Q1 2023 Whirlpool Corporation Earnings Call
Speaker 1: For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Corey Thomas.
Corey Thomas: Thank you and welcome to our first quarter 2023 conference call.
Speaker 2: Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial Officer.
Speaker 2: Our remarks today track with the presentation available on the investor section of our website at whirlpoolcorp.com.
Speaker 2: Before we begin, I want to remind you that as we conduct this call, we'll be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. 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.
Speaker 2: 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.
Speaker 2: We also want to remind you that today's presentation includes the non-GAAP measures outlined in further detail on slide 3 of the presentation. 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 the adjusted measures will provide you with a better baseline for analyzing trends and our ongoing business operations.
Speaker 2: We also think the adjusted measures will provide you with a better baseline for analyzing trends and our ongoing business operations.
Speaker 2: 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.
Speaker 2: 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 Marc. Thanks, Corey, and good morning, everyone.
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 Marc.
Marc Bitzer: Thanks, Corey, and good morning, everyone. As you will have noted in our earnings release, we did start the year with a very solid first quarter. It was the first quarter which demonstrated significant improvement from our Q4 of last year. And it was a course which puts us firmly on track towards our full year guidance.
Speaker 2: As you will have noted in our earnings release, we did start the year with a very solid first quarter. It was the first quarter which demonstrated significant improvement from our Q4 of last year. And it was a course which puts us firmly on track towards our full year guidance.
Speaker 3: It was the first quarter which demonstrated significant improvement from our Q4 of last year.
Speaker 3: And it was a course which puts us firmly on track towards our full year guidance.
Marc Bitzer: If you look at the driver's office improved performance, we did not get a lot of help from a macro environment. The global industry demand was down but frankly that is what we expected. It was instead our consistent and disciplined execution of our operational priorities that drove this improvement.
Speaker 3: The global industry demand was down but frankly that is what we expected.
Speaker 3: It was instead our consistent and disciplined execution of our operational priorities that drove this improvement.
Speaker 3: We were able to achieve meaningful cost reductions, we improved our supply chain, our product innovations drove strong consumer demand, and we gained market share both sequentially and year over year. In short, we did what we told you we would do.
Speaker 3: In short, we did what we told you we would do.
Speaker 3: The first quarter further strengthens our confidence and in our full year guidance. While the macro environment remains challenging and volatile, we know we have the right operational priorities and demonstrated that we can execute them with rigor and discipline. Our market share gains, in particular in the US builder segment, will continue throughout the year. Coupled with early signs of a stronger U.S. housing market, we expect to see an improved revenue top line as the year progresses.
Speaker 3: While the macro environment remains challenging and volatile, we know we have the right operational priorities and demonstrated that we can execute them with rigor and discipline.
Speaker 3: Our market share gains, in particular in the US builder segment, will continue throughout the year.
Speaker 3: Coupled with early signs of a stronger U.S. housing market, we expect to see an improved revenue top line as the year progresses.
Speaker 3: Beyond our Q1 operational and financial performance, this morning we will also give you a short update on our portfolio transformation, which is fully on track.
Speaker 3: Turning to slide six, I will provide an overview of first quarter results.
Speaker 3: Across the globe, we're still seeing lower demand due to softer consumer sentiments impacting discretionary appliance purchases which resulted in a revenue decline of 5.5%.
Speaker 3: Our Q1 operating margin of 5.4% is 200 basis points ahead of Q4. And our North America margin improved by 420 basis points to a 10% EBIT margin.
Speaker 3: And our North America margin improved by 420 basis points to a 10% EBIT margin.
Speaker 3: Overall, we delivered first quarter ongoing earnings per share of $2.66, in line with our expectations and are reaffirming our ongoing EPS guidelines of $16-$18.
Speaker 3: Now turning to slide 7, I will share more details on our 200 basis points of sequential margin expansion.
Speaker 3: Our overall Q1 price mix was inline of our expectations. The year-over-year price mix margin decline is largely driven by limited participation in promotions during the first half of 2022.
Speaker 3: The year-over-year price mix margin decline is largely driven by our limited participation in promotions during the first half of 2022.
Speaker 3: For the full year, we continue to expect the promotion environment to be at similar levels as the second half of 2022.
Speaker 3: On a sequential basis, our price mix is slightly improved versus Q4, but frankly this is simply a reflection of the normal seasonal promotional activities which tend to be higher during the fourth quarter.
Speaker 3: Looking at both net cost takeout and raw materials, let me first remind you what we told you during our last earnings call.
Speaker 3: We anticipated a Q3 and Q4 mark up peak of our cost inflation and we would expect this to now turn favorable. And that is exactly what you see in the sequential cost progression where a total of net cost and raw materials show a half a point of favorable cost development. As the year progresses, we do expect net cost takeout and raw materials to be the key driver of margin improvement.
Speaker 3: As the year progresses, we do expect net cost takeout and raw materials to be the key driver of margin improvement.
Speaker 3: Our cost actions are on track. We will see more seasonal volume leverage and raw materials will continue to improve, even though at the low end of our raw material expectations.
Speaker 3: Finally, we had a negative impact from foreign currency of 25 base points year over year, ultimately delivering Q1 ongoing EBIT margins of 5.4%. Turning to slide 8, I will provide an update on our supply chain operational priorities.
Finally, we had a negative impact from foreign currency of 25 base points year over year, ultimately delivering Q1 ongoing EBIT margins of 5.4%.
Turning to slide 8, I will provide an update on our supply chain operational priorities.
Speaker 3: We aim for flawless supply chain execution. And while our historical supply chain model has served us very well over many decades, what the last few years have shown us is that in order to succeed moving forward, we need a more responsive and adaptive supply chain. We have to significant expand our dual sourcing of critical components and prioritize high-value strategic parting components to de-risk this part of our supply chain.
Speaker 3: And while our historical supply chain model has served us very well over many decades, what the last few years have shown us is that in order to succeed moving forward, we need a more responsive and adaptive supply chain.
Speaker 3: We have to significant expand our dual sourcing of critical components and prioritize high-value strategic parting components to de-risk this part of our supply chain.
