Q4 2019 Earnings Call
Today's call will be recorded.
<unk> opening remarks, and introduction I would like to surgical overseas senior director.
Third relations Brexit foreigners. Please go ahead.
Thank you and welcome to our fourth quarter 2019 conference call. Joining me today, <unk>, That's Oh, Chairman and Chief Executive Officer, and Jim Pizzas, Oh, a chief financial Officer.
Remarks to be truck with a presentation available on the Investor section of mobile website at <unk> Dot com.
Before we begin I remind you that as we cannot this cool we will be making forward looking statements to assist you in understanding wolfie cooperation future expectations.
Actual results could differ materially from these statements due to many factors discussed in our lead says 10 key and other periodic reports.
I wanted to remind you that today's presentation includes non-GAAP measures. We believe these measures that important indicators of all operations as they exclude items that may not be indicative of results from <unk> ongoing business operations.
We also think it'd be adjusted measures will provide you a better baseline for analyzing trends in our ongoing business operations.
Listen I directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP item to the most directly comparable GAAP measures.
At this time, well, it's not disciplines in listen only mode. Following our prepared remarks, the called will be opened on all these questions. As a reminder, upset participants no more than two questions with that I'll turn the call but tomorrow.
Thanks, and good morning, everyone on slide three <unk> fourth quarter 2019 highlights.
We delivered very strong results.
Net sales grew over 1.2 person and ongoing EBIT margin expansion to 7.2% hundred basis points increase.
We demonstrated a strong performance across.
All regions delivered positive EBIT.
North America lets the record EBIT margins of 14.3% despite industry demand softness in the U.S. and Canada.
In our Europe Middle East in Africa region, we continue to realize the full benefit of our strategic actions.
This represents the second consecutive quarter sequentially EBIT improvement in the European region, providing a strong confidence in our ability to drive a return to profitability in 2020 .
Additionally, we delivered strong free cash flow over $900 million positive contributions from all regions.
This result was driven by working capital improvements in capital spend deficiencies.
Lastly, we continue to strengthen our balance sheet made strong progress towards our long term gross debt to EBITDA our target of approximately two.
Turning to slide four I would just goes up 40 highlights.
We delivered record ongoing earnings per share of $16.
Bob or 14 donor 75 cents to $15.50 guidance.
Were very strong ongoing EBIT margin expansion of 60 basis points and free cash flow of over $9 million compared to guidance of approximately $800 million.
We took decisive action in a challenging environment by announcing and successfully executing on our global cost based pricing initiatives driving positive mix through product innovation.
Additionally, we remain disciplined in our approach to cost take outs and continue to optimize our overall value chain on overcoming significant headwind from curved material cost inflation.
Despite significant freedom macroeconomic challenges, we fully funded all business investment needs and return strong levels of cash to shareholders.
Continued share repurchases and increased our dividend for the seventh consecutive year.
These results demonstrate the fundamental strength of our business and provide us confidence we have rights plan in place to deliver on long term goals.
Turning to slide five shows the drivers of fourth quarter and full year margin expansion.
Before for the price mix delivered 100 basis points of margin expansion and realize the benefits of pricing actions the mix benefits from our product launches.
Additionally, we delivered positive net cost take out in the quarter.
River, improving trends in raw materials more than offset continued tariff headwinds in North America, resulting in a favorable impact of 25 basis points.
Margin benefits, partially offset by continued marketing and technology investments.
And be on favorable impact of currency.
Ooh 40 are very strong margin expansion from price mix.
Partially offset by the impact of tariffs increased brand investments in currency.
Overall, we're very pleased to deliver and even side over deliver no margin commitment.
We are confident this positive momentum continued to drive strong result, 2020.
Now I'll turn it over to Jim to review our regional results.
Thanks, Mark and good morning, everyone turning to slide seven I'll review, the fourth quarter results for our North America region.
We delivered stable revenue despite industry softness in the U.S. and Canada, highlighting the agility and underlying strength of our business. Additionally, we delivered record EBIT with margin expansion to 13.3% as strong price mix execution and disciplined cost takeout offset headwinds from fixed cost love.
Bridge and continued cost inflation.
The region drove margin improvement of 150 basis points in the quarter, making it the ninth consecutive quarter of consistent margin expansion.
Turning to slide eight we review the fourth quarter results for our Europe Middle East Africa region.
Excluding business exits unit volumes were approximately flat with growth in Italy, France, and eastern Europe , which was offset by soft Middle East Africa demand. We're pleased to see strong topline exit rates in December across the region, including year over year growth in middle East in Africa.
Momentum from our cost reduction and strategic initiatives delivered positive EBIT with margin expansion of 210 basis points.
