Q4 2021 Whirlpool Corp Earnings Call
Today's call is being recorded.
Opening remarks, and introductions I would like to turn the call over to senior director of Investor Relations Corey Thomas.
Yeah.
Thank you and welcome to our fourth quarter and full year 2021 conference call. Joining me today are Marc Bitzer, our chairman and Chief Executive Officer, Jim Peters, Our Chief Financial Officer, and Joey a teeny, our chief operating officer.
Our remarks today track with a presentation available on the investors section of our website at Whirlpool Corp Dot com.
Before we begin I want to remind you that as you conduct this call we'll be making forward looking statements to assist you in better understanding whirlpool corporation's future expectations are.
Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K 10-Q and other periodic reports.
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.
I also think the adjusted measures to provide you a better baseline for analyzing trends in our ongoing business operations listeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.
At this time all participants are in a listen only mode.
Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions with that I'll turn the call over to Mark.
Thanks, Corey and good morning, everyone.
I'm very proud to say that 2021 was another record setting year for US now have a full record setting year in a row.
As you all know 2021 was certainly not an easy year, given all the COVID-19 related disruption and the rapidly accelerating inflation.
As we turn to 2022, we expect to deliver yet another year of record results.
While we on one hand strongly believe a consumer demand trends remained strong the ongoing pandemic o'meara hand will continue to translate into supply constraints and cost inflation.
As we have successfully demonstrated in 2021, we do know how to execute in a challenging environment.
Also if the strength of our balance sheet and significant cash generation, we're well positioned to fund innovation growth, while returning cash to shareholders.
Now I will turn to our full year highlights on slide five.
Throughout 2021, we demonstrated the agility of our business and the ability to operate in any challenging environment.
Faced with supply chain constraints and significant inflationary pressures, we responded with early and decisive actions to protect margins.
We executed cost based price increase in every region fully offsetting 1 billion and raw material inflation.
Ultimately, we drove record results for the fourth consecutive year.
We delivered double digit revenue growth of 13%, we delivered with accelerated growth with record margin of 10, 8% and record ongoing earnings per share of $26 59.
A 44% year over year improvement.
And we generated record adjusted free cash flow of $2 billion led by strong earnings.
As a result, we strengthened our balance sheet and drove significant shareholder return. We've returned $1 4 billion to shareholders with $1 billion of buybacks and increased our dividend for the ninth consecutive year.
We reduced our gross debt leverage to one eight times delivering below our long term target of two times.
And we delivered a return on invested capital of 15% an improvement of 420 basis points compared to the prior year.
Overall, our 2021 performance again reflects the structural improvement in our business and but we're a different world than we were 10 years ago operating in a very different world.
Turning to slide six I will provide an update on our fourth quarter results. Our Q4 results were fully in line with our expectations as we knew we would be faced both of a constrained supply chain and sharply elevated inflation.
We delivered record revenue in the quarter, and an 8% growth compared to 2019.
Additionally, we delivered ongoing EBIT margin of eight 6% largely offsetting over 500 million of inflation from raw material and logistic cost increases.
Next we generated significant cash in the quarter and returned $400 million to shareholders through buybacks.
This quarter demonstrates our deep understanding of the environment, we're operating in and the strong execution capabilities of our teams now I will turn it over to Joe to review our regional results.
Thanks, Mark and good morning, everyone turning to slide eight I will review results for our North American region.
North America, we delivered record revenue with 11% full year revenue growth driven by strong consumer demand and the execution of cost based price increases.
Additionally, we delivered record full year EBIT margins, driven by our disciplined execution of cost based price increases and sustained positive mix.
And for our products remains high as we operate in a constrained environment, which we expect to persist throughout 2022.
Lastly, the regions again outstanding results demonstrate the fundamental strength and agility of our business model.
Turning to slide nine I will review results for our Europe , Middle East and Africa region.
The region delivered strong full year revenue, a 16% improvement compared to the prior year.
And despite negative impact of inflation the region drove margin expansion of 190 basis points, delivering 2% margins for the year.
We are confident in the actions we have in place and our long term turnaround plan for the region is on track.
Turning to slide 10, I'll review results for our Latin America region.
Full year net sales growth of 22% driven by cost based price increases the region delivered very strong EBIT margins of eight 4% for the year, despite supply constraints inflation and continued negative impact from currency.
Turning to slide 11, I will review results for our Asia region.
We streamlined our portfolio with successful completion of the sale of our majority interest and Whirlpool China.
The region's revenue decline is fully attributable to the whirlpool, China divestiture. Excluding this the region grew by 16% year over year.
We restored profitability to the region and delivered EBIT margins of five 4% driven by cost based pricing actions and the positive impact from our divestiture.
Lastly, COVID-19 related disruptions continue as cases have surged in India with shutdowns impacting demand as we enter the new year.
Now on slide 12, I'll turn it over to Jim to discuss our full year 2022 guidance.
Thanks, Joe and good morning, everyone now turning to our full year 2022 guidance on slide 13.
2022 will be another year, where we will face a difficult operating environment, including Covid and supply chain disruptions that we now face in the first quarter. However, consumer demand remains robust driven by nesting trends and a strong replacement cycle.
We are uniquely positioned to capture the structural drivers of demand and can operate in any environment.
It is with confidence that we provide our 2022 guidance, which reflects significant topline growth and a fifth consecutive year of record earnings per share.
In line with our long term value creation goals, we expect to drive net sales growth of 5% to 6%. Additionally.
Additionally, we expect to deliver EBIT margins of approximately 10, 5%.
And $1 5 billion in free cash flow.
This represents a full year EPS range of $27 to $29.
Turning to slide 14, we show the drivers of our full year ongoing EBIT margin guidance we.
We expect price mix to expand margins by 600 basis points from the following three drivers one carryover pricing actions from 2021, two recently announced cost based price increases in the U S Europe , and India, which will be fully in place in the second quarter.
Three the continued positive trends in mix, we have seen is consumers neste at home and the impact of new product launches.
Next we expect net cost takeout to negatively impact margins by only 50 basis points with increased logistics and labor costs, partially offset by ongoing cost productivity measures.
We expect our business to be negatively impacted by $1 billion to $125 billion in raw material inflation led by higher steel and resin costs.