Speaker 3: Additionally, over the past two years, we have also made significant progress in reducing our parts complexity. In the first quarter, we further reduced our active parts by approximately 5%. This is a key driver in increasing our supply chain resiliency. As a result, our overall product availability is significant in proof versus 2022, even though not yet fully to pre-pandemic levels.
Speaker 3: In the first quarter, we further reduced our active parts by approximately 5%. This is a key driver in increasing our supply chain resiliency. As a result, our overall product availability is significant in proof versus 2022, even in both not yet fully-to-prepandemic levels.
This is a key driver in increasing our supply chain resiliency.
As a result, our overall product availability is significant in proof versus 2022, even in both not yet fully-to-prepandemic levels.
Turning to slide 9, we provide an update of our cost takeout. First, I want to put this in context. Our business saw unprecedented levels of inflation with 2 billion of cost inflation in 2022 on top of an incremental 1 billion of raw material inflation in 2021.
Our business saw unprecedented levels of inflation with 2 billion of cost inflation in 2022 on top of an incremental 1 billion of raw material inflation in 2021.
Coming into this year, we were aiming to reduce our cost space by $800 to $900 million of which $300 to $400 million were raw material benefits and 500 million per internal cost take-out actions. In short, we're on track. More specifically, these material cost trends will put us at the lower end of this range, while our internal net cost takeout actions of approximate $5 million are largely on track.
and 500 million per internal cost big-out actions.
In short, we're on track. More specifically, Reece material cost trends will put us at the lower end of his range.
while our internal net cost takeout actions of approximate $5 million are largely on track.
We continue to reduce supply chain inefficiency and premium cost. Our proactive headcount management delivered an additional one-point reduction in our global [inaudible] workforce in the quarter, bringing our aggregate reduction to approximately 5%. Additionally, we're seeing benefits from reduced discretionary spending and other indirect costs.
Our proactive headcount management delivered an additional one-point reduction in our global consolidated workforce in the quarter, bringing our aggregate reduction to approximately 5%.
Additionally, we're seeing benefits from reduced discretionary spending and other indirect costs.
To summarize, our net cost actions are on track and commodity prices have eased, but at a slower pace than initially expected. As a result, we're trending towards the lower end of our $800-$900 million total cost takeout range. Now, I'll turn it over to Jim to review our regional results.
As a result, we're trending towards the lower end of our $800-900 million total cost takeout range. Now, I'll turn it over to Jim to review our regional results.
Jim Peters: Thanks Marc and good morning everyone. Turning to slide 11, I'll review results for our North America region.
Turning to slide 11, I'll review results for our North America region.
Our share recovery efforts driven by product innovation and improved supply chain execution continue to build momentum, delivering one point of sequential and year over-year share gains.
Consumer sentiment impacted first quarter industry demand down approximately 5.5% in line with our full-year industry expectations of down 4 to 6%.
We expect a Q2 industry decline of 5 to 10 percent and a second half industry decline of low to mid-single digits as we compare to the near double digit demand declines experience in the back half of last year.
The region delivered over 400 basis points of sequential margin expansion and ongoing EBIT margin of 10%, as our strong cost takeout actions gained traction alongside our first full quarter with [inaudible].
We remain confident in the structural strength of our North America business and continue to expect our actions to deliver very strong results, including approximately 100 basis points of sequential margin expansion in every quarter of 2023.
and continue to expect our actions to deliver very strong results, including approximately 100 basis points of sequential margin expansion in every quarter of 2023.
Turning to slide 12, I'll provide additional color around our mid to long-term North America industry outlook. While we are experiencing short-term demand softness, we remain very optimistic about mid and long-term demand trends. Replacement demand, which represents 55% of the total industry, will increase in the mid to long-term.
After the post-financial crisis, industry volume declined from 2008 to 2011. The industry began to grow again in 2013. Further, with remote and hybrid work trends continue to drive elevated usage of well above two times pre-pandemic levels in our cooking appliances, reducing the replacement cycle by approximately two years.
Combined with a very strong install base of Whirlpool family of appliances in two out of every three households in America supports strong replacement momentum.
Additionally, housing demographics, such as a moderating interest rate environment, the oldest housing stock in U.S. history, the need for household formations to catch up with population growth rates, and the 2-3 million unit under supply of U.S. houses supports mid to long-term discretionary and new construction demand, which is 45% of the total industry.
supports mid to long-term discretionary and new construction demand, which is 45% of the total industry.
We feel extremely confident in our ability to capitalize on these significant tailwinds despite the near-term pressures of housing affordability and softening consumer sentiment impacting discretionary spending, and have reflected all of these drivers in our mid-to-long-term industry growth outlook of 3-4%.
Turning to slide 13, I'll review results for our Europe, Middle East, and Africa region.
Excluding the impact of foreign currency and the divested Whirlpool Russia business, first quarter revenue was down approximately 8 percent driven by continued industry demand weakness. [inaudible] benefited from cost actions alongside health for sale accounting benefits due to reduced appreciation of approximately $30 million, that will continue each quarter until the transaction closes, which is expected in the second half of 2023, subject to regulatory approvals.
that will continue each quarter until the transaction closes, which is expected in the second half of 2023, subject to regulatory approvals.
Turning to slide 14, I'll review results for our Latin America region. The region saw signs of demand improvement in Mexico and improving but still soft demand in Brazil, more than offsetting cost-based pricing carry-over actions. Continued inflationary pressures were partially offset by our cost-take-out actions, resulting in solid EBIT margins of over 5%.
The region saw signs of demand improvement in Mexico and improving but still soft demand in Brazil. More than offsetting cost-based pricing carry-over actions.
More than offsetting cost-based pricing carry-over actions.
Continued inflationary pressures were partially offset by our cost-take-out actions, resulting in solid EBIT margins of over 5%. Turning to slide 15, I'll review results for our Asia region.
Continued inflationary pressures were partially offset by our cost-take-out actions, resulting in solid EBIT margins of over 5%.