Initiatives remain fully on track and we delivered in line with our guidance of approximately 100 million EBITDA benefit on an annual basis with approximately $75 million to be realized in 2019.
This sustained improvement provides us confidence in our ability to return the region to profitability in 2020 .
Now, we turn to slide nine to review the fourth quarter results for our Latin America region.
Unit volumes significantly increased alongside a rebound in Brazil industry demand offsetting continued weakness in Mexico.
Organic net sales, which excludes 2018 embraco sales increased approximately 17% driven by Brazil share gains and very strong direct to consumer sales.
EBIT margins contracted in the quarter as cost productivity benefits and favorable raw material inflation were more than offset by currency devaluation in Brazil and Argentina.
Finally, as a reminder, our fourth quarter 2018 results include the impact of the Embraco compressor business in its consolidated results.
We now turn to the fourth quarter results for Asia region, which are shown on slide 10.
Excluding the impact of currency net sales were approximately flat as strong topline growth in India was offset by negative industry demand in China.
India delivered double digit EBIT and continued share gains, which was offset by brand transmission investments in China.
These investments remain on track with Whirlpool brand share increasing sequentially and year over year.
Now I'd like to turn it back over to Mark to review, our guidance and operational priorities.
Thanks, Jim turning to Slide 12 review our guidance assumption for 2020.
In line with our long term goes we expect to drive organic net sales growth of approximately 3%.
We expect to deliver approximately 7.5% ongoing EBIT margin, an increase of about 60 basis points.
Lastly, our free cash flow guidance is 800 million to $900 million, which includes a net unfavorable impact of 140 million from onetime items.
Turning to slide 13, we show the drivers of approximately seven and have ongoing EBIT margin guides in 2020 .
We expect approximately 25 basis points of improvement related to price mix, as we deliver new and innovative products and services to our customers.
We expect net cost to drive approximately 50 basis points of improvement.
As we realize the benefits of our global standardization and complexity reduction initiative.
Additionally, based on what has been announced to date, we do not expect tariffs to have a year over year impact on 2020 results.
Favorable trends in raw materials are expected to drive approximately 50 basis points of margin expansion.
Further we expect a negative margin impact of approximately 50 basis points as we continue to invest in our digital transformation journey and an unfavorable impact from currency of approximately 25 basis points.
Moving to slide 14, and 15, we want to highlight just a few of our innovative products, which allow us to drive positive price mix doing 2020 .
But first slide shows how we will achieve product leadership in the North America premium top loot laundry segment.
We products will launch throughout the first quarter for this year, replacing our entire premium top loaded onto segment.
These connected capable products have purposeful innovation to meet customer needs such as loading go dispenser, and new pretreat season, and an extra power function.
The second examined on slide 15 highlights our new dishwasher build in our first ever true Global architecture, which is set to launch in North American the Asian first quarter and into later stage in Europe .
By leveraging our architectural globally, we are able to drive significant improvement in part and complexity reduction therefore, driving cost efficiencies you more importantly, this innovative product features a new food size food back with a fully functioning spray arm the largest third wreck available in the market.
We fully expect to see major group and our mass and premium segments. As a result of these innovative consumer relevant features.
Again. These are just a few examples of exciting innovations that we're expecting onto this year that we've continued to drive positive price mix.
Now I'll turn it back to Jim to highlight a few remaining guidance items.
Thanks Mark.
Turning to slide 16, we expect to deliver ongoing earnings per share of $16 to $17 in 2020.
Our ongoing tax rate is expected to be 20% to 25% compared to 15.3% in 2019, resulting in a year over year headwind of approximately $1.55 cents to.
The European tax law change in late 2019, Favourably impacted our effective tax rate. Excluding this benefit our tax rate would have been near the midpoint of our previous guidance.
Additionally, several of our tax reform benefits and strategies from prior years are no longer effective in 2020 further increasing our rate to our current 20% to 25% range.
Secondly, as we mentioned earlier, we expect to drive EBIT margin expansion in all regions totaling approximately 60 basis points, resulting in strong earnings accretion.
Our earnings per share guidance includes a headwind of 60 cents as 2019 EBIT includes approximately $50 million related to Embraco.
Additionally, we expect moderately lower interest expense after the repayment of our 1 billion dollar term loan in 2019.
Lastly, we highlight the carryover benefit from our 2019 share buybacks, but we expect to continue to repurchase shares at a moderate level. We do not provide specific guidance for 2020 and do not reflect that as a driver.
On slide 17, we show our regional guidance for the year.
Starting with industry demand, we maintain our cautious demand outlook for North America, while US housing starts show positive signs of strengthening that has not yet translated into higher appliance demand.
