Q3 2024 Whirlpool Corp Earnings Call
Operator: Good morning and welcome to Whirlpool Corporation's third quarter 2024 earnings call. Today's call is being recorded.
Good morning, and welcome to Whirlpool Corporation's third quarter 2024 earnings call. Today's call is being recorded joining me today are Marc Bitzer, our chairman and Chief Executive Officer, and Jim Peters, our chief financial and <unk>.
Operator: Joining me today are Marc Bitzer, our chairman and chief executive officer, and Jim Peters, our chief financial and administrative officer. Our remarks today track with a presentation available on the Investor section of our website at WhirlpoolCorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward booking 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 the non-GAAP measures outlined in further detail at the beginning of our earnings presentation.
Illustrative officer.
Our remarks today track with a presentation available on the investors section of our website at Whirlpool Corp Dot com.
Four we begin I want to remind you that as we conduct this call we will 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.
Operator: We believe these measures are important indicators of our operations, as they exclude items that may not be indicative of our results from 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.
We believe these measures are important indicators of our operations as they exclude items that may not be indicative of our results from 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.
Operator: At this time, all participants are in listen-only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions.
Speaker Change: At this time all participants are in listen only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions.
Marc Bitzer: With that, I'll turn the call over to Mark. Thanks, Scott, and good morning, everyone. In the third quarter, we again delivered global sequential EBIT margin expansion, largely in line with our expectations. I'm pleased with our team's execution of our operational priorities, delivering 50 basis points of sequential global margin expansion. Our North American business even achieves 100 basis points of sequential margin expansion, led by a previously announced pricing actions.
With that I'll turn the call over to Mark.
Mark: Thanks, Scott and good morning, everyone in the third quarter, we again delivered global sequential EBIT margin expansion largely in line with our expectations.
I am pleased with our team's execution of our operational priorities.
Mark: Levering 50 basis points of sequential global margin expansion.
Mark: Our North American business, even achieved 100 basis points of sequential margin expansion led by our previously announced pricing actions.
Marc Bitzer: Before I expand further into the results, I want to acknowledge what has been and will, at least in the near term, remain a challenging macro environment in the US. Consumer confidence remains low and is impacted by beyond certainty ahead of the upcoming elections. Despite the recent interest rate cut by the Fed, the US housing market is still constrained by elevated mortgage rates. As a result of this environment, demand in the US has shifted significantly towards lower-margin replacement-driven purchases. And the higher margin discretionary demand continues to be weak due to historically low existing home sales. Although the timing of the US housing recovery is still uncertain, we are confident that the industry will have a multi-year recovery, with the underlying housing fundamentals remaining strong.
Mark: Before I expand further into our results I want to acknowledge what has been and will at least in the near term remain a challenging macro environment in the U S.
Mark: Consumer confidence remains low and is impacted by the uncertainty ahead of the upcoming elections.
Spite the recent interest rate cut by the fed the U S housing market is still constrained by elevated mortgage rates.
Mark: As a result of its environment demand in the U S has shifted significantly towards lower margin replacement driven purchases.
Mark: And the higher margin discretionary demand continues to be weak due to historically low existing home sales.
Although the timing of the U S housing recovery is still uncertain. We are confident that the industry will have a multi year recovery with the underlying housing fundamentals remaining strong.
Marc Bitzer: We are well positioned to benefit from its eventual housing rebound.
We are well positioned to benefit from its eventual housing rebounds.
Marc Bitzer: While we await an anticipated multi-year US housing recovery, we are focused on executing our operational priorities. We delivered ongoing EPS of $3.43. Stenz, supported by our pricing actions, cost-take-outs, and a more favorable adjusted defective tax rate. Our strong working capital management improved inventory, generating approximately $130 million of cash within the third quarter. We expect to deliver approximately $500 million free cash flow in 2024.
We await an anticipated multiyear U S housing recovery, we are focused on executing our operational priorities.
Mark: We delivered ongoing EPS of $3 40, <unk> supported by our pricing actions cost takeout and a more favorable adjusted effective tax rate.
Mark: Our strong working capital management improved inventory generating approximately $130 million of cash in the third quarter.
Mark: We expect to deliver approximately 500 million free cash flow in 2024.