Turning to slide 15, I'll review results for our Asia region.
Excluding the impact of currency, revenue declined 3% driven by consumer demand that has not yet fully recovered. The region delivered EBIT margins of 3.1% driven by our cost takeout actions offset by negative foreign currency and price mix. We continue to believe in the long-term growth potential for the region and India in particular.
We continue to believe in the long-term growth potential for the region and India in particular.
Turning to slide 17, I'll discuss our full year 2023 guidance.
We are reaffirming our ongoing EPS range of $16 to $18 and free cash flow guidance of approximately $800 million. Additionally, our net sales guidance of $19.4 billion alongside approximately 7.5% full-year ongoing EBIT margins with North America exiting at 14% remains unchanged.
Additionally, our net sales guidance of $19.4 billion alongside approximately 7.5% full-year ongoing event margins with North America exiting at 14% remains unchanged.
As we navigate a softer first half demand environment, easing inflation and our cost take-out actions ramp, we continue to expect to deliver 35 to 40 percent of our earnings in the first half of the year.
We are updating our gap guidance to reflect charges related to our Amea business. First, we have recorded approximately $60 million in charges related to certain Amea legacy legal matters. Second, health for sale accounting treatment effectively requires that we mark to market the value of our Amea assets through a quarterly assessment.
First, we have recorded approximately $60 million in charges related to certain amea legacy legal matters.
Second, health or sale accounting treatment effectively requires that we mark to market the value of our Miannet assets through a quarterly assessment.
Based on this assessment, we recorded a Q1 non-cash loss related to the transaction of $222 million, primarily due to working capital changes and the impact of foreign currency. We may have additional adjustments that increase or decrease the non-cash loss as we complete this reassessment each quarter. These items were removed from our ongoing earnings in Q1. I would like to highlight that the amount of consideration to be received for the transaction has not changed. Additionally, given Amea's free cash flow is largely back half-weighted, the timing of the transaction closing could impact our 2023 free cash flow.
primarily due to working capital changes and the impact of foreign currency. We may have additional adjustments that increase or decrease the non-cash loss as we complete this reassessment each quarter.
These items were removed from our ongoing earnings in Q1. I would like to highlight that the amount of consideration to be received for the transaction has not changed. Additionally, given Amea's free cash flow is largely back half-weighted, the timing of the transaction closing could impact our 2023 free cash flow.
Turning to slide 18, I will discuss our capital allocation priorities which remain unchanged.
We remain committed to funding innovation and growth and expect to invest over $1 billion in capital expenditures and research and development this year, including [inaudible] largest product launch in over a decade, which Marc will discuss in a moment. Additionally, we remain confident in our ability to generate strong pre-cash flow, alongside our strong cash balance, we continue to have flexibility to support our commitment to return cash to shareholders, demonstrated with nearly 70 consecutive years of cash returned shareholders through our very strong dividend. In the near term, we will continue to prioritize debt repayment, driving an optimal capital structure, and maintaining our strong investment grade credit rating. Now I will turn the call over to Marc.
to prioritize debt repayment, driving an optimal capital structure, and maintaining our strong investment grade credit rating. Now I will turn the call over to Mark.
Marc Bitzer: Thanks Jim. Turning to slide 20, let me provide an update on our portfolio transformation.
Whirlpool today is a very different company from Whirlpool of the past. In the last five years, we've taken several significant steps to transform the company to a higher growth, higher margin business. These actions will create an even stronger and more value-creating Whirlpool and position us for the future.
Milan five years we've taken several significant steps to transform a company to a higher growth, higher margin business.
These actions will create an even stronger and more value-creating world pool and position as for the future.
Turning to slide 21, I will highlight how the addition of InSinkorator is strengthening our portfolio and support our number one position in the Americas. In the fourth quarter of 2022, we closed the acquisition of Integrator, the largest manufacturer of food waste disposes in the United States. Our integration efforts are well underway and remain on track. With sustained EBIT margins above 20%, with 75% replacement demand, we're excited about the rich history and strong product legacy that InSinkorator adds to our portfolio. We continue to expect InSinkorator to add approximately 50 basis points to our consolidated EBIT margins.
Integration effort is well underway and remain on track.
With sustained even margins of above 20%, with 75% replacement demand, we're excited about the rich history and strong product legacy that integrator ads for our portfolios.
We continue to expect insinforated to add approximately 50 basis points to our consolidated event margins.
Turn to slide 22 and please to highlight our upcoming product launch.
InSinkorator already has the best selling product line with an overall 4.7 star rating. And we're excited to launch the NextGen product during the summer of 2023 which marks the biggest Integrator product launch over the past decade. Our fully redesigned disposers bring multiple innovative new features and performance improvements, including InSinkorator's quietest performance with Sound Seal Noise Reduction technology and a rugged induction motor with enhanced multi-grind performance, allowing consumers the divert more food waste from landfills.
And we're excited to launch the NextGen product during the summer of 2023.
which marks the biggest In-Sink-Erator product launch over the past decade. Our fully redesigned disposers bring multiple innovative new features and performance improvements, including In-Sink-Erator's quietest performance with Sound Seal Noise Reduction technology and a rugged induction motor with enhanced multi-grind performance.
allowing consumers the divert more food waste from landfills.
The easiest install ever thanks to a complete redesign of a disposer and like our current disposers, the next gen units will be manufactured in our [inaudible] facilities. The next generation disposal is expected deliver growth and marketing expansion for enhanced product offerings and manufacturing efficiencies.
The next generation disposal is expected deliver growth and marketing expansion for enhanced product offerings and manufacturing efficiencies.
Now turning to slide 23, I will provide an update on our Europe transaction.
As a reminder, in January, we agreed to contribute our European major domestic appliance business into a uniformed entity with Arslet. We expect for transaction to close during the second half of '23 subject to regulatory approval. We will own approximately 25% of the new company. With the new company we expect to have over 6 billion euro of annual sales with over 200 million euro of cost energies.
We expect for transaction to close during the second half of 23th subject to regulatory approval.
