, letters of credit and surety bonds, primarily associated with Brazilian tax matters and other obligations.
Investor verification checklist
- Verify the sustainability of the sharp margin and EPS improvement after excluding the net divestiture gain and other unusual items.
- Reconcile the $284 million Whirlpool China gain, $164 million Turkey loss and $120 million net income-statement gain.
- Monitor raw-material, semiconductor and supply-chain pressures, particularly their effect on price realization and production volumes.
- Assess inventory growth and working-capital conversion relative to the company’s operating-cash-flow outlook.
- Review impairment sensitivity for EMEA goodwill and the Indesit, Hotpoint, Maytag and JennAir trademarks.
- Track Brazilian tax assessments, product-liability matters, recalls and other legal contingencies that could produce material future charges.
- Compare actual 2021 results with the approximately $26.95 EPS, $1.95 billion operating-cash-flow and $1.70 billion free-cash-flow outlook.