Q4 2023 Whirlpool Corp Earnings Call

January 30, 2024

which we expect to continue in the foreseeable future. Now, the key question is, what does it all mean for 2025? Let me start with the housing macro.

We remain bullish on the mid and long-term. The market has been undersupplied for over a decade by $3-4 million. A long overdue rebalancing of demand and supply will occur at some point, but not in the very short term. While we already see a gradual and steady recovery of new home orders and starts, we all know that these trends typically need six to nine months to turn into a. Existing home sales, on the other hand, will need a catalyst to unfold. MyCatalyst can only be a return to lower mortgage rates, which you expect to moderate as the year progresses. So how will we position ourselves in 2025? Essentially, it will be all around cost discipline and margin. On the cost side, we have put actions in place to deliver $300 to $400 million in cost savings. But this number may appear to be lower than in 2023. We're not factoring in any raw materials.

So these $300 to $400 million dollars are all structural costs. The margin expansion will essentially be driven by the benefits of a refocused portfolio after the completion of the EMEA transaction, as well as a very disciplined approach focused only on value-creating promotions and products. You will see later in our presentation a full year negative impact of pricing, but this is entirely related to carryover pricing. Lastly, as it relates to our portfolio transformation, we continue to expect to close our EMEA transaction by, and in anticipation of this transaction closure, we are changing our report. We will not only highlight our major domestic appliance business in North America, Latin America, and Asia but also provide visibility to our KitchenAid small domestic appliance business, which is a critical component of our brand and product portfolio, improving life at home for our customers. I am confident that our refocused portfolio, cost actions, and improving free cashflow generation positions us for continued shareholder value creation in 2020.

Now turning to slide six, I will provide an overview of our fourth quarter results. We delivered over 3% of revenue growth, including over one point of year-over-year share gains in North America. Coupled with $350 million, working capital conversion and free cash flow of $366 million were impacted by shipments occurring later in the quarter.

Jim: We exited 2023 with elevated tracosmer inventories, back to normalize mostly in the first quarter. Ultimately, we delivered ongoing earnings per share of $3.85. Supported by tax benefits related to your... Now, I will turn it over to Jim to review our Q4 regional results and perspective on 2024, including our plans for the proceeds of a recently announced... Thanks Marc.

Jim: Turning to slide seven, I'll review fourth-quarter results for North America. We delivered 1% revenue growth and 260 basis points of margin. Sales growth was driven by over a point of year-over-year share gains resulting from new product introductions and improved supply chain execution. However, this was partially offset by a normalized promotional environment.

Jim: Additionally, resilient replacement demand lifted the U.S. industry to, Fourth quarter margin expansion was driven by significantly reduced, partially offset by negative price mix from a normalized promotional environment and lower consumer discretionary demand due to higher mortgage rates in 2023, slowing down existing. Overall, the region delivered 8.4% margins for the quarter. Turning to slide eight, I'll review our results for our Europe, Middle East, and Africa region. Revenue was down 3% year-over-year as the region continues to see demand weakness from negative consumer sentiment.

Jim: Strong Cost Takeout Actions and Held for Sale Accounting drove nearly 400 basis points of margin expansion year-over-year to approximately 3%. We continue to expect the Europe transaction to close by April 2024. And later in the call, I will provide additional insights into the expected impact on our 2024 guidance and free cash. Turning to slide nine, I'll review the results for Latin America. With strong industry demand throughout the region and share gains in Brazil, net sales, excluding currency, increased to approximately 13%. Overall, the region delivered solid EBIT margins.

Jim: Flat to last year as cost actions were offset by negative price mix and losses in Argentina from currency devaluation and costs related to ramping up our new laundry. Turning to slide 10, I'll review the results for our Asia region. The region saw net sales growth of 9% driven by share gains and improving EBIT margins of 1.3% with cost takeout actions more than offset by negative price. As you may have seen, we recently announced our intention to sell up to 24% of Whirlpool India's outstanding shares while retaining a majority.

We truly believe in the long-term trajectory of India. It is one of the strongest growth opportunities for Whirlpool of India's long-term outlook for growth and margins is both in the high single digits, making India very attractive to operate in. At the same time, this financial profile has created a very strong local public market.

Jim: Turning to slide 12, I will review our 2024, which includes the Europe Major Domestic Appliance Business only for the first quarter of 2020. We have provided a reset baseline for 2023 results, excluding our Europe major domestic appliance business from Q2 through Q4 of 2020. The reset baseline excludes approximately $2.6 billion in net sales and approximately $33 million of EBIT, creating a like-for-like comparison for 2020.

Jim: On a like for like basis, 2023 net sales were approximately $16.9 billion with ongoing EBIT margin of We expect flat 2024 net sales, including 700 million of sales from the immediate major domestic appliance business in Q1 and flat EBIT margin year over year on a like for like basis. We expect 2024 free cash flow of 550 to 650 million, a 50 to 75% increase driven by improved earnings and working capital reduction. We expect full year ongoing earnings per share of $13 to $15, including an adjusted effective tax rate of 0%, an increase compared to 2023, which impacts 2024 earnings per share by approximately 1%. Turning to slide 13, we show the drivers of our full year 6.8% ongoing EBIT margin. We expect a negative impact of 150 to 175 basis points from price mix.

Jim: This reflects the carryover effect of the first half of 2024 as the promotional environment normalizes in the second half. We also expect continuing softer mix and discretionary demand in the first half of 2024 from historically low existing home sales, partially offset by new product introduction. As we drive further reductions to our cost structure, we expect approximately 175 basis points of net cost margin benefit from $300 to $400 million of costs. We expect minimal to no impact to EBIT margins from raw materials this year based on recent commodity trends and executed supply. We plan to continue a strong cadence of new product introductions with investments in marketing and technology, impacting margins by approximately 25%. Finally, we expect our portfolio transformation to provide approximately 75 basis points of margin improvement as we contribute the margin dilutive European major domestic appliance business to the newly formed. On slide 14, I will provide context on our significant cost takeout operation. We experienced unprecedented cost inflation of approximately $2.5 billion in 2021 and 2022. In 2023, we were able to drive $800 million of cost out, which is a significant step in resetting our cost structure. We expect to further reduce our costs by $300 to $400 million.

Jim: 2024 will benefit from $100 million in cost actions taken last year. We expect $100 to $200 million of additional cost takeout with our manufacturing and supply chain operations benefiting from ongoing productivity initiatives and reduced complexity as we enter 2020, and we also expect $100 million of second half benefits as our ongoing portfolio transformation allows us to simplify our organizational operating. Turning to slide 15, I will introduce our new segment reporting structure, effective January 1st, 2020. We have updated our reporting structure with the anticipated closure of the Europe transaction. Our regional operating segments historically included the results of our KitchenAid small domestic appliances in the geographical regions they were in.

Jim: We will now only report the major domestic appliance businesses within their respective, We will now report our Global KitchenAid Small Domestic Appliance Business, also known as SDA, as a separate segment. This business has an iconic brand and premium products with a reputation for performance and quality. Perfectly fitting our vision of being the best kitchen and laundry company. We will continue to have strong brand synergies between the Small Domestic Appliance and Major Domestic Appliance product lines. The regional MDA businesses will have margin profiles 30 to 40 basis points lower than the previously reported figure due to SDA reporting as its own. On investor relations, we have provided recast quarterly results for 2021 through the third quarter of 2023, reflecting our $1 billion SDA business with its strong 15% plus. Turning to slide 16, I will review our new segment. Starting with industry demand, we expect a dynamic global industry to be flat to up 2%.

Jim: We expect to see similar demand trends in the U.S. that we saw in the second half of 2020. With resilient replacement demand creating a solid footing for industry volumes and consumer discretionary demand continuing to be impacted by Elevated Mortgage Rates, driving down Overall, we expect MDA North America to be flat to slightly positive, as well as we expect the MDA Latin America industry to also be flat to slightly positive. India has one of the fastest growth rates globally, and we expect MDA Asia industry volumes to accelerate by four to six, while we expect the SDA global industry to be up two to four. We want to preface this guidance with the fact that KitchenAid is largely present in the premium segment and also not in all SDA categories.

Jim: Finally, we expect demand contraction of negative 8% to 6% in the first quarter for MDA Europe from continued negative consumer. For MDA North America, we expect to deliver full year margins of approximately, with promotional carryover negatively impacting first half market, and Elevated Channel Inventories Impacting First Quarter Development. We expect approximately 50 to 75 basis points of sequential margin expansion every quarter and to exit 2024 with EBIT margins of approximately 10%. For MDA Latin America, we expect EBIT expansion and strong margins of 6.5%, with Cost Takeout Actions and Improved Consumer. For MDA Asia, we expect margin expansion to approximately 3%. For SDA Global, we expect very attractive EBIT margins of approximately 15.5%.

Lastly, we expect MDA Europe to deliver approximately 1.5% margins in the first quarter, and overall, we expect an ongoing total EBIT margin of 6.8. Turning to slide 17, let me provide you with additional detail on our U.S. industry. Replacement demand drove industry growth in 2023, and we expect this trend to continue into 2020. However, the last four years of elevated usage are shrinking the historical average life.

With an install base from 2015 through 2017 that grew 4 to 5% and is nearing replacement, this is driving replacement demand to approximately 60% of industry volume. We expect to continue to drive value by creating share gains in 2020. Additionally, with housing starts trending higher in the second half of 2023, Whirlpool is disproportionately positioned to benefit from new construction. Forecasts for 2024 are calling for low to mid single-digit growth in new construction, most likely benefiting Whirlpool in the second half of 2024 or early 2024. For every 5% increase in new construction, we could see approximately $100 million impact with our leading builder share.

Jim: Finally, discretionary demand, which accounts for approximately 25% of total industry volume, is driven by existing customers, which are coming off their worst year since 1995 and are expected to improve in the back half of 2024 as interest rates moderate. Turning to slide 18, I will share further perspective on 2020. We expect soft discretionary demand and higher retail inventory levels to weigh on total industry expectations in the first half of 2024 with a more pronounced impact on Q1. We expect 2024 promotional activity to be at similar levels as the second half of 2023, creating a margin headwind to the first. We expect cost actions from 2023 to benefit the first half of 2024 while additional cost actions ramp up. Additionally, the demand and earning seasonality of our SDA global business varies from our major domestic business. It delivers approximately 75% of its demand and profitability in the second half of every month, with consumers favoring small domestic appliances as gifts and increased baking activities in the fall and holiday.

Jim: Overall, we expect to deliver approximately 35 to 40% of our earnings in the first half of. Turning to slide 19, I will provide the drivers of our free cash flow. We expect improved cash, approximately 1.1 to 1.2 billion. We expect approximately $600 million of capital expenditures as we continue to invest in our products and fund organic growth, including our plans to launch over 100 new products in 2021. We plan to improve our working capital conversion by approximately $100 million, largely through inventory. We expect approximately $50 million of restructuring cash outlays related to previously executed actions and complexity reduction with our simplified organizational model after the Europe transition. Overall, we expect to deliver free cash flow of 550 to 650 million dollars, or approximately 3.5 percent of net, including approximately 200 to 300 million dollars. Cash Consumption for MDA Europe Business Operations Prior to Closure and One-Time Charges

Jim: Turning to slide 20, I will review how we are well positioned to deliver our 2024 capital allocation. We have a solid balance sheet with $1.6 billion of cash on hand, coupled with $550 to $650 million of 2024 expected free cash, plus anticipated $400 to $500 million of proceeds from asset sales. As we previously announced, our intention to sell a portion of our interest in Whirlpool of India and recently signed an agreement to divest of our Brastemp branded water filtration business in Brazil.

Jim: As you can see, we are well positioned to deliver our clear capital allocation priorities for 2024. Last year marked the 68th consecutive year of steady or increasing dividends from World. Subject to board approval, we expect to pay dividends of approximately $400 million. We are committed to maintaining our strong investment grade credit rating and reducing our debt by at least $500 million. Additionally, we expect limited share buybacks to offset shared dilution. Finally, we are committed to funding innovation and growth with capital expenditures plus research and development of approximately 6% of net. Turning to slide 21, you can see our commitment to deleveraging our balance. As a reminder, in 2022, with the acquisition of the value-creating instinct creator business, we increased our debt by $2.5 billion. Compared to 2022, we expect at least $1 billion of debt reduction by the end of this year, with the combination of strong free cash flows expected in 2025, the first full year following the close of the Europe transaction, and our Product Innovations Delivering Earnings, and beginning to realize the free cash flow benefits of our Now, I will turn the call back over to Jim. Turning to slide 23.

Let me provide an update on our European transaction. As I mentioned in our third quarter earnings call, we passed major regulatory milestones with the approvals from the European Commission, Germany, Austria, and China. The UK's Competition and Market Authority is in the process of conducting a phase two review of the transaction.

We are continuing a constructive dialogue with the CMA about the newly formed company that will benefit, and we continue to expect the transaction will close soon. Turning to slide 24, let me recap what you heard.

We will further improve our cost structure and are confident in our ability to deliver 300 to $400 million of cost savings. Our portfolio transformation to a higher growth, higher margin business continues. The Europe transaction will meaningfully accelerate our structural free cash flows by approximately $200 to $300 million in 2020. We have clear capital allocation priorities, including strong dividends and reusing debt leverage.

Supported by a flexible balance sheet with $1.6 billion cash on hand, along with strong 2024 cash, confident in the trajectory of our business and our portfolio transformation to deliver sustained shareholder value. Finally, I will close on slide 25 with an invitation to join us at our 2024 Investor Day on February 27th at the New York Stock Exchange. We look forward to hosting our first Investidays since 2019. We plan to review how our portfolio transformation is creating a very different role, positioning us for higher growth and higher margins. We are excited to review our growth and margin expansion opportunities for our MDA North America business. We will highlight the rich history of our premium KitchenAid SDA business, in addition to introducing the remainder of our 2026 value creation. We hope to see you there.