EMEA, we expect a continuation of modest growth while in Latin America, we expect growth of 3% to 4% as improvements in Brazil are offset by continued weakness in Mexico.
Decent industry is expected to be approximately flat as growth in India is offset by continued demand pressure in China.
In total we expect the global appliance industry to be approximately flat for 2020.
Regarding our EBIT guidance, we expect continued margin expansion in North America, driven by focused cost discipline and favorable price mix related to new product introductions.
In EMEA, we fully expect to continue to realize the benefits of our strategic actions to restore EMEA to profitability, resulting in EBIT margin expansion of over 170 basis points.
As a reminder, we executed several strategic actions, including our business exits in the first half 2019 driving benefits primarily in the second half.
In America, we expect to deliver EBIT margins of approximately 6% as demand improvements and accelerating direct to consumer sales in Brazil are upset by demand weakness in Mexico and currency devaluation in Argentina and Brazil.
Lastly, we expect to achieve EBIT margins of 3% to 4% in Asia as strong India operations are partially offset by weak demand expectations in China.
In total we expect to deliver approximately 60 basis points of margin improvement and are confident that our operational priorities and initiatives will deliver continued progress towards our long term goals.
Turning to slide 18, I will discuss the drivers of our 2020 free cash flow.
We expect to deliver approximately $1.7 billion and cash earnings primarily driven by margin expansion offset by the sale of Embraco.
We expect $550 million and capital expenditures as we continue to invest in our business.
Additionally, we expect to deliver approximately $50 million of working capital improvement primarily through inventory reduction initiatives as we fully transitioned key product launches across the globe.
And we expect $200 million of restructuring cash outlays, which includes the reindustrialization of our Naples, Italy manufacturing facility.
Lastly, free cash flow is negatively impacted by approximately $140 million related to several onetime items.
Further details of these items can be found in the appendix of this presentation.
In total we expect to deliver $800 million to $900 million of free cash flow.
Turning to slide 19, we provide an update on our capital allocation priorities for the year.
We remain fully committed to funding the business for growth, while continuing to strengthen our balance sheet and return cash to shareholders.
Consistent with our balanced approach to capital allocation, we repurchased approximately $50 million of shares in the fourth quarter and expect to continue repurchasing shares at moderate levels in 2020.
In line with guidance at Investor Day, our gross debt to EBITDA is on track towards our long term target of approximately two.
Lastly, I'd like to announce that starting in April we will no longer report units sold in our earnings materials, including our 10-K and 10-Q.
As we continue to redefined what product is this will lead to an increase in revenue from products not reported as units such as the kitchenaid smart of and plus baking stone and the upcoming launch of young lease wireless smart thermometer.
Further we continue to invest in our digital transformation journey and unlock long term value creation through incremental revenue from digital products and services such as our young fleet Pro subscription service.
As a result units are becoming less of an indicator of our overall sales performance.
Consequently, we will eliminate units reporting in our earnings materials, including our 10-Q and 10-K now we will end our formal remarks and open it up for questions.
At this time, if you'd like to ask the question Press Star one on your telephone to withdraw your question. Please.
Please hold the compiled the Kenny roster.
Your first question comes from the line of Mike Dahl with RBC capital markets. Please go ahead.
Good morning, Thanks for taking my questions.
Thanks.
Wanted to start out just a couple questions around North American.
Volumes, maybe a follow up about your last comment on.
In the around units, but.
Just in the quarter.
With volumes a bit week it seems like.
On the major appliance side, a little below what they have said and then I think we all we're expecting some rebound and small appliance shipments just given the timing shifts you had indicated last quarter can you talk us through just the inventory dynamics.
Potentially at your trade partners, both and major appliances, and small appliances, and how we should be thinking about what happened in the quarter and maybe how that's progressing into 2020.
Yes.
So Mike it's Marc Bitzer.
So let me comment on Minnaar volume Q4, which as you know in total we reported 3.8% unit decline for North America now keep in mind first of all pure majors business and if you want to take one indication the numbers were minus 1.8 full quarter, Mitch just remind everybody does not encompass.
Our spectrum of what we sell well that's of course, one part of that.
If you look at the pure majors business, we approximately health market share in Q4, so we feel pretty good about where we offer marketshare Ami particular doing promotion period on the upper parts of the business keep in mind cannibalizing. Their capex continues to have a market decline and Canadian market itself them. It has an impact.
Yes, the volume frankly coming into the quarter. We did expect that the trade brings inventories back to normal levels around the end of year and maybe so that trade inventories MSD sides.
On lower than the year before but we feel very good about this in a fruitful kids need as JBT is pretty solid them pretty stable. So these are pretty much of a major components and maybe Jim you want to comment again on the units reporting yes, Mike and then on the units reporting as I mentioned as we look at our business globally.
