Q3 2020 Whirlpool Corp Earnings Call
We also want to remind you that today's presentation includes non-gaap measures. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of results from our ongoing business operations. We also think we are just in measures will provide you a better base line for analyzing Trends in our ongoing business operation listeners directed to the supplemental information package posted on the investor relations section of our website for the reconciliation of non-gaap items to the money directly comparable gaap measures. Also as we highlight on flight to there is significant uncertainty about the duration and potential impact of the COVID-19 wage there for our discussion of the potential impact of COVID-19 on the company's business results reflects our best estimate based on what we know today.
At this time all participants are in a listen-only mode following our prepared remarks. The call will be open for analysts questions as a reminder. We ask that participants no more than two questions with that. I'll turn the call over to Mac and good morning everyone now turning to slide for we discuss our third quarter 2025 that we delivered organic net sales growth of 7% driven by industry demand Improvement across the globe.
Well, I paint up demand and low inventory levels without trade customers partially drove demand within the quarter increasingly. We are seeing the benefit from home nesting and a recovering Market.
Additionally, the Flawless execution of our early and decisive COVID-19 response actions to protect our business and ensure our continued ability to meet the needs of our customers resulted in a ongoing EPS of $6. Ninety one $2, ninety for improvement year-over-year ongoing even margin of 12% on a year-over-year Improvement of 450 basis points.
significant
Margin expansion in our North America Latin America and emea region and a positive year-to-date free cash flow of 170 million dollars a 1 billion dollars driven by Strong net earnings and disciplined working Capital Management.
You to be strong results the confidence we have in our business and reasonable year and visibility. We are reinstating our full year 2020 guidance. We now expect to deliver on a sales decline of five to seven percent and organic net sales decline of one to flat and improvement from our previous for your perspective on going e p s of $70 to $18 above our original guidance of $16 to $17 and finally free cash flow of approximately $900 at the high end of our original guidance range additionally as a reflection of our strong liquidity position. We announced an increase in our quarterly dividend resulting in the eighth consecutive year of dividend increases wage.
Server, we intend to repay all COVID-19 related short-term borrowings by year-end as we continue to progress towards our long-term leverage Target of two times.
Turning to slide five. We show the drivers of third-quarter margin price mix positively impacted margins by 275 basis points primarily driven by reduced promotion investments in a note supply chain constraints. Also, sequentially we continue to see improving mix Trends as consumers slowly shift from the rest and prices purchases to upgrading and investing a takeout actions delivered approximately two hundred basis points of margin expansion as a result of structural actions. We took a second and third quarter as well as ongoing cost productivity initiative additionally favorable raw. Material Trends positively benefited margin by approximately 150 basis points.
Lastly the impact of continued investments in marketing and Technology initiatives along with unfavorable currency negatively impacted margins by approximately 150 basis points.
Overall, we believe our third-quarter results highlight the strength and resiliency of our underlying business and effectiveness of our COVID-19 response plan now, I'll turn it over to Jim Rome to view our regional results. Thanks Mark and good morning. Everyone turning to slide seven. I'll review our third quarter Regional results in North America continued Cove related Supply constraints resulted in a revenue decline of 2% Looking forward. We remain confident in the strong demand for our products as our order backlog remains very high. We deliver record ebit and ebit margin driven by Flawless execution of our cost takeout and go-to-market actions, including the reduction of marketing Investments.
from an upper
Personal standpoint we continue to experience COVID-19 disruptions in our supply base at our factories and in our Logistics Network. However, we are seeing gradual sequential improvements in line with our expectations over all the regions outstanding results demonstrate the fundamental strength of our North America business delivering record margins, despite ongoing COVID-19. It's turning to slide a a review our third quarter results for Europe Middle East and Africa region continued demand recovery across the region and flooring Gaines drove year-over-year volume growth of nearly 7% with double-digit growth in France, Italy and the UK.
Additionally, the region delivered year-over-year Improvement in ebit of forty-seven million dollars as increased demand and strong cost takeout offset unfavorable currency overall are very pleased with the strong recovery delivered in the third quarter. The Region's Q3 ebit margin of 3.4% solidly demonstrates the impact of our strategic actions to date in progress. We have made to restore profitability in the region turning to slide 9, I'll review our third quarter results for our Latin America region net sales increased 14% off with Organic net sales growth of 40% led by strong demand Rebound in Brazil and share gains across Brazil and Mexico
The region delivered very strong ebit margin is driven by increased demand and disciplined go-to-market actions including continued growth in our direct-to-consumer business of setting significance, correct valuation. Overall. We are very pleased with the Region's ability to deliver outstanding margin results further reinforcing the long-term margin potential of Latin America off turning to slide ten. I'll review our third quarter results for our Asia region in India. We delivered net sales and ebit growth driven by demand recovery and share gains despite the continued impact of COVID-19 across the broader economy in China while we delivered Whirlpool branded share growth demand softness resulted in negative eBay.