Now we will end our formal remarks and open the floor to questions and answers. 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 Sam Darkatsh from Raymond James. Your line is open. Good morning, Marc. Good morning, Jim. How are you?

Good morning, Sam. I have two questions. The first is around the raw material assumption, and the second question will be around North America major appliance margins. So first, on raw materials, you're saying it's going to be neutral on a year-on-year basis. Obviously, we can see that cold-rolled steel is up meaningfully of late and on a year-on-year basis. So how much of your steel spend is on contract this year, and is there an assumption that steel prices will fall from here baked into your guidance, or what sort of offsets are there for steel? Just help. Help reconcile what we're seeing in the markets versus what you're seeing on your RMI. Sam, it's Marc.

Let me first maybe take the raw material question, and then we can come to the non-margin question. First of all, I know you're well aware, but more for the broader audience, our number one raw material is steel, number two is resins in all forms, and then it kind of splits up into smaller elements. As you know, in 23, we got a tailwind from raw materials, and right now, we're guiding pretty much for almost no effect from this one. Raw materials, again, as I mentioned, steel is the number one driver, and you don't have formal hedging contracts with steel. You basically have contracts with individual steel suppliers, which are regional, and they typically are on an annual basis. Certainly, for the US, less so in Latin America, but also in Europe, you have pretty much annual contracts.

These annual contracts, and that's why we have a very high degree of confidence in the raw material assumption, they are largely locked in now. So typically, these negotiations happen in November and December on that timeline. And they're not done off of a kind of on-the-spot CRU spot price; they're kind of done on rolling averages and certain assumptions about floor and color. So with all these contracts, or the majority of these contracts fully in place, again, with the exception of Latin America, the variation which we expect from a steel price is very, very little. So that's why, on the number one component, we have a very high degree of certainty.

The number two component resins, they're more on a quarterly basis. And obviously, there is an element about oil price assumptions in there, which you have a little bit more variation, but again, it's relative to steel, it's much smaller. So again, these two components, Sam, we feel we're either contractually protected, or right now we have certain plastics. I think we have a reasonable assumption of a full year. Got it, and then the North American margin question. So, what was the fourth quarter 23 North American margin excluding small appliances, and what is your assumed 24 exit rate for North American major appliances versus the 9% annual guide? Thanks.

So Sam, the North American margin in Q4, where we posted the 8.4%, roughly, and we refer to a full year basis, KitchenAid typically has an impact of about 40 base points on our margin business in North America. Now, there's a little bit of seasonality in KitchenAid, with a heavy skew towards Q3 and Q4. So you take that out of the equation, you're pretty much exiting in 23, we were exiting around 8%, roughly, North American margin, which, as we talked, that's about a good point below where we wanted to be in all transparency. We guide the full year excluding KitchenAid at 9%.

And I think also in our prepared remarks, we were referring to how we expect to exit 24 with around 10% North America margin. Your next question comes from Mike Rehaut from J.P. Morgan. Your line is open. Thanks. Good morning, everyone.

Thanks for taking my questions. I would love to get a sense, you know, just of how you're thinking about the emotional backdrop and cadence in North America, MDA, as, as, as 24 progresses. I know that you kind of highlighted that on a consolidated basis. You know, you expect price mix to be negative in the first half and flat in the back half. But I was hoping to try and get a sense of the interplay between, you know, how you expect 24 to play out in terms of managing share games, which, you know, you kind of highlighted another point about share in the fourth quarter, and how you expect to manage the promotional backdrop as it progresses. And I guess, you know, part of the question here is, you know, to the extent that, you know, promotions continue to, let's say, increase or in the near term, you know, how you'd manage that versus your desire to continue to regain share. Michael, it's Marc.

So let me try to address it. Let me first look a little bit in the rear-view mirror at North America, because I think that highlights a lot of challenges and opportunities which we have. And then, as much as we can talk, I can give you a broader direction on 24. So if you look back at Q4 23, in particular, North America, Ultimately, it comes down to the amount of the absolute amount of marketing and promotion dollars we put in the market. Unusual compared to pre-COVID times.

The big difference was that the lift we had on discretionary demand was very limited. So, ultimately, in hindsight, the ROI on some of the promotions did not work out the way we expected. So, as you know, we repeatedly talked about, and focused on value creation promotions. And, in hindsight, some of these promotions did not meet that benchmark. It's just because the discretionary demand of the pool of discretionary demand in a market was limited.

So the whole equation got unbalanced, and that led to some margin erosion in Q4. And I also said, as we look into 24, and as you know, we don't give any forward-looking comments on pricing, etc. But I said, our focus is on margin expansion. I mentioned it.

So, we've got the exit margins below where we want them to be. Right now, our focus is on margin expansion, obviously, deploying all the levers which are at our disposal. That's cost takeout, that's pricing, how we manage a mix, how we manage our new product introduction. But the focus is on margin expansion, and that is in the context of, you know, we feel good about our share gains, and right now, the level of share where we come from gives us a solid base, and we will, at least for the foreseeable future, focus on margin. Great

Jim: I appreciate that. I guess, and I apologize if this is something that I missed in maybe the supplemental or some of the other comments, but... I'd just like to get a little more detail on SDA for 2024 in terms of the overall size. I know you talked about the margin or the profit cycle. A quarter of profits in the first half, three quarters in the back half. But just how are you thinking about that segment and, you know, where the margins were in 23 just to get a comparable there? Yeah, Mike, I can take this.

Jim: And first of all, apart from a supplement, we will spend a lot of time, a lot more time on February 27 in our message today to show a little bit of a history of KitchenAid, the margin run rates, the seasonality. So there will be a lot more color to your question. So on a high level right now, seasonality is similar to what you described, so there is more skewed towards the back half around the holidays. But you know, even in the first half, there are some important holidays, which always matter for KitchenAid, like, and we manage accordingly.

Jim: The broader margins, and again, we will show that in the supplement, which you will see soon, our 15.5, which we go to 24, is slightly higher than the 23 one. But you know, even if I look at a multi-year KitchenAid SDA margin, it typically hovers around 15% EBIT. So it's a very solid and margin-accretive business for us, which, of course, we want to grow significantly more going forward. Yeah, Michael, I think, you know, the other thing to highlight, you'll see in all the supplemental materials we provided, is really, if you look at the historical run rate of the business, it has been around a billion dollars plus and 15.5%. And so, you know, some of the information that we did provide obviously showed a time period when that benefit, or that business, benefited from some of the trends that were going on during COVID.

Jim: But I'd say today what Mark highlighted there in the size and all that is really more representative of the trend that business has been on and why we're excited about the growth and the margins we have within there. Your next question comes from a line Susan Maklari from Goldman Sachs. Your line is open. Thank you. Good morning, everyone.

Susan Maklari: My first question is, you know, you mentioned the $300 to $400 million of cost actions that you expect to take this year. As you think about the ability to continue to reduce the cost structure, how are you balancing that relative to the growth initiatives that you have and the targets to get the business closer to those long-term goals? Yeah, Susan. So this is Jim.

Jim: And, and, you know, I think the thing you've got to look at there is, as we talk about cost takeout, you know, we saw this year, to begin with, we significantly invested in, you know, technology and engineering and in our products. And we saw that in our overall performance. And so if you really look at how that three to 400 breaks down, the first 100 of that is just cost savings we already implemented this year that are in areas that don't affect, you know, our ability to grow and drive innovation. Then we talk about maybe the next one to 200 within there. And that's really driving efficiency, both within our supply chain and our factories. And, and, you know, that comes from ongoing initiatives that we have that are just to become much more efficient in terms of how we manufacture or much more efficient in how we get product to our consumers in the end. And so, again, those are not areas that affect the investments that we make.

Jim: And then if you think about the third bucket there that we've talked about, which is really SGA reductions from a simplified organizational model, that also is just us looking at how we operate as a company and how we have operated in the past with a much larger business, including EMEA. How do we simplify that?

How do we make it more effective? Our investments in our products, whether it be engineering or capital, will actually be relatively consistent or even increase this year. So the areas where we're cutting costs are not the areas that affect our ability to deliver growth and innovation. We're actually investing in, what we are is we're reducing costs in other areas so we can invest more in those areas. So Susan, just to echo what Jim is saying, and to be really crystal clear, we will, we have, and we will continue to invest heavily in new products and brand investments. Last year, despite all the pressure, we invested 75 basis points more into new product marketing and technology. We will continue to do so in 2024.

And as you've seen from the capital plans, we are prepared to invest in new products. That's ultimately the lifeblood of our company and creates future growth. At the same time, we're also very mindful that we've got to create the funds for that.

Jim: And these funds, to Jim's point, come from carryover actions, they come from manufacturing efficiency. And frankly, after the Europe transaction is closed, we have a simpler business, and we will take advantage of relooking at our SG&A base in terms of how can we take advantage of now what is, globally, a much simpler and easier business where we don't need to have all the complexity in its current structure. Okay, that's very helpful, Collar.

Jim: And then my second question is about cash flows. You mentioned that you came into the year with inventories a bit higher than what you had anticipated. Any thoughts on the timing of working that back down and what that might mean for the cadence of the cash generation this year? Yeah, Susan. So this is Jim.

Jim: And listen, here's what I would say is that we talked about within, you know, our numbers, the overall cash flow guidance for the year that will reduce working capital by about 100 million at a minimum. I think what you'll see is some of that come more, probably within the second and third quarters, as we just look at where things are. Because, you know, we did already talk about that retailer inventory levels at the beginning of the year were higher than we anticipated. And so, you know, obviously, we will, we believe that will put some pressure on shipments in the first half of the year.

David S. MacGregor: And our goal is to make sure we keep our inventories in line with the shipments but then begin to reduce those inventories as we have the opportunity, but also as we expect to see sales ramp up a little bit later in the year. So I would say not necessarily in the first quarter, but more in the middle half of the year is when you should expect to see us reducing inventory. Your next question comes from the line of David McGregor from Longbow Research. Your line is open. Yes, good morning, everyone. Thanks for taking the questions. Good morning, David. Marco.

Hey, good morning, guys. Can you talk a little bit about the market share gains and at what price points? And was this really just a recovery of some of the share that you lost during the pandemic? Or do you think it might have been incremental with a different consumer or a different price point? And how does all this kind of mesh with, you know, what the consumer is doing right now in terms of mixing up or, Yeah, so David, I mean, first of all, the one point, or 1.1 point, to be precise, fully against in North America. The good thing is they're spread across multiple product categories. So it's basically not a single product category where we would point to share weakness. We grew across the board.

Obviously, a number of new product introductions helped and supported that share growth. The other element, which partially helped but is not yet fully visible, was significant share growth in the national builder business. But obviously, because the broader market is still soft, that is not yet fully showing, but that's a big source of share gains. So it's pretty much across the board. I wouldn't point to a specific price point. Now, against the context of a broader market, and this is coming back to what I think we mentioned also in the last earnings call, the nature of a market which is now so heavily impacted by the replacement markets, and again, with 60% of the sales right now of a total market, which is much more than past, the replacement market inherently comes with a slightly lower margin profile than discretionary demand It's just what it is, because consumers either look for specific dimensions, or are in a rush; they only have one or two days to make the decision.

So that typically comes with a lower margin profile. So I wouldn't point to specific price points where we gain market share, but the broader market being so heavily replacement driven, that doesn't necessarily help you from a price mix compared to before. Got it. Thanks for that.

And then, just as a follow-up, I want to go back to the 300 to 400 million cost reductions. I guess my question is really a clarification. This is a net number, right? It's net of any inflation in your non-raw material variable costs and fixed costs. Yes, David, give me your number.

Jim: Yes, this is a net number, like we always put on the net cost line. And so again, yeah, it takes more in gross actions to get to this number as we have to offset inflation in certain areas and especially in some of our higher growth, you know, emerging markets outside the US, but this is a net three to 400 million. Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open. Morning. Thanks for taking my question. Good morning, Michael.

Mike Dahl: All right, so follow up on the inventory comments. When you look at where retail inventory ended up, it's a two-part question. Is there any specific category that saw an outsized increase?

Jim: Inventory growth that you need to now work down, and then do you think Whirlpool was effectively in line with the industry as far as the inventory build? Is that kind of a Whirlpool-specific comment rather than an industry comment? How do you think you will shake out versus the market in terms of where your inventory position is under the year? Yeah, so Michael, I'll start here. And I'll let Marc kind of add a little bit of color to it.

Jim: But you know, I would say, to begin with across categories, I can't say that I could call out and differentiate any one category where it's significantly different. You know, again, as we kind of got through the year end, saw where sell-through was from a holiday perspective. And then you look across the broader environment, I'd say it's in, you know, we see it in many categories. So, you know, I don't think that there's a big differentiation for us there. And then, as you said, is it, you know, a Whirlpool only issue?

Jim: I think no, as you look across the entire industry, and you look across the retailers right now, this is not a Whirlpool only issue. And, you know, again, as you've seen, many of our competitors have already started talking about things, you're hearing a similar story out there, that everyone is seeing a retail environment that seems to have, you know, higher levels of inventory than expected. So, based on at least the information out in the public, I don't believe that it's a problem that disproportionately affects us. Michael, maybe just give you a little bit more color and come back to what I mentioned before.

Essentially, when you look back at Q4 North America, the industry sell-through was softer than most people expected. And that comes back to, yeah, the amount of discretionary demand out there was not as high as people expected. That led to both the return on investment and market promotions being just not attractive.

And two, it also led to higher inventories of the retailers relative to what we had in mind for industry sell-through. As I mentioned earlier, I think that will impact, somewhat, the shipments, the industry shipments in Q1 and maybe to a lesser extent, Q2. From everything we see from a broader industry, it certainly was not a Vopo-specific issue.