Marc Bitzer: As a reminder, year-to-date free cash flow was negatively impacted by non-recurring cash outflows associated with the Europe transaction of $250 to $300 million. These cash outflows were one time in nature and will no longer impact our results in 2025, especially strengthening our free cash flow delivery going forward. Our capital allocation parties are unchanged, and our free cash flow delivery enables us to further reduce our debt levels and continue to return cash to shareholders. We paid dividends of $1.75 per share in the third quarter and declared $1.75 per share in the fourth quarter. We're turning approximately $400 million to shareholders this year.
Mark: As a reminder year to date free cash flow was negatively impacted by nonrecurring cash outflows associated with the Europe transaction of $250 million to $300 million.
Mark: These cash outflows were one time in nature and will no longer impact our results in 2025.
Mark: Strengthening our free cash flow delivery going forward.
Mark: Our capital allocation priorities are unchanged and our free cash flow delivery enables us to further reduce our debt levels and continued to return cash to shareholders.
Mark: We paid dividends of $1 75 per share in the third quarter and declared $1 75 per share in the fourth quarter.
Mark: Returning approximately $400 million to shareholders this year.
Marc Bitzer: Turning to slide six, I will review the third quarter ongoing EBIT margin drivers. Sequentially, price mix delivered 75 basis points margin expansion driven by the pricing actions in North America. Year over year, price mix still impact margin unfavorably by 125 basis points. We saw the balance of sales shift out of cooking and dish, which tend to be our strongest MDA margin categories, into replacement-focused laundry and refrigeration categories. The heavier replacement market in the US, unfavorably impacted product mix in the third quarter. Our cost-takeout actions deliver 25 basis points of sequential margin expansion and 50 basis points year over year.
Turning to slide six I will review the third quarter ongoing EBIT margin drivers.
Mark: Gradually drive mixed delivered 75 basis points margin expansion.
Mark: Driven by the pricing actions in North America year.
Mark: Year over year price mix still impact margins unfavorably by 125 basis points.
Mark: We saw the balance of sales shift out of cooking and dish, which tend to be our strongest MDA margin categories into replacement focused laundry in refrigeration category.
Mark: The heavier replacement market in the U S unfavorably impacted product mix in the third quarter.
Mark: Our cost takeout actions delivered 25 basis points of sequential margin expansion and 50 basis points year over year.
Marc Bitzer: This was led by our fully implemented organization simplification, while raw materials, as expected, were essentially unchanged. Currently negatively impacted margin significantly and year over year as a Brazilian rail and Mexican peso experienced some weakening relative to US dollar.
Mark: This was led by our fully implemented organization simplification, while raw materials as expected were essentially unchanged.
Mark: Currency negatively impacted margin sequentially and year over year as the Brazilian real and Mexican peso experienced some weakening relative to U S. Dollar.
Marc Bitzer: The European transaction impacted the third quarter negatively by 25 basis points due to the equity and affiliates impacts from Beco Europe EV. This negative impact was driven by the weak macro environment in Europe and the integration-related efforts. Ultimately, we're pleased to have delivered 50 basis points sequential margin expansion.
Mark: The European transaction impacted the FERC quarter negatively by 25 basis points due to the equity and affiliates impacts from Baker Europe BV.
Mark: This negative impact was driven by the weak macro environment in Europe, and the integration related efforts.
Mark: Ultimately, we're pleased to have delivered 50 basis points sequential margin expansion.
Jim Peters: And now we'll turn it over to Jim to review our second result in Fourier guidance. Thanks, Mark. Good morning, everyone. Turning to slide seven, I'll review third quarter results for our MDA North America business. Net sales were down 4% year over year driven by unfavorable price mix as a result of the strong replacement environment and weak discretionary demand. We are seeing further deterioration in the underlying discretionary demand than what we experienced in the first half of 2024. However, price mix improved significantly compared to last quarter due to our pricing actions. We delivered margin improvement with our pricing actions and our cost takeout program, which is expected to deliver approximately 300 million dollars globally for the fully.
And now I will turn it over to Jim to review our segment results and full year guidance.
Jim: Thanks, Mark good morning, everyone.
Jim: Turning to slide seven I'll review third quarter results for our MTA North America business.
Jim: Net sales were down 4% year over year, driven by unfavorable price mix as a result of the strong replacement environment and weak discretionary demand.
Jim: We are seeing further deterioration in the underlying discretionary demand than what we experienced in the first half of 2024, however price mix improved significantly compared to last quarter due to our pricing actions.
Jim: We delivered margin improvement with our pricing actions and our cost takeout program, which is expected to deliver approximately $300 million globally for the full year.
