The speaker, Scott Cartwright, welcomes listeners to Whirlpool Corporation's second quarter 2024 earnings call. He introduces Marc Bitzer, the Chairman and CEO, and Jim Peters, the CFO. The call will include forward-looking statements and non-GAAP measures, and a reconciliation of these measures can be found on the company's website. Participants are reminded to ask no more than two questions during the Q&A portion. Marc Bitzer then discusses the company's strong global margin expansion in the second quarter and their goal to continue this expansion in the future.

MDA North America saw sequential margin expansion due to pricing actions and strong sell-through trends. The company remains confident in its ability to maintain market share for the full year. The SDA global and international MDA businesses also performed well, with strong top line growth and margin expansion. MDA Latin America and MDA Asia continue to gain share in key countries and have long term growth potential. The company successfully completed its organizational simplification and is on track to achieve its cost takeout guide for the year. Full year guidance remains flat with new product launches, strong replacement demand, and international strength offsetting challenges in the U.S. macro environment.

The company is revising their ongoing EBIT margin and expects continued pressure on price mix due to a soft housing market. However, they anticipate sequential margin expansion in Q4 and expect to deliver $12 ongoing earnings per share this year. They remain confident in their strategy and the long-term fundamentals of their business, and are well positioned to benefit from a housing rebound. In the second quarter, organic net sales increased by over 1%, with growth in international businesses offsetting a decline in North America. The company delivered solid earnings per share and expects continued margin expansion in the second half of the year.

In the second quarter, the company made significant progress in managing their working capital and inventory, resulting in $275 million in cash generation. They are confident in their ability to improve free cash flow in the second half of the year and expect to deliver $500 million for the full year. The negative impact on free cash flow from non-recurring expenses related to a transaction in Europe will no longer affect their results in 2025. This allows them to continue returning cash to shareholders through dividends. In the second quarter, price mix had a negative impact on margin, but they expect it to improve in the second half of the year due to pricing actions and a more normalized promotion environment. Cost-cutting measures led to margin expansion, while raw materials did not have a significant impact. The company continues to invest in marketing and technology, including a new product launch. Foreign currency fluctuations also had a negative impact on margin.

In the fifth paragraph, the speaker discusses the results of the second quarter for MDA North America, including a 6% decrease in net sales due to unfavorable price mix. However, the company's pricing and cost takeout actions have led to a 6.3% EBIT margin for the quarter and are expected to drive further margin expansion in the second half of 2024. The speaker also provides an update on the company's pricing and cost actions, including a 5% increase in promotional pricing programs, which have already led to a 70 basis points increase in margin in the second quarter.

Despite facing challenges with high inflation and slower cost savings realization, the company is on track to deliver $300-400 million in cost savings by 2024. The North America MDA portion accounts for 60% of these savings, and the company expects to see the full margin benefit from organizational simplification in the third quarter. The MDA Latin America business saw strong net sales growth and a solid EBIT margin, while the MDA Asia business had significant net sales growth and margin expansion. The SDA global business also saw net sales growth and a solid EBIT margin, driven by new product launches and direct-to-consumer growth.

The SDA business is expected to perform well in the second half of the year, with about two-thirds of its demand and profitability occurring during the selling season. The company has revised its full year guidance for net sales, ongoing earnings per share, and free cash flow. The ongoing EBIT margin is expected to be 6%, impacted by low consumer sentiment and suppressed home sales in North America. However, the company's strong operational execution and cost takeout actions are expected to result in a Q4 exit EBIT margin of 7.5%. The updated full year EBIT margin guidance takes into account factors such as price mix, net cost takeout, and adjusted effective tax rate.

The paragraph discusses the expected impact of currency fluctuations on the company's earnings for the year, as well as updated expectations for each of their segments. The total industry is expected to be flat, with North America down 2%, Latin America up 5-7%, and Asia unchanged. The company has adjusted their EBIT margin to reflect weak demand in the U.S. and Europe, but expects strong margins in Latin America and Asia. The expected free cash flow has been updated to reflect these changes.