Mike Dahl: This was across the board, and right now, it just means a little bit of an inventory overhang as we enter the industry in Q1, but again, that will be work. Yeah, that makes sense. Helpful. Thanks.

Jason Haas: My second question, either Marc or Jim, is around the free cash flow guide. And specifically, if I look at cash earnings and operating items, the expectation is $1.1 to $1.2 billion in fiscal 24. You're expecting EBIT to be about flat at $1.15 billion.

On that number, you did $910 million in cash earnings in 2023. It seems like your interest expense is unchanged year on year, and your cash tax is unchanged year on year. And so if your EBIT is unchanged year on year, what is the actual bridge in terms of which items are getting you to a higher cash earnings number in 2024 or higher cash earnings conversion relative to EBIT? Yeah, so Michael, this is Jim.

Jim: And really, there are two components that go into that line. It's your actual earnings, which, as you pointed out, are relatively flat. And that does make sense.

Jim: And then the other one that's always hard from the outside to really kind of look at is that we have a lot of other operating accounts that are on our balance sheet, such as accruals for promotional spend, and accruals for employee compensation and other areas. And actually, when we look at the end of this year versus the end of 2023 versus the end of 2022, what we saw is that because 2022 was a really strong year, you had a lot higher payouts in some of those areas at the beginning of 2023, which negatively affects cash. And when you come through a negative year where you don't have as high of payouts in some of those areas, it gives you a positive in the next year from an operating cash flow perspective. So it's a good question in that it doesn't really become apparent, but that's the biggest driver within that bucket that you will see. Then also, throughout the year, there are just some non-cash items that affect that differently here and there.

Jim: But that's the biggest driver, the changes in those other types of accruals that don't necessarily sit in working capital. Your next question comes from a line called Jason Haas from Bank of America. Your line is open.

Jason Haas: Hey, good morning, and thanks for taking my questions. I'm curious if you could talk about what impacts, if any, you've seen from the disruptions in the Red Sea and just global container costs starting to increase here. It's Marc.

So obviously, in particular with our heavy footprint in the Americas, the impact for America is less. Yes, there's some, it impacted a little bit some of the East Coast shipments. Not so much in cost, more in time. So there's a one or two weeks later time.

It could and will start impacting European business. Right now, we're still in pretty good shape for Europe. But you know, obviously, that brings on certainly more European supply chain to a much, much less extent of the North American supply chain. Container costs have been so far pretty stable for us. Again, also put in that context, where it came from excessively high rates in the COVID and post-COVID environment and now to more normalized rates. And the broader impact of the mix is limited.

Keep also in mind, compared to any of our competitors, we are much more North America and America's production base. So, relatively speaking, the container cost impacts us a whole lot less than most of our competitors. Got it.

Thank you. And then, as a follow-up question, I'm curious if you could remind us what your sourcing exposure is to China, and if you have any thoughts on if we were to see higher tariffs placed on China, what would the impact be on your business and industry overall? Yes, Jason. I mean, first of all, split it into two pieces.

There are finished products and there are components. On finished products, our exposure is relatively small. We import microwave food combinations and some refrigerators into the Americas and into Europe, and some dishwashers also into Europe.

So on finished products, it's actually, frankly, in particular America, not a very big number. Components, in particular electronics, you have exposure, like everybody else, to China or broader Asia, I would say, because it's not just China, it's also Vietnam, Thailand, etc. Again, back to my earlier comment, in the competitive landscape, we're, by a long shot, the least exposed to China. And it's just because of our historic strong footprint in the Americas, our focus on producing in the Americas and sourcing in the Americas, except for electronics; we just have a limited supply base in the Americas. Your final question comes from the line of Eric Bosshard from Cleveland Research. Your line is open.

Eric Bosshard: The next two questions, I'll give them both to you. The first is, the other half of the free cash flow question. I understand the bridge within the cash earnings. Can you just give us a little bit of context about the 200 to 300 million euro cash usage that is alluded to in that slide? I just don't exactly know where that fits within the moving pieces.

Jim: And then the second question relates to, Marc, you talked a lot about the focus on margin progress, the flat margin, and 6.8. Related to that, I guess the core of it is that you still have this 11 to 12% long-term margin guide, and just wanted to see if that is the number that you're still aspiring to and aiming for. Yeah, so Eric, this is Jim, and I'll start with your first question there on EMEA.

Jim: And, you know, typically, if you'd looked within a full year, EMEA over the past few years has consumed around $200 million of cash, and whether it's due to restructuring, it's due to some legacy liabilities, and that is due to the operations of the business. Now, as we look to close the transaction, you know, in the first quarter of the year, typically, that negative cash flow actually did occur much earlier in the year, and then they would gain cash throughout the year. So to begin with, they start the year with a negative cash flow as they begin to build some working capital.

Jim: The second piece of that, though, that comes along with it is that also within there, we have some various working capital financing type of programs that are related to accounts receivable and other things that we will unwind as we do this transaction. And then as we contribute this, you know, this business to the new company, there will be other things that might exist within there, but there are just some things we need to unwind as we go through the process. So right now, we look at it as possibly having an impact on our cash flow for the year of a negative $200 to $300 million, but once we get closer to the close, we'll update that number. And Eric, just maybe, adding a comment to Jim's point.

Jim: Put it simply, the 550 to 650 cash flow, excluding Europe, on a normalized basis would translate into 800 million plus. That's essentially what it means, because we have to unwind these working capital financing activities and some other elements. So that's what it really means.

Now to your second point about the margin progress, and again, I want to also highlight our upcoming investor day where we give an update on our mid and long-term value creation goals. But in short, and Eric, that's consistent with what we said before, we absolutely don't see any reason why the margins which were pre-COVID are not in sight. So IE, in particular, for North America, for years, we have been operating on 12 or 12 plus percent operating margin in North America, and that's certainly what we see absolutely possible. Right now, we're working through, I mean, as you all can see, it's a very negative macro cycle. I mean, our industry is heavily impacted by existing home sales, and existing home sales, in the course of 20 months, went from six plus million units to 3.7 million.

So that's impacting us. But we know how to work through cycles, and that's why we're very confident that we can, over time, reestablish these margins as we were experiencing them before. But again, much more perspective on this one at our investor day. I guess with that, we've come pretty much to the end of our session.

First of all, I want to thank you all for joining us today. And I think, I mean, really, hopefully what you heard is that we feel good about where we are from our market share perspective. We also feel good about our ability to take out costs, as we demonstrated in 23 and as we are confident about 24. And we frankly feel good about how we, step by step, are strengthening our balance sheet and where we are from a broader funding and balance sheet perspective. I think all these elements set us up very well for, you know, working through a macrocycle, which we all see that's certainly going to impact the industry negatively in Q1 and probably also to some extent in Q2.

But again, we come from a very strong platform, we know how to work through recycling, and we have, I think, the right actions in place to, particularly once you look at the back of a 24, be very attractive. With that in mind, again, I want to remind everybody, February 27th, that's where you will see a lot more perspective, in particular about our North America business, and in particular about our KitchenAid SDA business, which we historically didn't put a lot of light on or didn't show you a lot. And we will also talk quite a bit about balance sheets and cash flow development.

Operator: So again, February 27th, and we're looking forward to seeing you all. Thank you. Ladies and gentlemen, that concludes today's conference call. You may now disconnect.

Our chairman and Chief Executive Officer, and Jim Peters, Our Chief Financial 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 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.

We also want to remind you that today's presentation includes non-GAAP measures outlined in further detail at the beginning of our earnings 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 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 opened for analysts' 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.

Thanks, Corey and good morning, everyone.

Today marks our first earnings call in the new year and I do appreciate that everyone's attention will be on a perspective for 2024.

However, I want to take the opportunity to reflect and look back at last year.

During this past year ramping a number of achievements we're proud of.

One we gained more than one point of market share in North America.

This is a clear testimonial for success of our great products and brands in the marketplace.

We were able to reduce our net cost base by $800 million, which is what we had in mind. When we started the year and three assigning of our EMEA transaction with arsenic Mark a major milestone on our portfolio transformation and is expected to provide significant opportunities to unlock value.

At the same time, there are number of areas, where we fell short of our expectations.

Remote environment, which reversed back earlier than anticipated to a pre COVID-19 intensity put pressure on our EBIT margins.

And while our full year EBIT margin of six 1% is solid it is still more than $1 short of where we want it to be.

And we were not able to reduce our inventories fast enough, which negatively impacted our full year cash flow.

Obviously these results were impacted by a still unfavorable housing cycle in 2023.

Our rapid and steep increase of U S mortgage rates led to essentially to a freeze of existing home sales.

Ultimately Mr resulted in the lowest existing home sales in almost three decades.

And given the strong historical correlation between existing home sales and appliance sales with discretionary client sales, which are margin attractive slowed down significantly.

This was mitigated by strong replacement demand, which tends to be less margin attractive. These strong replacement sales confirmed our view of more intensive use patterns of appliances, leading to shorter replacement cycles.

Favorable trend, which we expect to continue in foreseeable future.

Now the key question is what does this all mean for 2024.

Let me start on the housing macro cycle, we remain bullish on the mid and long term housing cycle for.

The market has been under supplied for over a decade by three to 4 million units.

The long overdue rebalancing of demand and supply will occur at one point, but not in the very short term.

While we already see a gradual and steady recovery of new home orders in starts we all know that <unk> typically need six to nine months to turn into appliance sales.

Future.

Now the key question is what does this all mean for 2024.

Existing home sales market from you ever hand, we'll need a catalyst to unfreeze.

Let me start on the housing macro cycle, we remain bullish on the mid and long term housing cycle.

By catalyst can only be a return to low mortgage rates, which we expect to moderate as the year progresses.

The market has been under supplied for over a decade by three to 4 million units.

So how will we position ourselves in 2024.

The long overdue rebalancing of demand and supply will occur at one point, but not in the very short term.

Essentially it will be all around cost discipline and margin expansion.

On the cost side, we have put actions in place to deliver $300 million to $400 million in cost savings.

While we already see a gradual and steady recovery of new home orders in starts we all know that these trends typically need six to nine months to turn into appliance sales.

While this number may appear lower than in 2023, we're not factoring any raw material savings.

Existing home sales market on the other hand, we'll need a catalyst to unfreeze.

So with $300 million to $400 million are all structural cost takeout actions.

By catalyst can only be a return to low mortgage rates, which we expect to moderate as the year progresses.

The margin expansion will essentially be driven by the benefits of our refocused portfolio. After the completion of EMEA transaction.

So how will we position ourselves in 2020 for Sn.

Essentially it will be all around cost discipline and margin expansion.

As well as a very disciplined approach focused only on value, creating promotions and product mix.

On the cost side, we have put actions in place to deliver $300 million to $400 million in cost savings.

You will see later in our presentation of full year negative impact of pricing, but this is entirely related to carryover pricing effects.

While this number may appear lower than in 2023, we're not factoring any raw material savings.

Lastly, as it relates to our portfolio transformation, we continue to expect to close our EMEA transaction by April.

So with $300 million to $400 million are all structural cost takeout actions.

And in anticipation of this transaction closure, we are changing our reporting segments.

The margin expansion will essentially be driven by the benefits of our refocused portfolio. After the completion of EMEA transaction.

Not only highlight our major domestic appliance business in North America, Latin America, and Asia, but also provide visibility to our kitchenaid small domestic appliance global business.

As well as a very disciplined approach focused only on value, creating promotions and product mix.

The strong margins the kitchenaid small domestic appliance business is a critical component of our brand and product portfolio improving life at home for our consumers.

You will see later in our presentation of full year negative impact of pricing, but this is entirely related to carryover pricing effects.

Lastly, as it relates to our portfolio transformation, we continue to expect to close our EMEA transaction by April.

I am confident that our refocused portfolio.

Cost actions and improving free cash flow generation positions us for continued shareholder value creation in 2024.

And in anticipation of this transaction closure, we are changing our reporting segments.

Now turning to slide six I will provide an overview of our fourth quarter results.

We're not only highlight our major domestic appliance business in North America, Latin America, and Asia, but also provide visibility to our kitchenaid small domestic appliance global business.

We delivered over 3% of revenue growth, including a one point of year over year share gains in North America.

Our strong margins the kitchenaid small domestic appliance business is a critical component of our brand and product portfolio improving life at home for our consumers.

Coupled with $350 million of reduce costs.

Working capital conversion and free cash flow of $366 million was impacted by shipments occurring later in the quarter or unexpected.

I am confident that our refocused portfolio cost actions and improving free cash flow generation positions us for continued shareholder value creation in 2024.

We exited 2023 with elevated trade customer inventories, which we expect to normalize mostly in the first quarter of 2024.

Speaker Change: Now turning to slide six I will provide an overview of our fourth quarter results.

Ultimately, we delivered ongoing earnings per share of $3 85.

Speaker Change: We delivered over 3% of revenue growth, including a one point of year over year share gains in North America coupled.

Supported by a tax benefit related to the Europe transaction.

And now I will turn it over to Jim to review, our Q4 regional results and perspective on 2024, including our plans for proceeds of our recently announced India transaction.

Speaker Change: Coupled with $350 million of reduced costs.

Speaker Change: Working capital conversion and free cash flow of $366 million was impacted by shipments occurring later in the quarter was unexpected.

Thanks, Mark good morning, everyone.

Turning to slide seven I'll review fourth quarter results for our North America business we.

Speaker Change: We exited 2023 with elevated trade customer inventories, which we expect to normalize mostly in the first quarter of 2024.

We delivered 1% of revenue growth and 260 basis points of margin expansion.

Speaker Change: Ultimately, we delivered ongoing earnings per share of $3 85.

Sales growth was driven by over a point of year over year share gains, resulting from new product introductions and improved supply chain execution.

Speaker Change: Supported by a tax benefit related to the Europe transaction.

