The speaker welcomes listeners to Whirlpool Corporation's Third Quarter 2023 Earnings Release Call and introduces the participants. They remind listeners of the forward-looking statements and non-GAAP measures that will be discussed and direct them to the company's website for more information. The call will include a presentation and will be followed by a question and answer session. The CEO, Marc Bitzer, then begins his remarks.

The company has received approval from the European Commission for their transaction with Arcelik. This will bring significant value and is expected to be completed by April next year. In Q3, the company showed operational progress and top-line growth in a challenging market. They have improved their supply chain, reduced costs, and launched new products, resulting in market share gains. The market demand in the Americas is mainly driven by increased appliance usage at home, but discretionary purchases have been lower due to higher mortgage rates and low consumer confidence.

In the third quarter, the low discretionary demand led to a more intense promotional environment, particularly in North America. This was unexpected as it was expected to occur later. The fourth quarter is expected to have a similar environment and the company has updated its full year guidance. They expect to achieve their original guidance of approximately $16 but with a lower free cash flow of $500 million. The third quarter saw a 3% growth in top line, driven by over point of share gains in North America, strong replacement demand, and the InSinkErator acquisition. The company also achieved $300 million in cost takeout and a 100 basis point margin expansion. However, price mix had a negative impact on margins due to the normalization of promotions.

The promotional environment has returned to normal levels faster than expected, with negative impact on mix due to supply chain disruptions. Cost actions have resulted in sequential and year-over-year benefits, with increased investments in marketing and technology. Operational priorities are on track, with resilient supply chain delivering share gains and addressing supply challenges. Over $800 million in cost reductions expected in 2023, with sustained progress into 2024 due to various factors. Regional results for North America business will be reviewed by Jim.

The North America region has seen mid-single-digit revenue growth, driven by new product introductions and strong demand from both replacement and builder markets. The addition of InSinkErator and cost-saving measures have also contributed to double-digit margins of 10%. With a focus on product innovation, a strong portfolio of brands, and a direct-to-consumer business that has been growing at a compounded rate of 20%, the region is well positioned to continue growing and expanding margins. Recent examples of product leadership, such as top load laundry innovation and premium KitchenAid appliances, demonstrate the company's commitment to delivering the best products to consumers.

The company's commitment to innovation and new product introductions is expected to positively impact their market position in North America. The Europe, Middle East, and Africa region saw a decline in revenue due to weak consumer sentiment, while the Latin America region experienced strong share gains and industry recovery. The Asia region also saw a decline in revenue but delivered strong EBIT margins. The company has revised their full year 2023 guidance for ongoing earnings per share and free cash flow, but still expects to deliver significant cost takeout.

The company has adjusted its expectations for the fourth quarter and 2023 due to normalized promotions and a depressed discretionary demand. They expect to deliver lower EBIT margins and have updated their expectations for the adjusted effective tax rate. The European legal entity restructuring may impact their guidance. They also expect to repay debt associated with an acquisition and have provided regional expectations for 2023. The global industry is expected to be flat, with North America and Latin America showing growth and EMEA and Asia experiencing declines. Margins in North America are expected to be solid.

Whirlpool has experienced weakness in demand in EMEA and has adjusted their EBIT margins accordingly. They have been working on transforming their portfolio into a higher growth, higher margin business and have made significant progress in the last five years through divestitures and acquisitions. They recently announced a strategic review of their Europe business and have received regulatory approval from the European Commission, Germany, Austria, and China. However, the UK's competition and market authority is conducting a phase two review. Whirlpool believes that the newly formed entity with Arcelik will benefit consumers with innovative, sustainable products and services.

The company is working diligently to close the transaction and is confident it will be completed by April 2024. They will continue to focus on delivering the best products and are excited about the potential value creation. The transaction will result in the company owning a 25% stake in a European appliance company and a 40-year licensing agreement for the Whirlpool brand. This is expected to bring in significant cash flows and improve the company's financial metrics. The company also plans to restructure its financial reporting segments in anticipation of the transaction closing. The third quarter performance was solid, with improvements in margin, supply chain, and cost reduction. The company is on track to achieve over $800 million in cost takeout actions in 2023 and expects continued growth and margin expansion in 2024.

The company is well positioned to deliver long-term shareholder value due to resilient replacement and builder demand, their leading position as the top choice for U.S. builders, and continued product innovation. The company's portfolio transformation is expected to generate significant value creation, with the Europe transaction alone resulting in margin expansion and increased free cash flow. The company is confident in the trajectory of their business and expects their portfolio transformation to lead to higher growth and margins. The speaker apologizes for technical difficulties and addresses a question about demand, share gains, mix, and promotion. They mention that North America showed solid volume growth in Q3 and expects a 2% growth for the full year. Demand can be simplified into two components: replacement and discretionary.

The replacement side of the business has been strong due to increased appliance usage at home. This has led to a higher demand for replacement products, which typically have a lower mix compared to discretionary demand. The discretionary demand side, which is driven by consumer confidence and home sales, has been soft throughout the year. This has resulted in a lower promotional environment as many players in the industry are not focusing on this segment. However, the promotional environment is now normalizing.