We will own approximately 25% of the new company. With the new company we expect to have over 6 billion euro of annual sales with over 200 million euro of cost energies.
And when you companies expect to have over 6 billion euro of annual sales with over 200 million euro of cost energies.
We have a potential unlock long-term value creation for our ability to monetize a minority interest.
Coupled with our 40-year Whirlpool brand licensing agreement, we expect $750 million net present value of future cash flows. Additionally, post-closing, we expect positive impact of transactions to our value creation metrics of a 200 basis points improvement to return an investor capital alongside 150 basis points improvement in ongoing EBIT margin and $250 million [inaudible] cashflow annually. Turning to slide 24, let me close with a few remarks.
Coupled with our 40-year Whirlpool brand licensing agreement, we expect $750 million net present value of future cash flows. Additionally, post-closing, we expect positive impact of transactions to our value creation metrics of a 200 basis points improvement to return an investor capital alongside 150 basis points improvement in ongoing EBIT margin and $250 million [inaudible] cashflow annually.
Additionally, post-closing, which specves positive impact of transactions to our value creation metrics of a 200 basis points improvement to return an investor capital alongside 150 basis points improvement in ongoing even margin.
Turning to slide 24, let me close with a few remarks. The broader macro cycle has continued to present challenges for most industries and the impact of recent banking crisis has renewed consumer concerns, impacting sentiment and demand. In this environment, we executed our operation priorities delivering a solid first quarter performance, and we are confident that the medium to long-term demand dynamics, while remaining focused on operating the business in a way that allows us to benefit from rebounding demand.
The broader macro cycle has continued to present challenges for most industries and the impact of recent banking crisis has renewed consumer concerns, impacting sentiment and demand. In this environment, we executed our operation priorities delivering a solid first quarter performance, and we are confident that the medium to long-term demand dynamics, while remaining focused on operating the business in a way that allows us to benefit from rebounding demand.
impacting sentiment and demand.
In this environment, we executed our operation priorities delivering a solid first quarter performance. And we are confident that the medium to long-term demand dynamics, while remaining focused on operating the business in a way, but allows us to benefit from rebounding demand.
We expect our 2023 operation prorities to deliver 800 to 900 million in cost take out alongside our North America business delivering share gains, driven by product innovation and improved supply chain execution.
We reaffirm our ongoing EPS guide of $16 to $18 and continue to unlock value with our ongoing portfolio transformation efforts.
A common theme we've discussed over the last three years is that Whirlpool has successfully navigated the fast-changing environment. We expect to do it again this year with our operation priorities, plus 1.4 billion of cash on hand, providing balance and flexibility, and our expectation for mid to long-term demand tailwind. Whirlpool is well positioned to deliver significant value creation.
We expect to do it again, Miss Year, with Operation Priorities, plus 1.4 billion of cash on hand, providing balance, flexibility, and our expectation for mid to long-term demand tailwind. We'll pull this well position to deliver significant value creation.
Now we will end our formal remarks and open it up for questions.
Operator: 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. Your first question comes from a line of Susan Maklari from Goldman Sachs. Your line is open.
Susan Maklari: Thank you. Good morning, everyone. My first question is the market share gains that you saw this quarter were impressive, can you talk a bit more about what drove those and how you're thinking about your business relative to the industry outlook for volumes that you outlined for the second quarter and then the back half?
Marc Bitzer: Susan, so let me just give you a little bit more color, more market share gains in North America in particular. So as we indicated in the prepared remarks, we basically exposed both the conventionally and year over year against like the moment of share. That is a lot of results of one, supply chain just being in a much better shape, not completely resolved but we're in a much better shape. And two, we have a number of really good market innovations out there like the two-in-one laundry or the Maytech pet washing. So there's a couple really good innovation out on this side which drive a lot of very healthy business. So ultimately supply chain and innovation in market allowed us to regain that market share or some of the market share. On a full year base, as we indicated before, on a full year base US, we expect the industry to be down 4 to 6%, more front half, low to back half, back half, we expect an improvement. And I would also expect that on a sustained base we will gain share every quarter.
supply chain just been in a much better shape, not complete to resolve but when a much better shape. And two, we have a number of really good market innovations out there. Like, well, like the two in one laundry or the Maytech pet washing. So there's a couple really good innovation also on this side which drive a lot of very healthy business. So ultimately supply chain and innovation in market. allowed us to regain that market share or some of a market share. On a full year base, as we indicate before, on a full year base US, we expect to industry to be down 4 to 6%. More front half, low to back half, back half, we expect an improvement. And I would also expect that on a sustained base we will gain share every quarter.
allowed us to regain that market share or some of a market share. On a full year base, as we indicate before, on a full year base US, we expect to industry to be down 4 to 6%. More front half, low to back half, back half, we expect an improvement. And I would also expect that on a sustained base we will gain share every quarter.
Susan Maklari: Okay, that's helpful. And you mentioned that the easing of the commodity prices has been perhaps a bit more tepid than what you initially expected. We've obviously seen steel come off of it some more recent trough lately. Can you talk a bit more about how you're thinking of the cadence of those commodity pressures and what you're expecting for price cost as we move through the balance of the year? So Susan, again to put it in perspective, we indicated that on the pure raw material side that we would get a 300-400 million benefit this year, and that is on top of the 500 million internal cost take out which we targeted for. On the raw material side, we're in the range
Susan Maklari: Okay, that's helpful. And you mentioned that the easing of the commodity prices has been perhaps a bit more tepid than what you initially expected. We've obviously seen steel come off of it some more recent trough lately. Can you talk a bit more about how you're thinking of the cadence of those commodity pressures and what you're expecting for price cost as we move through the balance of the year?