Overall, we are pleased to see a rebound in our India business and expect Regional results to gradually improve as the impact of COVID-19 lessons throughout the year turning to slide twelve Mark and I will discuss our reinstated full year 2020 guidance. I will now turn it over to Mark to begin. Thanks Jim as mentioned before are very strong third-quarter results and our confidence in our business going forward coupled with a reasonably good visibility for the fourth quarter has led us to the decision to reinstate Out full year twenty-twenty guides.
As a result of increased Global demand in the third quarter and positive fourth-quarter expectations net sales guidance improved from a decline of ten to fifteen percent to decline of five to seven years and on an organic base. We expect it to be a decline of 1% to Flap.
We expect to deliver approximately 8.5% on going even margin a year-over-year increase of approximately 160 basis points.
Burt we expected to live a free cash flow of approximately nine hundred million dollars or 4.7% of sales towards the high end of our original guidance range in total we expected delivery for your ongoing earnings per diluted share of $70 fifty to $18 an increase even compared to our original guidance range from beginning of his turbulent year.
Turning to slide 13. We show the drivers of our own going even margin guides. We expect price mix to deliver approximately 75 basis points of margin expansion as effective Market actions offset, the negative. It makes impact of COVID-19 additionally R500 million cost a car program remains on track. The 350 million dollars in costs take out to date our cost takeout program will result in approximately 75 basis-point of net cost Improvement and approximately hundred basis points of raw material deflation to favorable impact month.
Pervert as we continue to invest in the future. We expect increased marketing and technology management to drive a negative margin impact of 25 basis points while unfavorable currency premium Latin America is expected to impact margins by approximately 75 basis points.
In total we expect these actions to deliver approximately 8.5% on going even margin a hundred sixty basis points Improvement. Now, I turn it over to Jim to discuss our 20 20 free cash flow. Go back one slide 14. Thanks Mark with strong momentum and expectations of continued margin expansion. We anticipate driving incremental cash earnings of approximately four $100,000. We expect Capital expenditures of approximately 475 million dollars as we continue to launch Innovative products and prioritize investments in World Class Manufacturing digital transformation Journey. Additionally, we will end the year with sustainably low working capital levels.
We anticipate restructuring cash outlays of approximately 260 million dollars primarily due to the impact of COVID-19 related restructuring actions further wage to continue optimizing our real estate portfolio resulting in similar levels of sale of asset transactions as seen in recent years lastly, we expect to previously discussed 1,000 items to negatively impact free cash flow overall. We expect to drive free cash flow of approximately nine hundred million dollars as we focus on driving strong cash earnings and effectively baptizing our Capital Investments.
Turning to slide 15. We provide an update on our Capital allocation priorities for the remainder of the year. We are fully committed to funding the business and prioritizing Investments, including our digital transformation Journey. Additionally. We are focused on returning cash to shareholders highlighted by our recent dividend increase announcement. Also our share repurchase program remains temporarily paused as we prioritize the repayment of all short-term debt by the end of the year as a result. We anticipate our gross debt to ebitda to be approximately 2.4 Times by year-end progressing towards our long-term goal of two times.
To slide 16 we highlight our continued commitment to returning cash to shareholders as previously mentioned. We announced a quarterly dividend increase in October resulting in eight consecutive years dividend increases this reflects our strong liquidity position commitment to shareholders and is in line with our dividend Target of approximately 30% of trailing twelve months ongoing net earnings now on slide 17. I'll turn it back over to Mark to summarize our key messages.
Thanks, Jim in let me just recap for you heard over the past few minutes are outstanding first quarter performance demonstrates the impact of our early and decisive COVID-19 response plan wage continues to be successfully executed across the globe server the five hundred million plus cost a car program. We implemented earlier this year. It's firmly on track delivering $175 a month in benefits this quarter for a year-to-date total of $350. Additionally why we did benefit from pent-up demand key countries. We also captured the benefits of more structured demand Improvement by leveraging our trusted brand portfolio and proven track record of innovation.
It is because of these strong results a date and our unique ability to capitalize on the structure trends that we feel confident reinstating our full year 2020 guidance, which is at the high end or above original guide for free cash flow and ongoing earnings per diluted share.
In closing our Q3 performance served as another proof point in our long-term value-creation strategy highlighting our ability to drive margin expansion and strong levels of cash despite the challenging macroeconomic environment. And now we will end up a formal remarks and open up for questions.
At this time, we would like to take any questions you may have for us today. Ask a question, please press star one on your telephone keypad. Our first question is from David MacGregor was long but mine is open. Yes, sir. Good morning. Everyone. Congratulations. I guess just looking at North American margins. Just trying to understand that there's obviously benefits here associated with implementation on the cost take outs. But also, uh, you've got go-to-market expense reduction and if we think about kind of going forward and and as volume comes back in the market place and maybe the backlogs, he's a little bit the quota Market expenses start to come back. How should we think about kind of The New Normal North American margin level? I mean you you report in nineteen, you've kind of a 13 or tapping on the door or 13% Should we be thinking somewhere in the 14 to 15 level or just help us Think Through The New Normal there?