As we already began to realize a significant cost increase in the latter portion of 2021, the largest year over year impact is expected during the first half of the year, particularly in Q1.
On a full year basis inflation is fully offset by our price mix actions.
Next as we continue to invest in our business, we expect increased investments of 50 basis points in marketing and technology.
Unfavorable currency, primarily in Latin America is expected to impact margins by 25 basis points.
As inflationary pressures will most heavily impact our first quarter.
And our recently announced cost based pricing actions will be fully implemented in the second quarter, we expect to deliver 40% to 45% of our earnings in the first half of the year.
We are confident that we have the right actions in place to again navigate a supply constrained and inflationary environment and deliver approximately 10, 5% EBIT margin.
Restructuring costs will be reduced in 2022, and moving forward, we will only exclude restructuring actions greater than $50 million from our ongoing results.
Turning to slide 15, we show our regional guidance for the year.
Starting with industry demand, we expect a continued robust demand environment for North America supported by broader home nesting trends and under supply of housing market and a strong replacement cycle.
In EMEA, we expect modest growth of zero to 2%.
And then Latin America, we expect a contraction of 2% to 4% as the region experienced slowing demand and increased macroeconomic uncertainty.
Asia industry is expected to accelerate by 5% to 6% as the region continues to rebound from Covid related shutdowns in 2021.
Regarding our EBIT guidance, we expect very strong margins of approximately 16% in North America we.
We expect the benefits of our previously announced cost based pricing actions to largely offset inflation and operational efficiencies associated with producing and are heavily constrained environment.
In EMEA, we expect to continue to execute upon our positive turnaround strategy, including accelerated built in growth and share gains.
Having EBIT margins of approximately 3%.
Latin America, we expect to deliver EBIT margins of approximately 8% as positive price mix is offset by inflation and continued currency devaluation.
Lastly, we expect to achieve EBIT margins of approximately 8% in Asia, driven by topline growth and our strategic divestment actions in 2021.
Turning to slide 16, we will discuss the drivers of our 2022 free cash flow.
We expect strong cash earnings of approximately $2 5 billion drill.
Driven by top line growth and improved EBIT margins, we plan to increase capital investments by $175 million as we continue to invest in our products and fund organic growth.
These investments include unlocking capacity constraints launching innovative products and furthering our digital transformation journey we.
We are planning for a moderate inventory build as we begin to recover our inventory position, particularly in the United States.
We anticipate minimal cash outlays related to restructuring or post integration activities. As these have largely been completed.
Overall, we expect to deliver free cash flow of $1 5 billion or approximately six 5% of sales.
We expect some asset sales in 2022, however, moving forward, we will no longer report adjusted free cash flow free cash flow will be defined as cash provided by operating activities less capital expenditures.
Now on slide 17, I will turn it over to Mark to discuss how we are structurally positioned to fund our growth while delivering shareholder returns.
Thank you Jim we've demonstrated we can generate significant levels of cash and we are unwavering in our commitment to drive shareholder value.
We're structurally improved our cash generation for our accelerated growth and expanded margins.
Next with our multi year footprint optimization actions largely behind us we've reduced unique cash outlays.
Additionally, we will continue to invest in innovation capacity and strategic initiatives.
Ever demonstrating our confidence in the business.
Lastly, with our strong balance sheet and significant cash generation, we expect to return approximately one $5 billion to shareholders in 2022.
This represents a cumulative return of nearly $4 billion to shareholders since 2019.
Now turning to slide 18, I will summarize why we are positioned to grow our business and drive shareholder returns that.
Let me begin by reiterating our significant cash generation expectations and the strength of our balance sheet. We have achieved our gross debt leverage target of below 2.0, and Additionally, we expect to deliver free cash flow of $1 5 billion in 2022 or approximately six 5% of sales.
Lastly, we have reduced our unique cash used significantly in line with our long term expectations.
We will continue to invest in the business.
While at the same time, returning cash to our shareholders.
We will fund our business through increased investments that support accelerated growth by returning approximately $1 $5 billion in cash to shareholders in 2022.
These actions demonstrate the confidence we have in our business and our commitment to drive strong shareholder value.
Now turning to slide 19, let me recap what you've heard over past few minutes.
In 2021, our teams impressively demonstrated our ability to operate in a challenging environment and we were able to deliver another record year of results.
We will continue to do so in 2022 and will deliver another record year, coupled with significant returns of cash to shareholders.
This clearly demonstrates that <unk> today is structurally different company and well positioned to leverage with strong consumer demand, we expect in a COVID-19 and post COVID-19 environment.
Now we will end, our formal remarks and open it up for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
For just a moment to compile the Q&A roster.
And your first question comes from the line.
Oh.
Mcclary.
Goldman Sachs. Your line is open.
Thank you good morning, everyone. Good.
Morning.
Thinking about I know you mentioned that you expect the greatest impact in terms of inflation in the first quarter and the first half of the year can you just give us a bit more color on how youre thinking about the sequential.
We have seen a lot of those input cost IC and the bridge you sort of had a six 5% hit to the margin in the fourth quarter Youre, implying a 5% impact for the full year just talk to us about how we should be thinking about the cadence of those costs and what that could imply for the margin across the business.
Susan It's Marc So let me try to provide a little bit broader context, and first of all in as well.
Don't give quarterly guidance.
But I think it's very important to understand this year's seasonality in our guidance.
And what do you see underlying versus basically two fundamental factors in seasonality, which are not exactly the same cycle. So first you have cost increases.
Which we do expect to peak in Q1, and Q2 and then moderate in the back half of 2022.
Part of it is also based on an effective last year, but we expect a peak in Q1 Q2.
Offsetting incremental pricing actions, which we have already announced Weber I mean, again, we announced them, but they're not yet in effect you will start seeing the incremental additional benefit towards the end of Q1, and particularly Q2.
So while the negative side is more heavily balance towards Q1 Q2, the pricing benefits will be most significant Q2 Q3 and Q4.
So are you overlay. These two factors that led to kind of the first half indication, which didnt provided in his remarks that we expect 40% to 45% of our full year EPS being delivered in the first half.
Okay. That's that's very helpful.