There are a lot of parts lot of parts of the world where services and other.
Consumables products that aren't normally included in our unit count or increase in increasing part of our sales. So you know we've typically looked at a unit is something that that has the power cord attached to it and a lot more of the stuff that we sell now today, whether it be stand mix or attachments at the license products to be as I mentioned consumables or services just don't.
Fall into there and so we felt it was it was a much less relevant indicator while revenues as a better indicator of how we're doing on a global basis.
Okay. Thanks, and then that was actually going to be my second question. Just is there any any weaken size up the those.
Yeah those components just before you.
Kind of transition to their new reporting just give a sense of what those what those represent today.
Either in aggregate our by major region.
I'd say right now that we don't we don't disclose those specifically by region and all that as we said, it's becoming more part of our our ongoing sales and I think as we switched to this new model, we'll look at what relevant measures. We think we should be communicating.
Okay. Thank you.
Your next question comes from the line of Michael.
Morgan. Please go ahead.
Thanks, Good morning, everyone.
First question I had was just on the.
Competitive backdrop in North America, as it's been a lot of chatter and concern as there always is perpetually but.
Given the past year with the ramp of.
The LG and Samsung line, so we've gotten a lot of questions around.
How that may or may not have affected the the competitive dynamics.
I was hoping you could comment on your view the promotional environment in the fourth quarter.
Seasonally there's always I think a list in the fourth quarter, but if you could comment on how thats that trend has been maybe year over year and if you view anything related to the.
The ramp up of those plants as having contributed to that at all.
So it's Michael it's Mark.
As you mentioned already noticed this question on the competitive background in North America, they're almost a perennial question. Sir you may have been around for last 10 years, and but often years, we expanded our margin on consistent based in North America. So we.
Of course, it's an intense competitive environment, but I think we've also.
Yes, if we demonstrated that we can expand margins, despite a highly competitive environment and particularly when it comes to be onshoring of two washing machine factories.
As we always that we won't come that because its managers and level playing field.
And we feel very confident we can compete in that environment.
So as such no we did not see a negative impact on the broader competitive environment from me onshoring of that production I would say pretty much the same intense environment.
Particularly as it relates to your question on the promotion environment.
Yes in Q4, we saw a slight uptick.
Promotion intensity particular from two competitors.
But not been tire marketplace in that but as an entirely surprise us, but you've also seen that despite a broader market contraction, we delivered 13.3% EBIT margin North America, which demonstrates that.
Even in a promotion environment, even with a declining markets, we are able to deliver very very strong margins.
All right. So I appreciate that margin, maybe just a diving a little bit more as my second question on the North American margins, which which obviously is very very impressive.
If you didn't give us any sense.
You know.
The perhaps just being a little more granular around the drivers of that 150 basis points year over year improvement.
In particular.
Obviously, you have the price mix component and I'm also curious about cost productivity.
What's driving that bucket and what was the contributor there, particularly as obviously you don't have.
I mean, any additional volume leverage to take advantage on so really what was driving that other bucket.
Michael lifts as this is Jim let me maybe start a little bit with that I'd say for North America. The margin expansion was driven by similar levers lever. So what we said globally and so there's not a significant difference there. We did it obviously have positive price and mix within North America within this quarter.
From a net cost perspective, we also began to see some.
Cost progression, there and what we're seeing is one.
And as we talked about going into 2020, a reduction in headwinds in terms of what we're seeing on materials.
Tariffs were very stable within the quarter so that was.
Positive for US and then we did make some investments similar to what you see on our walk for the whole quarter. So there's nothing unusual within North America outside of what we demonstrated globally that it was really pricing and mix and then a positive cost environment that offset some of the cost headwinds we had to deal with.
Great. Thank you.
Thanks, Mike.
Your next question comes from the line of Susan Maklari goals Goldman Sachs. Your line is open.
Thank you good morning learning.
Can you talk a little bit about inflation and.
How you are seeing steel prices and and other kind of key inputs as we think about 2020.
Susan So when it comes inflation and let me first and people what we said several times we.
Coming into 2019, we basically had a cumulative inflation of around 700 million dollar in our business that is result of raw material tariffs cost inflation fraud, the entire value chain, particularly logistics.
That was still in towards the headwind pretty much from mid year 2019, and as of Q3 and in particular Q4, we sold it slowly coming around in terms with total net cost takeout.
If you break it down more in terms of the external factors some of this month.
Yes, we we saw globally a tournament raw material, it's pretty much around Q3, and then more impact in Q4, and if you've seen in our guidance for 2020 . We also expect number.