Marc Bitzer: So Susan, again to put it in perspective, we indicated that on the pure raw material side that we would get a 300-400 million benefit this year, and that is on top of the 500 million internal cost take out which we targeted for. On the raw material side, we're in the range but frankly we're probably more right now trending towards the 300 as opposed to the 400. That is simply a reflection of yes, material prices are coming down, but maybe not that the pace as some people would have expected but well within the range. I also want to remind everybody that big raw material items like steel, we don't buy spot. We typically have in most cases 3 to 12 months contract which give us a little bit of protection against any kind of spot volatility. But again, overall we're 300 to 400, right now more trending towards 300 but obviously still a lot of volatility in the market.
but frankly we're probably more right now trending towards the 300 as opposed to the 400. That is simply a reflection of yes, material prices are coming down, but maybe not that the pace as some people would have expected but well within the range. I also want to remind everybody that big raw material items like steel, we don't buy spot. We typically have in most cases 3 to 12 months contract which give us a little bit of protection against any kind of spot volatility. But again, overall we're 300 to 400, right now more trending towards 300 but obviously still a lot of volatility in the market.
At a simpler reflection of yes, material prices are coming down, but maybe not that the pace is some some people would have expected but well within the range.
I also want to remind everybody that big raw material items like steel, we don't buy spot. We typically have in most cases free to 12 months contract which give us a little bit of protection against any kind of spot volatility. But again, overall we're free to 400 right now more training towards 300 but obviously still a lot of volatility in the market.
Operator: Your next question comes from the line of Sam Darkash from Raymond James. Your line is open. Good morning Mark. Good morning Jim. How are you? Good Sam, good morning.
Operator: Your next question comes from the line of Sam Darkatsh from Raymond James. Your line is open.
Operator: Good morning Mark. Good morning Jim. How are you? Good Sam, good morning.
Samuel Darkatsh: Good morning Mark. Good morning Jim. How are you?
Marc Bitzer: Good Sam, good morning.
Samuel Darkatsh: Two just real quick clarification questions if I could. With respect to your production versus your shipments from a volume units standpoint in the quarter, did you underproduce the shipments again and what was the impact of of earnings or profitability if you could? Yeah, I'd say Sam if you really look at--I wouldn't say we underproduced the shipment. In fact, we did look at inventory in some key areas but what we did do is we produced obviously less than we did last year in Q1 and we did produce less than we did in Q4. So you've got both a lower year over year and a quarter over quarter impact, just lower volumes
Samuel Darkatsh: Two just real quick clarification questions if I could. With respect to your production versus your shipments from a volume units standpoint in the quarter, did you underproduce the shipments again and what was the impact of of earnings or profitability if you could?
With respect to your production versus your shipments from a volume units standpoint in the quarter Did you underproduce the shipments again and what was the impact of of earnings or profitability if you could? Yeah, I'd say Sam if you really look at I wouldn't
Jim Peters: Yeah, I'd say Sam if you really look at--I wouldn't say we underproduced the shipment. In fact, we did look at inventory in some key areas but what we did do is we produced obviously less than we did last year in Q1 and we did produce less than we did in Q4. So you've got both a lower year over year and a quarter over quarter impact, just lower volumes and the leverage we get off of it. But in terms of where our production are, we're pretty well matched to what our shipments are, with just some strategic areas that we've decided to reinforce some of our inventories as we headed to more of a peak season around the globe.
and the leverage we get off of it. But in terms of where our production are, we're pretty well matched to what our shipments are, with just some strategic areas that we've decided to reinforce some of our inventories as we headed to more of a peak season around the globe.
Marc Bitzer: And again, Sam, just to reiterate, because I think you're raising a very important question. So I think we produce pretty much in line with shipment and towards comparative general first, we'll build a slight amount of inventory. However, on a year-over-year basis, we produce less image, just simply we don't want to get the inventory out of hand. We want to backfill some spots where we have some availability issues. So we feel pretty good about where we are right now and we're balancing the inventories. And my second question, and this is just [inaudible] I apologize. The ongoing corporate expense for the quarter was around
Marc Bitzer: And again, Sam, just to reiterate, because I think you're raising a very important question. So I think we produce pretty much in line with shipment and towards comparative general first, we'll build a slight amount of inventory. However, on a year-over-year basis, we produce less image, just simply we don't want to get the inventory out of hand. We want to backfill some spots where we have some availability issues. So we feel pretty good about where we are right now and we're balancing the inventories.
Marc Bitzer: And my second question, and this is just [inaudible] I apologize. The ongoing corporate expense for the quarter was around 30 to $40 million each quarter last year. What's the reasoning for the step up sequentially, and then what are your expectations for the corporate expense for the year just to make sure we're all looking at the right line?
30 to $40 million each quarter last year. What's the reasoning for the step up sequentially, and then what are your expectations for the corporate expense for the year just to make sure we're all looking at the right line?
Jim Peters: Yeah, and Sam that's a good question. And part of what's in there that increases that run rate is because that's before you have the adjustments from gap to ongoing and so you do have some transactional costs within there that are related to the Amea transaction that are then included in that bucket. But on our GAAP statements you'll see that in the corporate bucket to begin with. Then the other thing is also last year within the first quarter when you're looking at a little bit of a comparison here, we did have a gain in the first quarter of last year that came from a sale lease back that sits in that number also. So right now, typically what we would say is for the full year we expect that to run around 200 million is what it historically has on a full year basis. It will be a little bit elevated this year with some of those transaction costs in there that then just gets included in the gain and loss from an ongoing perspective on the gain and loss due to the sale.
Then the other thing is also last year within the first quarter when you're looking at a little bit of a comparison here, we did have a gain in the first quarter of last year that came from a sale lease back that sits in that number also. So right now, typically what we would say is for the full year we expect that to run around 200 million is what it historically has on a full year basis. It will be a little bit elevated this year with some of those transaction costs in there that then just gets included in the gain and loss from an ongoing perspective on the gain and loss due to the sale.
It will be a little bit elevated this year with some of those transaction costs in there that then just gets included in the gain and loss from an ongoing perspective on the gain and loss due to the sale. Your next question comes from the line of Mike Reholt from JP Morgan. Your line is open. Thanks, good morning everyone.
It will be a little bit elevated this year with some of those transaction costs in there that then just gets included in the gain and loss from an ongoing perspective on the gain and loss due to the sale.
Your next question comes from the line of Mike Reholt from JP Morgan. Your line is open. Thanks, good morning everyone.