And then following up.
Can you go into the fourth quarter expecting to focus on ramping your inventory you made the comment that you expect that effort to continue through 2022, especially in the U S.
Talk to the supply chain headwinds that youre seeing as you come into this year anything that's really changed and how you're expecting that to come through the year and how would you be thinking about your volumes relative to the industry in North America and the U S. Specifically.
Hi, Susan this is Joe <unk>.
Yes in terms of our inventory if we just take a step back we still see very strong consumer demand and we see a lot of reasons for that across housing nurse team and just usage of our products and so as we talk about inventory, it's a function of kind of outside demand as well and so we did experience.
Consumer poll, but at the same time, we continue to be hampered by operational disruptions and so the combination of the two we essentially talked about a backlog of.
<unk> orders.
Up to eight weeks earlier in the year, we've kind of chip that down to six weeks in and ultimately the four weeks. So we've not yet made the full.
Progress that we would have liked on inventory as a consequence of those two functions. We expect the disruptions really to continue into the Q1 first half period as Marc and Jim had indicated and so that also was a factor in getting the inventory levels. We wanted.
Susan maybe just adding to this one.
Basically in the most simple term, we do expect to supply chain constraints to persist throughout 2022.
And the reason why I'm, saying this one and of course with some uncertainty.
If you look back at what drove supply chain shortages in 'twenty, one it's largely labor shortage in our own factories component issues chip issues and transportation delays, both across the ocean and even domestically.
Estimate all of these factors are somewhat relates to respective cobot waves.
And as we all experienced an NOL will can see every day cohort is not yet completely over even more than may be some light at the end of a tangible.
But theres always rippling effects coming out of the respective Covid wave as you as you as we work ourselves through supply chain and also in particular to think about omicron and what it might mean for Asia and Asia component suppliers. So there's uncertainty.
And with that uncertainty that's why we say most likely the supply chain impact will be visible in 'twenty two.
I would say round numbers reason to be slightly more optimistic in the back half for the first half I don't expect a significant improvement as a result of this one.
We would love to build some inventory to be very clear I don't think it will happen in the first half.
Depending on how the situations supply chain, we may be able to build some.
Inventory levels to manageable working capital levels by the end of the year.
Your next question comes from the line, Eric <unk> from Cleveland Research. Your line is open.
Thank you good morning.
Good morning.
Good morning, two questions if I could first of all in terms of demand.
The 2% to 3% market growth outlook in 'twenty two.
Conviction and visibility to that and then also curious how your watch demand behavior.
Through <unk> and into <unk>.
Especially with the AMA crowd in spite of what's taken place.
Eric its market first of all both broader group of 2% to 3% refers to the industry shipment guidance, which we've given for North America.
To be really clear met an important differentiation that number is driven by supply chain constraints the underlying consumer demand is stronger.
So we factor in certain supply chain constraints, which will lead to an overall industry drove major significant investment for consumer actually would give us permission to so that's already factored in.
Which also explains a lot of questions about industry growth going forward will still be have to be explained by how much the industry can ship in produce.
Instead of all of that I would say take into account the comment I made earlier.
The biggest kind of risk if you want to say, it's a industry shipments is probably in the first half.
For comparison in Q1 last year Q1 was reasonably solid.
That's what we would right now expecting in our full year guidance, but again with 2% to 3%, we feel pretty confident if supply chain gets better that could be upside, but right now we take a certain.
With respect to hearing to account.
And then second if I could but the price the price mix number in 'twenty, one 6% for the full year.
It's something that I don't.
<unk> achieved and a longtime perhaps ever and now expected to run that back again in 'twenty two.
Obviously, you can manage raising price, but just interested in terms of the retailer excuse me. The consumer are you seeing any change in the consumer reception or their attitude or elasticity.
Ongoing now a second Europe pretty notable price and mix increases.
Eric It's Marc again, and maybe Juliet can also chime in.
The simple answer is so far we do not see any major concerns about price elasticity, but demand continues to remain strong and robust.
And frankly right now the most recent increase we've put out there we don't see that as the number one country. So again it comes back to the overall theme is consumer right now is not our prime concern. It is on the supply side.
Of course, you could argue that.
The longer various public talk about inflation at one point for broader context about expected inflation could impact consumer confidence, but so far we don't see bad yet.
Actual price elasticity is I mean, right now we don't see a big impact coming from any of our previous price increases.
Yes, maybe just adding on those points I think.
The offering that we have in market gives consumers a quite a bit of choice matching their needs and so as a consequence of not seeing that pressure from an elasticity standpoint, and really having great product and brand offerings for consumers to choose what exactly they need kind of has been favorable in that regard so far.
Your next question comes from the line of David Macgregor from Longbow Research. Your line is open.
Yes, good morning, everyone and congratulations on all the progress.
Yes, just wanted to talk about the 'twenty two guidance on EPS of <unk> 27 to $29 could you just talk a little bit about sort of the difference in the assumptions behind the low end of that range versus some of the assumptions underlying the upper end of that range.
Yes, David This is Jim and maybe I'll start off and then mark or Joe could add some context. There is as we go into the year and if you think about even historically as we've given ranges in the past.
It's typically been about a 10% range around our earnings and so you know as our earnings our EPS has grown the range, it's gotten a little bit wider if you look at what we're seeing today and the low end versus the high end as we come into the year, we're starting off with an estimate on a range of material cost increases between 1 billion and $1 $2 5 billion. So <unk>.
Obviously, there is still some moving parts within there and we feel very good about the range that we've given.
Additionally, as we look at demand around the globe.
We talked a little bit earlier, while we do see strong consumer demand right now, we see supply chain constraints that could come into play and limit the amount that we can produce and others could produce and ship. So that's where how we got to the range right now if you're on the low end you assumed the supply chain constraints are a little bit higher than than our last a little bit longer than we thought.
<unk> and materials might be at the higher end of that range. If you go to the high end of our range Youre seeing that materials would be a little bit lower than what we used.
Got it.
Thanks for that and then second question.
There's been a lot of concern expressed slightly around your market share in the United States and unit share in particular.
And it appears like it was down again in the fourth quarter, but I recall your explanation last quarter, that's entirely due to production constraints with the supply channel and flavor et cetera.