So David, it's marked. So that mean maybe just a couple of moments of a North American margin. First of all coming back to a big picture in Q3 North America had a dead forty seven per-cent increase of ebit that on that came on top of last is to 3 where we are 12.8% even margins. So I would say over on exceptionally strong margin Improvement, which to your point came essentially from two sources one the progress and the cost reduction the cost Reduction Program delivered and to life to Christ margin progress price margin itself falls into two buckets one is yes, we have significantly reduced promotion expenses. That is a decision which we took essentially include two months to kind of curtailed pretty much most promotions, but my second point in my price margin is also relates to mix as we alluded to in our prepared remarks is as we're dead.
Going through with Kobe Christ.
Texas we see sequentially positive mixed friends and what I mean with that is kind of initial demand was freezes microwave etcetera, which is still present but we see more and more demand to hire ticket item the magic when she also helped us some a PMR Soby's were fundamental drivers behind our outstanding Q3 March and all of America now to your question about what is normalized wage. I didn't know where he was World normal in this year. But having said that I would say, I would more Point too cute to actually David's, you know to which by any definition of the word volt author ever from Adam and perspective and and North America delivered over 12% Margin, which just tells you even if volumes are North America business and our Global species in a completely different structure position, and I think we've certainly demonstrated that rough margin worries before it's you two in a very impressive way. So and I think now we just seeing the benefits of his structure.
different business model
Okay, second question just on Europe a lot of progress here. Obviously you just talk about the flooring experience. You mentioned in passing that flooring had been a contributing factor, but can you talk about progress on with the new listings and and regaining retail support the David again? It's marked on Europe as opposed to going to individual trade Partners, but we had some good progress wage for us the most important thing to you. As you know where certain Europe is. Not one market is the market of many different countries and there's certain countries where we absolutely have a strategic position which are critical to our future of France Italy UK among of them in all three countries. We had actually very good market share progress in August and September. So we feel really really good. And again, that's not judging. It is also floor expansion premium pretty much across-the-board. So we feel very good about the progress and particularly strategic countries. There's been some progress in other markets. So we see I would say Mark wage
Off the market, but we kind of regaining the share which we lost over the last two or three years.
All right. Next question is from Sam.
Your light is opened. Good morning, Mark. Good morning, Jim. I hope you both are well and terrific results. Obviously give them good morning to questions. If I might First Choice with respect to the capacity constraints both for you and for the industry based on the current trajectory Ballpark. And what quarter do you think that the industry returns to to normal lead time? So what's the primary bottleneck right now? I appreciate the question. I guess my question is pretty much on everybody's mind. So let me spend a little bit more time and then probably gym at all to add some comments on supply-chain constraints. First of all, first of all stepping back wherever Supply chains concerns are coming from and they ultimately covet related which which is obvious geographically were particular focus of North America Europe to less extend South American Indian, and there's almost no way Jose.
Supply chain constraint coming out of China Vietnam Thailand. So it is geographically different.
It is ultimately coming from in particular North America in Europe. It comes from labor constraints, but you have in the factories. So I'm social distancing measures, but you have in a factory switch just reduced the life pasting. Would you have in factories in both the output? It comes from supplier and component shortages who have to deal with a similar issues in my factories and it is increasing coming off from logistic constraints in particular in the USA. It's just you have a couple of bottlenecks. So these are the fundamental constraints which frankly are getting better every week. But all should be as long as Kobe. The route is around us. We have to be prepared for supply chain disruptions. And that's just the nature of it having said that we are getting more and more yields despite which constrains of our factories week after week. Now do you ever Park which is probably going through everybody's mind is when we refer to back order backlog. Let me go to give you a little off.
Call on this one because again, it's it's a relevant factor in the current environment. As you know, typically we don't refer to our book our order book to forget the company's one or two weeks. It's something that we typically don't refer to that in in Earnest calls. Typically, we have a lot of Bill to order real custom orders. So it's it's a very short order book right now across the globe. Our book is about seven to eight weeks. So it's significantly bigger than any time before which you can read a good news because you know, we have strong demand off our sales and Portugal day isn't going to do for but at the same time it's frustrating because we're letting consumers down many of his orders are back orders. And and all I can do is apologize for the delay of certain customer. So yes, it's good that we have an exceptionally strong order book, but we are of course Trying to minimize any customer frustration which we have out there. So for short answers them is as long
Corbett will be around us we have to be prepared for supply chain constraints across the entire industry. This is not vocal unique. However, we are getting better week by week and getting more years despite the constraints. Yeah, I think Mark hit the key points there that that one we are improving into as we look out further with that order book, you know as we go into the end of the year and then into q1 we belong we intend to begin to work some of that down obviously, but we'll give us momentum going into next year.