Speaker Change: And now I will turn it over to Jim to review, our Q4 regional results and perspective on 2024, including our plans for the proceeds of our recently announced India transaction.

While this was partially offset by a normalized promotional environment. Additionally.

Additionally, resilient replacement demand lifted the U S industry, 2%.

Jim: Thanks, Mark good morning, everyone.

Jim: Turning to slide seven I'll review fourth quarter results for our North America business we.

Fourth quarter margin expansion was driven by significantly reduced cost.

Partially offset by negative price mix from a normalized promotional environment and lower consumer discretionary demand due to higher mortgage rates in 2023 slowing down existing home sales overall the region delivered eight 4% margins for the quarter.

Jim: We delivered 1% of revenue growth and 260 basis points of margin expansion.

Sales growth was driven by over a point of year over year share gains, resulting from new product introductions and improved supply chain execution.

Jim: While this was partially offset by a normalized promotional environment. Additionally, resilient replacement demand lifted the U S industry, 2%.

Turning to slide eight I'll review, our results for our Europe, Middle East and Africa business.

Revenue was down 3% year over year as the region continues to see demand weakness from negative consumer sentiment strong cost takeout actions and held for sale accounting benefits drove nearly 400 basis points of margin expansion year over year to approximately 3%.

Jim: Fourth quarter margin expansion was driven by significantly reduce cost.

Jim: Partially offset by negative price mix from a normalized promotional environment and lower consumer discretionary demand due to higher mortgage rates in 2023 slowing down existing home sales overall the region delivered eight 4% margins for the quarter.

We continue to expect the Europe transaction to close by April 2024, and later in the call I will provide additional insights into the expected impact to our 2020 for guidance and free cash flows.

Jim: Turning to slide eight I'll review, our results for our Europe, Middle East and Africa business.

Turning to slide nine I'll review the results for our Latin America business.

With strong industry demand throughout the region and share gains in Brazil, net sales excluding currency increased approximately 13%.

Overall, the region delivered solid EBIT margin of 6%.

Jim: We continue to expect the Europe transaction to close by April 2024, and later in the call I will provide additional insights into the expected impact to our 2020 for guidance and free cash flows.

Flat to last year as cost actions were offset by negative price mix and losses in Argentina from currency devaluation and costs related to ramping up our new laundry factory.

Turning to slide 10, I'll review the results for our Asia business. The region saw net sales growth of 9% driven by share gains and improving industry.

Speaker Change: Turning to slide nine I'll review the results for our Latin America business.

Speaker Change: With strong industry demand throughout the region and share gains in Brazil, net sales excluding currency increased approximately 13%.

EBIT margins of one 3% with cost takeout actions more than offset by negative price mix as.

Speaker Change: Overall, the region delivered solid EBIT margin of 6%.

As you May have seen we recently announced our intention to sell up to 24% of Whirlpool India's outstanding shares while retaining a majority interest we truly believe in the long term trajectory of India. It is one of the strongest growth opportunities for whirlpool whirlpool of Indias long term outlook for growth and margins.

Speaker Change: Flat to last year as cost actions were offset by negative price mix and losses in Argentina from currency devaluation and costs related to ramping up our new laundry factory.

Speaker Change: Turning to slide 10, I'll review the results for our Asia business. The region saw net sales growth of 9% driven by share gains and improving industry.

Both in the high single digits, making India very attractive to operate in at the same time. This financial profile has created a very strong local public market valuation.

EBIT margins of one 3% with cost takeout actions more than offset by negative price mix.

Turning to slide 12, I will review, our 2024 guidance, which includes the Europe major domestic appliance business only for the first quarter of the year.

Speaker Change: As you May have seen we recently announced our intention to sell up to 24% of Whirlpool India's outstanding shares while retaining a majority interest we truly believe in the long term trajectory of India. It is one of the strongest growth opportunities for whirlpool whirlpool of Indias long term outlook for growth and margin.

We have provided a reset baseline for 2023 results, excluding our Europe major domestic appliance business from Q2 through Q4 of 2023.

Speaker Change: Are both in the high single digits, making India very attracted to operate in at the same time. This financial profile has created a very strong local public market valuation.

The reset baseline excludes approximately $2 $6 billion net sales and approximately $33 million of EBIT, creating a like for like comparison for 2024 on.

Speaker Change: Turning to slide 12, I will review, our 2024 guidance, which includes the Europe major domestic appliance business only for the first quarter of the year.

On a like for like basis 2023, net sales were approximately $16 9 billion with ongoing EBIT margin of six 8%.

Speaker Change: We have provided a reset baseline for 2023 results, excluding our Europe major domestic appliance business from Q2 through Q4 of 2023.

We expect flat 2024, net sales, including $700 million of sales from the EMEA of major domestic appliance business in Q1, and flat EBIT margin year over year on a like for like basis. We.

The reset baseline excludes approximately $2 $6 billion net sales and approximately $33 million of EBIT, creating a like for like comparison for 2024 on.

We expect 2020 for free cash flow of $550 million to $650 million.

A 50% to 75% increase driven by improved earnings and working capital reduction.

Speaker Change: On a like for like basis 2023, net sales were approximately $16 9 billion with ongoing EBIT margin of six 8%.

We expect full year ongoing earnings per share of $13 to $15, including an adjusted effective tax rate of zero percent and increase compared to 2023, which impacts 2024 earnings per share by approximately $1.

Speaker Change: We expect flat 2024, net sales, including $700 million of sales from the EMEA major domestic appliance business in Q1, and flat EBIT margin year over year on a like for like basis. We.

Turning to slide 13, we show the drivers of our full year six 8% ongoing EBIT margin guidance, we expect a negative impact of 150 to 175 basis points from price mix.

Speaker Change: We expect 2020 for free cash flow of $550 million to $650 million.

Speaker Change: A 50% to 75% increase driven by improved earnings and working capital reduction.

This reflects the first half of 2024 carryover effect as the promotional environment normalized in the second half of 2023.

Speaker Change: We expect full year ongoing earnings per share of $13 to $15, including an adjusted effective tax rate of zero percent and increased compared to 2023, which impacts 2024 earnings per share by approximately $1.

We also expect continuing softer mix and discretionary demand in the first half of 2024 from historically low existing home sales, partially offset by new product introductions.

Speaker Change: Turning to slide 13, we show the drivers of our full year six 8% ongoing EBIT margin guidance, we expect a negative impact of 150 to 175 basis points from price mix.

As we drive further reductions to our cost structure, we expect approximately 175 basis points of net cost margin benefit from $300 million to $400 million of cost takeout actions, we expect minimal to no impact to EBIT margins from raw materials. This year based on recent commodity trends and execute.

Speaker Change: This reflects the first half of 2024 carryover effect as the promotional environment normalized in the second half of 2023.

Speaker Change: We also expect continuing softer mix and discretionary demand in the first half of 2024 from historically low existing home sales, partially offset by new product introductions.

Supply agreements, we plan to continue a strong cadence of new product introductions with investments in marketing and technology impacting margins by approximately 25 basis points.

Speaker Change: As we drive further reductions to our cost structure, we expect approximately 175 basis points of net cost margin benefit from $300 million to $400 million of cost takeout actions, we expect minimal to no impact to EBIT margins from raw materials. This year based on recent commodity trends and execute.

Finally, we expect our portfolio transformation to provide approximately 75 basis points of margin improvement as we contribute the margin dilutive European major domestic appliance business to the newly formed company.

On slide 14, I will provide context on our significant cost takeout opportunity we.

Supply agreements, we plan to continue a strong cadence of new product introductions with investments in marketing and technology impacting margins by approximately 25 basis points.

We experienced unprecedented cost inflation of approximately $2 5 billion in 2021 and 2022.

In 2023, we were able to drive $800 million of cost takeout.

Speaker Change: Finally, we expect our portfolio transformation to provide approximately 75 basis points of margin improvement as we contribute the margin dilutive European major domestic appliance business to the newly formed company.

Which is a significant step in resetting our cost structure.

We expect to further reduce our costs by $300 million to $400 million this year two.

<unk> 2024 will benefit from $100 million of cost actions taken last year.

Speaker Change: On slide 14, I will provide context on our significant cost takeout opportunity.

We expect $100 million to $200 million of additional cost takeout with our manufacturing and supply chain operations benefiting from ongoing productivity initiatives and reduced complexity as we enter 2024.

Speaker Change: We experienced unprecedented cost inflation of approximately $2 5 billion in 2021 and 2022.

In 2023, we were able to drive $800 million of cost takeout.

And we also expect $100 million of second half benefit as our ongoing portfolio transformation allows us to simplify our organizational operating model.

Speaker Change: Which is a significant step in resetting our cost structure.

Speaker Change: We expect to further reduce our costs by $300 million to $400 million this year two.

Turning to slide 15, I will introduce our new segment reporting structure effective January one 2024.

Speaker Change: 2024 will benefit from $100 million of cost actions taken last year.

Speaker Change: We expect $100 million to $200 million of additional cost takeout with our manufacturing and supply chain operations benefiting from ongoing productivity initiatives and reduced complexity as we enter 2024.

We have updated our reporting structure with the anticipated closure of the Europe transaction.

Our regional operating segments. Historically included the results of our kitchenaid small domestic appliance business in the geographical regions. They operated in.

Speaker Change: And we also expect $100 million of second half benefit as our ongoing portfolio transformation allows us to simplify our organizational operating model.

We will now only report the major domestic appliance businesses within their respective regions. We will now report our global Kitchenaid small domestic appliance business also known as SDA.

Speaker Change: Turning to slide 15, I will introduce our new segment reporting structure effective January one 2024.

As a separate segment.

This business has an iconic brand and premium products with a reputation for performance and quality perfectly fitting our vision of being the best kitchen and laundry company. We will continue to have strong brand synergies between the small domestic appliance and major domestic appliance product portfolio.

Speaker Change: We have updated our reporting structure with the anticipated closure of the Europe transaction.

Speaker Change: Our regional operating segments. Historically included the results of our kitchenaid small domestic appliance business in the geographical regions. They operated in.

Speaker Change: We will now only report the major domestic appliance businesses within their respective regions. We will now report our global Kitchenaid small domestic appliance business also known as SDA.

The regional MDA businesses will have margin profiles 30 to 40 basis points lower than the previously reported figures due to SDA reporting as its own segment.

Speaker Change: As a separate segment.

On our Investor Relations website, and yesterday's 8-K, we have provided recast quarterly results for 2021 through the third quarter of 2023, reflecting our $1 billion SDA business with its strong 15% plus margins.

Speaker Change: This business has an iconic brand and premium products with a reputation for performance and quality perfectly fitting our vision of being the best kitchen and laundry company. We will continue to have strong brand synergies between the small domestic appliance and major domestic appliance product portfolio.

Turning to slide 16, I will review, our new segment guidance <unk>.

Speaker Change: The regional MDA businesses will have margin profiles 30 to 40 basis points lower than the previously reported figures due to SDA reporting as its own segment.

Starting with industry demand, we expect to a dynamic global industry to be flat to up 2%.

We expect to see similar demand trends in the U S that we saw in the second half of 2023 with resilient replacement demand, creating a solid footing for industry volumes in consumer discretionary demand continuing to be impacted by elevated mortgage rates driving down existing home sales over.

Speaker Change: Turning to slide 16, I will review, our new segment guidance Star.

Hall, we expect MDA North America to be flat to slightly positive as well as we expected the MDA Latin America industry to also be flat to slightly positive <unk>.

Starting with industry demand, we expect to a dynamic global industry to be flat to up 2%.

India has one of the fastest growth rates globally, and we expect MDA Asia industry volumes to accelerate by 4% to 6%.

While we expect the SDA global industry to be up 2% to 4% we want to preface this guidance with the fact that kitchen aid is largely present in the premium segment and also not in all SBA categories.

Speaker Change: All we expect MDA North America to be flat to slightly positive as well as we expect the MDA Latin America industry to also be flat to slightly positive.

Finally, we expect demand contraction of negative 8% to 6% in the first quarter for MDA Europe from continued negative consumer sentiment.

Speaker Change: India has one of the fastest growth rates globally, and we expect MDA Asia industry volumes to accelerate by 4% to 6%.

For MDA North America, we expect to deliver full year margins of approximately 9% with promotional carryover negatively impacting first half margins and elevated channel inventories impacting first quarter demand. We expect approximately 50 to 75 basis points of sequential margin expansion.

While we expect the SBA global industry to be up 2% to 4% we want to preface this guidance with the fact that kitchenaid is largely present in the premium segment and also not in all SBA categories.

And every quarter and to exit 2024, with EBIT margins of approximately 10%.

Speaker Change: Finally, we expect demand contraction of negative 8% to 6% in the first quarter for MDA Europe from continued negative consumer sentiment.

For MDA Latin America, we expect EBIT expansion and strong margins of six 5% with cost takeout actions and improved consumer sentiment.

Speaker Change: For MDA North America, we expect to deliver full year margins of approximately 9% with promotional carryover negatively impacting first half margins and elevated channel inventories impacting first quarter demand.

For MDA Asia, we expect margin expansion to approximately 3% EBIT margins.

For <unk> global we expect very attractive EBIT margins of approximately 15, 5%.

Speaker Change: We expect approximately 50 to 75 basis points of sequential margin expansion every quarter and to exit 2024 with EBIT margins of approximately 10%.

Lastly, we expect MDA Europe to deliver approximately one 5% margins in the first quarter and.

Speaker Change: For MDA Latin America, we expect EBIT expansion and strong margins of six 5% with cost takeout actions and improved consumer sentiment.

And overall expect an ongoing total EBIT margin of six 8%.

Turning to slide 17, let me provide you with additional detail on our U S industry expectations.

Speaker Change: For MDA Asia, we expect margin expansion to approximately 3% EBIT margins.