As you think ahead to that point once the supply channel issues are no longer a constraining factor how confident are you in your ability to win that share back again in Hawaii.
David It's Marc maybe Joseph chime in as well so first of all orders to be.
Transparent and clear Q4, we gained sequential market share in the U S compared to Q3 year over year Brewers are still slightly down so if you want to.
Another way to look at it probably our weakest U S market share was pretty much around the summer periods and ever since we.
We slightly manage back and that is also a little bit of reflection to the order backlog, which we explained in the past where.
It kind of a worst state we were kind of a seven or eight weeks order backlog, we're now kind of pretty much back to four weeks. So we are gradually making our way back on the market share, but given the constraints comments, we talked about before it's not going to be in the short short term because simply we can produce enough.
Having said that and that gives us confidence.
We have a very very high demand for our newly launched products and the high end products. So we know with demand out there.
We know what we can work with Phil from a pure preference for our products and our brands, we feel we might be in the best position like in many years. So we feel very good once we have them.
Availability on products, where we can gradually regained market share.
Yes, maybe mark just to build on that point, our product launches related to top load 201 agitator that we launch has been very successful our dishwasher launch in the last lets say 12 or 18 months continues to gain steam there very successful and really our gen are luxury premium brand has grown quite well so we do.
Do you see a lot of assets in market that are ready to and positioned to help us grow to Mark's point on the disruptions and the limiting factor supply we need to get that stabilized and improving consistently really to have all those things come together.
Our next question comes from the line of Sam <unk> from Raymond James Your line.
Good morning, Marc Jim Joe how are you.
Good morning, Dan Good morning.
Two quick questions if I might.
Jim you mentioned that some of the variability around your expectations for earnings this year is going to be.
We're rmi ultimately shakes out can you talk about how much sensitivity.
Within your Rmi guidance is specific to changes in prevailing steel and base metals in 'twenty. Two I think we get the fact that resins move around and I think you've got three or four months of visibility. There. So clearly that could be some sensitivity I'm really looking more more so.
At steel and base metals in particular.
Yes, Sam this is Jim and Mark can kind of add in a little if you'd like or Joe, but what I would say is when we look at the contracts we have in place and our expectations that range incorporates.
What what we think the variability could be as you know historically, we really don't give specifics on various commodities in terms of what they are but when we look at them in total we believe the range of $1 1 billion to $1 25 billion incorporates the different movements, we could see within there.
And based on what we know today and the contracts we have in place. So again, what I would also highlight is last year. We were very accurate in terms of when we came out of it but it was one quarter later, when we really came out with a very firm number but the $1 billion. We said we'd see in 2021 was in line. It held all year long so right now.
Just on where steel prices are today and resin prices, we believe we'll be in that range.
Sam It's Marc just maybe echoing what Jim missing and also tying it back to David earlier question about the 27 to $29. Yes. The biggest amount of variation probably comes around how much of the raw material inflation overall inflation move would see.
And that explains the variation.
Back to Jim's comment the raw materials, particularly in steel and everyone's as you know <unk> typically long contracts and hedging in some case in place so that part is.
Is pretty much locked in.
Still with some variation, but it's pretty much of a predictable part.
The element, which has still kind of uncertainty in terms of how big It is is rippling effect on other components as a sub suppliers pass on cost increases.
The other element is also logistic cost is still a significant concern and logistic costs have gone.
Both global transportation, but also domestic transportation have gone up a lot in 'twenty one.
I would say this.
Factors, our one probably which explains some of the variation, but again I'm coming back to Jim's point we.
We were pretty much spot on in our cost forecast for 'twenty. One doesn't mean that we liked it we were spot on and I think by now we have a pretty good sense about what amount of cost.
We're faced with.
My second question. Thank you for that granularity and my second question.
As it relates to your working down the backlog from eight weeks to six weeks now to four weeks.
Can you be real specific or as specific as you can competitively as to how you've been able to do that what where were the bottlenecks that you have been able to breakthrough.
And why those bottlenecks don't continue to improve or at least the effects of them don't continue to improve throughout 2002.
Hi, Sam this is Joe.
Terms of kind of how we progress through that.
There are lots of factors.
Earlier in the year, we had different events related to resins and weather and things of that nature. So really those were were pervasive in terms of the category, but they were specific as it pertained to just resins as we get through that that was probably around the mid summer side that was our peak. So as we went through that we had other different disruptions.
Good.
Suppliers generally they've got a little bit more stable as a consequence of health progressing and then really we had some consistent.
I will say disruptions around transportation global transportation, we had some persistent ones around chips and so the reason why we're not expecting big improvements because we still have the characteristics that mark cited earlier in terms of <unk> and the waves of disruption that that could impact other suppliers. So until we really see that go through immediately.
Can't expect to be in a better position from some of these persistent areas, but the one offs from weather and very specific events, we've kind of got through so that really took us from the let's say $8 seven to eight week backlog to the six and narrow before and until we see the rest of these phases come through the supply chain system, probably not reasonable to expect.
Lot of improvement in Q1 per se.
Your next question comes from the line of Michael Rehaut from JP Morgan Your line is open.
Thanks, Good morning, everyone.
More than market.
First question I had was around market share and a big area of Investor focus if.
If you look at the fourth quarter your.
North America grew.
Two 5%.
If you kind of apply just for argument's sake, and I think you've said in the past that.
Roughly proportional the overall price mix benefit too.
North America, Youre looking at maybe two or 3% of volume decline versus.
Industry days being flat.
Similarly.
At least on a consolidated basis.
You are talking about five 6%.
Speaker 1: revenue growth for 2022, if you take out the mix there, price mix benefit, you're looking at Gladish volume.
Revenue growth for 2022.
If you take out the mix there price mix benefit you are looking at flattish volumes.
Speaker 1: versus industry shipment globally of 2%. I just want to make sure we're thinking about it right, that it appears that the market share.
Versus industry shipment globally, 2%.
To make sure we're thinking about it right that it appears that the market share.
Speaker 1: slippage is continuing, obviously, I presume you're saying around supply chain constraints, but if that's the right way to think about what's occurring in terms of your market share in 4Q and what you expect in 2022 and how that might change over time or even during the upcoming year.