Jim Peters: year. Our actions delivered 100 basis points of sequential EBIT margin expansion. Overall, the segment delivered 7.3% EBIT margin for the quarter, and we are very pleased with the margin expansion of approximately 170 basis points delivered since the first quarter. We continue to focus on margin expansion as we head into the fourth quarter and expect cost takeout opportunities to support further margin progress.
Jim: Our actions delivered 100 basis points of sequential EBIT margin expansion.
Jim: Overall, the segment delivered seven 3% EBIT margin for the quarter and we are very pleased with the margin expansion of approximately 170 basis points delivered since the first quarter. We continue to focus on margin expansion as we head into the fourth quarter and expect cost takeout opportunities to support further margin pressure.
Jim: Yes.
Jim Peters: Turning to slide 8, I'm excited to take a moment to showcase a few of our new product launches. Product innovation is critical to enable our future growth and margin expansion expectations. In MDA North America, we had two notable product launches in our laundry category. Our newest Whirlpool brand laundry pair fights common causes of front load odor with the Fresh Flow Vent System. The innovative new Fresh Flow Vent system is the first fan powered system designed to help keep your clothes and washer fresh. With the successful launch of Maytag PetPro Topload laundry in 2023, we've brought the winning an innovative PetPro filter to the front load.
Jim: Going to slide eight I am excited to take a moment to showcase a few of our new product launches and product innovation is critical to enable our future growth and margin expansion expectations.
Jim: And M D. A north America, we had two notable product launches in our laundry category.
Jim: Our newest whirlpool brand laundry repair fights common causes of Frontload odor with the fresh flow vent system the.
Jim: The innovative new fresh flow bent system is the first stand powered system designed to help keep your clothes and washer fresh.
Jim: With the successful launch of Maytag pet pro top load laundry in 2023, we've brought the winning and innovative pet pro filter to the Frontload.
Jim Peters: The PetPro option utilizes the PetPro filter, lifting and removing pet hair from clothes for a clean you can see. Recently, KitchenAid launched the brand's first four-door refrigerator. The KitchenAid refrigerator has a modern aesthetic with sections to keep fresh and frozen ingredients organized and easy to locate. The four-door design combined with the storage flexibility lets consumers customize the refrigerator to their needs. These innovative new products demonstrate our commitment to being the best kitchen and laundry company, improving life at home for our consumers. Strengthening our leading position in North America.
Jim: The Petro option utilizes the pet pro filter lifting and removing pet hair from close for a clean you can see.
Recently Kitchenaid launched the brand's first four door refrigerator.
Jim: The kitchenaid refrigerator has a modern aesthetic with sections to keep fresh and frozen ingredients organized and easy to locate.
Jim: The four door design combined with the storage flexibility lets consumers customize the refrigerator to their needs. These.
Jim: These innovative new products demonstrate our commitment to being the best kitchen, and laundry company improving life at home for our consumers strengthening our leading position in North America.
Jim Peters: As we look forward to 2025, we have an even stronger lineup of new product introductions that we expect will positively impact price mix and share.
Jim: As we look forward to 2025, we have an even stronger lineup of new product introductions that we expect will positively impact price mix and share.
Jim Peters: Turning to Slide 9, I'll review the very strong results for our MDA Latin America business. The segment continued to demonstrate strong net sales growth of 9% year-over-year, excluding currency, driven by industry and both Brazil and Mexico. We delivered a solid EBIT margin of 6.9% in the quarter, with 110 basis points of sequential margin expansion from improved price mix. We expect sustained solid EBIT margins for the full year as we focus on continued growth and price mix improvement.
Jim: Turning to slide nine I'll review, the very strong results for our MDA Latin America business.
Jim: This segment continued to demonstrate strong net sales growth of 9% year over year, excluding currency driven by industry in both Brazil, and Mexico, We delivered a solid EBIT margin of six 9% in the quarter with 110 basis points of sequential margin expansion from improved price mix.
Jim: We expect sustained solid EBIT margins for the full year as we focus on continued growth and price mix improvement.
Jim Peters: Turning to slide 10, I'll review the results of our MDA Asia business. We saw another quarter of double-digit net sales growth of 10% year-over-year, excluding currency. Sequentially, sales contracted due to the seasonal decline as we exited the summer period. Our continued share gains delivered volume growth, and we are pleased with the progress made in the segment. We delivered 2.9% EBIT margin from improved price mix and fixed cost leverage.
Jim: Turning to slide 10, I'll review the results of our MBA Asia business.