The company expects to return to pre-COVID levels of demand, but with a stabilization going forward. This is due to a drop in discretionary demand and a more intense promotion environment. The company is experienced in operating in this environment and has effective strategies for maximizing promotion effectiveness. In terms of margins, the company is on track to achieve its goal of an 800 million cost takeout, with less than half coming from raw materials and the rest from cost-cutting measures.

The company expects margin expansion in the North American segment next year due to unit growth, raw material tailwinds, and cost takeout rollover. They did not provide a specific number but believe it will be in line with their expectations and positive trends.

Marc Bitzer discusses the company's margins and expectations for the future. They have achieved double-digit margins and picked up share, but are still working towards reaching 11%. In 2024, they hope to reach a target corridor of 12% or higher, with the main drivers being sustained cost takeout and re-leveraging the business from a volume perspective. They are also working on finding additional cost opportunities for 2024.

The company's volume is still below pre-COVID levels, but they expect growth from market share gains and product innovation. They anticipate a low single digit growth in the market and are confident in sustained momentum. The business will pick up in the future, but there may be a delay due to the time it takes for orders to turn into shipments. The company is working towards reaching healthy margins in North America. There has been a roller coaster of retail demand during COVID, but things are now balanced.

In Q3, there was restocking of retailers which led to industry growth ahead of consumer sell-out. The company believes that the right number of consumer sell-out is in line with their full-year guidance of low-single-digit growth. They participate in promotions only if they add value, and they have a good understanding of price elasticity and sensitivity in different product categories and time periods.

The company has a good understanding of the difference between pure pull forward and incremental growth, and uses this knowledge to assess the cost and potential benefits of promotions. The $300 million reduction in free cash flow guidance is due to lower earnings and slightly higher working capital, but the company does not expect a significant change in working capital for next year.

The speaker is discussing the company's expected cash flow and free cash flow for 2024 and beyond, mentioning the impact of the EMEA transaction and the potential for increased margins. They also touch on the importance of working capital and mention that receivables may have a timing impact on cash flow in the coming year. A question is asked by Eric Bosshard for clarification.

Jim Peters clarifies that next year will have a positive cost benefit due to progress made on costs this year and the natural seasonality of the business. He also explains that the strategic payback from Europe will not have a significant impact on EPS next year, but will improve overall margins, cash flow, and reduce volatility in the business.

The speaker discusses the cash flow and margins of the company, specifically in the EMEA region. They mention a $250 million benefit and how it will affect free cash flow. The next question from Mike Dahl focuses on margins in North America and how cost tailwinds have accelerated throughout the year. The speaker explains that cost takeouts will continue to drive benefits and the promotional environment has normalized, so it should not be a factor in margin impact next year. They also mention that picking up additional share and volume will have a positive impact on margins.

The company is experiencing leverage and benefits within their factories and logistics network, and each unit added adds an incremental amount of margin. The company has sustained double-digit margins and expects to continue this trend in 2022. They are seeing progress on the cost side, but it will not be fully visible until the first two months of next year due to standard cost accounting. The company needs a combination of cost, volume, and product introductions to see success.

The speaker discusses the positive product launches and the importance of all three components (volume, price, and mix) in their success. They also address a significant tax benefit that will have a positive impact on their ongoing EPS and cash flow in the coming years, especially after the disposal of EMEA. Their tax rate is expected to be below 15% next year and even lower in 2024, resulting in ongoing cash benefits.

The company is not giving a full guide on next year's tax rate due to uncertainty about the EMEA transaction. The tax rate may decrease in the distant future but will continue to benefit from the transaction in the next few years. The company plans to pay down $500 million of debt in the fourth quarter and use cash on hand to fund the dividend. They will continue to focus on reducing debt and leverage. The company previously held a large cash balance on their balance sheet.

The company's decision to keep a high cash balance was made a few years ago in order to take advantage of favorable interest rates. Recently, they have been using some of that cash to pay off more expensive debt. The company's cash balance has historically been over $1 billion, but this is due to their diverse geographic footprint and restrictions on cash usage in certain areas. As they exit one region, their cash balance may decrease but they still expect to have around $1 billion on hand.

The company has experienced cash volatility within the quarter due to the nature of their business, but with the recent acquisition of their European business, they do not expect to hold as much cash in the future. There is no trade-off between gaining market share and maintaining margins, as demonstrated in the previous quarter where both were achieved. The key to achieving both is having a strong product pipeline, as seen with recent product launches. Without a strong product pipeline, it could potentially turn into a zero-sum game.

The company plans to continue investing in product and brands, as seen in their Q3 results. They expect positive trends in raw material and cost savings for 2024, but will not give a specific number until January. The company is satisfied with their Q3 performance and will provide more details on Q4 and 2024 in January. The conference call has ended.

This summary was generated with AI and may contain some inaccuracies.