Slippage is continuing obviously.
I presume you are saying around supply chain constraints, but.
If that's the right way to think about what's occurring in terms of your market share in <unk> and what you expect in 2022 and how that might change.
Over time or even during the upcoming year.
Speaker 2: Yeah, so Michael, it's Mark. So first of all, and let me first zoom in on U.S.
Yes.
It's Marc so first of all.
Let me first zoom in on U S.
Speaker 2: Again, as I mentioned before, in Q4, we gained sequential market share, but we're still down year over year.
Again as I mentioned before in Q4, we gained sequential market share, but were still down year over year.
Speaker 2: For the U.S. specifically, for 2022, we expect a slight year-over-year market share gain. What you're referring to, the 5 to 6 percent, that is our global revenue growth. Again, you have a different mix of components going on, and as you've seen in the respective guidance, we were a little bit cautious on the Latin America demand, which is from a pure global volume perspective, a significant portion. And also, I think in Europe , you may not see the same kind of growth as we would expect from the U.S. So there's still regional differences, which are factored in the overall 5 to 6.
Paul will use specific about 'twenty, two we expect a slight year over year market share gain but youre, referring to the 5% to 6% betters. Our global revenue growth again, you have a different mix components going on and as you've seen in their respective guidance, we were little bit cautious in Manhattan America demand, which is from a pure global volume perspective, a significant portion.
And also I think in Europe , you may not see the same kind of growth as we would expect from U S. So there's still regional differences, which are factored into the overall, 5% to six but again very specifically for US we do expect for 'twenty, two a slight year over year market share gain.
Speaker 2: But again, very specifically for the U.S., we do expect for 2022 a slight year-over-year market share gain.
Okay.
That's helpful. Mark appreciate it.
Speaker 1: Um, I guess 2nd, we just wanted to be clear on, um. Some of the, uh, components also of.
I guess secondly, just wanted to be clear on.
Some of the components also.
Speaker 1: the thoughts around 22 and a couple of other areas. One, the price mix cadence throughout 2022, I assume, you know, first quarter will be less than the full year average and that's part of the challenge of the first quarter. And then also on the 27 to 29 dollar EPS.
Yes.
Thoughts around 'twenty two in a couple of other areas one.
The price mix cadence throughout 2022.
I assume first quarter will be less than the full year average and thats part of the challenge.
First quarter.
And also on the 27 to $29 EPS.
Speaker 1: Whether or not that includes share repurchase in the denominator, that billion dollars, I wasn't fully clear with the slides.
Whether or not that includes share repurchase in the denominator of that $1 billion.
I wasn't fully clear with the slides.
Yeah, Michael I'll start with the.
Speaker 3: Yeah, Michael, I'll start with the you know, actually, I'll take both of them here and then ask Joe and Mark to kind of comment but on on the price mix, as we talked about earlier, you've got some carryover coming into the year, but the recently announced price increases don't start to take effect.
Actually I'll take both of them here, and then ask Joe and Mark to kind of comment but on the price mix as we talked about earlier <unk> got some carryover coming into the year, but the recently announced price increases don't start to take effect.
Speaker 3: and drop to the bottom line until you get to later in Q1 and into Q2. So there is.
And dropped to the bottom line until you get to later in Q1 and into Q2. So there is a kind of back half.
Speaker 3: a kind of back half pick up on that in terms of the price increases we've recently announced. In terms of share repurchase, what I would assume right now is there's a moderate level within there, because a lot of that's dependent upon the timing of when we do it within the year. And obviously, we've incorporated all the share repurchases we did last year. But as we go throughout the year, if at some point in time that drives a different estimate, then we'd obviously update. But right now, it's just assuming a moderate level within the year spread relative.
Up on that in terms of the price increases we've recently announced in terms of share repurchase what I would assume right now is there's a moderate level within there because a lot of that is dependent upon the timing of when we do it within the year and obviously, we've incorporated all of the share repurchases. We did last year, but as we go throughout the year, if if at some point.
And time that drives a different estimate then we'd obviously update but right now it's just assuming a moderate level within the year spread relatively evenly.
Speaker 4: Your next question comes from a line of Mike Dahl from RBC Capital Markets. Your line is open.
Your next question comes from the line of Mike Dahl from RBC capital markets. Your line is open.
Speaker 3: Hi, thanks for my question. Um, just just another pop up on on cadence through the year, but maybe ask from the volume standpoint. Sorry to harp on this, but it sounds like supply constraints are existing at an elevated level near term. There's also some more difficult comps.
Hi, Thanks for taking my question.
Another pop up on cadence through the year, but maybe ask from the volume standpoint, sorry.
Harp on this but it sounds like supply constraints or staying at an elevated level near term Theres also some more difficult comps.
Speaker 3: in the first half of the year. So it, you know, when you think about your global, the global guide seems to suggest volume kind of flat for the year. Would you expect volume down in the first half of the year and then up in the second? Is that effectively what the guide's inclined to get the whole year? And any comments specifically on whether North America would be similar to that would be great.
The first half of the year so.
When you think about your global the global guide seems to suggest.
Flat for.
For the year would you expect volume down in the first half of the year and then up in the second is that effectively.
What the guidance implies to get full year and any any comment.
Pacifically other North America would be similar to that would be great.
Speaker 3: Yeah. And Mike, maybe this is Jim. I'll start a little bit with, you know, the volume assumptions. And as Joe kind of mentioned earlier.
And Mike maybe this is Jim I'll start a little bit with the volume volume assumptions and as Joe mentioned earlier is right now with some of the constraints that we see we do assume that as we go throughout the year our ability to produce will increase so that does impact the volumes.
Speaker 5: will increase. So that does, you know, impact the volumes throughout the year. You know, the other thing, though, we talked about with the seasonality and all that is, as we said, is as you look at where material costs, the bigger year-over-year impact starts to come in the first half of the year, and then we've assumed it moderates throughout the back half of the year. So there's a lot of different factors in there that drive the timing right now, but those are probably the two biggest. Okay, thanks, Jim. And then the second question is to...
Throughout the year.