Jim: We saw another quarter of double digit net sales growth of 10% year over year, excluding currency sequentially sales contracted due to the seasonal decline as we exited the summer period.
Jim: Our continued share gains delivered volume growth and we are pleased with the progress made in the segment. We delivered two 9% EBIT margin from improved price mix and fixed cost leverage.
Jim Peters: Turning to Slide 11, I'll review the results for our FDA global business. Net sales decreased 3% year-over-year, impacted by industry declines in the US. Strength in our direct-to-consumer business and new product launches were more than offset by a softer industry, with weak consumer sentiment. We delivered EBIT margin of 14.2% with the quarter impacted by continued marketing investments in our new product.
Jim: Turning to slide 11, I'll review the results for our SDA global business.
Jim: Net sales decreased 3% year over year impacted by industry declines in the U S steel.
Jim: Strength in our direct to consumer business and new product launches were more than offset by a softer industry with weak consumer sentiment.
Jim: We delivered EBIT margin of 14, 2% with the quarter impacted by continued marketing investments in our new products are.
Jim: Our SBA business is well positioned for the holiday season, and we expect sustained strong EBIT margins. Despite industry softness seen year to date, we are confident in delivering the guided net sales growth of approximately seven 5% supported by our new product pipeline.
Jim: Turning to slide 12, I am pleased to review our exciting new lineup of Kitchenaid small appliances.
Jim: Our iconic kitchenaid stand mixer launched the unique evergreen design, which has been a hit with enthusiast everywhere, we launched new additions to the Kitchenaid go cordless system.
Jim: A removable and interchangeable battery powers all kitchenaid go appliances, providing you with the power you need for every creation no coordinated.
Jim: The new top down shoppers, citrus juicer, and hand, blender with accessories unlock even more possibilities both inside and out of the kitchen. These new product launches will continue to fuel our growth expectations on slide 13, Let me review, our reaffirmed full year guidance.
Jim: Our net sales guidance of approximately $16 9 billion.
Jim: Alongside of approximately 6% full year ongoing EBIT margins are unchanged. Additionally, we are reaffirming our ongoing earnings per share of approximately $12 and free cash flow guidance of approximately $500 million.
Jim: Our guidance includes updated expectations for our adjusted effective tax rate. We now expect an adjusted effective full year tax rate of approximately negative 18% to 22%.
Jim: We have further refined the estimated benefits of our tax planning strategies since closing the Europe transaction.
Jim: With a unique tax impacts of the significant legal entity restructuring, we were able to execute with the European transaction behind US we expect our adjusted effective tax rate to be approximately 20% to 25% starting in 2025, However, our cash tax rate will be significantly lower.
We are confident that we have the right actions in place and are reaffirming our full year guidance turning to slide 14, let me recap our commitments to our capital allocation priorities, we've completed actions to strengthen our balance sheet in 2024 and.
Jim: In the first quarter, we completed the sale of 24% of Whirlpool of India's outstanding shares while retaining a majority interest. Additionally, the planned divestiture of our breast hemp brand water filtration business in Brazil closed on July one.
Jim: And bind these two actions generated more than $500 million of cash couple.
Jim: Coupled with our beginning cash on hand of $1 6 billion.
Jim: And free cash flow generation of approximately $500 million.
Jim: We are well positioned to continue our debt reduction initiatives and paid dividends of approximately $400 million in 2024 with the $500 million of term loan repayment in April we have made significant debt reduction progress since the acquisition of Vincent greater with approximately $1 billion debt pay down.
<unk> of the term loan we have a total of $1 8 billion of current maturities in 2025 with a weighted average interest rate of approximately 6% we.
Jim: We expect to pay down a portion of our current maturities and refinance a portion at a lower interest rate in 2025.
Jim: As we look ahead, we have ample space in our flexible debt ladder to optimize our refinancing plans. We are fully on track to deliver our 2024 capital allocation priorities and position whirlpool well to strengthen our balance sheet now I will turn the call over to Mark.
Mark: Thanks, Tim turning to Slide 15, let me review what you heard today.
We had a solid quarter and are reiterating our full year guidance. We're pleased to have delivered sequential margin expansion globally and most importantly in North America.
Mark: We feel good about our pricing actions and cost plants, both of which are on track, while we continue to navigate a challenging macro environment with CEVA housing market clearly positioned for an eventual rebound.
Mark: The market is structurally under supplied by three to 4 million units high interest rates are causing low turnover with existing home sales at multi decade lows.