Improvement on raw materials sites, what has changed since our last earnings call is our outlook on the tears because it off outlook, we had to work with what was announced at that time and based on what we know today now putters would not have a negative year over year impact and as a result events, we basically see this 4.5% margin.
And then from just coming from federal materials.
The every inflation elements like logistics or Arbor cost elements. So far we don't see yet turning round submitted still working against us and Thats what were trying to address but again summarizing I would describe 2020 , we will see less of an inflationary environment, but it's not completely gone and certainly not reversed.
And is open to our key operational priority to kind of double down and really improve our cost dig upfront drop into our system.
Okay. That's helpful. Thank you and then just trying to your EMEA business can you walk to how much of the improvement in the margin. This quarter came from kind of the core business and maybe your improving position within that relative to some of the benefit to the restructuring actions that you've taken there.
Susan I think I think it's pretty balanced I mean I'd be innovate. It's the combination of all these measures keep in mind, the biggest actions, which we drove pretty much more one off several quarters has a fixed cost takeout.
The kind of exit of certain noncore businesses like Turkey.
South Africa, and live well points small domestic appliances, and the refocus off investments and driving growth in our core markets.
And drinking I would say we delivered all three obesity versus I think it's the combination of these ones, which drove year over year improvements.
But in particular when it comes to the core markets and this may be is embedded in our overall unit number which we have for Europe . We had in our core markets grew from two four and Thats a good thing so we stabilized or regain market share and most difficult markets and again thats, a very encouraging sign as we look in the into 2020 .
Okay, great. Thank you. Thanks.
Your next question comes from the line of Sam Darkatsh with Raymond James Your line is open.
Good morning, Mark Good morning, Jim how are you them good Sam good morning.
Couple of questions, if I could first you're mentioning expectations for flat.
Industry units globally, and also a 3% organic.
Sales growth expectations I'm trying to.
Figure out B.
Rank order the reasons for the outperformance in sales dollars for you expected in fiscal 20 versus the flat industry shipments.
I think somebody Thats the D.R. Horton.
When I am guessing somebody thats price mix, but if you could help rank order the drivers of that gap Jim.
Sam Here's what I'd, probably start with is.
If you look at it what we would say as demand being flat globally.
Obviously, we do believe we'll have some share when certain markets around the world and you pointed to some of the specific examples in North America, but I think also as March has talked about within EMEA. We also expect to gain back some of the share. We lost there so that will help drive us from a revenue perspective, despite an industry being flat globally.
The second thing is as we mentioned there is an incremental amount of price mix in there, which also does help us on a revenue base, we assume that to be slightly positive for the year. So both of those that would probably be the second biggest driver that I would say.
And then my second question, the net cost benefit of 50 basis points and 2020.
That's obviously constructive, but I think it's still below where you'd like to be ideally.
At least from a productivity standpoint are you still anticipating having production below shipments in fiscal 2000, I know you mentioned inventory as maybe being down a little bit but that sounded more like efficiencies that it did.
Production cuts. So if you could talk about production expectations versus shipments. Please.
I can take vets and.
The first of all in on full year base as you point out we certainly not planning on the not net cost take out to have benefit from volume leverage or put it differently, we're not going to increase production beyond the sales forecast, we actually contrary, we plan to take out for inventory we have some opportunity. However, I would say that is not a huge item in bear.
It's a small negative in the cost takeout efforts.
But the every element is we still have we still have logistic costs, which are elevated throughout the world.
It is still a factor.
The good news is we're making good progress some fixed cost takeout in Europe and some other parts, we see some benefit from our global product architecture cement oil coming to materialize.
Yes into any our job over time is to tack lead more particular supply and logistic costs.
So long term what should that net cost number be as opposed to the 50 basis points.
You know I mean, and again its semi would come back to what we said at the global Investor Call Conference. Our aspiration movie yen half, a 0.2 points would be but net cost takeout absent of raw material impact and thats kind of it but long term expectations would have a business of our size.
Thank you.
Your next question comes from the line of Curtis Nagle from Bank of America. Your line is open.
Good morning, Thanks, very much for taking my questions.
So the first will be.
Sure I understand what is driving the view.
That.
North America demand or unit demand will be higher.
This year versus last given how things like a replacement cycle and ill housing obviously being like station I think your commentary that we haven't seen much of a.
Push up from that so I'm just trying to reconcile.
Yes, again, I don't think up this year versus last.
Super just let me again in North America first of all to repeat the numbers.
We expect North America industry to be somewhere between minus 1% and plus 1%, so pretty much flat year over year.
As you know there basically simplify but two major components in the industry demand. One is the replacement demand be a one became somewhat related to housing or remodeling.
