The speaker welcomes listeners to Whirlpool Corporation's Fourth Quarter 2023 Earnings Call and reminds them that the call is being recorded. He introduces the CEO and CFO and mentions that their remarks will be accompanied by a presentation available on the company's website. He also mentions that forward-looking statements will be made and that the company's actual results may differ due to various factors. Non-GAAP measures will be used and listeners are directed to the company's website for more information. Following prepared remarks, the call will be opened for analyst questions. The CEO then reflects on the past year and mentions the company's achievements.

In 2023, the company gained market share in North America and reduced their net cost base. However, they fell short of their own expectations due to a competitive promotional environment and slow inventory reduction. The housing market also had a negative impact on sales, but the company remains optimistic about the long-term housing cycle.

The demand and supply of new homes and appliances will rebalance gradually in the next six to nine months. The existing home sales market will need lower mortgage rates to improve. The company plans to focus on cost discipline and margin expansion in 2024, with $300 million to $400 million in cost savings and a refocused portfolio. The EMEA transaction is expected to close in April, and the company will now report on its KitchenAid small domestic appliance business in addition to its major domestic appliance business. The company is confident that these actions will lead to continued shareholder value creation in 2024.

In the fourth quarter, the company saw 3% revenue growth and over 1 point of share gains in North America, along with reduced costs of $350 million. However, working capital conversion and free cash flow were impacted by delayed shipments and elevated trade customer inventories. The company also delivered ongoing earnings per share of $3.85, supported by tax benefits. In the Europe, Middle East and Africa region, revenue was down 3% due to weak consumer sentiment, but strong cost reduction efforts and held for sale accounting benefits resulted in 400 basis points of margin expansion.

Whirlpool expects the Europe transaction to be completed by April 2024 and will provide more information on its impact on 2024 guidance and free cash flows. In Latin America, strong industry demand and share gains in Brazil led to a 13% increase in net sales, while in Asia, net sales grew by 9% due to share gains and improving industry. Whirlpool plans to sell up to 24% of its shares in Whirlpool India while retaining a majority interest. The company also provided a reset baseline for 2023 results, excluding the Europe business, to create a like-for-like comparison for 2024. On this basis, 2023 net sales were $16.9 billion with an ongoing EBIT margin of 6.8%.

In 2024, the company expects flat net sales with a $700 million contribution from the EMEA major domestic appliance business in Q1. The EBIT margin is expected to be flat on a like-for-like basis and free cash flow is expected to increase by 50% to 75% due to improved earnings and working capital reduction. The ongoing earnings per share for the full year are projected to be $13 to $15, with an adjusted effective tax rate of 0%. The drivers of the 6.8% ongoing EBIT margin guidance include a negative impact of 150 basis points to 175 basis points from price/mix and approximately 175 basis points of net cost margin benefit from cost takeout actions. The company also plans to continue investing in new product introductions, which will have a 25 basis point impact on margins. The portfolio transformation is expected to provide a 75 basis point margin improvement as the margin dilutive European major domestic appliance business is contributed to a newly formed company. The company also highlights the significant cost takeout opportunity due to unprecedented cost inflation in 2021 and 2022.

In 2023, the company was able to reduce costs by $800 million and plans to further reduce costs by $300 million to $400 million this year. They also expect to see additional cost savings in 2024 due to ongoing productivity initiatives and portfolio transformation. The company has updated its segment reporting structure, separating its KitchenAid small domestic appliance business as its own segment. This business has a strong brand and high margins, and the regional major domestic appliance businesses will see a slight decrease in margins due to this change. The company has provided recast quarterly results to reflect this new segment.

The article states that the global MDA industry is expected to be flat to up 2% in 2024, with similar trends in the US as seen in the second half of 2023. Replacement demand and consumer discretionary demand will impact industry volumes, while India is expected to have the fastest growth rate. The SDA Global industry is expected to see growth of 2% to 4%, with KitchenAid's presence in the premium segment and not all categories. MDA Europe is expected to see negative demand due to consumer sentiment. The article also provides margin expectations for each region, with the US expected to have 9% margins for the full year and sequential margin expansion each quarter. MDA Latin America and MDA Asia are expected to see margin expansion, while SDA Global is expected to have attractive margins of 15.5%. MDA Europe is expected to have 1.5% margins in the first quarter. Overall, the total EBIT margin is expected to be 6.8%. The article concludes by stating that replacement demand will continue to drive industry growth in the US in 2024.

The increase in appliance usage over the past four years has led to a higher demand for replacements, with Whirlpool positioned to benefit from new construction demand in 2024. However, the first half of 2024 may see some challenges due to soft discretionary demand and higher retail inventory levels. Promotional activity is expected to remain high, creating a margin headwind, but cost actions from 2023 will benefit the first half of 2024. The demand and earning seasonality of the SDA Global business is different from the major domestic appliance business, with most of its demand and profitability in the second half of the year. Overall, 35% to 40% of Whirlpool's earnings are expected to be delivered in the first half of 2024.

In this paragraph, the speaker discusses the drivers of their company's free cash flow guidance for the year. They expect improved cash earnings, capital expenditures for product launches and organic growth, improved working capital conversion, and restructuring expenses. They anticipate a free cash flow of $550 million to $650 million, which will be used for their 2024 capital allocation priorities, including dividends, maintaining their credit rating, reducing debt, and limited share buybacks.

The company is committed to funding innovation and growth through capital expenditures and research and development. They plan to reduce their debt by at least $1 billion by the end of the year and aim to further reduce their net debt leverage to 2 times by 2026. The Europe transaction is expected to close by April and will result in significant improvements to the company's cost structure and increase their structural free cash flows by $200 million to $300 million in 2025.