My next question if I could try to get a sense of how much of the demand that we're seeing right now in the states is is really pull forward slash based on heavy break replace activity because of increased usage and I'm using using Proctor & Gamble saying that they're Tide detergent sales are up 15% in the quarter which is obviously extraordinarily elevated and any sense of of how much of a demand right now is is May maybe like onesie twosies type of Union vs. Full Suite sales, which would indicate more of a large-scale kitchen remodel appreciate the question which again good question is probably on everybody's mind off. First of all, I mean, I may not hear comments about pull forward I smile because pull forward and back orders are a little bit of contradiction in terms. I would be happy to pull forward orders or delivery orders we have right now back home.
We have the opposite situation.
From a structure demand perspective and this is your your question. Yes. We saw at the beginning of Q3 but was pent-up demands and frankly Bears even right now trade inventories are super low. So there's a little bit of element coming from this one. But what a mess very important office. We look into a future. We are encouraged by structural Healthy Home and house trends and what I mean with that and let me spend a little bit more time on this one. We all know people are spending a lot more time at home. People are investing a home and how it's very investing in nesting and initially you saw the beginning of Christ as a lot of investing in what I would call more Small Talk tickets items off your first change my light bulb before you change the land and and we see that now across the entire home that people are starting to invest in home upgrades birth.
Rethinking the purpose of the home because they know we spend more time of an extended time. So we do start seeing structurally positive trends for the home or perhaps even in another way, you know, you have structural positive demand Trends coupled with high disposable income and low mortgage rates. So you put these two facts together. You have a very very healthy mix wage, which kind of again gives us confidence Beyond this quarter and there's there's a reason why some people start referring to the Golden Age of housing because there's a lot of positive Trends coming and we do not see we structure demand Trends and refocus on home and nesting going away short-term covet hopefully at one point will be behind us B strep Tuesday.
And maybe even to your question on on replacement I'd say, you know, the thing we have to think about here is remember we're coming out of the trough of when you look back ten years. What where the replacement industry is starting this could be to your point with the usage that consumers are experiencing now accelerating some of that but it's just accelerating us into what will be a positive replacement curve from Adam and perspective or so, you know, that could be another another positive trend as we look forward.
All right. Next question is from Selden Clark wizard you Bank your line is open. Hey, good morning. Thanks. When you take a step back and think about the margin performance in your International segments, particularly Europe and Latin America. You know, I realize there's some seasonality but your your third quarter margin was meaningfully better than you know, some of your longer-term guidance for a regional margins or at least, you know, your margins coming into the year. So can you just help us parse out maybe what's more transitory there and and how you're thinking about you know, maybe the longer-term margins for those segments now that you've seen, you know, some of the traction with your cost takeout items. Yeah Seldon and and this is Jim and maybe I'll start and then Mark as commentary and I'll kind of take the two two regions you talked about their first with the Mia, you know, we had said that a meal would return to profitability this year and obviously the start of the year with the Copa disruption log.
Made that very difficult, but the positive thing coming out of of that now is as we see the demand picking up and and you know, we talked about a little bit earlier in terms of gaining share back in certain markets as we believe we've been able to put that business back on track to where we thought it.
Would be at this point in time exiting the year, which is a positive thing. Now that what that does is that reinforces our longer-term thoughts that this is a high single-digit type of margin business and you know in the mid-term and that we can get again the cost takeout has been a very positive trend there but that will continue because the actions take a little bit longer to implement they're so they're coming on the tail end and that will help them also as we said demand not positive there and we're seeing positive market share gain with in there. So I think this is a good sign that we're on track and we're still confident in the longer-term margins if I take Latin America, we've always talked about that Latin America a historically it has had periods of time where it's been above 10% and you know, I believe right now what you're seeing is the effect of positive demand especially in Brazil also with them to take out and our ability to drive pricing within those countries there as we've experienced currency impacts and cost fluctuations. So I think both of those are on a positive trend I still birth
Our longer-term margin guidance that we've given form applies, but you know, that's what where we stand right now. So let me be able to zoom out a little bit on your question, which I think is a very good one, you know, remember several years ago. We established long-term value-creation targets when we talk about the long-term value-creation Target of 10% Ebates and probably rightfully we were challenged over a couple years about how do you get their show me demonstrate me but many discussions about how do you even get to 10% Well back half of 2020 we will be about 11% ebitda wage, but pretty much embedded in our guidance. So I would read Q3 and Q4 as a proof point of our long-term value-creation that it's not only doable that I traded we all do recognize Q3 and Q4. We are some operational but still exceptional elements in there having said that they fall on a structurally different business model wage.
As we demonstrated in Q2, there's a lot of structural changes in our business which makes certain elements not comparable to five or ten years ago. And then we're in a very healthy position from that perspective.