Mark: Equity values are near all time highs, meaning home owners should have confidence in investing in their homes as rates become more favorable.
Mark: With lower interest rates this pressure will ease our strong position with eight of our top 10 U S homebuilders and an exciting new lineup of products positions us well to benefit from housing recovery and improving discretionary demand.
Mark: Our teams are executing well and we're confident in our strategy mentioned enabled us to capitalize on the U S housing market recovery that we expect will drive significant benefits for our MDA North America business.
Mark: In the meantime, we are focused on what is within our control.
Mark: We have demonstrated the ability to take out costs with $500 million of fixed costs removed from our operating structure since 2019.
Mark: And remain on track with our expectation for approximately $300 million cost takeout this year.
Mark: We continue to see significant opportunities to optimize costs across our products through input cost design manufacturing and supply chain.
Mark: Overall, we have the right strategy and operation priorities to navigate the challenging environment in our North America business.
Mark: SBA and the international businesses have a long runway for growth and continued to be very important to our overall portfolio.
Mark: We are focused on reducing our debt levels, while returning cash to shareholders.
Mark: We're confident in our strategy and steps, we're taking both the short and long term to deliver value for shareholders.
Mark: That concludes our formal remarks, and we will now open it up for questions.
And standby, while we prepare for the question and answer period.
Speaker Change: Well 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.
Speaker Change: Our first question comes from the line of David Macgregor from Longbow Research. Your line is open.
David Macgregor: Yes, good morning, everyone. Thanks for taking my question everything David.
Speaker Change: Hi.
David Macgregor: I guess first question is just on the consolidated.
Speaker Change: EBIT margin EBIT margin progression excuse me.
David Macgregor: The chart in your deck last quarter, indicating that the 6% ongoing EBIT margin goal for the year included a $6 3% performance in <unk>. Your actual turned out to be about five eight was a 50 basis point variance representing approximately about $20 million. If my math is correct. So is that $20 million from the equity method investment loss offsetting what would have otherwise.
Speaker Change: And on target quarter, but I think more importantly.
Speaker Change: You've left the full year guide at 6%. So if my math is correct that implies an 8% fourth quarter margin performance on an exit run rate that would <unk>.
Speaker Change: We exceed your previous guidance of 8%. So is this a correct takeaway and if so what would be driving the better than expected fourth quarter margins.
Speaker Change: Yeah, David This is Jim and I'll kind of start and then Mark can chime in here I would say you're correct on your first assumption is that the difference in Q3 is almost purely.
Speaker Change: What we saw from the results with our 25% stake in EMEA now as you look towards the full year and Q4 to begin with as we've said as you know, it's going to be approximately 6% or around 6%.
Speaker Change: But you know as we go into the fourth quarter, what we do expect as we do expect to continue to one <unk>.
Speaker Change: <unk> margin expansion as we've talked about within North America, especially due to the pricing, but to a lot of our cost actions that we have driven.
Speaker Change: We also expect those to continue to accelerate and then three we don't expect to have the same level of impact or much less level of impact from the EMEA stake that we have so those are the big drivers as we look from Q3 to Q4 I think the other thing.
Speaker Change: You've got to remember as a company and in Q3, we took out we talked about we reduced our inventory levels down significantly and so as.
Speaker Change: As we go into Q4, we'll have a much more normalized production environment, which also helps us from a cost perspective and gives us better.
Speaker Change: Cost absorption leverage within the quarter.
Speaker Change: David.
David Macgregor: Mark maybe just adding to Jim's point.
Speaker Change: First of all on the Europe, one and just zooming out a little bit obviously, we all know Europe was a very significant transaction of the year and impact of <unk>.
David Macgregor: Full year numbers in many different ways.
David Macgregor: As we indicated also all the all along it's a negative on the cash flow, we carry about $250 million of negative cash flow there for us.
David Macgregor: It hurts us right now a little bit Amish EBIT line.
David Macgregor: I want to emphasize is noncash relevant because it's just it could be the affiliates.
It is a positive from a tax rate. So there's a lot of moving parts out of Europe one.
David Macgregor: That will be in 25, all normal aspect to this year's numbers are impacted in many different ways.
David Macgregor: What's been particularly European losses associated with.
David Macgregor: Integration efforts not entirely surprising again not cash relevant.
David Macgregor: The important thing is if you take all the noise around the margin I think it all comes down to the underlying nor north American margin progression.
