WHIRLPOOL CORP annual report, FY2019

Whirlpool Corporation 2019 Form 10-K Summary

Business context and reporting period

Whirlpool Corporation manufactures and markets major home appliances through four geographic segments: North America, Europe, Middle East and Africa (EMEA), Latin America, and Asia. The filing covers the fiscal year ended December 31, 2019; fourth-quarter results are included in the annual filing. Whirlpool operated in 13 countries, marketed products globally, and had approximately 77,000 employees.

2019 included the July 1 sale of the Embraco compressor business, the sale of the South Africa business, the exit from Turkish domestic sales operations, and continued EMEA restructuring.

Financial performance and key metrics

Metric20192018
Net sales$20.419 billion$21.037 billion
Organic net sales$20.214 billion; up 1.6%$19.902 billion
Operating profit$1.571 billion$279 million
Operating margin7.7%1.3%
Net earnings available to Whirlpool$1.184 billion$(183) million
Diluted EPS$18.45$(2.72)
Ongoing EPS$16.00Not clearly provided in the filing text
Ongoing EBIT margin6.9%6.3%
Cash from operating activities$1.230 billion$1.229 billion
Free cash flow$912 million$853 million
Capital expenditures$532 million$590 million
Cash and cash equivalents$1.952 billion$1.498 billion
Total debt$4.993 billion$6.027 billion
Long-term debt$4.140 billion$4.046 billion

Gross margin improved to 17.3% from 16.8%, reflecting favorable price/mix, EMEA cost reductions, and a sale-leaseback gain, partly offset by lower volumes, raw-material, tariff and freight inflation, foreign currency, and warranty costs. The current ratio was 0.9, with current liabilities exceeding current assets.

Fourth-quarter 2019 net sales were $5.382 billion, net earnings available to Whirlpool were $288 million, and diluted EPS was $4.52. Fourth-quarter operating profit was $424 million, including material unusual items.

Segment performance

  • North America: Net sales increased 0.9% to $11.477 billion; EBIT margin improved to 12.7% from 11.8%, despite a 4.7% unit-volume decline.
  • EMEA: Net sales declined 5.3% to $4.296 billion; EBIT margin improved to negative 0.7% from negative 2.3%, supported by cost-reduction actions.
  • Latin America: Net sales declined 12.2% to $3.177 billion, primarily because of the Embraco divestiture and currency; organic sales excluding Embraco and currency increased 9.3%.
  • Asia: Net sales declined 4.5% to $1.515 billion; EBIT margin fell to 2.2% from 5.2%, partly due to China brand investments and unfavorable price/mix.

Material changes versus the prior comparable period

  • Reported sales decreased 2.9%, but organic sales increased 1.6% after excluding currency and Embraco.
  • Profitability improved sharply from the 2018 loss, when Whirlpool recorded a $747 million EMEA goodwill and intangible impairment and a $103 million French Competition Authority settlement.
  • 2019 earnings included a $511 million pretax gain on the Embraco sale, approximately $180 million of Brazil indirect-tax credits, an approximately $105 million warranty accrual for EMEA-produced washers, approximately $74 million of EMEA strategic-action losses, and a $111 million pretax sale-leaseback gain.
  • Whirlpool used approximately $1.0 billion of Embraco sale proceeds to repay a term loan. Total debt declined by approximately $1.0 billion year over year.
  • Restructuring charges declined to $188 million from $247 million. Up to $100 million of additional restructuring charges were expected in 2020, primarily for EMEA.
  • The company adopted the new lease standard, recording approximately $858 million of right-of-use assets at adoption and ending 2019 with $921 million of right-of-use assets and $778 million of noncurrent lease liabilities.

Liquidity, debt and capital allocation

Whirlpool had approximately $3.8 billion of committed credit facilities and no borrowings under those facilities at year-end. The principal committed long-term facility provides $3.5 billion of capacity and matures in August 2024. Approximately $559 million of term debt was scheduled to mature within the next twelve months. Year-end cash was elevated by $274 million of commercial paper that was repaid after year-end; most cash was held by foreign subsidiaries.

The company paid $305 million of dividends and repurchased $148 million of common stock in 2019. The quarterly dividend was increased to $1.20 per share, and approximately $652 million remained authorized under the repurchase program at year-end.

Projected contractual cash outflows totaled $8.352 billion, including $6.172 billion of long-term debt obligations, $1.154 billion of operating lease obligations, and $672 million of purchase obligations. Pension and postretirement obligations exceeded plan assets by approximately $0.9 billion.

Guidance, outlook, risks and contingencies

For 2020, management forecast diluted EPS of $14.80 to $15.80, including an estimated $1.56 per-share restructuring expense and a $0.36 per-share tax impact. Expected operating cash flow was $1.3 billion to $1.4 billion and free cash flow was approximately $800 million to $900 million, including up to $200 million of restructuring cash outlays and approximately $550 million of capital expenditures.

Expected 2020 industry demand was North America down 1% to up 1%, EMEA up 1% to 2%, Latin America up 3% to 4%, and Asia down 1% to up 1%. Management emphasized price/mix, cost reduction, innovation, EMEA profitability recovery, and cash generation.

  • Material risks include intense global competition, retailer concentration, e-commerce and direct-to-consumer channel shifts, raw-material and tariff inflation, foreign currency volatility, supply-chain disruption, labor issues, cybersecurity, product liability and recalls, and uncertain consumer demand.
  • Lowe's represented approximately 13% of 2019 consolidated sales and approximately 14% of year-end accounts receivable.
  • Whirlpool recorded $383 million of product warranty reserves at year-end. A UK and Ireland recall of certain EMEA-produced washers began in January 2020; the related 2019 accrual was approximately $105 million.
  • Brazilian tax assessments related to BEFIEX and other matters totaled approximately 2.0 billion Brazilian reais, or approximately $484 million, plus other disputed assessments. The company had not accrued amounts for these matters based on its legal and tax assessments.
  • The company retained potential liabilities associated with antitrust matters of the former Embraco business. The filing states that aggregate costs cannot currently be reasonably estimated and could materially affect a reporting period.
  • Whirlpool disclosed ongoing product litigation, class-action lawsuits, the Grenfell Tower-related matter, the remaining French Competition Authority investigation, Brexit uncertainty, and tariff exposure.
  • EMEA goodwill and certain brand valuations remained sensitive: a 100-basis-point increase in the EMEA discount rate could produce an estimated $180 million impairment, according to the filing’s sensitivity analysis.

Most important facts for investors to verify

  • Reconcile GAAP earnings with ongoing EPS and ongoing EBIT, particularly the Embraco gain, Brazil tax credits, sale-leaseback gain, warranty accrual, and restructuring costs.
  • Confirm the timing and funding plan for the approximately $559 million of debt maturing within twelve months.
  • Monitor whether EMEA achieves the forecast margin recovery and whether additional restructuring costs remain within guidance.
  • Assess the sustainability of reported cash flow after excluding divestiture proceeds and other asset-sale proceeds.
  • Track the washer recall, warranty reserve adequacy, product litigation, Grenfell Tower claims, and retained Embraco liabilities.
  • Review the status and potential financial exposure of Brazilian tax disputes and the April 2020 ICMS-related proceedings.
  • Evaluate customer concentration, especially Lowe's, and the effect of tariffs, commodity inflation, foreign exchange, and China brand-transition investments.