Okay, that's helpful. And then just Switching gears for a second, you know, is it it's you're free cash flow bridge. If you go back and look at you know, original guidance will start the area just under you know, one point seven billion of cash earnings versus today or about forty million low and cash earnings. But but your GPS guidance is obviously a bit higher than what you're talking to agent the year, you know, I know your your your overall free cash flow guidance is towards the higher end, but I'm just talking about this cash earnings piece. Um, so could you just help us think through some of the moving Parts there and maybe you know, what's driving that Delta and then if we you know, look at some of these other buckets, you know, how should we think about the progression for you know net capex? So so Capital us real estate sales and either the the one-timers or structuring cost is you move into twenty twenty-one.
Yeah, and and Seldon, this is Jim and I think you know you've kind of hit where where some of the things are as we look at the the cash flow coming out of this year.
You know, we are on the higher end of the original guidance we gave and a lot of that is driven by by more positive earnings, you know at this point in time, you know, the working capital seasonality has been different than we expected throughout the year. And obviously we've had a benefit from inventory coming out earlier, but you know as we look at that going into the fourth quarter we'd say right now that some of that we won't see as big of a lift with in the fourth quarter as we normally do not get that working capital seasonality. Now, I think you hit the kind of the important point. There is what we are seeing is increased restructuring cash payouts do too many of the cost actions that we took and that's the biggest drawback of the difference from where we would have started the gear and what we thought we generate and free cash flow to now when you take into account the additional earnings is that you know, we did have some costs some cash costs that will come out this Thursday and then obviously next year restructuring cash costs will be significantly lower.
Our next question is from Susan clari with Goldman Sachs. Your line is open. Good morning. My first question is is around the margins and maybe thinking about it a little bit more near-term if we consider the 8 and 1/2 guider so that you that you gave us it implies that there is some sequential diesel that you're looking for in the fourth quarter there. Can you just give us a little color on that? Is it just a level of conservatism that you're baking in? Is there anything you're assuming around mix or costs or anything, you know within range of those factors that that that's kind of coming through there in maybe I'll start off here and then then Mark can add if if he wants to I'd say Mark kind of made a good point earlier as we look at the back half of the year off and say we're going to be about 11% you know, totally bit margin for the back half of the gear and obviously there is a lot of variability in here and there are still unknowns, you know as we head into the year end of the year, but we phone number
In the guidance that we've given I think the one thing you have to take into account here, especially in the the third quarter and we talked about this when we talked about the cost takeout program is that there were some non-structural temporary things and then structural things and so we had more benefits probably within the third quarter from some of those non-structural temporary type of things. Then you see within the fourth quarter. We more normalized to the effect of what the the structural costs take out and we've said for next year, you know, we expect that to continue to benefit us with Tailwind of fifty to a hundred million. So I think you know, those are probably the biggest things but as I said, you really got to look at the back home in total rather than on a quarterly split type basis, it's Mark is Maudy for your entertainment purposes. If you would have seen us on your question, we we smiled frankly because I don't think we ever imagined happy year ago where we would ever be asked a question about a deceleration down to 10% even margin because that's basically pretty much it. I think the gym spotted pig.
Greenside, I I think you should look at the back half margin total because we're still a couple of moving items left and right and the back half margin is around 11% ebit, which is very very strong. Yeah. I know it kind of does really speak to the year right that we've seen in the strength there. My follow-up is just thinking about the cost takeout, right? Obviously, you know, you've done an exceptional job this year. You've seen that those costs have come through. Can you talk about maybe you know, where there any in efficiencies given the accelerated rate of production that's coming through as that normalizes will we lose some of those and those possibly be opposites to some of these non-structural benefits that we've gotten in the third quarter as we think about, you know, kind of the forward Outlook, maybe two twenty-one.
Yes, it was not.
Take a shot at and maybe Jim you can add soon as we already indicating to when we laid out the five hundred million program. We said there's certain elements like raw materials. They just don't know exactly how people material next year, but then the remaining piece versus a fairly significant amount of structure cost and we fully expect we structural cost take outs to carry over into next year. So if you do the math, it's it's roughly fifty to a hundred million cost carry over into next year particular to your question around the production, you know, what production productivity was of course, very very challenging to to because first you don't have volume. Do you have under occupation and now you work in six shifts or six days a week with three shifts, which is not the most efficient way to produce so actually, from a pure Factory productivity, which has been an incredible tough year. So in a certain way of that actually should improve next you want to get to more normal as production volumes throughout the year and and maybe to age
As Mark talked about, you know, we started to see the production volumes match up to to what our shipments are and start to even slightly exceed that but get a more normalized levels as we head into next year's realized we're going to start off the year with a lower level of inventory than we have on any other year. And so you're not, you know, if anything the production could be slightly higher next year even as we normalize some of those inventory levels wage go forward. So I I see that as a continuing positive for us production levels.