David Macgregor: And just to and you all know it but it's just in Q1, we had five six margin in North America. In Q2 was $6 three now in Q3, seven three and in Q4 as you heard before we guiding 8% 9%.
David Macgregor: That is by any definition.
David Macgregor: A very impressive price or margin progression, we all know it is not the destination.
David Macgregor: There's no debate about this one.
David Macgregor: But given what is still a very challenging environment, particularly me, yes, I think that it's just evidence that our actions, which we put in place with the App attraction.
David Macgregor: Okay.
Speaker Change: Thanks for that I guess, just as a follow up I wanted to ask about the SDA segment third quarter sales were down 3%, but margins were down about 400 basis points. You noted the need to support the new product launches with marketing investments. So that makes sense I guess does this imply a stronger fourth quarter seasonal pattern for this business just given the amount of <unk>.
Speaker Change: Port that Youre spending now in <unk>, and I guess, given that might be driven by new products should we expect a stronger.
Speaker Change: The normal incremental margin in that segment in <unk>.
Speaker Change: Yes, David it's overall I would say, we're exactly on track towards out for your guidance on Kitchenaid SDA NGA.
Speaker Change: Slightly north of 7% revenue growth and around 50% or 50 plus.
Speaker Change: Margin and right now we feel very good about that number for full year. It is just and you know it very wallets with seasonality in the small domestic appliances is heavily heavily skewed towards September October November, particularly October November.
Speaker Change: So one or two days of shipping to a trade partner in Macquarie that makes a massive difference plus minus.
Speaker Change: You take the two quarters combined over the entire year, we feel very good about where we are and yes, you're correct. We significantly increased our marketing investments to support the new product launches and we see a very good response, both consumers and trade with flooring and star ratings. So we feel very good about Q4, I Wouldnt expect it usually disproportion.
Speaker Change: Lift it will be Q4 will be in line.
Speaker Change: Full year guidance.
Our next question comes from the line of Susan Mcclary from Goldman Sachs. Your line is open.
Susan Mcclary: Thank you good morning, everyone.
Speaker Change: Susan.
Susan Mcclary: My first question is just digging a bit deeper into the North American NBA and margin can you talk a bit more about that price mix dynamic that you saw you mentioned coming out of the second quarter, you were seeing that one to two points of pricing given the program that you launched earlier. This year are you on track with that and then how should we think about it relative.
Speaker Change: Live to the mix component in there and other factors to that margin as well.
Speaker Change: As Susan in General terms. The picture is very similar to what we indicated the last earnings call. We.
Susan Mcclary: We have two drivers from a price mix in North America, but work in the opposite direction.
Susan Mcclary: Positive changes, which we had on our promotional pricing that lift between indicators fully in place and we see that fully in our numbers. That's a positive on the negative side you still have continued mix weakness, but it's largely coming from a very I mean against historic comparison, a very high share of replacement demand.
Susan Mcclary: In particular, our mobile margin weaker product categories and also SD use so we have a negative mix.
Susan Mcclary: The totality of that is a positive sequential pricing.
Susan Mcclary: But right now we again met what we saw in Q3 with what we saw in Q2 I would expect a similar picture in Q4 or so.
Speaker Change: Okay. That's helpful. And then you mentioned in your commentary that you did see that discretionary demand.
No further in the quarter relative to what you've seen in the first half can you just talk a bit more about that what what do you think is driving the health of the consumer end and any of the broader factors that are maybe going on in the U S that are coming through.
Speaker Change: Im.
Speaker Change: Susan again, it's Marc again.
Speaker Change: Again. This is particular related to North America, I would say that the <unk>.
Speaker Change: Also the consumer sentiment consumer across the world actually is in pretty good shape, It's North America and U S. In particular.
Speaker Change: And obviously, that's a combination but general housing market I mean, as evidenced yesterday with existing home sales.
Speaker Change: Still in a very soft spot.
Speaker Change: We all know, it's ultimately driven by mortgage rates.
Speaker Change: So that's one part but then on.
Speaker Change: The pre election consumer sentiment is just not good and bad is not a highly surprised we've seen similar pattern and velocity electrical election before the.
Speaker Change: It's just you know I'd say, it's Ed.
Speaker Change: Anybody living you as you're exposed to negative news everyday and negative messages every day.
Speaker Change: And that does not lift consumer sentiment.
Speaker Change: News is hopefully the good news is in prior elections, we saw.
Speaker Change: Pretty quick recovery of consumer sentiment once the elections are over irrespective of outcome, but it was.