Other thing, though we talked about with the seasonality and all of that is as we said is as you look at where material costs the bigger year over year impact starts to come in the first half of the year and then we've assumed it moderates throughout the back half of the year. So there's a lot of different factors in there that drive the timing.
Right now, but those are probably the two biggest.
Got it Okay and then the second question is.
Speaker 5: Got it. Okay. Thanks, Jim. And then the second question is...
Speaker 5: is just on North America EBIT. It's a 16 percent guide for the full year. That's obviously still a very strong level, historically speaking. It is down from the 17 or high 17s in 2021. Obviously, you've talked to the cost inflation dynamics just now.
Just on North America EBIT.
16% guide for the full year, that's obviously still a very strong.
Level historically speaking it is down from the 17 eight and in our high <unk> in 2021, obviously, you've talked to the Austin Gen dynamics personnel in Pryor.
Speaker 3: answers, but can you talk about any other drivers of the year-on-year change in margin in North America, and maybe more specifically also whether there's an assumption that promotional activity returns?
Answers, but can you talk about any other drivers of the year on year change in margin in North America, and maybe more specifically also.
Whether there is an assumption.
Promotional.
Activity returns.
Yes, Michael this is Joe in terms of the North American margins. They do remain at really strong levels from a 16% EBIT standpoint, again, well within our guidance of 15 to 16 kind of long term.
Speaker 6: Yeah, Michael, this is Joe, you know, in terms of the North American margins, they do remain at really strong levels from a 16% EBIT standpoint, again, well within our guidance of 15 to 16, kind of long term, and really that is driven by the sequencing of the events that, you know, Jim, Mark, and I all spoke to, cost headwinds, and some of the disruption experienced earlier in the year, Q1, Q2, offset by a lot of the actions we put in place to either remove costs, eliminate costs, defer costs, and also add in price and mix benefits.
Really that is driven by the sequencing of the events that so.
Virtually Jim Mark Nio spoke to cost headwinds and some of the disruption.
<unk> experienced earlier in the year Q1, Q2, offset by a lot of the actions we've put in place to either remove costs eliminate costs deferred costs and also add in price and mix benefits, coupled with a little bit of the product launch side of things continue to be in our favor and so that really is the big drivers.
Speaker 6: coupled with a little bit of the product launch side of things, continue to be in our favor. And so that really is the big drivers that we see in terms of promotions. We don't do a lot of future comments on promotions, but I would just say we always take a very rational and effective approach to what makes sense in the market. And we do the best we can there, and we've demonstrated a long track record of doing that fairly well.
That we see in terms of promotions, we don't do a lot of.
Future comments on promotions, but I would just say, we always take a very rational and effective approach to what makes sense in the market and we do the best we can there and we've demonstrated a long track record of doing that fairly well.
Speaker 2: Michael, it's Mark, also maybe just adding to those comments.
Michael It's Marc maybe just adding to Joe's comments.
Speaker 2: You know, given that we established our long-term value creation goals in October , where we had U.S. at 15 to 16, I guess the 16 shouldn't be a big surprise. I would even argue, given that we put the 16 behind on our long-term, just it's reflective of how strong we feel about our North America business and what we will opportunity and potential we have there.
Even that we established our long term value creation growth in October that we had USD 15 to 16, I guess with 16 shouldnt be a big surprise I would even argue given where we put the 16 at behind the low long term is reflective of how strong we feel about our North America business, and what we will opportunity and potential we have there.
Speaker 2: Specific to your question about the promotional environment, given my comments earlier on supply chain, we do not expect a return or a heavy promotional environment anytime soon.
Specific to your question about the promotional environment.
Given my comments earlier supply chain, we do not expect a return or a heavy promotional environment anytime soon.
Speaker 7: Your next question comes from a line of Ken Zener from KeyBank. Your line is open. Good morning, everybody. Morning, Ken. Morning, Ken.
Your next question comes from the line of Ken <unk> from Keybanc. Your line is open.
Good morning, everybody good morning, Ken.
So many things.
Speaker 8: Let's just look at the U.S. demand, which you're saying is being...
Let's just look at the U S demand, which you are saying is seeing.
Speaker 8: limited by supply, you wouldn't be the only one suggesting that.
Limited by supply you wouldn't be the only one suggesting that.
Speaker 8: Specifically, if we could look at the remodeling market, which usually is, I think, about a third of sales. My recollection is, of that R&R market, maybe a third of that is what you'd be, like, a large suite, a kitchen remodel or something. Could you talk about those kind of trends on the large piece? And then that would leave, right, two-thirds of a third, about 20% of your sales being really consumer discretionary, which, over time, I've seen.
Specifically, if we could look at the kind of remodeling market, which usually is I would think about a third of sales. My recollection is that R&R market, maybe a third of that is what you would be like a large suite right a kitchen remodel or something.
Could you talk about those kind of trends on the large piece and then that would leave two thirds a third.
20% of ourselves being related to consumer discretionary, which over time I've seen.
Speaker 8: highly correlated to consumer confidence. Could you maybe kind of talk about the different trends that you're seeing in those two areas?
Highly correlated to consumer confidence could you maybe kind of talk about the different trends that youre seeing in those two.
Two areas because it seems that.
Speaker 8: That's good, you know, that's where demand is going to be perhaps have a longer lag.
That's where demand is going to be perhaps a longer lag.
Speaker 8: and perhaps be more volatile as we move forward. That's my first question.
And perhaps be more volatile.
As we move forward that's my first question.
Speaker 2: Let me try to take it, first of all, reminding the audience of numbers which we communicate in the past. In the U.S., to some extent also globally, the rough split in terms of demand is about 15% housing, about 30% discretionary, and about 55% replacement, directionally.
Ken let me try to take it.
First of all reminding the audience, both numbers, which we communicated in the past in the U S.
To some extent or globally, but rough split in terms of demand is about 15% housing.
30% discretionary and about 55% replacement directionally.
Speaker 2: Housing, as we repeatedly said, we're
Housing.
We repeatedly said we are.
Speaker 2: mid- and long-term bullish. Housing, like our appliance industry, is right now more supply-constrained as opposed to anything else. So, again, we repeatedly said we would expect a non-constrained housing environment. U.S. housing to be 2 million units starts every year. It's now barely made its way back to 1.7. Housing will continue to be strong, but still constrained by supply.