Operator: Your next question comes from the line of Mike Rehaut from JP Morgan. Your line is open.
Mike Rehaut: Thanks, good morning everyone. Just wanted to circle back to the market share gains and appreciate before you kind of talking about the drivers of those gains in terms of what allowed for them, in other words from a supply chain angle, etc., I was wondering if you could also kind of address it from the end-market perspective. In other words, do you feel like the gains occurred more in the builder channel versus retail or any product categories or any parts of retail, any other color around from that perspective where the gains came from.
Just wanted to circle back to the market share gains and appreciate before you kind of talking about the drivers of those gains in terms of what allowed for them, in other words from a supply chain angle, etc., I was wondering if you could also kind of address it from the end-market perspective. In other words, do you feel like the gains occurred more in the builder channel versus retail or any product categories or any parts of retail, any other color around
end-market perspective. In other words, do you feel like the games occurred more in the Builder Channel versus Retail or any product categories or any parts of retail, any other color around...
from that perspective where the gains came from. Michael, so again, I presume that this is particularly US market-specific question. So, if you look at the Q1, we feel very good about the share gain in laundry, dish, and cooking, and we still have some work to be done in refrigeration. That's from a product perspective. On the distribution side, it's pretty much across the board. We feel actually pretty good about balance of [inaudible] which we have at Mote Trade customers. We feel in particular good about our, not just short term, but long term share gains which we haven't built the segment.
from that perspective where the gains came from.
Marc Bitzer: Michael, so again, I presume that this is particularly US market-specific question. So, if you look at the Q1, we feel very good about the share gain in laundry, dish, and cooking, and we still have some work to be done in refrigeration. That's from a product perspective. On the distribution side, it's pretty much across the board. We feel actually pretty good about balance of [inaudible] which we have at Mote Trade customers. We feel in particular good about our, not just short term, but long term share gains which we haven't built the segment.
laundry, dish and cooking, and we still have some work to be done in refrigeration. That's from a product perspective. On the distribution side, it's pretty much across the board. We feel actually pretty good about balance of flavor, which we have at Mote Trade customers. We feel in particular good about our, not just short term, but long term share against which we haven't built the segment.
Needless to say, the NQ1, that is not a big driver because the build of channel NQ1 was not very high. I think that's more a reason we're bullish in the long term because our position within the build [inaudible] is a very strong one and has strengthened over last couple of years.
Mike Rehaut: Great. Thanks for that Mark. I guess secondly, there's comments before about expectations around the promotional activities for 2023 being in line with the back half of '22 but still below pre-pandemic levels. And it appears that first quarter came in line with expectations from a price mix perspective. So I guess the question is what are the indications so far that you've seen that give you confidence to reiterate your expectations for promotions for the full year? Obviously it's a big concern for investors as demand will be overall for the year down year over year and concerns particularly around the back half that promotional activity might increase. So I'm wondering if from some perspectives how channel inventories are progressing or just the overall cadence of what you've seen year to date or maybe in looking into the second quarter, but I was wondering if you could expand a little bit about how you're thinking about promotions this year and what still gives you the confidence that things are on track relative to last quarter.
And it appears that first quarter came in line with expectations from a price mixed perspective. So I guess the question is.
You know, what are the indications so far that you've seen that give you confidence to reiterate your expectations for promotions for the full year? Obviously it's a big concern for investors. As demand will be overall for the year down year over year.
and concerns particularly around the back half that emotional activity might increase. So I'm wondering if, you know, the, from some perspectives, how channels and channel inventories are progressing or, you know, just the overall cadence of, what you've seen year to date or maybe in looking into the second quarter, but it's only if you could expand a little bit about how you're thinking about promotions this year and what still gives you the confidence that things are track relative to last quarter.
what you've seen year to date or maybe in looking into the second quarter, but it's only if you could expand a little bit about how you're thinking about promotions this year and what still gives you the confidence that things are track relative to last quarter.
Marc Bitzer: Yeah, Michael, so of course, as you know, it's always difficult to make prediction for most environment, but we said in the prepared remarks we expect full year '23 to be similar to the back half of '22. I think the prime driver of confidence behind this one is the second half and even the first quarter played out in the market pretty much as anticipated
because of course people compare it to '21, but '21 was pretty much a complete absence of promotion. So I think you have now what I would call a reasonable normalized promotion environment, and of course, we monitor that very closely. We participate in smart valuation promotion that has been our state of guidance and policy internally. So as such, the last three quarters, we were not surprised by what we've seen and how we participated and also Q1 played out how we expected. From that perspective, [inaudible] where we've participated hasn't changed and we don't expect to change that. And I'd say, maybe if I add a little bit to it Michael, when we look back to try and compare the patterns and all the tiers of promotion, we see things that are similar to 2019, not necessarily the level of depth as we said we don't see that at the levels that were pre-pandemic, but the amount of promotional periods and the durations of some of them are very similar to that type of a time period so it's kind of normalized from what we saw during COVID. Michael just because you also raised the trade inventory first of all, and I know you're fully aware of that, the last two or three years I've seen extreme swings on inventory up and down given the supply chain disruption as we all face in the industry. I think we now see more normalized trade inventory levels. And from what we see across the board, most trade inventory levels [inaudible] is pretty much normalized. So I've never elevated or usually kind of significant low, so we feel pretty good about the trade inventory position. I don't think there's a lot of pressure out there from inventory so I think it's fine [inaudible]. Your next question come from the line of David McGregor from [inaudible] Research. Your line is open. Yes, good morning everyone. Slide 12 when you laid out [inaudible]
because of course people compare it to '21, but '21 was pretty much a complete absence of promotion. So I think you have now what I would call a reasonable normalized promotion environment, and of course, we monitor that very closely. We participate in smart valuation promotion that has been our state of guidance and policy internally. So as such, the last three quarters, we were not surprised by what we've seen and how we participated and also Q1 played out how we expected. From that perspective, [inaudible] where we've participated hasn't changed and we don't expect to change that. And I'd say, maybe if I add a little bit to it Michael, when we look back to try and compare the patterns and all the tiers of promotion, we see things that are similar to 2019, not necessarily the level of depth as we said we don't see that at the levels that were pre-pandemic, but the amount of promotional periods and the durations of some of them are very similar to that type of a time period so it's kind of normalized from what we saw during COVID. Michael just because you also raised the trade inventory first of all, and I know you're fully aware of that, the last two or three years I've seen extreme swings on inventory up and down given the supply chain disruption as we all face in the industry. I think we now see more normalized trade inventory levels. And from what we see across the board, most trade inventory levels [inaudible] is pretty much normalized. So I've never elevated or usually kind of significant low, so we feel pretty good about the trade inventory position. I don't think there's a lot of pressure out there from inventory so I think it's fine [inaudible].