On the replacements on method live at the same like last year, we now comping against the low years post recession.
And that has been around us.
One or two years and probably will be around us when every year. So.
But just because you comping against me, though years.
And metals already effect in 2019.
Coming into 2019, Frank that we expected more momentum coming out of housing.
Of course, the and then again, we're not going back in time Q4, 18 week housing impacted what we sold in the housing rated marked in 29 team. Some housing was I would save a little bit the softer side compared to what we originally expected coming into 29 team.
As you turn the page and 2020 I would say were reasonably optimistic on housing.
But we still want to wait and see what I mean with that is.
The initial data points, which we got in December from housing burnt in fact very encouraging.
But from first positive data points, and we want to see that stabilizing.
I would also that menu looked at the news from Homebuilders. We are in fact very strong very encouraging signs.
I also want to remind everybody is between an order of new house and be extra blind shipments you took we have nine to 12 months. So the good signs, which we've seen Ami order side. It takes a while until it shows up in our revenue line too, but I would say if if housing stabilizes and sees more positive sense try.
It's like we've seen December .
I would say, but spells good news for our industry and for us.
Okay understood.
And then just as my follow up.
Yes, I mean, I guess, how should we think about.
Restructuring caution I guess kind of the past.
Going forward.
Commentary from you guys just for years valves, we should expect that to kind of ticked down this year. Its its can be elevated and I understand.
I guess, what I'll call, a onetime item, but ill pass the 2020.
Do you guys still think we will see ticked down or.
Should we think about it.
Curtis This is Jim and what I'd say is we expect to be from a PML perspective at $100 million restructuring costs. This year in most of that is related to the already announced action, we're taking around our Naples factory within EMEA.
So that's that's also the 100 million is about the run rate you should expect that are less on a go forward basis, what we do have within this year as we still have assumed 200 million of cash outlays for restructuring and that's just some of the ongoing projects that we have including Naples, that's the finalization of those but we've already taken the PML charge for those but some.
Were 100 million or less than that is what you really should think about on an ongoing basis that we'll see.
It is and it's Mark and let me also it would be missing is and again stepping back in time.
Post the acquisitions, which we did.
And also post recession, we had several years, where wed restructuring 150 to 200 on over $200 million.
And rightfully many of you asking when is that coming down. So I would say 20, Twentys now buffers significant year, we basically take it down to 100 million.
And again to Jim's point, the cash is following it overtime, but the charges such will be 100 million.
I would say 2020 suffered significant year, you see a significant reduction restructuring and mid I think should be trend going forward.
Oh, Okay understood. Thanks very much.
Your next question comes on line.
With Longbow Research your line is open.
Yes, good morning, congratulations on the quarter as I was on a good quarter overall.
I guess just on your just go back to an earlier.
Caller's question on Europe , and just looking at your 2020 EBIT Guide of 100 150 basis points, how much of the expected improvement is related to a full year of the savings.
You've delivered so far versus how much is related to topline drivers like listing grows unfavorable mix, yes, I'd say, David if you start off with we said that the.
Actions, we took delivery by 100 million on a run rate basis, and we really realized about 75 million of that so far so theres about an incremental 25 million that will come within next year from those actions we've already plant and then Additionally, we've got other continuing cost takeout initiatives that we've entered into there and we continue to drive we.
As I mentioned the action around the Naples factory that at some point in the time, while we don't expected to be a significant benefit within 2020. It will be from an ongoing perspective, and then as I mentioned earlier really volume volume lift or regaining some of the market share and some of our key markets as what we see as the opportunity that will then close the gap in terms.
As of that margin progression there.
I don't Wanna get cut off because I've got a second question, but if I could just to ask you to elaborate on the answer you just provided and just how much of a drag on the segment EBIT was the media business.
But.
David EMEA business was a drag throughout pretty much Q3, as you know we had some.
Some issues around recertification against the new industry standards.
Mia in Q4 was pretty much in nine months, where we historically headed in that we should be but it was a drag pretty much until September .
So it's about labor drag on full year base. So, yes, I would see but it's on a server leverage so on ever for further operational organic improvements in 2020 , because you just not comping against or three correctly.
Okay and then my follow up question I guess with respect to the North American business I guess there's.
A lot of questions in the market today regarding you've got negative North American units. The working capital certainly was below the guide that you discussed on the October call. Yet revenues were certainly flatten you've put up some pretty impressive margin. So I guess within the revenue growth math.
Can you talk about how strong is the mix and just how confident are you. The mix will remain strong through 2020, and I guess, you've got a lot of innovation in the market right now.