Replacement demand drove industry growth in 2023, and we expect this trend to continue into 2020 for.

For STR global we expect very attractive EBIT margins of approximately 15, 5%.

The last four years of elevated usage is shrinking the historical average life of appliances, coupled with an installed base from 2015 through 2017 that grew 4% to 5% and is nearing replacement. This.

Speaker Change: Lastly, we expect MDA Europe to deliver approximately one 5% margins in the first quarter.

Speaker Change: And overall expect an ongoing total EBIT margin of six 8%.

This is driving replacement demand to approximately 60% of industry volumes, we expect to continue to drive value, creating share gain in 2024 with housing starts trending higher in the second half of 2023 Whirlpool is disproportionately positioned to benefit from new construction demand.

Speaker Change: Turning to slide 17, let me provide you with additional detail on our U S industry expectations.

Speaker Change: <unk> demand drove industry growth in 2023, and we expect this trend to continue into 2024.

Speaker Change: The last four years of elevated usage is shrinking the historical average life of appliances, coupled with an installed base from 2015 through 2017 that grew 4% to 5% and is nearing replacement. This.

Forecast for 2024 are calling for low to mid single digit growth in housing starts most likely benefiting whirlpool and the second half of 2024 or early 2025.

Speaker Change: This is driving replacement demand to approximately 60% of industry volumes, we expect to continue to drive value, creating share gain in 2024 with housing starts trending higher in the second half of 2023 Whirlpool is disproportionately positioned to benefit from new construction demand.

For every 5% increase in new construction, we could see approximately $100 million impact with our leading builder share.

Finally, discretionary demand, which accounts for approximately 25% of total industry volumes is driven by existing home sales, which are coming off the worst year since $19 95 and are expected to improve in the back half of 2024 as interest rates moderate.

Speaker Change: Forecast for 2024 are calling for low to mid single digit growth in housing starts most likely benefiting whirlpool in the second half of 2024 or early 2025.

Turning to slide 18, I will share further perspective on 2024, we expect soft discretionary demand and higher retail inventory levels to weigh on total industry expectations in the first half of 2024 with a more pronounced impact on Q1.

For every 5% increase in new construction, we could see approximately $100 million impact with our leading builder share.

Speaker Change: Finally, discretionary demand, which accounts for approximately 25% of total industry volumes is driven by existing home sales, which are coming off their worst year since $19 95 and are expected to improve in the back half of 2024 as interest rates moderate.

We expect 2020 for promotional activity to be at similar levels as the second half of 2023, creating a margin headwind to the first half of the year. We expect cost actions from 2023 to benefit the first half of 2024, while additional cost actions ramp up.

Speaker Change: Turning to slide 18, I will share further perspective on 2024, we expect soft discretionary demand and higher retail inventory levels to weigh on total industry expectations in the first half of 2024 with a more pronounced impact on Q1.

Additionally, the demand in earnings seasonality of our SDA global business varies from our major domestic appliance business. It delivers approximately 75% of its demand and profitability in the second half of every year with consumers favoring small domestic appliances as gifts and increased banking activities.

Speaker Change: We expect 2020 for promotional activity to be at similar levels as the second half of 2023, creating a margin headwind to the first half of the year. We expect cost actions from 2023 to benefit the first half of 2024, while additional cost actions ramp up.

In the fall and holiday season.

Overall, we expect to deliver approximately 35% to 40% of our earnings in the first half of the year.

Turning to slide 19, I will provide the drivers of our free cash flow guidance.

We expect improved cash earnings of approximately one one to $1 2 billion.

We expect approximately $600 million of capital expenditures as we continue to invest in our products and fund organic growth, including our plans to launch over 100, new products in 2024, we plan to improve our working capital conversion by approximately $100 million.

Speaker Change: In the fall and holiday season.

Speaker Change: Overall, we expect to deliver approximately 35% to 40% of our earnings in the first half of the year.

Largely through inventory reductions.

Speaker Change: Turning to slide 19, I will provide the drivers of our free cash flow guidance.

We expect approximately $50 million of restructuring cash outlays related to previously executed actions and complexity reduction with our simplified organizational model after the Europe transaction.

Speaker Change: We expect improved cash earnings of approximately $1, one to $1 2 billion.

Speaker Change: We expect approximately $600 million of capital expenditures as we continue to invest in our products and fund organic growth, including our plans to launch over 100, new products in 2024, we plan to improve our working capital conversion by approximately $100 million.

Overall, we expect to deliver free cash flow of $550 to $650 million or approximately three 5% of net sales, including approximately $200 million to $300 million of.

Of cash consumption for MDA Europe business operations prior to the closure and onetime charges.

Speaker Change: Largely through inventory reductions.

Turning to slide 20, I'll review, how we are well positioned to deliver our 2024 capital allocation priorities, we have a solid balance sheet with $1 6 billion of cash on hand, coupled with $550 to $650 million of 2020 for expected free cash flows.

Overall, we expect to deliver free cash flow of $550 to $650 million or approximately three 5% of net sales, including approximately $200 million to $300 million of cash consumption for MDA Europe business operations prior to the closure and one <unk>.

Plus anticipated $400 million to $500 million of proceeds from asset sales as.

As we previously announced our intention to sell a portion of our interest in Whirlpool of India and recently signed an agreement to divest of our bras temp branded water filtration business in Brazil.

Speaker Change: <unk> charges.

Turning to slide 20, I'll review, how we are well positioned to deliver our 2024 capital allocation priorities, we have a solid balance sheet with $1 6 billion of cash on hand.

As you can see we are well positioned to deliver our clear capital allocation priorities for 2024.

Last year marked the 68th consecutive year of steady or increasing dividends from whirlpool subject to board approval, we expect to pay dividends of approximately $400 million.

Speaker Change: Coupled with $550 million to $650 million of 2020 for expected free cash flows plus anticipated $400 million to $500 million of proceeds from asset sales as.

We are committed to maintaining our strong investment grade credit rating and reducing our debt by at least an additional $500 million we.

Speaker Change: As we previously announced our intention to sell a portion of our interest in Whirlpool of India and recently signed an agreement to divest of our bras temp branded water filtration business in Brazil.

<unk> limited share buybacks to offset share dilution.

Finally, we are committed to funding innovation and growth with capital expenditures plus research and development of approximately 6% of net sales.

As you can see we are well positioned to deliver our clear capital allocation priorities for 2024.

Last year marked the 68th consecutive year of steady or increasing dividends from whirlpool subject to board approval, we expect to pay dividends of approximately $400 million.

Turning to slide 21, you can see our commitment to deleveraging our balance sheet.

As a reminder, in 2022 with the acquisition of the value, creating in sync rater business, we increased our debt by $2 5 billion in term loans compared to 2022, we expect at least $1 billion of debt reduction by the end of this year with the combination of strong free cash flow.

Speaker Change: We are committed to maintaining our strong investment grade credit rating and reducing our debt by at least an additional $500 million.

Speaker Change: We expect limited share buybacks to offset share dilution.

Speaker Change: Finally, we are committed to funding innovation and growth with capital expenditures plus research and development of approximately 6% of net sales.

<unk> expected in 2025, and the first full year following the close of the Europe transaction and our product innovations delivering earnings expansion and beginning to realize the free cash flow benefits of our adjusted effective tax rate. We are confident in our ability to further reduce our net debt leverage to approximately two times.

Turning to slide 21, you can see our commitment to deleveraging our balance sheet.

As a reminder, in 2022 with the acquisition of the value, creating in sync greater business, we increased our debt by $2 5 billion in term loans compared to 2022, we expect at least $1 billion of debt reduction by the end of this year with the combination of strong free cash flow.

By 2026, now I will turn the call back over to Mark.

Thanks, Tim turning to Slide 23, let me provide an update on our Europe transaction as I mentioned in our third quarter earnings call. We passed major regulatory milestones with the approval from the European Commission, Germany, Australia and China.

Speaker Change: <unk> expected in 2025, and the first full year following the close of the Europe transaction and our product innovations delivering earnings expansion and beginning to realize the free cash flow benefits of our adjusted effective tax rate. We are confident in our ability to further reduce our net debt leverage to approximately two times.

The Uk's competition and market authority is in the process of conducting a phase two review of the transaction.

We are continuing our constructive dialogue with the CMA about the newly formed company that will benefit consumers.

Speaker Change: By 2026, now I will turn the call back over to Mark.

And we continue to expect for transaction will close by April.

Mark: Thanks, Tim turning to Slide 23, let me provide an update on our Europe transaction as I mentioned in our third quarter earnings call. We passed major regulatory milestones with the approval from the European Commission, Germany, Australia and China.

Turning to slide 24, let me recap what you've heard today.

We will further improve our cost structure and are confident in our ability to deliver $300 million to $400 million of cost takeout.

Our portfolio transformation to a higher growth higher margin business continues to progress.

Mark: UK competition in market authority is in the process of conducting a phase two review of the transaction. We are continuing our constructive dialogue with the CMA about the newly formed company that will benefit consumers.

The Europe transaction will meaningfully accelerate our structural free cash flows by approximately $200 million to $300 million in 2025.

A clear capital allocation priorities, including strong dividends and reducing debt leverage supported by a flexible balance sheet with $1 6 billion cash on hand, along with strong 2020 for cash generation.

Mark: And we continue to expect per transaction will close by April.

Mark: Turning to slide 24, let me recap what you've heard today we.

Mark: We'll further improve our cost structure and are confident in our ability to deliver $300 million to $400 million of cost takeout.

Confident in the trajectory of our business and our portfolio transformation to deliver sustained shareholder returns.

Our portfolio transformation to a higher growth higher margin business continues to progress.

Finally, our close on slide 25, with an invitation to join US at our 2020 for Investor Day on February 27th Avenue, New York Stock Exchange.

Mark: Europe transaction will meaningfully accelerate our structural free cash flows by approximately $200 million to $300 million in 2025.

We look forward to hosting our first investor day since 2019.

Mark: We have clear capital allocation priorities, including strong dividends and reducing debt leverage.

To review, how our portfolio transformation is creating a very different gulfport positioning us towards higher growth and higher margin business.

Mark: Ported by a flexible balance sheet with $1 6 billion cash on hand, along with strong 2020 for cash generation.

We're excited to review our growth and margin expansion opportunities for our MDA North America business, we will highlight the rich history of our Premier Kitchenaid SDA business. In addition to introducing the remainder of our 2026th value creation goals. We hope to see you bear now we will end our formal remarks and open it up for questions.

We're confident in the trajectory of our business and our portfolio transformation to deliver sustained shareholder returns.

Mark: Finally, our close on slide 25, with an invitation to join US at our 2020 for Investor Day on February 27th Avenue York Stock Exchange.

Mark: We look forward to hosting our first Investor day since 2019, we plan to review how our portfolio transformation is creating a very different gulfport positioning us towards higher growth and higher margin business. We're.

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.

Our first question comes from the line of Sam Dark cash from Raymond James Your line is open.

Mark: We're excited to review our growth and margin expansion opportunities for our MDA North America business, we will highlight the rich history of our premium Kitchenaid SDA business. In addition to introducing the remainder of our 2026th value creation goals. We hope to see you bear now we will end our formal remarks and open it up for questions.

Good morning, Marc Good morning, Jim how are you.

Good morning, Sam.

Two questions. The first around the raw material assumption on the second question will be around North America major appliance margins.

So first around raw materials.

So youre, saying its going to be neutral on a year on year basis. Obviously, we can see that cold rolled steel was up meaningfully of late and on a year on year basis. So how much of your steel spend is on contract. This year and is there an assumption that steel prices fall.

Mark: Question and answer period.

Speaker Change: 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 the line of Sam Dark cash from Raymond James Your line is open.

From here baked into your guidance or what sort of offsets are there to stay or just help.

Sam Dark: Good morning, Marc Good morning, Jim how are you.

Help reconcile what were seeing in the <unk>.

Sam Dark: Good morning, Sam.

Markets versus what Youre seeing on your Rmi.

Sam Dark: Two questions. The first around the raw material assumption on the second question will be around North America, a major appliance margins.

Sam It's Marc let me first maybe take the raw material question. When we can come to a a non margin question.

Sam Dark: So first around raw materials.

First of all I know you are well aware, but more of a broad audience are number one raw material buy steel number two ish resins in all forms and then it kind of splits up in smaller.

Sam Dark: So youre, saying its can be neutral on a year on year basis. Obviously, we can see that cold rolled steel was up meaningfully of late and on a year on year basis. So how much of your steel spend is on contract. This year and is there an assumption that steel prices fall from.

Elements.

As you know in 'twenty, three we got a tailwind from raw materials and right now we're guiding pretty much for almost no effect of this one.

Raw material again as I mentioned, Steve is the number one driver.

Sam Dark: Here baked into your guidance or what sort of offsets are there to stay or just help.

There is no you don't have formal hedging contracts <unk> basically have contract with individuals Steve suppliers, which are regional and they typically are on an annual basis certainly for.

Sam Dark: Help reconcile what were seeing in the markets versus what Youre seeing on your Rmi.

U S less so in Latin America, but also in Europe, you have been much annual contract.

Marc: Sam its Marc.

Marc: Let me first maybe take the raw material question, when we kind of come into the non margin question.

These annual contract and that's why we have a very high degree of confidence in raw material assumption. They are largely locked in mountain. So typically these negotiations happen November December timeline.

First of all I know, you're well aware, but more of a broad audience are number one raw material buy steel number two ish resins in all forms and then it kind of splits up in smaller.

Marc: Elements.

And Barry.

Marc: As you know in 'twenty, three we got a tailwind from raw materials and right now we're guiding pretty much for almost no effect of this one.

Don offer offer kind of on the spot <unk> spot price that kind of done more enrolling averages in certain assumptions about Florida and Colorado. So.

Raw material again as I mentioned in steel as the number one driver.