Our next question is from Adam boomgarden with Credit Suisse your line is open. Hey guys, thanks for taking my questions. Just you know, given the strong margin profile. You guys are seeing in North America can perhaps maybe some of your competitors as well. Do you expect any change in Industry competitive Behavior? Even when things may be normalized just given the, you know, everyone's benefiting from the lower promotions.
You know, here's Adam. This is Jim and maybe here's where I'd start with that aside. I'd say that you know, as we said right now the industry is constrained and the level of promotions has been, you know, less significant wage and continues on we continue to see that as as a possibility that that obviously is as we operate it constrained level the promotional environment will stay, you know to the levels it is once things begin to improve, you know, right now, I can't necessarily say how much the Dynamics will change and and when that will start to change but what I would say is if you look at us in our history and especially with in North America, no matter what the environment has been we've been able to create value and we've been able to keep our margins over recent years at 12% plus and Mark talked about the potential of where they could go to. So, I think there's a lot of Dynamics you've got to take off consideration there additional. He's we just talked about, you know, if things begin to improve and you head forward, there are some incremental costs. We're incurring today that that may not be there go forward also, so there's a lot of very wage.
It just begins to normalize.
Okay.
Thanks, and just one quick one on on a Mia you guys decided six and half percent volume growth. That would imply some pretty hefty pricing. Can you maybe walk through what what drove that name is Mark. I'm keep in mind we report in dollars and you had a euro versus dollar move also. So when you do your pricing calculation you have to factor in the currency element in there having said that in fact, we had a good volume group as you pointed out and we also because we had similar like North America, we have reduced promotion investments in the market maybe not alway reduced to Waverly we have in North America. So that is a positive impacts on the price margin and Austin Europe. We start seeing every month a slightly better mix. So you have some of the fundamentals which I explained for North America or in Europe. But again, I have to add also the pricing the current equation to your price calculation.
All right. Next question is from Tom Mahoney with Cleveland research. Your mind is open.
Good morning. I was wondering if you could size the North America structural takeouts inside of the 175 million dead in the third quarter and I guess just talk again through the moving pieces of you know, why taking those costs out at the end of the second quarter makes sense and as production increases into 20-21. Is there any limit on the incremental margin potential having taken those costs out and as volume returns?
Yeah, Tom, and this is Jim and maybe I'll start with that and and we don't get into the specifics by region. But what we typically say is when you look at the overall cost program, it applies ratably across the globe as you look at our businesses in the south of them and and you know, probably in the third quarter North America had slightly higher benefits of it just because of our ability to implement those things quicker now, you know as we've talked about within there there were some temporary the things that we did earlier in the year such as furloughs travel reductions, you know, not having large meetings and stuff that benefit us, but then once we got into the third quarter the structural actions in terms of headcount reduction in both from a voluntary retirement program that we initiated as well as then some involuntary reductions that we did after that. So, you know in those are the nature and the types of things you see within that cost down to say, you know, did we did we cut too deep I would say no. I think we made very, you know, the right decisive actions at the time as we said, there's still a lot of unknown around the globe, you know, the second thing is our marja
The benefits of those decisions that we made I'd say if you look at especially the question in terms of as production comes back. Most of those reductions were made within the white collar and Thursday the office environment. So in terms of the blue-collar environment, we continue to add workers along with the volumes that we have and we don't see that as a limit on our ability to a reduction of capacity that would affect our ability to service the industry.
Understood and then just to just to go back to a point. I thought I heard you guys say you're at a point. Now where backlog is no longer building or in real life weeks is is that a function of any slowdown in POS or demand or is that, you know purely a function of improvements in uh in the back of the supply chain. So, of course, the the order backlog is a little bit different region-by-region having said that yes, you are. Correct. It's it's stable now over the last couple of weeks off and it is a result of increased production yields and better Supply Chain management is not a Slowdown of a demand.
Our next question is from Michael with JPMorgan your line is open. Thanks. Good morning, everyone and also congrats on the results June 1st. I just wanted to delve in a little bit more on the the industry picture for the third quarter. Obviously, you know, you kind of talk through your supplier challenges, but with positive price mix, I would presume you're looking at you know volumes down maybe in the mid single-digits, um in North America package which Compares not obviously a hundred percent 121 with Canada but uh compares to a shipment up 8% So just trying to get a sense for how long you know, if you can you know, if if your quote unquote losing share and I recognize that obviously you're maintaining floor space and believe it's temporary and we hold that wage.
As well just trying to get a sense who's on the other side of that coin and maybe if there's certain, you know other factors, we should consider or be aware of in terms of that, you know your volume growth versus the industry and it's marked. So yes, we had in to free a small market share loss on the unit basis. I wouldn't argue in a value-based. I don't know unit base. It doesn't make me overly nervous because we know it's not related to the branch of a product and we didn't lose floor space. We did not lose floors what it relates to is what I referred to earlier anybody with Asia production right now had pretty much unconstrained supply chain and that just a simple reality of how right now COVID-19 packed with different Regions Bank part of the reason why most of less concern is because already excellent you free and always will enter Q4. We see every week our market share coming back up again. So that's considered by temporary wage.