Speaker Change: So that's kind of consumer sentiment being low.
Speaker Change: We've seen that in September we'll see better in October and probably until the elections. So that's what we're going to continue to see.
Speaker Change: And Susan I would just add to what Mark said is that we still believe strongly in the long term housing demand dynamics for the U S and again as we pointed out that.
Speaker Change: A lot of this is right now as Mark pointed out I mean existing home sales again yesterday came in on a multi decade type of low. So we are in a trough right now, but if you really look this look at this on a much longer term spectrum housing is still under supplied we do believe the dynamics of the market, especially as interest rates begin to come down.
Speaker Change: Will become much more positive, but its not going to be an overnight process.
Speaker Change: Your next question comes from the line of Mike Dahl from RBC capital markets. Your line is open.
Mike Dahl: Hi, Thanks for taking my questions.
Mike Dahl: I just wanted to I guess.
Mike Dahl: Mark you are saying North America, 8% to 9%.
Speaker Change: Either Jim or Mark.
Mike Dahl: We're kind of missing in the bridge is you clearly have a tax benefit for the full year.
Mike Dahl: Contributing to EPS, but you're holding your EPS guide, you're holding your EBIT guide, but you're improving your tax rate. So is there just.
Mike Dahl: Is it kind of rounding in some of the EBIT numbers or can you just help us bridge to.
Mike Dahl: To help us make that math.
Mike Dahl: Better.
Mike Dahl: Yes, Mike. This is this is Jim and I would say, yes to a certain extent kind of like in the first question I answered earlier some of it is a bit of rounding because we've said.
Mike Dahl: We expect the EBIT margin to be approximately 6% as we talked about we did have an unexpected.
Mike Dahl: Impact within the quarter due to our EMEA stake.
Mike Dahl: So that wasn't really than what we originally thought of and that's a noncash item and we do expect that to improve over time I think if you look at North America and you look at what we expect to drive significant improvement continued improvement in the fourth quarter here as I talked about earlier is one we continue to expect cost to be a positive we will have the continued bent.
Mike Dahl: That's the pricing, we expect cost to continue to be a positive there, but it also I talked about the inventory reduction that we did and we will get benefit from just the cost absorption and leverage that we get from running our production at more normalized levels or closer to where demand is so.
Speaker Change: Those are I think you are correct in saying that some of it is rounding in some of it is what we didn't expect from EMEA up but also we do expect certain things to improve the north American margins in Q4.
Speaker Change: Okay got it.
Speaker Change: And then Jim can ask quick balance sheet question, if we look at the cash balance last quarter.
Speaker Change: The $1 2 billion roughly in cash.
Speaker Change: Disclosure in the Q is that about $750 million of that was.
Speaker Change: It was a combination of your stake in Whirlpool, India, and then what's being held any Brazil, which you may or may not have an a free.
Jim: Free access to on an ongoing basis can you give us an update on the $1 1 billion on <unk> cash how much is actually in the U S and how should we be thinking about the non U S cash and your ability to access that are repatriate it repatriate that.
Speaker Change: Tax efficient way.
Speaker Change: Yes, so and yes to your point.
Speaker Change: When you look at where our cashiers at the end of Q3 versus Q2, it's relatively similar because most of the time whatever cash we have in the U S. We do use to.
Speaker Change: Bring down our commercial paper borrowings, which is on our line our notes payable line. So we're at very similar levels of cash in terms of geographic locations our ability to access the cash around the world is driven by a lot of different things legal entity structures and other stuff on a longer term basis, we are able to access a lot of this.
Speaker Change: Cash through various things as we can repatriate earnings or do other things with it but in certain parts of the world such as India and places like that where we have a more significant minority ownership a lot of that cash does stay there now on the other hand, you have to look at what we're doing with some of that cash Thats in places like India. We've talked about we've continued to invest in.
Speaker Change: Take a larger stake in <unk>, India, we continued to invest more in that business. So we're putting that cash to work in places like that to grow those business and continue to invest there.
Speaker Change: As said it is a little bit more difficult to repatriate, but it's also part of the world, where we really do want to grow. So there's no significant difference from where we were at the end of the last quarter now as we look at Q4, a big portion of that cash we generate in Q4 will be within the U S and has generated both by our kitchenaid business.
He has a very strong fourth quarter as well as by our U S. North America Major's business that also tends to generate significant cash within the fourth quarter.
Speaker Change: Michael It's Marc maybe adding to Jim's point.