If all these contracts, although the majority of the contracts fully in place again with the exception of Latin America.

Marc: There is no you don't have formal hedging contracts extend you basically have contract with individuals Steve suppliers, which are regional and they typically are on an annual basis certainly for.

The variation, which we expect from a steel price is very very low. So that's why on the number one component we have a very high degree of certainty, but number two component resins were more on a quarterly basis, and obviously various an element about oil price assumptions in there.

Marc: U S less so in Latin America, but also in Europe, you have pretty much annual contract.

Marc: These annual contract and that's why we have a very high degree of confidence in raw material assumption.

Mitch do you have a little bit more variation, but again, it's relative to steel it's much smaller so again I'll Miss two components, Sam we feel were.

Marc: Largely locked in now so typically these negotiations happen November December timeline.

I have a contractually protected.

Marc: And Barry.

All right now we have certainty on plastics I think we have a reasonable assumption for full year.

Marc: Don.

Barry: On the spot <unk> spot price, we're kind of done more on rolling averages in certain assumptions about Florida and Colorado.

Got it and then the <unk>.

North American margin question so.

Barry: If all these contracts, although the majority of the contracts fully in place again with the exception of Latin America.

What was the fourth quarter.

23, North American margin, excluding small appliances and what is your assumed.

Barry: The variation, which we expect from a steel price is very very low. So that's why on the number one component we have a very high degree of certainty, but number two component resins were more on a quarterly basis, and obviously various an element about oil price assumptions in there.

24 exit rate for North American major appliances versus the 9% annual guide thanks.

And so some of the North American margin in Q4, we posted by eight 4%.

Barry: You have a little bit more variation, but again, it's relative to <unk>. It's much smaller so again amidst two components, Sam we feel were contractually protected.

Roughly when we referred to a full year base.

Kitchenaid typically has an impact of about 40 basis points on a margin basis in North America, now, but it's a little bit the numbers a little bit of seasonality engage Nate if a heavy skewed towards Q3 and Q4.

Barry: All right now we have certainly on plastics I think we have a reasonable assumption for full year.

Sam Dark: Got it and then.

Sam Dark: North American margin question so.

So you take that out of the equation you pretty much exiting in 'twenty, three where we're exiting around 8% roughly north American margin, which as we talked about a good point below where we wanted to be in all transparency. We guide the full year, excluding kitchenaid on 9%.

Sam Dark: What was the fourth quarter.

Sam Dark: 23, North American margin, excluding small appliances and what is your assumed.

24 exit rate for North American major appliances versus the 9% annual guide thanks.

And I think also in our prepared remarks, we will refer them to we expect to exit 'twenty four with around 10% in North America margin.

Sam Dark: And so some of our North American margin in Q4, we posted eight 4%.

Roughly when we referred to a full year base.

Your next question comes from the lineup Mike Rehaut from Jpmorgan. Your line is open.

Sam Dark: Kitchenaid two big it has an impact of about 40 basis points on a margin basis in North America, now, but it's a little bit the numbers a little bit of seasonality engage Nate if a heavily skewed towards Q3 and Q4.

Thanks, Good morning, everyone. Thanks for taking my questions.

Morning, Mike.

I would love to get a sense.

Sam Dark: So you take that out of the equation you pretty much exiting in 'twenty, three where we're exiting around 8% roughly north American margin, which as we talked about a good point below where we wanted to be in all transparency. We guide the full year, excluding kitchenaid on 9%.

Just how youre thinking about the <unk>.

<unk> backdrop and cadence in North America MDA.

As.

Is 24 progresses, I know that you kind of highlighted that on a consolidated basis.

Sam Dark: And I think always in our prepared remarks, we will refer them to we expect to exit 2004 with around 10% in North America margin.

Do you expect price mix to be negative in the first half and flat in the back half.

But I was hoping they are trying to get a sense of the interplay between.

Your next question comes from the line of Mike Rehaut from Jpmorgan. Your line is open.

How you expect 24 to play out in terms of managing.

Share gains, which you kind of highlighted another point of share in the in the fourth quarter.

Mike Rehaut: Thanks, Good morning, everyone. Thanks for taking my questions.

Morning, Mike.

I would love to get a sense.

And how do you expect to manage.

The promotional backdrop as it progresses.

Mike Rehaut: Just how youre thinking about the <unk>.

I guess part of the question here is.

Mike Rehaut: <unk> backdrop and cadence in North America MDA.

Yes.

Extent that promotions continue to let's say increase or in the near term.

Mike Rehaut: As the.

Mike Rehaut: Is 24 progresses, I know that you kind of highlighted that on a consolidated basis.

Yes, how you'd manage that versus.

Your desire to continue to regain share.

Mike Rehaut: We expect price mix to be negative in the first half and flat in the back half.

Michael It's Marc So let me try to address it let me first take a little bit for Q4, and the rear mirror on North America, because I think that the highlights a lot of.

Mike Rehaut: But I was hoping they are trying to get a sense of the interplay between.

Mike Rehaut: How you expect 24 to play out in terms of managing.

Mike Rehaut: Share gains, which you kind of highlighted another point of share in the in the fourth quarter.

Challenges and opportunities, which we have and then as much as we can talk I can give you a broad a director on 24. So if you look back at Q4 'twenty three in particular North America.

Mike Rehaut: And how do you expect to manage.

Mike Rehaut: The promotional backdrop as it progresses.

Ultimately it comes down to the amount of the absolute amount of marketing and promotion dollars, we've put in the market or not.

Speaker Change: I guess part of the question here is.

Speaker Change: To the extent that promotions continue to let's say increase or.

Unusual compared to pre Covid.

Speaker Change: In the near term.

Big difference was that the lift we've got on discretionary demand must bear limited.

Yes, how you'd manage that versus.

Speaker Change: Your desire to continue to regain share.

So ultimately in hindsight.

Our ROI on some of our promotions did not.

Speaker Change: Yeah, Michael It's Marc So let me try to address it and let me first take a little bit for Q4, and the rear mirror on North America, because I think that highlights a lot of it.

Work out the way we expected.

So as you know we repeatedly talked about we focus on value creation promotions and in hindsight. Some of these promotions did not meet that benchmark. It's just because the discretionary demand of a pool of discretionary amount of a market both limit. So the whole equation got unbalanced and that led to some margin erosion in Q4.

Marc: Challenges and opportunities, which we have and then as much as we can talk I can give you a broad a director on 24. So if you look back at Q4 'twenty three in particular in North America.

Marc: Ultimately it comes down to the amount of the absolute amount of marketing and promotion dollars, we've put in the market or not.

As I also said as we look into 'twenty four and as you know we don't give any forward looking comment on pricing et cetera, but I said, our focus is on margin expansion I mentioned.

Marc: Unusual compared to pre Covid.

Marc: Big difference was that the lift we've got on discretionary demand was very limited.

Alright exit margins are below where we wanted to be.

Right now our focus is on margin expansion.

Marc: So ultimately in hindsight.

Marc: Our ROI on some of our promotions did not.

We see deploying all levers, which are at our disposal cost takeout.

Marc: Work out the way we expected.

Pricing, how we manage our mix, how we match our new product introduction.

Marc: So as you know we repeatedly talked about we focus on value creation promotions and in hindsight. Some of these promotions did not meet that benchmark. It's just because of the discretionary demand of a pool of discretionary demand of our market was limited.

But the focus is on margin expansion and that is in the context of we feel good about our share gains and right now the level of shareholder would come from gives us a solid base and we will at least for foreseeable future. We are focused on margin expansion.

Marc: But whole equation got unbalanced and that led to some margin erosion in Q4.

As I also said as we look into 'twenty four and as you know we don't give any forward looking comments on pricing et cetera, but I said, our focus is on margin expansion I mentioned here.

Great I appreciate that.

I guess and I apologize. If this is something that I missed in maybe the supplemental or or some of the other comments, but.

But to get a little more detail on SDA, where 2024 in terms of the overall size.

Marc: Alright exit margins are below where we wanted to be.

Marc: Right now our focus is on margin expansion.

Marc: We see deploying all levers, which are at our disposal cost takeout.

You talked about the margin or the profit cadence.

A quarter of profit for the first half three quarters in the in the back half.

Marc: Pricing, how we manage the mix, how we match our new product introduction.

Marc: But the focus is on margin expansion and that is in the context of we feel good about our share gains and right now the level of shareholder would come from gives us a solid base and we will at least for foreseeable future. We are focused on margin expansion.

But just how youre thinking about that segment.

And.

Where the margins were in in 'twenty, three just to get a comparable there.

Yes, Mike I can take away from first of all.

Speaker Change: Great I appreciate that.

Apart from the supplement.

Speaker Change: I guess and I apologize. If this is something that I missed in maybe the supplemental or or some of the other comments, but.

We will spend a lot time and a lot more time on February 27, now I Miss the day to show a little bit of a history of kitchenaid the margin run rates the seasonality. So it will be a lot more color to your question. So on a high level right now it's the seasonality is similar to what you described various more skewed towards the back half.

Speaker Change: But to get a little more detail on SDA, where 2024 in terms of the overall size.

Speaker Change: You talked about the margin or the profit cadence.

Around the holidays.

Speaker Change: A quarter of profit for the first half three quarters in the in the back half.

But even in first half there are some important holidays, which always medical case rate.

Speaker Change: But just how youre thinking about that segment.

And we manage accordingly, but broader margins and again, we will show that in the supplement that you will see soon.

Speaker Change: And.

Speaker Change: Where the margins were in in 2003, just to get a comparable there.

On the 15, 5%, which we guide to 'twenty four is slightly higher member 'twenty three one, but even if I look at a multiyear kitchenaid SDA margin. It took me hovers around.

Yeah, Mike I can take away first of all.

Speaker Change: Apart from the supplement.

Speaker Change: We will spend a lot time and a lot more time on February 27, and I Miss the day to show a little bit of a history of kitchen aid the margin run rates the seasonality. So maybe there'll be a lot more color to your question. So on a high level right now it's the seasonality is similar to what you described so buyers are more skewed towards the back half.

Around 15% EBIT. So it is a very solid and margin accretive business for us, which will of course, we want to grow significantly more going forward, yes, Michael I think the other thing to highlight youll see in all of the supplemental materials. We provided is really if you look at the historical run rate of the business. It has been around $1 billion plus in <unk>.

Speaker Change: Around the holidays.

Speaker Change: Even in first half there are some important holidays, which always medical case rate.

<unk>, 5% and so some of the information that we did provide obviously showed a time period when when that benefit alright that business benefited from some of the trends that were going on during COVID-19, but I'd say today, what Marc highlighted in there and the size and all that is really more representative of what the trend that business has been on and why they were excited about the growth.

And we manage accordingly, but broader margins and again, we will show that in the supplement that you will see soon.

Speaker Change: On the 15, 5% guide for 'twenty four is slightly higher than the 23, one but even if I look at a multiyear kitchenaid SDA margin. It took me hovers.

And the margins we have within there.

Around 16% EBIT. So it is a very solid and margin accretive business for us, which will of course, we want to grow significantly more going forward, yes, Michael I think the other thing to highlight youll see in all of the supplemental materials. We provided is really if you look at the historical run rate of the business. It has been around $1 billion plus in <unk>.

Your next question comes from the line of Susan Mcclary from Goldman Sachs. Your line is open.

Thank you good morning, everyone.

Thanks for taking my question.

My first question is you mentioned the $3 million to $400 million of cost actions that you expect to take this year as you think about the ability to continue to reduce our cost structure. How are you balancing that relative to the growth initiatives that you have in the targets to get the business closer to those long term goals.

Speaker Change: <unk>, 5% and so some of the information that we did provide obviously showed a time period when.

When that benefit or that business benefited from some of the trends that were going on during COVID-19, but I'd say today, what Marc highlighted in there and the size and all that is really more representative of what the trend that business has been on and why they were excited about the growth and the margins we have within there.

Yes, Susan this is Jim and I think the.

The thing you've got to look at there as we talk about the cost takeout as you saw this year to begin with we significantly invested in technology and engineering and in our products and what you saw that in our overall work and so if you really look at how that $3 to 400 breaks down. The first 100 of that is just cost savings we have already implemented this year that are in there.

Speaker Change: Your next question comes from the line of Susan Mcclary from Goldman Sachs. Your line is open.

Susan Maklari: Thank you good morning, everyone.

Susan Maklari: And then question.

Susan Maklari: My first question is you mentioned that the $3 million to $400 million of cost actions that you expect to take this year as you think about the ability to continue to reduce our cost structure. How are you balancing that relative to the growth initiatives that you have in the targets to get the business closer to those long term goals.

Areas that don't affect our ability to grow and drive innovation and when we talk about maybe the next one to 200 within there and Thats really driving efficiency within our supply chain our factories.

And that comes from ongoing initiatives that we have that are just to become much more efficient in terms of of how we manufacture or much more efficient in how we get product to our consumers in the end and so again those are not areas those don't affect the investments that we make and then if you think about the third bucket there that we've talked.

Speaker Change: Yes, Susan so this as chairman and I think the the <unk>.

Speaker Change: Thing you've got to look at there as we talk about the cost take out as you saw this year to begin with we significantly invested in technology and engineering and in our products and what you saw that in our overall work and so if you really look at how that $3 to 400 breaks down. The first 100 of that is just cost savings. We have already implemented this year that are in areas that.

About it's really SGA reductions from a simplified organizational model that also it's just us looking at how we operate as a company.

And how we operated in the past with a much larger business, including EMEA, how do we simplify how do we make it more effective.

Speaker Change: Don't affect our ability to grow and drive innovation then we talk about maybe the next one to 200 within there and Thats really driving efficiency, both within our supply chain our factories.