Highly related to the covert and supply-chain constraints which impacted particular North American Producers and it will work its way out of the system and we again I can only reinforce we did not loose air.
Right, right, and then it gets just kind of looking forward and obviously very encouraging around the week-to-week Improvement and the stabilization in the order booked between that time and recovering some of the share is it fair to assume positive volume growth in the fourth quarter as you're also talking about demand Trends remaining pretty solid. And again, I'm talking to Kathy here in North America.
The Michael, you know in our queue for guidance of or implied to four games because we gave a full year Gardens. We don't break it down by region. However, if you do the math, we pretty much implied a a roughly five to six percent organic Revenue growth for Q4 which again, we don't, details which should imply or some modern pop up in North America how everybody's depending on terms of how quickly we get out of the supply chain constraints right. Now the demand is there however, I would also expect but some of the demand backlog will carry over and took you long. Yeah, and I think maybe to add to that as as we talked about earlier what we do see is a positive in in the third quarter and in the fourth quarter and continuing has been the the mix that we see especially within this is the consumers focused, you know on their their kitchen and their laundry space, but but you know, whether it's the upgrading or renovate Home Remodeling and things like that, we do believe the trend on mixes is in
Our next question is from Curtis may go with Bank of America your line is open. Good morning. Thanks very much for taking the questions. So yeah understanding that capacity is constrained across the board in North American and other regions, but just looking at the I guess underlying demand Trends, where am I? Guess what's the difference between retail and Builders or are they even one stronger than the other? How should we think about that?
A Curtis. I mean again, it comes a little bit back to my earlier fundamental point about various but the crisis and the rest demand home now more replaced by structure demantra. It's not even one one but we see more and more healthy underlying structure demand, which is both home improvement and new housing. Now off by that description already. You can also in serve it in particularly side of Adam and larger came through with big home improvement stores, and we now see more and more of a demand still being a strong the Home Improvement, but we see it also coming through on the bill decide on behind retailer sides now, but Bill decide you all following bill is also between demand Trends and finishing off a couple of months in between. So we don't yet fully see the appliance impact of the increased Home Building site in our business. That is more something which will play out you want you to next year.
Okay, that makes sense. And then maybe a quick one on Capital allocation. So, you know cash positions, you know.
Strong she put a free cash flow. Is it for your paying down some debt and you increase the dividend but doesn't look like you're doing anything with the buy back again to suck. You know, what should still be a pretty strong cash position at the end of the year when my tour how should we think about? You know that being turned back on at some point? Yeah, this is Jim. What I would say is, you know, in in the first quarter of this year before the crisis-hit we did buy back a hundred and twenty 1 million in shares. So, you know, we and then we suspended the program effectively in April as all the uncertainty occurred around us are short-term Focus as we've mentioned is that we will pay down, you know, all of our our temporary short-term debt by the end of the year and then you know, as as Mark and Bulbs myself have talked about is there still a lot of uncertainty around us around the globe in terms of you know, the effects of of ko bed and and you know, what could occur and so, you know, we'll stay in a rather conservative position at least birth.
And then, you know at some point in the future, we'll we'll begin to talk about what we might do from a share buyback perspective. But we're going to focus right now as I mentioned on paying down that short-term debt and then wage in Ewing to invest in our business as we come out of this this crisis here.
Our next question is from Mike Doyle with RBC Capital markets. Your line is open morning. Thanks for taking my questions mark fascinating month results in terms of kind of the outcome of the go-to-market strategy and and clearly, you know in some ways. It's been imposed On You by by the supply constraints but you've acted in a way that's optimized profitability. I'm wondering just you know, aside from promotional activity which may or may not change going forward. Have you guys learned anything else, you know over the course of these past few months about your about your supply chain or your for your excuse that make you think differently about additional potential for for something structural whether it's SKU rationalization or or something else that would allow you to kind of keep some of these benefits for longer even even as the supply chain.
I just
It's a Mike Mike Pence Mark. Of course, there's a lot of reflection which is happening about the crisis about we're not just in supply chain and everything and honestly, I don't think with reflection is yet completely done. Now. What is already becoming apparent? It's not so much the SKU rationalization. I mean first of all to give you a little bit of sense and I know we're getting the operational details essentially our supply chain is a public system and give him a constraints which you had to face with component everything else. You had to overnight shift a pull system into a push system that is I can't express how difficult of a bulb days but our team has management it really really exceptionally. Well, I'm given the constraints so so I hope that's not going to happen any time in the near future, but you have to push change from pool to push system that I think that that also of course, we're rethinking certain decisions, which we do about single sourcing with suppliers. Do we go to duel sourcing we are rethinking but doesn't help us short-term about
Where do we see bottleneck and add additional capacity? So these are the kind of things which were reflecting that right now, however, they don't have an impact on Q4. They're more structural to your point.