It's a matter of just we had a good year and mix and then we end up against some pretty tough mixed comps are we in the beginning of maybe a 234 years stretch driven by innovation very strong mix contribution to the piano.
So David I'm overall, and I would say in Q4.
First of all its both driven the pricing was driven by yes continued discipline in line with our established policy around promotional and participation we created value, but technical as you pointed to product mix, where we started I emphasize started leveraging some of the product innovation.
Thats also reason why we showed early and that the scrip dollars two major new product once because the bove impact in North America. So and that's why we're confident we will have good mix solid mix across brands across product on a go forward basin that is all big opportunity.
Thanks, very much thanks, Dave.
Your next question comes from the line of Sheldon Clark with Deutsche Bank. Your line is open.
Hey, Thanks for the question.
Just given all the moving pieces and free cash so what do you think the right way to think about long term EBITDA free cash conversion.
Well as we've always said, we see our long term free cash flow goal around the 5% to 6% of sales. So as we begin to exit this year I think you start to look at at conversion that begins to get into the.
85% plus area and again I think 2020 as we mentioned we still have some key onetime items that we need to do such as some legal settlements and other things, but once you get beyond that we do expect to be in that 5% to 6% of sales as a free cash flow percentage.
And Thats you think starting in 2000 Tony on.
In 2021, I'd say, we're going to get we will get much closer to their it will be a progression as you go through the over the next few years.
But most of these items as we mentioned you're coming out of 2020, our restructuring cash outflows will be less and we'll have some of these whether theyre legal settlements or price product.
Actions that we had to take behind us and so we do feel confident that our free cash flows will begin to reflect that stronger performance.
That's helpful. And then I know you manufacture the majority of her appliances in the U.S., but do you anticipate any major impacts to production started stemming from this krona virus outbreak, whether it be related to whirlpool, specifically or just the industry more broadly.
Sales and its Mark I would say at this point the answer is no. We don't expect a major impact too.
Elaborate a little bit them is going in and first of all that's going to our biggest concerns by NRE around how people, but it's so far looks like all our 10000 people are safe and healthy.
Beyond this one is office grunow virus from what you can see today you may have free potentially impact one is the China domestic markets.
And people don't go into stores the market will decline.
You all know, but our exposure to China domestic market is limited. So yes, that's not going to hurt us a whole lot to is been on production and for use on components production.
China production is largely serving Asia to own the less extend Europe into almost.
This morning's in North America, you know North America, 80% of what we sell North America.
For US is produced from US So submitted exposure is somewhat limited in particular, the one factory, where we export from Chinese.
With the caused by the way from one silver we live but I would say protected but it's a bit further away. The third element is components.
Keep in mind this whole thing happens around the Chinese new year.
Every year on Chinese new year, you plan, if you supplier inventory levels, but still production member star production.
I would say, we're pretty well covered wealth of all covered for the three or four days of extension for Chinese new year and beyond this when we got to see the everything but you also need to keep in mind.
Drop in last couple of years, the most critical components, we lend aggressively for dual sourcing. So we're not we're single source owning very very few components.
Larger dual sourcing, which gives you a little bit of hedging.
Okay. That's helpful. Appreciate the questions. Thanks.
Your next question comes on line of Eric Thus far the Cleveland Research. Your line is open.
Good morning.
Thanks.
Two things in the in the U.S. market. The curious about first of all your your expectation of share.
Looks like you've got some key new product launches interested in how you think about your your major plants market share performance in 20.
And then secondly, curious how you're seeing retailers managing their business and what looks to be a sustained somewhat slower growth environment and ill also an environment, where it appears Sears is probably giving up less share funding their crops.
Okay. So Eric its mark I mean, as you've seen in our outlook. So for North America, we have a lot of new product innovations.
Where we do believe we have some share growth opportunities.
Certainly on the two products, which we just shown on top load and dishwasher.
The social platform architecture, which we have was.
Almost 10 years old too I mean, bringing in such an architecture with such great features mix should open opportunities for some fair group and then I'll talk more promotion share growth I'm talking about structural share growth in healthy business.
Yes, we have.
Certain ambition for share growth in North America.
Related to your question about retailers.
Yes, it's always about the kind of.
Windfalls, which came out of his Sears decline for many other retailers that has diminished I mean, that's based on existing.
Right now I would say, it's it's a reasonably stable retail environment.
Improvements.
Having a strong growth in home appliances, best by being very well established but also some other good region player. So I think it's right now we don't see dramatic moves across the retail landscape.
We've seen some ins and outs when it comes to inventory management of retailers nothing you all have seen that in the M. shipment data in October and men subsequent to December so there's been some moves which of course impact us and our entire supply chain, but beyond this one we don't see dramatic moves across the different.
Retailers.