In the second quarter, the company has made progress on their working capital and expects to further reduce inventories. They also updated their restructuring impact and expect to have free cash flow of $500 million for the year. The company has completed actions to strengthen their balance sheet and is well positioned to pay dividends and continue debt reduction. The company is on track to deliver their 2024 capital allocation priorities. The company has seen margin expansion globally and in North America due to their pricing actions.

Despite a soft macro environment, the company is performing well and has addressed over $2.5 billion in cost inflation. They have also taken out $500 million in fixed costs and expect to achieve $300-400 million in cost savings this year. The company is well positioned for future growth and margin expansion in their North America business, as well as strong demand for replacement appliances. Their SDA and international businesses are also performing well and expected to continue growing. The company is also generating strong cash flow and expects to meet their $500 million free cash flow target for the year.

The company is confident in their strategy and returning cash to shareholders through dividends. They have a long track record of shareholder-friendly capital allocation. They are focused on delivering value for shareholders in both the short and long term. The operator then opens the floor for questions, and the first question is about the North America MDA segment's margin. The company had previously expected a 10% or 11% margin exit rate in the fourth quarter, but due to delays in the housing recovery, they are now expecting a 9% exit margin. The delay in the housing recovery is the main factor in reaching the 10% or 11% margin, and the company is waiting for the housing market to improve in order to achieve this goal.

The company is taking aggressive cost actions and increasing promotion prices, but the housing market needs to recover for double-digit run rates. The mix of products affected North American margins more than expected, and the company is in the process of raising prices which could impact mix. The company originally expected mix to have a positive benefit in the back half, but the deep promotional discounts in the second half of 2023 had a larger impact than expected. The company's promotion price program changes will fully come into effect in June.

The speaker discusses the two dynamics in the marketplace, one being the strong replacement market driven by higher appliance usage and the other being the weak discretionary demand. They mention that the discretionary side is weaker than the overall industry numbers and that planned kitchen designs offer bigger mix opportunities. The speaker also mentions a competitor who has posted better trends and discusses the promotional activity in the market.

Marc Bitzer, CEO of Whirlpool, responds to the industry data and their promotional price program changes. He mentions that there has been more noise than usual in the reported industry data, but they are confident in their year-to-date volume numbers. He also discusses the impact of their promotional program changes on their market share and mentions upcoming product launches in Q3 and Q4. When asked about their competitors, he states that they focus on what is best for their company and continue to prioritize margin expansion. Mike Dahl, an analyst, asks about the margin bridge and Bitzer explains that the price actions will have a positive impact on their margins in the third quarter as well.

In the paragraph, an analyst asks for clarification on the factors driving the company's 9% exit rate. The company's CFO explains that the main drivers are the partial implementation of pricing actions and cost cuts, with approximately 60% of the cost benefits falling to the North America bottom line. The CEO adds that the seasonality of the company's small domestic appliance business, which is heavily skewed towards the back half of the year, also contributes to the margin walk. Another analyst then asks a question, and the paragraph ends.

The speaker is responding to a question about the promotional price increase and its impact on North America. They mention that North America was heavily affected by negative pricing in the past, but they have seen a positive turnaround in late May and June. The speaker also states that they are on track to meet their net impact goal and will remain disciplined in their approach.

The speaker discusses the cash generation of the company's international businesses, specifically in Asia and Latin America. These markets have shown strong margin performance and are positive cash generators, unlike the EMEA business which required restructuring. The growth in these markets has led to higher margins and cash generation. The businesses generate enough cash to support their own investments and do not require significant restructuring. The speaker suggests that the easiest way to estimate their free cash flow is to take their EBIT and tax-affect it. There may be some seasonality in their working capital, but no other major investments are needed.