Typing back in terms of what did we learn and what we we'll readjust let's say maybe just to add to that is, you know complexity reduction within our business has been one of our longer-term strategic things we've talked about and is ongoing and you know will continue to see benefit. In fact, we've talked about that. That's what's going to drive some of the longer-term costs takeout benefits for us that that we're not even realizing yet is our ability to reduce their number of architecture and platforms across the globe.
Got it. Okay. Thanks. Second question. You did highlight that you're you're potentially starting to see, you know, some Logistics constraints in in the US and you know completely shutting and things like that. It seems to be tightening up. I think people remember, um, you know, 2018 when this happened last and there are some worries about how that plays out next year. Can you just go into a little more detail around when you say logistic challenges you clearly you've had other other Costco ones that are more than offsetting. But what are we should what should we be thinking about in terms of you know what the issues are and and be any any kind of sizing of of magnitude. I would say, you know Michael, this is Jim. What I would say is that it's one of the you know, the many things we talked about and we're probably more on the you know, that's probably of all the things we've listed maybe the you know, the third thing that's really impacting us right now, and we do see that as more of a temporary
Impact, you know as demand has fluctuated as there's been uncertainty around the you know, the impacts of covet. All that and so, you know, we've been able to really work our way through it but it is just wage challenge is right now and and you know from a cost perspective we are seeing, you know, very positive cost takeout, but we've had to be able to absorb some of those additional incremental Logistics costs that we've had and we've still been able to offset them and still be able to get products delivered. So, you know while it is an issue, I think that's probably something that we don't see as more long-term in structural.
Our final question comes from Ken's enter with KeyBank near line is open.
Good morning. Good morning and pretty amazing.
Can look the the huge beat you had in North America was obviously, you know promotion going away and mix shift up along with the cost act. So can we can you give like a 60-40 split on the promo versus mix cuz I think this nesting might have longer Tailwind as homeowner's Equity goes up with price appreciation. Whereas the promo it seems to be a simple economic concept that suggests that it's not going to be, you know a permanent tail. When can you kind of split that out to wage? I understand how much you know of the benefit. It was just directionally, can I mean I think you a fundamental theme you've got right? Okay, we have web page in the pricing. There's a a less promotional element and there's an increasing positive mix element in there and they probably will have different longevity but less promotion.
Is ultimately a reflection of decision. We took in Q2 when we foresaw.
That the supply chain constraints are real and we pulled back a lot of promotion because in our in our industry, you don't decide promotion for next week. You have to decide pretty much four or five months down road. So we made it off early in anticipation against we Supply constraints. We Supply constraints at one point will normalize but we will not quickly normalize now. Obviously, I'm I can't log forward-looking statement about our promotion plan for all the obvious reasons, but judges are now behaviors of a past in terms of how we manage to apply promotion and value creation of Industry encouraging thing is and this page where we do have confidence is the structural mix coming from the home nesting and investing in your nesting is good and I do not believe this is going to go anytime.
Right and then I guess in terms of could you just Address given your high chair of new construction, you know giving you a contractor Channel. I heard some Builders are just taking out appliances cuz they can't get it but is that how is that impacting, you know the trade your delivery? Cuz I think construction times are elongated for a variety of life and given that the appliance comes in at the last week before closing. Could you kind of address how you're handling that in the new construction Market, please? Thank you. So so can two elements off first and my short-term Yoli Channel, which we absolutely still try to prioritize is the construction Channel because no consumer wants or no customers are finished or motivate for the client. I mean, so we're trying to prioritize as much as we can having said that I think the real momentum which I think starts building in the home builder Market is not yet visible in our queue. Yep.
Two phone numbers because it's just from backlog as you mentioned between housing starts housing completion and may Appliance coming in. So that is not yet a factor in 2020. However, if she gives us confidence for twenty one because I do believe new home construction will be fairly healthy as we look into next year fairly healthy to very healthy. It's Altima a similar to our industry by Manpower and constraints which we have. I think that will be the limiting factor demand will not be the limiting factor on the housing markets.
Well, I think that was our last question. So let me maybe just first of all thank you all for joining us on a call today. I'm not going to reiterate all the messages that you heard before. However, I mean obviously we're very pleased with an outstanding Q3. We also guide towards an outstanding to 4. So we very very good about where we are as a company which is also a reflection of a decisive actions. We took into two and proceeding structural actions, which we've done over the last couple of years. So we feel very good about where we are as a company you see our balance sheet. Our cash flow is in a in a position which nobody could have expected the very outset of his crisis. So we will feel very good and very confident about it. I would be remiss to not take the opportunity of thank God bless cuz frankly Jim and myself to be talking our people do work and I I can't thank them enough for the very very hard work in this entire Q3 which made all of this month.
So thank you all for joining us.
And talk to you next time. Thanks a lot.
This concludes today's conference call you may now disconnect.
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