2019 not necessarily the level of depth as we said we don't see that at the levels that were pre-pandemic but the amount of promotional periods and the durations of some of them are very similar to that type of a time period so it's kind of normalized from what we saw during COVID. Michael just because you also raised the trade inventory first of all and I know you're fully aware of that. Last two or three years I've seen.
extreme swings on inventory up and down, given the supply chain disruption, so if we all face the industry, I think we now see more normalized trade inventory levels. And from what we see across the board, most trade inventory levels and if you want a pretty much normalized. So I've never elevated or usually kind of significant low. So we feel pretty good about the trade inventory position. I don't think there's a lot of pressure out there.
Operator: Your next question come from the line of David McGregor from [inaudible] Research. Your line is open. Yes, good morning everyone. Slide 12 when you laid out [inaudible]
Operator: Your next question come from the line of David McGregor from [inaudible] Research. Your line is open.
Operator: Yes, good morning everyone. Slide 12 when you laid out [inaudible]
appliances rather than course six, I guess, but I wonder, yeah, I really want to isolate the placement demand and see if you could talk a little bit about what you've got baked into the 3 to 4 percent. And anything you can find on discretionary builders, well, it would be interesting as well, but just trying to sort of parse out individual components of that number and see what it is you're thinking.
So David, as you all know, we basically, in the most simplistic terms, you can split the demand in two components. One is replacement, and the other one is by and large discretionary. The replacement demand, Edem and Milaska, the quarter-taxia has been pretty stable as we expected. Edem is slightly up because, of course, COVID and also post-COVID drove significantly higher palliality.
external bad news may drove sentiment down. So that is the part which you've seen come down below a couple quarters.
Now, on a go forward base, again, we continue to expect replacement demands to be solid or even increasing, and we also see a kind of rebalancing with discretionary demands. In particular, also, really to your question on housing.
Yet, you know, of course, when you read all the articles and housing, you feel a little bit like sky-spelling. We don't fully subscribe to that point of view. And actually, if you look at the Q1 housing data, if you look at housing starts 1.4 to 2 million, actually has been way stronger than most people anticipated. You look at the build results, and DR Horton came up with strong results, because they have this morning pretty strong results. The housing market is not as bad as most people anticipated.
And if you take the housing start and when you add your typical completion six to nine months to it, I think towards the back end of the series, I think you may see more strength for coming out of a housing market, but most people anticipated. So we feel gradually good about the increasing discretionary demand.
I'm particularly coming off on the build side now frankly not exactly the next one or two qualifiers but towards the year ends I think we feel pretty good. I'd say the other thing is we look at it longer term as we've mentioned is there's still an under supply of housing in the US and you've got to take that into account and the you know
replacement side of the business as we know is going to grow for an extended period of time if you just look at it back at some of the previous peak So you know also from a long-term perspective there are just a lot of things out there that indicate to us that that we should see continued growth and Even additionally if the housing market stays where it is then you most likely see an increase in the number of remodels
as consumers will invest in their existing home if they're not going to move. If it makes sense, so we see all of those as opportunities on a mid to long-term basis. Okay, thanks for that. Jim, you had made reference when you were talking about the sale of the European business that...
Because of the seasonality of working capital, there could be some impact on your full year free cash flow. If you just talk about the risk that that might represent to the 809 guy number. Yeah, David. And here's what I'd say is, you know, the seasonality of our business overall with working capital tends to, you know, we build throughout the first half of the year, it comes. to almost a net zero effect at the end of the year versus what could be you know a hundred million dollar you know possible impact if it's earlier within the quarter. So you know that's the kind of range that I think you should just put there and expect that you know it could be in that type of range but the closer we get to year-end.
to almost a net zero effect at the end of the year versus what could be you know a hundred million dollar you know possible impact if it's earlier within the quarter. So you know that's the kind of range that I think you should just put there and expect that you know it could be in that type of range but the closer we get to year-end.
The closer it will probably most likely just be at a net zero type of level. David, let me maybe also think about Jim as saying. First of all, to reiterate what Jim said, also, and prepared remarks. What we get as perceived and future value creation out of his Europe transaction has not changed. Now with the health of the health, for sale of accounting, very moving parts. left and right and up and down it's basically marked the market but it doesn't change what you get for the business. The cash flow seasonality is Europe of all our region is the one which turns positive and cash flow latest in the year. Typically it turns positive into four. So the closer you get to the year end, the more business basis zero zero for the cash flow and depending on where we exactly close it, that could have an impact.
left and right and up and down it's basically marked the market but it doesn't change what you get for the business. The cash flow seasonality is Europe of all our region is the one which turns positive and cash flow latest in the year. Typically it turns positive into four. So the closer you get to the year end, the more business basis zero zero for the cash flow and depending on where we exactly close it, that could have an impact.
Your next question comes from the line of Liz Suzuki from Bank of America. Your line is open.
Great, thank you. I'm just curious how much InSinkorator contributed to North American net sales and whether it's fair to assume that excluding InSinkorator that North American sales would have looked more like down high single digits and then if the share gains that you cited were independent of InSinkorator? So first of all the share gains were independent of InSinkorator because that's not captured in
We also have Canada Inver and KitchenAid Small Domestic. And the Small Domestic appliance business Q1, Q2, also expected is still a little bit softer than the major domestic market. But on major appliances we had a very solid share gain and actually on the pure major appliances we were pretty close to revenue zero zero.