Marc Bitzer is responding to a question about the company's deleveraging plans and future financial goals. He mentions that in 2024, they plan to have a good balance between returning cash to shareholders and paying down debt, and they expect a similar picture in 2025. The company also plans to achieve 9% margins by 2026, with the Latin America and Asia businesses on track for margin expansion. The small domestic appliance business is focused on growth.

The company is currently operating at a healthy level of 15.5% to 16% revenue growth and expects this to continue with new product introductions. The SDA business is also contributing to overall margin growth. However, the focus for the next few years will be on improving margins in North America through pricing and cost-cutting measures. The company also plans to continue simplifying their business to reduce costs over the next few years.

The speaker is asked if there is a possibility of Whirlpool selling its core six white goods business in North America, Latin America, and Asia and focusing on small domestic and commercial appliances. The speaker does not comment on market rumors but mentions the successful portfolio transformation of the company and its position as a leader in all its markets. They also acknowledge the connection and synergies between the different businesses.

The speaker discusses the strong connection between KitchenAid SDA and KitchenAid majors business, leading to a strong core business with growth opportunities. The mix in the North American business has shifted towards replacement purchases, resulting in lower sales of suites and super premium products. There has been no change in raw materials costs in the quarter, but the company is working to return to pre-COVID levels.

The speaker explains that there has not been a significant change in raw material costs compared to previous assumptions. The main raw material, steel, is purchased through long-term contracts and there has been some positive movement in cold rolled steel prices. Other materials such as oil and plastics have remained stable. Overall, there is no significant tailwind from raw materials for the company. The speaker also clarifies the reasons behind the reduction in North American margin guidance for the year.

The speaker explains that the main reason for the change in guidance is the delay in the housing recovery, which was originally expected to happen in 2024. This has led to a decrease in existing home sales and a negative impact on the overall appliance industry, resulting in a more negative mix and subsequent effects.

The second half of the year saw a significant improvement in margins in North America, with 80% of the change being attributed to pricing corrections made in April. While the global industry outlook has been revised downwards, the company is still able to maintain its margin outlook of 15.5% due to strong execution and sales growth, particularly in their KitchenAid brand.

The speaker discusses the small domestic appliance (SDA) industry and its relevance to their SDA business. They mention the wide range of products in the market and how their business is more disconnected from broader industry trends. They believe their strong brand, coupled with meaningful innovation and quality, allows them to sell products at higher prices. Despite increased marketing investments, they have seen margin expansion and have no concerns about their margins. The next question comes from Eric Bosshard regarding housekeeping matters.

The speaker discusses the decline in North American revenue in the first half of the year, attributing it to pricing carryover and a small unit decline. They expect the second half to see positive growth due to price increases and stable unit trends. The company's strategy is to hold their market share for the year, with a focus on margin rather than gaining share. They express confidence in their ability to maintain their market share.

The company invested heavily in promotional price changes to boost sales in the replacement market, but the returns on these investments are lower than in previous years. The company expects some short-term volatility in market share, but is confident in its strong product pipeline and stable market share. The builder business is expected to have a positive impact on market share once the housing market recovers. The caller asks about the margin difference between the replacement and discretionary businesses and the current mix of discretionary business, which is currently pressuring margins.

James Peters discusses the shift in the company's business towards replacement products and the impact on margins. Replacement products make up over 60% of the business, leading to a decrease in discretionary products. The company's portfolio includes value, premium, and super premium brands, with margins being lowest in refrigeration and highest in cooking and dish products. In a down discretionary environment, there is a shift towards lower margin brands.

The speaker discusses the impact of consumer behavior on product categories and margins in the home appliance industry. They also mention the success of debt refinancing and managing cash flow and debt payments in the coming year.

The speaker expresses confidence in the company's ability to pay down and refinance debt in the coming year. They prioritize reducing debt and returning dividends over share buybacks, and believe that the current negative market cycle in North America will eventually turn. The company remains committed to pricing actions, cost reduction, and margin expansion, and is optimistic about their future success.

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