The speaker discusses the company's capital allocation priorities, including dividends and debt reduction, and highlights their strong cash position and expected cash generation. They invite investors to attend their upcoming Investor Day and discuss the transformation of their portfolio. The speaker then opens the floor for questions, with the first being about the company's raw material assumption. They clarify that their guidance assumes a neutral impact from raw materials, despite recent increases in steel prices, and mention potential offsets to these costs.

The speaker explains that the company's main raw material purchases are steel and resins. They have annual contracts for steel and quarterly contracts for resins, which provide a high degree of certainty for raw material assumptions. The company is currently protected by these contracts and has a reasonable assumption for the full year.

In response to a question about the North America margin, Marc Bitzer, the CEO, explains that in the fourth quarter of 2023, the North America margin was around 8%, which is 1 point below their desired level. They expect to exit 2024 with a margin of around 10%. In terms of promotions and price/mix, they expect to see negative impact in the first half of 2024 and flat in the second half. They also plan to continue gaining market share, despite potential increases in promotions.

The speaker is addressing the challenges and opportunities faced in North America during Q4 of 2023. They mention that the ROI on some promotions did not meet expectations due to limited discretionary demand. Looking ahead to 2024, their focus is on margin expansion and they feel good about their share gains. They also mention that they will be focused on margin expansion for the foreseeable future and do not give any forward-looking comments on pricing. The speaker is then asked about SDA for 2024 and provides more details on the overall size.

The speaker is responding to a question about the margin and profit cadence of the KitchenAid segment. They mention that they will provide more information at an upcoming Investor Day and that the seasonality is similar to what was described. They also mention that the business has historically had a 15.5% margin and has been around $1 billion, and that they are excited about the growth and margins within the segment.

In this paragraph, Susan Maklari asks Marc Bitzer about the balance between cost reduction and growth initiatives in the company. Jim Peters explains that the $300-400 million in cost savings will come from areas that do not affect the company's ability to grow and innovate, such as supply chain efficiency and organizational simplification. Investments in technology and engineering will remain consistent, and the cost cutting measures will not impact the company's ability to deliver growth and innovation.

The company is committed to investing in new products and brand investments, despite facing pressure. They have allocated more funds for these investments and plan to continue doing so in the future. They also plan to simplify their business structure and reduce costs in order to create funds for these investments. The company also expects to reduce working capital by $100 million in the second and third quarter of the year.

The company expects to see a decrease in shipments and inventories in the first half of the year, with a potential increase in sales later on. They also experienced a 1.1 point increase in market share in North America across multiple product categories, aided by new product introductions and growth in the National Builder business. There were no specific price points identified as contributing to the share gains.

The speaker discusses the current market conditions, which are heavily impacted by replacement demand, resulting in a lower margin profile. They also clarify that the $300 million to $400 million cost reductions are a net number, taking into account inflation in non-raw material variable costs and fixed costs. In response to a question about inventory, the speaker mentions that there is no specific category with outsized inventory growth that needs to be worked down.

Jim Peters and Marc Bitzer discuss the inventory build for Whirlpool and the industry as a whole. They mention that there is not a significant difference in inventory levels among categories, and it is not just a Whirlpool-specific issue. They also note that the retail environment has higher levels of inventory than expected, which is affecting the industry as a whole. This is due to lower-than-expected discretionary demand, leading to unattractive returns on investment for market promotions and higher retailer inventories.

The speaker mentions that the industry shipments in Q1 and Q2 may be impacted by a broader industry issue, but it is not specific to Whirlpool. They expect to work through the inventory overhang. The second question is about the free cash flow guide and the speaker explains that the cash earnings and operating items for fiscal 2024 are expected to be higher due to other operating accounts on the balance sheet, such as accruals for promotions and employee compensation, which were affected by the strong year in 2022. This negatively affects cash.

The paragraph discusses the impact of a negative year on operating cash flow and the biggest driver within that bucket. It also mentions non-cash items that affect it throughout the year. The speaker also addresses the question about the disruptions in the Red Sea and global container costs, stating that the impact is less in the Americas and may start to impact Europe. However, container costs have been stable for the company due to their production base in North America.

The speaker is asked about their sourcing exposure to China and the potential impact of higher tariffs on their business. They state that their exposure is relatively small, with most of their finished products being sourced from the Americas and some components from China and other Asian countries. They also mention that their focus on producing and sourcing in the Americas has helped reduce their exposure to China. The speaker is then asked about the $200 million to $300 million cash usage in Europe mentioned in a slide, and they clarify that it is related to the company's free cash flow and cash earnings. Finally, the speaker addresses their margin progress and affirms their long-term margin goal of 11% to 12%.

Jim Peters and Marc Bitzer discuss the expected impact on cash flow and margins in EMEA due to the upcoming transaction. They anticipate a negative cash flow of $200-300 million for the year, but this will be offset by the unwinding of working capital financing activities. They also mention their upcoming Investor Day where they will provide an update on their mid and long-term value-creation goals.

The speaker states that the company is confident in their ability to achieve pre-COVID margins, especially in North America where they have historically operated at a 12% or higher operating margin. They acknowledge the negative impact of the current macro cycle on their industry, but are confident in their ability to navigate through it. They also express confidence in their market share and their ability to reduce costs and strengthen their balance sheet. The speaker concludes by stating that the company is well-prepared to handle the challenges of the current macro cycle and expects to have a strong business in the latter half of 2024.

The speaker reminds listeners of the upcoming conference call on February 27th, where they will provide more information about their North America and KitchenAid SDA businesses, as well as discuss balance sheet and cash flow. The call will conclude after this announcement.

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