Mid and long term bullish.
Like our clients' industries right now more supply constraint as opposed to anything else. So again, we repeatedly said we would expect in non constrained housing environment U S housing to be 2 million unit starts every year. It's now barely made its way back to $1 seven housing will continue to be strong, but still constrained by supply.
Speaker 2: Discretionary, you have two effects why we're very positive is.
<unk> year, but two effects of our very positive is one as you have strong consumer balance sheets.
Speaker 2: One is you have strong consumer balance sheets.
Speaker 2: And that just comes from basic saving for one or two years and getting government support.
And it just comes from basic saving for one or two years in getting government support and that money not being spent yet so very strong consumer balance sheet, coupled with consistent and even stronger trends on nesting and consumers being willing to invest in anything home related so it helps us here, which leaves movement.
Speaker 2: and that money not being spent yet. So very strong consumer balance sheets.
Speaker 2: coupled with consistent and even stronger trends on nesting and consumers being willing to invest in anything home related. So it helps us here, which leads me to the last thing, the replacement, the 55% roughly.
Laughing, but replacement with 55% roughly.
Speaker 2: And we talked about this before. I think one of the biggest misperceptions out there is that it has been pulled forward in demand.
And we talked about this before I think one of our biggest misperception out there is there has been pull forward in demand.
Speaker 2: We know from our data that the opposite. What you've seen the last two years is accelerated use and consumption of appliances, which drives faster replacement and stronger replacement going forward.
We know from our data met the opposite what you've seen in the last two years is accelerated use and consumption of appliances, which drives faster replacement and stronger replacement going forward too.
Speaker 2: To give you some numbers, and these are the most recent numbers, even in Q4, we saw the oven usage on connected appliance increase compared to pre-COVID by more than 150%, and washers is about 50% higher.
Give you some numbers and these are the most recent numbers.
Even in Q4, we saw the oven usage on connected appliance increased compared to pre COVID-19 by more than 150%.
And <unk> is about 50% of <unk>.
Speaker 2: that ultimately drives significantly higher replacement rates going forward.
That ultimately drive significantly higher replacement rates going forward. So.
Speaker 2: I know it can make a long story, but it just reconfirms on the basic demand trends, all three drivers, we feel very strong, very bullish about the number one constraint is still the supply chain.
I know Ken can make a long story, but it just reconfirms on the basic demand trends all three drivers, we feel very strong and very bullish about but number one constraint is still of a supply chain.
Good.
Speaker 8: Jim, I think people ask this 50 different ways, and I'm not trying to.
Jim I think people assets 50 different ways and I'm not trying to.
Speaker 8: pick and choose too much on your fiscal guidance, but with supply constraints, it seems your business would move more sequentially, perhaps.
Pick and choose too much on your fiscal guidance, but with supply constraints at.
It seems your business would move more.
Sequentially.
Perhaps.
Speaker 8: than quote, during normal times, which we saw in, you know, 21, where you basically just kind of kept progressing through the year. Does that suggest, you know, 1Q versus 4Q in terms of top line could be kind of, you know, very similar, maybe just down a little bit, and then you just ramped throughout the rest of the year? And given your pricing comments and implied margin comments, it seems like that.
During normal times, which we saw.
'twenty, one where you basically.
It's kind of kept progressing through the year does that suggest <unk> versus <unk> in terms of top line.
It could be kind of.
Very similar or maybe just down a little bit and then he does ramp throughout the rest of the year and given your pricing comments and Mark implied margin comments it seems like that so.
Speaker 8: sequential trend would be the same where margins are lowest in the first quarter given your cost and price dynamic flipping throughout the year.
Sequential trend would be the same where margins are lowest in the first quarter, given your cost and price dynamic lifting throughout the year.
Speaker 3: Yeah, yeah, I you know, as as Mark kind of mentioned earlier in that is we do expect that the pattern for this year that in the first half of the year, we'll see 40 to 45% of our earnings come and then obviously, you know, 55 to.
Yes, yes, yes.
No.
As Mark kind of mentioned earlier and that is we do expect that the pattern for this year than in the first half of the year, we will see 40% to 45% of our earnings come and then obviously in a 55 to 60 in the back half of the year. So that one does imply that volumes and revenues will ramp throughout the year as I mentioned earlier.
Speaker 3: 60 in the back half of the year. So that one does imply that volumes and revenues will ramp throughout the year, as I mentioned earlier. The second thing that drives that, and you mentioned it, but as we implement the new price increases that we've just announced, those will obviously have an impact on the top line too that will begin to ramp in Q2 and then into Q3. So you should expect a similar type of pattern, not exactly, but in terms of revenues ramping throughout the year.
The second thing that drives that and you mentioned it but as we implement the new price increases that we've just announced those will obviously have an impact on the top line too that will begin to ramp in Q2, and then into Q3. So you should expect a similar type of pattern.
Not exactly but in terms of revenues ramping throughout the year.
Your next question comes from the line of Liz Suzuki from Bank of America. Your line is open.
Speaker 4: Your next question comes from the line of Liz Suzuki from Bank of America. Your line is open.
Speaker 9: Great. Thanks for taking my question. I guess the first one is if raw material costs moderate more quickly than you anticipate, would you expect to hold on to some of these higher prices and therefore lead to some margin upside? Or would the intention be to pretty quickly react to a lower cost environment with some more attractive pricing to the consumer and potentially some bigger market?
Great. Thanks for taking my question.
First one is if raw material costs moderate more quickly than you anticipate what do you expect to hold onto some of these higher prices and therefore lead to some margin upside or would the intention data pretty quickly react to a lower cost environment with some more attractive pricing to the consumer and potentially some bigger market share gains.
Speaker 2: Yes, this is Mark. Again to reiterate, we expect inflation to peak in Q1 and Q2 and to start moderating in the back half. Moderating doesn't mean it's going down to zero. So we will still experience some inflation in the back half and then we can reassess once we get in the back half. But we expect a moderation, but not a return back to deflation or zero.
Yes. This is <unk>.