Our investments within our products, whether it be engineering or capital will actually be relatively consistent to even up this year. So the areas, where we're cutting cost or not the areas that affect our ability to deliver growth and innovation. We're actually invested what we are is we're reducing costs in other areas. So we can invest more in those areas Susan.

So what Jim is saying it will be really crystal clear, we will we have and we will continue to invest heavily in new products and brand investments.

Speaker Change: About as really SGA reductions from a simplified organizational model that also is just us looking at how we operate as a company.

Last year, despite all the pressure, we invested 75 basis points more into new product marketing and technology.

Speaker Change: And how we operated in the past with a much larger business, including EMEA, how do we simplify how do we make it more effective.

We'll continue to do so in 'twenty, four and as <unk> seen ultimate capital plans, we are prepared to invest in new product that is ultimately the lifeblood of our company and creates future growth.

Speaker Change: Our investments within our products, whether it be engineering or capital will actually be relatively consistent to even up this year. So the areas, where we're cutting costs are not the areas that affect our ability to deliver growth and innovation. We're actually investing what we are is we're reducing costs in other areas. So we can invest more in those areas Susan just to echo what Jim.

The same time, we're also very mindful that we've got a great the funds for that.

These funds to Jim's point, they come from a carryover actions.

Come from manufacturing efficiencies.

Frankly after the Europe transaction is closed we have a simpler business and we will take advantage of re looking at our SG&A base.

Speaker Change: And to be really Crystal clear, we will we have and we will continue to invest heavily in new products and brand investments last year. Despite all of the pressure, we invested 75 basis points more into new product marketing and technology we.

In terms of how can we take advantage of for now, but it's globally, a much simpler and easier business that we don't need to have all the complexity in its current structure.

Okay. That's very helpful color and then my second question is thinking about the cash flow as you mentioned that you came into the year with inventories a bit higher than what you had anticipated any thoughts on the timing of working that back down and what that might mean for the cadence of the cash generation this year.

We will continue to do so in 'twenty, four and as you've seen ultimate capital plans. We are prepared to invest in new product that is ultimately the lifeblood of our company and creates future growth at.

Speaker Change: At the same time, we're also very mindful that we've got a great the funds for that.

Yeah, Susan this is Jim.

Speaker Change: And these funds to Jim's point, they come from a carryover actions come from manufacturing efficiency.

And here's what I would say as we talked about within our numbers the overall cash flow.

Guidance for the year that will reduce working capital by about $100 million at a minimum.

Speaker Change: Frankly after the Europe transaction is closed we have a simpler business and we will take advantage of re looking at our SG&A base.

I think what Youll see is youll see some of that come more probably within the second and third quarter. As we just look at where things are because we did already talk about that retailer inventory levels at the beginning of the year were higher than we anticipated and so obviously, we will we believe that will put some pressure on shipments in the first half of the year and our goal is to.

Speaker Change: In terms of how can we take advantage of it for now, but it's globally, a much simpler and easier business, but we don't need to have all of the complexity in its current structure.

Speaker Change: Okay. That's very helpful color and then my second question is thinking about the cash flows you mentioned that you came into the year with inventories a bit higher than what you had anticipated any thoughts on the timing of working that back down and what that might mean for the cadence of the cash generation this year.

Make sure we keep our inventories in line with the shipments, but then begin to reduce those inventories as we have the opportunity. But also then is we expect to see sales ramp up a little bit later in the year. So I would say not necessarily in the first quarter, but more in the middle half of the year is when you should expect to see us.

Yeah, Susan this is Jim.

Jim: Listen here's what I would say as we talked about within our numbers the overall cash flow.

Reducing inventories.

Guidance for the year that will reduce working capital by about $100 million at a minimum I think what youll see is youll see some of that come more probably within the second and third quarter. As we just look at where things are because we did already talk about that retailer inventory levels at the beginning of the year were higher than we anticipated and so.

Your next question comes from the line of David Macgregor from Longbow Research. Your line is open.

Yes, good morning, everyone and thanks for taking the questions David Martin Hey, Good morning, guys.

Can you talk a little bit about the market share gains and at what price points and was this really just a recovery of some of the share that you lost during the pandemic or do you think it might have been incremental with a different consumer or a different price point.

Jim: Obviously, we will we believe that will put some pressure on shipments in the first half of the year and our goal is to make sure. We keep our inventories in line with the shipments, but then begin to reduce those inventories as we have the opportunity. But also then is we expect to see sales ramp up a little bit later in the year. So I would say not necessarily in the first quarter, but more in the middle half of the year is when you should expect.

And how does all this kind of mesh with what the consumer is doing right now in terms of mixing rubber mixing down.

Yes, so David I mean first of all the <unk>.

One point of $1, one point to be precise full year gains in North America Baird.

Jim: She is reducing.

Jim: Reducing inventories.

And the good thing is were spread across multiple product categories.

Jim: Your next question comes from the line of David Macgregor from Longbow Research. Your line is open.

Not a single product category, where we would point to share weakness we grew across the board.

David S. MacGregor: Yes, good morning, everyone and thanks for taking the questions David Michael Hey, Good morning, guys.

Obviously, a number of new product introductions helped and supported by share growth.

David S. MacGregor: Can you talk a little bit about the market share gains and at what price points and was this really just a recovery of some of the share that you lost during the pandemic or do you think it might have been incremental with a different consumer or a different price point.

The element, which partially helped but is not yet fully visible we had significant share growth in the national builder business, but obviously because of the broader market is still soft, but if not yet fully showing but that's a big source of share gains.

David S. MacGregor: And how does all this kind of mesh with what the consumer is doing right now in terms of mixing up our mixing down.

So it's pretty much across the board I wouldn't point to specific price point.

Speaker Change: Yes, so David I mean first of all the <unk>.

Now against the context of a broader market and this is coming back towards I think we mentioned on from our last earnings call.

Speaker Change: One point of $1, one point to be precise full year gains in North America Baird.

The nature of a market, which is now so heavily.

Speaker Change: And the good thing is they are spread across multiple product categories.

Impacted by the basement markets.

David: And not a single product category, where we would point to share weakness we grew across the board.

But 60% of our sales right now, although the total market, which is much more than past replacement market inherently comes with a slightly lower margin profile than discretionary match. It's just what it is because consumers look for specific dimensions of Amber rush may only have one or two data to make decisions. So that typically comes with a lower margin profile. So.

Obviously, a number of new product introductions helped.

David: In support of that share growth.

David: The other element, which partially helped but is not yet fully visible we had significant share growth in the national builder business, but obviously because of the broader market is still soft, but if not yet fully showing but that's a big source of share gains.

I wouldn't point to specific price points, but we gained market share, but the broader market being so heavily replacement driven that doesn't necessarily help you from a price mix compared to previous periods.

David: So it's pretty much across the board.

David: I wouldn't point to specific price point.

David: Now against the context of a broader market and this is coming back towards I think we mentioned also my last earnings call.

Got it.

Thanks for that and then just as a follow up I want to go back to the $300 million to $400 million cost reduction. So I guess my question is really a clarification.

David: The nature of our market, which is not so heavily.

David: Impacted by the basement markets again.

This is a net number right. It's net of any inflation in your non raw material variable costs and fixed costs.

David: Again, but 60% of our sales right now of the total market, which is much more than past replacement market inherently comes with a slightly lower margin profile than discretionary demand.

Hello, Richard grows yes, David gave you a number.

Yes. This is a net number like we always put on the net cost line and so again, yes. It takes more than gross actions to get to this number as we have to offset inflation in certain areas and especially in some of our higher growth.

What it is because consumers I would look for specific dimensions of Amber Rush may only have one or two day to make decision. So back to becomes of a lower margin profile. So I wouldn't point to specific price points, but we gained market share, but the broader market being so heavily replacement driven that doesn't necessarily help you from a price mix compared to.

Emerging markets outside the U S. But this is a net $3 to $400 million.

Your next question comes from the line of Mike Dahl from RBC capital markets. Your line is open.

David: Previous periods.

Speaker Change: Got it.

Speaker Change: Thanks for that and then just as a follow up I want to go back to the $300 million to $400 million cost reductions I guess my question is really a clarification.

Good morning, Thanks for taking my questions.

Good morning, Michael.

Alright.

Follow up on the inventory.

This is a net number right. It's net of any inflation in your non raw material variable costs and fixed costs.

<unk>.

Comments.

When you look at where retail inventory ended up I guess.

Speaker Change: Hello, Richard growth, Yes, David gave you a number.

Two part question is there any specific category that saw outsized.

Richard: Yes. This is a net number like we always put on the net cost line. So again, yes. It takes more than gross actions to get to this number as we have to offset inflation in certain areas and especially in some of our higher growth emerging.

Inventory growth that you need to now work down and then do you think whirlpool was.

<unk> in line with the industry as far as the inventory build.

Is that kind of a whirlpool specific comment.

Speaker Change: Emerging markets outside the U S. But this is a net $300 million to $400 million.

An industry comment how do you think you shake out versus.

Speaker Change: Your next question comes from the line of Mike Dahl from RBC capital markets. Your line is open.

First is the market in terms of where our inventory position ended the year.

Yes, so Michael I'll start here and I'll, let mark kind of add a little bit of color to it but I would say to begin with across categories. I can't say that I could call out and differentiate any one category, where it's significantly different.

Mike Dahl: Good morning, Thanks for taking my questions.

Mike Dahl: Hi, good morning, Michael.

Mike Dahl: Alright.

Mike Dahl: Follow up on the inventory.

Mike Dahl: Sure.

Mike Dahl: Comments.

When you look at where retail inventory ended up I guess two part question is there any specific category that saw outsized.

Again, as we kind of got through the year and saw through set where sell through was from a holiday perspective, and then you look across the broader environment I would say, it's and we see it in many other categories. So I.

Mike Dahl: Inventory growth that you need to now work down and then do you think whirlpool was effectively in line with the industry as far as the inventory build is that kind of a workforce specific comment.

I don't think that Theres, a big differentiation for US there and then as you said is it a whirlpool only issue I think as you look across the entire industry and you look across the retailers right. Now this is not a whirlpool only issue and again as you've seen.

Mike Dahl: At an industry comment how do you think your shakeout versus.

Mike Dahl: First off the market in terms of where our inventory position ended the year.

Any of our competitors have already started talking about things Youre hearing a similar story out there that everyone is seeing a retail environment that seems to have higher levels of inventory and then expected. So just based on at least information out in the public I don't believe that it's a it's a.

Speaker Change: Yes, so Michael I'll start here and I'll, let mark kind of add a little bit of color to it but I would say to begin with the cross categories I can't say that I could call out and differentiate any one category, where it's significantly different.

Mark: Again, as we kind of got through the year and sell through set where sell through was from a holiday perspective, and then you look across the broader environment I would say, it's we see it in many other categories. So.

Problem that disproportionately affects us.

Mike maybe just give you a little bit more color.

Back to what I mentioned before it's essentially when you look back at Q4 North America.

Industry sell through was softer than most people expected.

Speaker Change: Don't think that Theres, a big differentiation for US there and then as you said is it.

It comes back to the amount of discretionary demand out there.

Speaker Change: Whirlpool only issue I think though as you look across the entire industry and you look across the retailers right. Now this is not a whirlpool only issue and again as you've seen many of our competitors have already started talking about things Youre hearing a similar story out there that everyone is seeing a retail environment that seems to have.

Not as high as people expected that led to both the.

The return on investment of market promotions was just not attractive and two it also led to higher inventories of our retailers' relative.

Relative to what we had in mind the industry itself.

Yes, Jim mentioned earlier, I think that will impact somewhat the shipments of industry shipments in Q1, then maybe to a lesser extent Q2.

Speaker Change: Higher levels of inventory and then expected. So just based on at least information out in the public I don't believe that it's a <unk>.

Speaker Change: Problem that disproportionately affects us and Mike maybe just give you a little bit more color coming back to what I mentioned before it's essentially when you look back at Q4 North America.

Everything and of course, we don't have precise sell out data from competitors, but from everything which we see from a broader industry.

It certainly was not a walk with specific issue as opposed to across the board.

Speaker Change: Industry sell through was softer than most people expected.

And right now it just means a little bit of an inventory overhang as we entered the industry in Q1 again that will be worked through.

Speaker Change: It comes back to the amount of discretionary demand out there.

Yes that makes sense helpful. Thanks, My second question, either Mark or Jim.

Speaker Change: Not as high as people expected that led to both the.

Speaker Change: Our return on investment of market promotions versus just not attractive and two it also led to higher inventories of our retailers.

Around the free cash flow guide and specifically if I look at cash earnings and operating items.

Speaker Change: Relative to what we had in mind the industry sales.

Expectation is one one to $1 2 billion in fiscal 'twenty. Four you did eight youre expecting EBIT to be about flat at $1, one 5 billion.

Speaker Change: Yes, Jim mentioned earlier, I think that will impact somewhat shipments of industry shipments in Q1 that maybe to a lesser extent Q2.

Speaker Change: From everything and of course, we don't have precise sell out data from competitors, but from everything which we see from a broader industry.

So again on that number you did $910 million of cash earnings in 2023. It seems like your interest expense is unchanged year on year your cash taxes unchanged year on year and so if your EBIT is unchanged year on year.

It certainly was not a walk with specific issue as opposed to across the board.

Speaker Change: And right now it just means a little bit of an inventory overhang as we entered the industry in Q1 again that will be worked through.

Speaker Change: Yes that makes sense helpful. Thanks, My second question, either Mark or Jim.

What is the actual bridge in terms of.

Speaker Change: Around the free cash flow guide and specifically if I look at cash earnings and operating items.

Which items are getting you to a higher cash earnings number in 'twenty four higher cash earnings conversion relative term you bet.

Speaker Change: Expectation is one one to $1 2 billion in fiscal 'twenty for you did you are expecting EBIT to be about flat at $1 $105.