Great. Thank you.
Your next question comes from the line of.
Keybanc Your line is open.
Good morning, everybody.
Dan.
Hey, guys have a quick question so look.
The PS mix given the your expansion in margins that you guys are giving guidance.
We basically expect kind of a normal ipass cadence, meaning.
Brian half a little under.
Half the earnings first quarter kind of at 20, 122% arranged just given the strength.
And the different moving parts I just want to make sure we're kind of thinking about if you are bad business balances shifting this year that Ken I think you should expect within this year a similar seasonality on I mean, even in the first quarter, we tend to be pretty close to 20% as what if we look at historically.
But but as Tim similar 40, 555 type of split that you've seen another years is safe assumption.
Okay and then.
Yes, given the kind of in North American I understand you're moving too.
Away from the volume.
Price mix discussion given am in the long long history, there I understand.
I'm wondering if you might be able to anticipate I mean shifts and the result, if the revenue was down I mean, how are you guys going to go about kind of explaining.
That's what type of communication could we.
We expect to hear from you absent that.
Those data points, just so none of us get caught by surprise you all other or us in terms of it if results are better worse, just so we can properly interpreted I mean.
Do you think you'll be able to talk about volume, even though you are not reporting it or the price mix how will that.
Dialogue change.
Ken I would expect first thing is they'll still be obviously industry data out there that will give an indication of which direction. The industry is going and especially from in North America perspective, now that it's really two key markets in the biggest one being the US currency also doesn't play a big difference within there so as.
As I said I don't think that whether we disclose units are not within the North America business will make a significant difference because the couple of big variables that are ready drive at are out. There. Obviously, we will talk about how we believe we're doing from a share perspective.
And then what the benefits of price and mix. Our will continue to talk about that on a go forward basis, which also as an indicator of revenues versus what unit performance is doing.
Okay, and then I guess has.
Just looking at M&A Ham and it's kind of interesting right. I mean, you had to the year laundry was up one to two points.
Kitchen freight was down I think three to four how do you think about our what does that say to you about kind of the market that we're seeing some of these categories in the.
Sustain.
Growth challenging environment relative to Mark that you had a fixed costs because this global architecture that you mentioned in the.
Laundry seems to be really important.
Factor for Whirlpool, given your global platform to kind of extract leverage from categories that really are challenged in terms of growth.
Yes, so can I mean on a go forward base to be honest, we don't see dramatic differences across the different product groups in terms of way would CB industry group or developments.
Now given what I said before you know it's kind of.
They are you at least through early indication that the housing midstream.
The housing strengthening that typically translates in kitchen suites, non so that should help.
Cooking, the dishwasher refrigeration business, but I would not get read too much into this one so I wouldn't break down the pieces too much I would say right now our guidance for next year industries pretty much flat.
But very frankly, having been the.
The uncertain factor to the upside could be the housing in housing not default, if it's stabilized and if we see the growth trend.
Extending beyond the December number, but again don't read too much into the different sub categories.
Thank you I enjoyed your interviews yesterday. Okay. Appreciate again, so first of all thanks for joining us all and let me give met with just came to one off question. Let me just quickly ramp up in summarize.
First one on one start I admit but all the numbers in and out I want to remind everybody. We had an all time record year last year, we feel very good about it and we closed an all time record year.
The best quarter ever in our history.
Which I think is.
More remarkable given that we did not have a lot of tailwind throughout the year.
In this in demand didn't help us we still saw cost inflation from most parts of the year. So we feel very good about what we've achieved last year.
But now we're generally 2020 most important thing about last year's mitigate gave us a good momentum as we exited the year. So we feel very good about momentum, which would carry into 2020 now I hope you hurdles that competent brought the earnings call.
As we look into 2020 in we laid that out we have to the operation priorities.
We we are very focused on getting the cost out of a system. We are focused on executing the product launches, which we've talked about and obviously theres a lot more launches be on both to ones, which we highlighted and from a regional perspective. One of course, we have a key focus not only in maintaining strong margins in North America for particular, turning continued to turn around your.
Europe , and China Med is a key focus.
But then in a broader perspective, and just comes back to our Investor day on the one remind everybody our strategy has not changed beyond the operation priorities and delivering on our commitments. We have a very strong focused on continuing to execute along our strategic imperative niches not only about product leadership, but it's our entire.
Digital transformation.
Bead on redefining what product is bead on winning digital consumer journey. So there's a strong focus in our company around the strategic transformation.
We feel very good about where we are and we will kind of increase our efforts throughout the year to kind of creative.
Long term strong and sustainable business does that in mind that just want to thank you for joining us today and talk to Unix quarter.
This concludes today's conference call.
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