Again to reiterate we expect inflation to peak in Q1, and Q2 and to start moderating in the back half moderating doesn't mean, it's going down to zero. So we will still experience some inflation in the back half.
And.
And we can reassess once we get into the back half, but we see it expect a moderation another returned back to deflation or zero.
Speaker 2: The other thing is to also keep in mind between input inflation and consumer price or output inflation, there's a certain time lag by the time you get in the market. So there's a certain delay effect. And I can only repeat what we said before. And what I said just on the call is on a four-year level, we guide towards a six-point price impact. And we're pretty confident about this one. And yes, on a broad environment, we do not expect kind of any time soon a heavy promotion environment.
The other thing is also keep in mind between input inflation and consumer price our output inflation versus certain time NEC <unk>.
By the time, you get into the market silver versus certain delay effect in <unk>.
Can only repeat what I, what we said before and what I said just open call. It on a full year level, we guide towards six price impact and we're pretty confident no Bob This one.
And yes, one broad environment, we do not expect.
Kind of any time soon a heavy promotional environment.
Speaker 3: Yeah, and I'd probably add to that too, you know, Liz, as Mark talked about the materials, but we also have logistics costs and labor costs that have gone up significantly over a period of time. So you've got multiple variables within there and the timing of when some of those begin to moderate or come back, you know, may not be in sync. So there's a lot of factors to consider.
Yes.
Add to that too.
As Mark talked about the materials, but we also have logistics costs and labor costs that have gone up significantly over a period of time, so you've got multiple variables within there and the timing of when some of those begin to moderate or come back may not.
Not be in sync so theres a lot of a lot of factors to consider.
Okay, Great and just a follow up on the demand environment. As you think about the use of credit and rates rising and what percentage of appliance consumers are typically buying on credit and historically has a rising rate environment put some pressure on demand for those large ticket items.
Speaker 9: Great. And just a follow-up on the demand environment, you know, as we think about the use of credit and rates rising, what percentage of appliance consumers are typically buying on credit? And historically, has a rising-rate environment put some pressure on demand for those large-ticket items?
Hi, Les this is Joe in terms of kind of interest and demand I mean really.
Speaker 6: Hi, Liz, this is Joe. In terms of kind of interest and demand, I mean, you know, really.
Speaker 6: The increases that have happened, we're still at historically low levels. So, you know, from an absolute standpoint, we're not at a position where we're, you know, exceeding any kind of historical average. So that really is still favorable when you just take a step back. You know, in addition, you know, as Mark said earlier, a smaller percentage of appliances are related to new homes, you know, approximately 15% or so. So that's also a smaller impact.
The increases that have happened we are still at historically low levels. So from an absolute standpoint.
We're not in a position where we're exceeding any kind of historical average so that really is still favorable when you. When you just take a step back in addition.
As Mark said earlier, a smaller percentage of appliances are related to new homes, approximately 15% or so so that's also a smaller impact in terms of other financing and things that consumers would do.
Speaker 6: In terms of other financing and things that consumers would do, you know, in-store or what have you, that's really just not a huge factor in the decision criterion today. And given the historically low levels, we expect that to remain the case. So, you know, generally speaking, that's still a favorable item for us in terms of at least new home purchases. So we expect that to be, you know, not a big factor in consideration for consumers at this point in time. This is – it's Mark just echoing.
In store or what have you that's really just not a huge factor in the decision criteria today and given the historically low levels. We expect that to remain the case. So you'll generally speaking that's still a favorable item for us in terms of at least new home purchases. So we expect that to be not a big factor in consideration for consumers at this.
Point in time.
It's mark just echoing on <unk> and.
Speaker 2: An interest rate increase on the direct appliance purchase has almost no impact. The percentage of consumer finance products in the U.S. is small.
An interest rate increase on the direct appliance purchase has almost no impact the percentage of consumer finance products in the U S is small.
Speaker 2: And a strong consumer balance sheet is even smaller than before. There are other markets, like Latin America, where you have a slightly higher percentage, but it really, that will not impact our global business. You may have an indirect impact on housing, but even here, I would argue that given where the mortgage rates are in a multi-decade comparison, there's still some way to go before that really would impact consumer demand in a meaningful way.
Strong consumer balance sheet is even smaller than before where our other markets in Latin America, but do you have a slightly higher percentage, but it really.
That will not impact our global business you may have an indirect impact on housing, but even here I would argue that given bear but mortgage rates are in a multi decade comparison, we're still some way to go before but we really would impact consumer demand in a meaningful way so.
Let's put this way interest rates are right now a lesser concern for us.
Speaker 2: Let's put it this way, interest rates are right now a lesser concern.
Speaker 2: Let me maybe just also, given that we came to the last question, just wrap it up here. First of all, thank you all for joining and also zooming out a little bit and repeating what we said earlier.
Let me maybe just also given that we came to the last question just wrap it up here first of all thank you all for joining.
And also assuming our deliberate of repeating what we said earlier.
Speaker 2: Ultimately, 2021 was an all-time record year, all-time record revenue, all-time record margins, all-time record cash flow, and we have strong balance sheets.
Ultimately 2021 was an all time record year, all time record revenue all time record margins and record cash flow and we have a strong balance sheet.
Speaker 2: I mean, it's now the fourth year in a row, and we're guiding towards a fifth all-time record. So we feel very good about business. Of course, we have some challenges and some unknowns to deal with, and they're particularly in Q1 and Q2. But I would argue the last four years, I think we've demonstrated pretty well that we can deal with unknowns and challenges and deliver strong results. And that's our firm commitment and strong commitment to continue to do so. So, again,
Now with <unk> in a row and we are guiding towards the fifth all time records. So we feel very good about business.
Of course, we have some challenges in some unknown to deal with.
They are particularly in Q1 and Q2, but I would argue we lost four years I think we've demonstrated pretty well, but we can deal with unknowns and challenges and deliver strong results and that's our <unk>.
Our commitment and strong commitment to continue to do so so again.
Speaker 2: Thank you all, I look forward to talk to you at our next earnings call and thanks a lot again.
Thank you all look forward to talk to you at our next earnings call.
And thanks, a lot again.
Speaker 4: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Ladies and gentlemen that concludes today's conference call you may now disconnect.
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Speaker 10: Music
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