Yes. So so Michael this is Jim and really there's two components that go into that line as its your actual earnings which as you pointed out are relatively flat and that does makes sense and then the other one that's always hard.

Speaker Change: And on that number you did $910 million of cash earnings and 2023. It seems like your interest expense is unchanged year on year your cash taxes unchanged.

From the outside to really kind of look at is that we have a lot of other operating accounts that are on our balance sheet, such as accruals for promotional spend such as accruals for.

Speaker Change: Year on year, and so if your EBIT is unchanged year on year, what is the actual bridge in terms of.

Employee compensation and other areas and actually when we look at the end of this year versus the end of 2023 versus the end of 2022. What we saw is that because 2022 was a really strong year you had a lot higher payouts on some of those areas within the beginning of 2023 that negatively affects cash.

Speaker Change: Which items are getting you to a higher cash earnings number in 'twenty four higher cash earnings conversion relative to EBITDA.

Speaker Change: Yes. So so Michael this is Jim and really Theres two components that go into that line as its your actual earnings which as you pointed out are relatively flat and that does make sense and then the other one that's always hard.

And when you come through a negative year that you don't have as high of payouts and some of those areas. It gives you a positive in the next year from an operating cash flow perspective. So it's a good question.

It doesn't really become apparent but thats the biggest driver within that bucket that you will see then also throughout the year. There are just some noncash items that affect that differently here and there, but that's the biggest drivers that the changes in those other types of accruals that don't necessarily sit in working capital.

Jim: From the outside to really kind of look at is that we have a lot of other operating accounts that are on our balance sheet such as accruals.

Jim: Accruals for promotional spend such as accruals or.

Jim: Employee compensation and other areas and actually when we look at the end of this year versus the end of 2023 versus the end of 2022. What we saw is that because 2022 was a really strong year you had a lot higher payouts on some of those areas within the beginning of 2023 that negatively affects cash.

Your next question comes from the line of Jason Haas from Bank of America. Your line is open.

Hey, good morning, and thanks for taking my questions.

I'm curious if you could talk about what impact if any you've seen from the disruptions in the Red Sea and just global container costs starting to increase here.

Cash and when you come through a negative year that you don't have as high of payouts and some of those areas. It gives you a positive in the next year from an operating cash flow perspective. So it's a good question and that it doesn't really become apparent but that's the biggest driver within that bucket that you will see then also throughout the year. There are just some noncash items that affect that differently here.

Hey, Jason it's Mark So obviously in particular with our heavy footprint on the Americas the impact for Americas is less.

Yes, there's some.

It impacts a little bit some of the east coast shipments.

Not so much in cost more in time. So there is basically one or two week later time.

Jim: But that's the biggest drivers that the changes in those other types of accruals that don't necessarily sit in working capital.

It could and will start impacting the European business right now we're still in pretty good shape for Europe, but obviously that brings uncertainty maumee European supply chain to a much much lesser extent of North America supply chain.

Your next question comes from the line of Jason Haas from Bank of America. Your line is open.

Jason Haas: Hey, good morning, and thanks for taking my questions I'm curious if you could talk about what impact if any you've seen from the disruptions in the Red Sea and just global container costs starting to increase here.

<unk> costs have been so far pretty stable for us again put in that context.

It came from excessively high rates in the Covid and post Covid environment and now to a more normalized rate.

Hey, Jason it's Mark So obviously in particular with our heavy footprint on the Americas the impact for Americas is less.

And the broader impact of the mix is limited keep also in mind.

Compared to any of our competitors, we are much more North America America's production base. So.

Jason Haas: Yes, there's some.

It impacts a little bit some of the east coast shipments.

Not so much in cost more in time.

Relatively speaking the container cost impact us a whole lot less than most of our competitors.

Jason Haas: I wanted to week later time.

Jason Haas: It could and will start impacting the European business right now we're still in pretty good shape for Europe, but obviously that brings uncertainty more European supply chain to much much less extent of the North America supply chain container costs have been so far pretty stable for us.

Got it. Thank you and then as a follow up question I'm curious if you could remind us what your sourcing exposure is to China and if you had any thoughts on if we were to see higher tariffs placed on China, what would be the impact to your business and the industry overall.

Jason Haas: <unk> also put in that context, where it came from excessively high rates in the Covid and post COVID-19 environment now to more normalized rates.

Yes, so Jason I mean first of all were split into two pieces first finished products and various components on finished products. Our exposure is relatively small we import microwave would combination and some refrigerators into the Americas and into Europe.

Jason Haas: And the broader impact of mix is limited.

Jason Haas: Keep also in mind.

Compared to any of our competitors, we are much more North America America's production base. So.

Some dishwashers also into Europe, so on finished products.

Jason Haas: Relatively speaking the container cost impact us a whole lot less than most of our competitors.

Actually frankly in particular Americas, not a very big number.

Speaker Change: Got it. Thank you and then as a follow up question I'm curious if you could remind us what your sourcing exposure is to China and if you had any thoughts on if we were to see higher tariffs placed on China.

<unk> in particular on electronics, you have exposure and like everybody else to China or broader Asia I would say because it's not just China, It's also Vietnam, Thailand et cetera.

Again back to my earlier comment in the competitive landscape, whereby a long shot the least exposed to China.

Speaker Change: What would be the impact to your business and the industry overall.

Speaker Change: Yes, so Jason I mean first of all were split into two pieces versus finished products and various components on finished products. Our exposure is relatively small we import microwave would combination and some refrigerators into Americas and into Europe, and some dishwashers also.

And it's just because of our historic strong footprint of Americas are focused on producing of Americas and sourcing of Americas.

Except for electronics, but I just have a limited supply base.

And in the Americas.

Your final question comes from the line of Eric <unk> from Cleveland Research. Your line is open.

Speaker Change: Europe, So on finished products.

Speaker Change: Actually frankly in particular Americas, not a very big number.

Thanks to two questions.

Speaker Change: Ponant in particularly on electronics, you have exposure like everybody else to China, our broader Asia I would say because it's not just China, It's also Vietnam, Thailand et cetera.

I'll give you the most you the first is the other half.

The free cash flow question I understand the bridge within the cash earnings can you just give us a little bit of context of the $200 million to $300 million.

Again back to my earlier comment in the competitive landscape, whereby a long shot the least exposed to China.

Europe cash usage that has alluded to in that slide I, just don't exactly know where that fits within the moving pieces.

Speaker Change: And it's just because of our historic strong footprint of Americas, our focus on producing of Americas and sourcing of Americas.

And then the second question relates.

Mark you talked a lot about the focus on margin progress.

Speaker Change: Except for electronics, they just have a limit supply base.

The flat margin and six eight.

And related to that I guess the core of it is that you still have this 11%, 12% long term margin guide.

Speaker Change: And in the Americas.

Speaker Change: Your final question comes from the line of Eric <unk> from Cleveland Research. Your line is open.

And just wanted to see if that is the number that youre still aspiring to and Amy. Thank you.

Eric: Thanks to two questions.

Yeah. So Eric this is Jim and I'll start with your first question thereon on EMEA and typically if you'd looked within a full year EMEA over the past years has consumed around $200 million of cash and whether it's due to restructuring it's due to some legacy liabilities and the matters to the operations of the business now as we look.

Eric: I'll give them both to you. The first is the other half.

Eric: The free cash flow question I understand the bridge within the cash earnings can you just give us a little bit of context of the $200 million to $300 million Europe cash usage that has alluded to in that slide I, just don't exactly know where that fits within the moving pieces and then the second question relates.

To close the transaction in.

In the first quarter of the year typically that negative cash flow actually did occur much earlier in the year and then they would gain cash throughout the year so to begin with they start the year.

Eric: Mark you talked a lot about the focus on margin progress.

Eric: The flat margin and six eight.

Eric: Related to that I guess the core of it is that you still have this 11%, 12% long term margin guide.

With a negative cash flow as they begin to build some working capital the second piece of that though that comes along with it is that also within there.

Eric: Just wanted to see if that is the number that you are still aspiring to and Amy. Thank you.

We have some various working capital financing type of programs that are related to accounts receivable and other things that we will unwind as we do this transaction and then as we contribute this.

Eric: Yes, so Eric this is Jim and I'll start with your first question thereon on EMEA and typically if you'd looked within a full year EMEA over the past years has consumed around $200 million of cash and whether it's due to restructuring it's due to some legacy liabilities that matters to the operations of the business now as we look to <unk>.

This business to the new company, there will be other things that might exist within there, but there are just some things we need to unwind as we go through the process. So right now we look at it as possibly having an impact at least on our cash flow for the year of a negative $200 million to $300 million, but once we get closer to the close we'll update that number.

Eric: Closed the transaction.

Jim: In the first quarter of the year typically that negative cash flow actually did occur much earlier in the year and then they would gain cash throughout the year so to begin with they start the year.

And Eric just maybe adding a comment on to Jim's point put it simply.

Jim: With a negative cash flow as they begin to build some working capital the second piece of that though that comes along with it is that also within there.

$550 to $6 50 cash flow, excluding Europe on a normalized basically would translate into 800 million plus that's essentially what it means because we have to unwind working capital financing activities and some other elements. So that's what it really means.

Jim: Have some various working capital financing type of programs that are related to accounts receivable and other things that we will unwind as we do this transaction and then as we contribute this.

Now to your second point about the margin progress.

Again, I want to also highlight our upcoming Investor day, where we gave an update missed the segments about the mid and long term value creation goals.

Jim: This business to the new company will be other things that might exist within there, but there are just some things we need to unwind as we go through the process. So right now we look at it as possibly having an impact at least on our cash flow for the year of a negative $200 million to $300 million, but once we get closer to the close we'll update that number.

But in short and that's consistent with what we said before we absolutely don't see any reason why the margins which were pre COVID-19.

Insights so I E, particularly for North America for years, we have been operating on 12 for 12 plus percent operating margin in North America, and Thats, certainly what we see absolutely possible right now we're working through.

Speaker Change: And Eric just maybe Adam comment on to Jim's point put it simply.

Speaker Change: But $5 50 to $6 50 cash flow, excluding Europe on a normalized basically would translate into 800 million plus that's essentially what it means because we have to unwind.

As you all can see is a very negative macro cycle. Our industry is heavily impacted by existing home sales and existing home sales and of course, a 20 months went from six plus million units to $3 7 million, so thats impacting us.

Speaker Change: Working capital financing activities and some other elements.

That's what it really means now.

Speaker Change: Now to your second point about the margin progress.

Speaker Change: Then I want to also highlight our upcoming Investor day, but we've given updates Mr segments above our mid and long term value creation goals.

But we know how to work through the cycles and that's why we're very confident but we.

Overtime can reestablish squeezed margins as we as we were experiencing them before.

Speaker Change: But in short and Eric that's consistent with what we said before we actually don't see any reason why the margins which were pre COVID-19.

Then much more perspective on this one at our Investor day.

I guess that would come pretty much through the end of our session first of all I want to thank you all for joining us today and I think I mean really hopefully what you heard is we feel good about where we are from our market share perspective, we also feel good about our ability to take out cost as we demonstrate in 'twenty three and as we are confident for 24 and we frac.

Speaker Change: Insights so I E, particularly for North America for years, we have been operating on 12 of 12 plus percent operating margin in North America, and Thats, certainly what we see absolutely possible right now we're working through.

Speaker Change: As you all can see it has a very negative macro cycle, our industry is heavily impact by existing home sales and existing home sales and in the course of 'twenty bumps went from six plus million units to $3 7 million, so thats impacting us.

We feel good about how we step by step we strengthened our balance sheet and where we are from a broader <unk>.

<unk> and balance sheet perspective, I think all of these elements set us.

Speaker Change: But we know how to work through the cycles and that's why we're very confident but we are.

Up very well for working through a macro cycle, which we we all see that that's certainly going to impact the industry negatively in Q1, and probably also to some extent in Q2.

Speaker Change: Over time can reestablish squeeze margins as we as we were experiencing them before.

Speaker Change: Much more perspective on this one at our Investor day.

But again, we come from a very strong platform, we know how to work through the cycles and we have I think provide actions in place to particularly.

I guess that would come pretty much should we and Novartis session first of all I want to thank you all for joining us today and I think I mean really hopefully what you heard is we feel good about where we are from our market share perspective, we also feel good about our ability to take out cost as we demonstrate in 'twenty three and as we are confident for 24 and we Frank.

Particularly all of them and if you look at the back half of 'twenty four have a very attractive business.

With that in mind again, I want to remind everybody February 27th that's where you would see a lot more perspective, particularly about our North America business in particular about our kitchen, and SDA business, which we historically didn't put a lot of I don't know it Didnt show a lot.

We feel good about how we step by step we strengthened our balance sheet and where we are from a border.

And we would also talk quite a bit of a balance sheet and cash flow developed Mitchell again February 27th and we're looking forward to see you all.

Speaker Change: <unk> and balance sheet perspective, I think all of these elements set us.

Speaker Change: Up very well for working through a macro cycle, which we we all see that that's certainly going to impact the industry negatively in Q1, and probably also to some extent in Q2.

Thank you.

Ladies and gentlemen that concludes today's conference call you may now disconnect.

But again, we come from a very strong platform, we know how to work through the cycles and we have I think provide actions in place to particularly.

Particularly if you look at the back half of 'twenty four have a very attractive business.

With that in mind again, I want to remind everybody at February 27th that's where you would see a lot more perspective, particularly about our North America business in particular about our kitchen, and SDA business, which we historically didn't put a lot of I don't know it Didnt show a lot.

Speaker Change: And we would also talk quite a bit of a balance sheet and cash flow development. So again February 27th and looking forward to see you all.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen that concludes today's conference call you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Okay.

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Yes.

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Speaker Change: Sure.

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Okay.

Sure.

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Yes.

Speaker Change: Yes.

Q4 2023 Whirlpool Corp Earnings Call

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