Okay, Craig Vince, very helpful. Your next question comes from a line-up, Eric Bessart from Cleveland Research. Your line is open. Two questions for you. First of all, a curious about your cake on...
the current consumer demand trends. There's some moving parts in Tuku, but even if you clean up the comparisons in terms of industry growth, I'm just curious how you would characterize the momentum in terms of current demand. Eric, so I mean, in Ford in particular, you underestimate- as expected. So that's how I would characterize it. Again, we based, because of course the baseline which you had in 22, the base automob we see in consumer sentiment, we expected the first half to be softer, in the ballpark of minus 5 to minus 10, it may be a little bit close to the minus 5, and we expect the back half to get close to the zero line.
as expected. So that's how I would characterize it. Again, we based, because of course the baseline which you had in 22, the base automob we see in consumer sentiment, we expected the first half to be softer, in the ballpark of minus 5 to minus 10, it may be a little bit close to the minus 5, and we expect the back half to get close to the zero line.
So again, part of that is just a based on effective 22, which was a little bit softer than the second half But we also do see a gradual improvement of discretionary side of demand Which has been a little bit suppressed in Q3, Q4 and Q1 and maybe some carry over into Q2 But by and large is you know, it's as expected, which also means it's not as bad as some people We're saying it could be
environment and perhaps it's linked to your outlet that you express there. You talked about this stable promotion environment and I appreciate your comments the second half were similar to your expectations of last year that the second half also did get more promotional and so again what underlines your expectation that
Promotions are stable from here after the step up that we saw take place in the back half of last year Why doesn't it not step up again?
I can only repeat what I said in the earlier question. Right now the last three quarters turn out from the promotion environment exactly as we expected. Again, when people refer to more promotion, that compares to 21 with no promotions. Right now we see a reasonable stable promotion environment and that has been extended over and over. 9 months, of course, we have a sense about what's happening to you too, but also here we don't expect major surprises. The US industry will always be an environment where you see some promotions around certain holidays, but we don't see that right now getting out of hand in any way or reaching whatever 216 to a 17 level.
9 months, of course, we have a sense about what's happening to you too, but also here we don't expect major surprises. The US industry will always be an environment where you see some promotions around certain holidays, but we don't see that right now getting out of hand in any way or reaching whatever 216 to a 17 level.
That's what right now gives us a confidence what we expect to see a reasonable stable promotion environment Your next question comes from a line of my doll from RBC capital markets your line is open
Thanks for taking my question. Just a couple kind of follow up housekeeping notes guys. I'm the on the held for sale accounting with the depreciation suspension. So it sounds like that's about 120 million for the year. So tax affected, maybe that's like a buck to 80 a buck. 90. I guess the question is, was that already anticipated in your prior guide or is that incremental in terms of, you know, that impact versus what you ate up earlier this year?
90. I guess the question is, was that already anticipated in your prior guide or is that incremental in terms of, you know, that impact versus what you ate up earlier this year?
No, that was already included. If you look at the 2.5% that we guided to of margins for EMEA for the year, that's included in that. And obviously, we had a small little bit of that in Q4 that came as we turned these assets to held for sale. And I think as you look at that, you step back. The thing you've got to keep in mind is as you go to 2024 and once this transaction gets approval and closes, you're going to take the entire amea business out of it to look at what our ongoing run rate of the business will be. And so whether you have depreciation or not this year, the underlying business or the remaining business that will stay, that's got the same. And what that will drive you over year as you just look into next year alone is about 125 to 150 basis points. of improvement in our overall margins just by taking the EMEA business out this year. So, it is included, but I think as you look forward, you've got to say, you know what, EMEA will not be in the picture post-2023.
transaction gets approval and closes, you're going to take the entire amea business out of it to look at what our ongoing run rate of the business will be. And so whether you have depreciation or not this year, the underlying business or the remaining business that will stay, that's got the same. And what that will drive you over year as you just look into next year alone is about 125 to 150 basis points. of improvement in our overall margins just by taking the EMEA business out this year. So, it is included, but I think as you look forward, you've got to say, you know what, EMEA will not be in the picture post-2023.
of improvement in our overall margins just by taking the EMEA business out this year. So, it is included, but I think as you look forward, you've got to say, you know what, EMEA will not be in the picture post-2023.
Right. Okay. That makes sense. Thanks. And then the second question again, kind of follow up here just on the corporate side. It's similar to that helper sale with respect to depreciation. Was there anything in terms of potential, like stranded overhead costs that got shifted out of the yet? And in corporate, I know you highlighted a couple of things that were maybe transactional in nature, but is there something that's more ongoing in terms of how we should be thinking about. Yeah, that was stranded cost potentially.
And in corporate, I know you highlighted a couple of things that were maybe transactional in nature, but is there something that's more ongoing in terms of how we should be thinking about. Yeah, that was stranded cost potentially.
No, I would say there's nothing that we shifted out of Amia into our corporate bucket again. I highlighted a few of the just the unique items that are in there. And obviously we also have some other things where we may decide to make investments at a corporate level throughout the year that can cause that bucket to go up and down on a quarterly basis, but again to my point earlier.
We expect that to be about $200 million a year on a run rate in an existing situation today so no other significant items to highlight within there. Mike, just to echo what Jim is saying and to be crisp here. So the health or sale only applies to the assets and business which are part of the school of the agreement.
Okay, there's no corporate element in this health for sale. That is sitting in our normal corporate ongoing cost. And it's not spread out in any way. So that's crystal clear on this one. So now when we came to the last question, I just want to thank you all for joining us today. I think you heard that we are off to very solid start. We feel good about how our operation priorities are being executed upon.
There is no big surprises from what we see from a market environment which is still challenging but we knew where coming in but we feel we executed very solid Q1 and we feel confident about the full year. So, that in mind, we wish you all a wonderful day and talk to you at our next quarter of the year is going to lie. Thanks a lot.
Ladies and gentlemen, that concludes today's conference call. You may now disconnect.