Marc: Of course men by definition almost about the cash balance follows our cash flow in the quarter. So, but Q4 cash balance of course by definition will look very different in Q3, driven by what Jim was just saying it is just how well working capital through a swap business in particular North America, you basically you produce the inventory but.
Marc: Just kind of absorbing cash and menu start selling and you collect the receivables, which typically turns in the Q4 every year with same had been particularly with our SDA business, but also the seasonality of North America business that cash cycle particular impact to North America, and therefore, the cash balance in the U S.
Speaker Change: Your next question comes from the line of Laura Champine from Loop capital. Your line is open.
Laura Champine: Thanks for taking my question today, it's on topline for small appliances, I think you guys call out that it's an industry problem that led to the decline on a year on year basis can you confirm that you held market share.
Laura Champine: And give us a little more color on what's going on with the industry that would cause that to weaken in the quarter.
Laura Champine: Laura It's Marc I mean, very similar to what I said before our full year guidance on kitchenaid small domestic would feel very comfortable bed revenue guide of north of 7%.
Laura Champine: So I wouldn't read too much into Q3, because theres so much about the sell in shipments in terms of what happens we lost one or two weeks of September versus first one or two weeks of October.
Laura Champine: We invested a lot in the new products and the new products are really finding good traction with exceptionally strong consumer ratings, so as Jim pointed out.
Laura Champine: Fully automatic semi automatic espresso maker to this evergreen Stan mixture. If you haven't seen it look it up.
Laura Champine: But rising grain coker, so there's really a whole set of new products, but we feel very very good about.
Laura Champine: And Laura as we said within Q4 here in the U S with the election cycle going on we do just expect an unusual pattern of demand that that will be a little bit slower and then it should pick up significantly like we've seen historically so again, that's why it makes us an unusual Q4, but to Mark's point in aggregate across the whole quarter.
Laura Champine: We do expect it to be relatively in line with what our previous expectations have been.
Speaker Change: Your next question comes from the line of Ralph <unk> from Bank of America. Your line is open.
Speaker Change: Hi, good morning, Thanks for thanks for taking my question.
Speaker Change: Yes, good morning.
Speaker Change: So steel prices have come down quite a bit here can you just remind us of the potential tailwind that you would see.
Speaker Change: Hmm.
Speaker Change: How are you how would you lock in and then win and then how much of that could potentially be competed away.
Speaker Change: So let me.
Speaker Change: <unk>, a little bit more I don't know if you're on mute.
Speaker Change: I'm, a broader raw materials side.
Speaker Change: As you know kind of the different raw materials have different kind of.
Speaker Change: Different opportunities to lock in quote unquote certain prices up by a long shot biggest material items steel.
Speaker Change: We tend to have and will or.
Speaker Change: In some cases, even longer contracts and particularly North America.
Speaker Change: In South America, and Asia, barely but shorter term, but that's by a long shot.
Speaker Change: As we as you probably know from our past to figure around Q3, Q4, when we try to lock in longer term contracts.
Speaker Change: Oil is particular of course impacting plastic which is our number one supply to.
Speaker Change: Weekly, we're a quarter out so the ability to hedge longer. It's just very limited. So we took we've called out.
Speaker Change: And right now I would say in a full year basis, as we indicated and right now even short term, it's probably moving sideways.
Speaker Change: I know, it's not huge up or down.
Speaker Change: <unk> is a much smaller piece in our overall cost equation, and we hedge it out a little bit longer so, but yes coming down a little bit of a spot helps a little bit, but again, we're kind of hedged on fuel to some extent so.
Speaker Change: Put it all together because there's a lot of moving parts all of a sudden zinc and copper et cetera for the full year of raw materials are exactly where we had in mind I E basically largely neutral.
And that's the trend, which we also see right now in Q4.
Speaker Change: On a global basis, you do have strong industry demand outside the U S and we talked about that too.
Speaker Change: Two as you look at we talked a little bit about the small domestic appliance business before and that in aggregate. We expect the back half of the year to be in line, while Q3 was a little bit less so it means Q4 will be a little bit stronger.
Speaker Change: So you've got a mix and then you've got just some just natural seasonality in there, but I'd say those are probably the big components that drive what we expect.
Speaker Change: The improvement in revenue to be in Q4.
Speaker Change: And then in terms of the productivity and cost savings ramping higher in <unk>.
Speaker Change: Can you just provide more detail on exactly why that is improving so much sequentially, especially maybe if you are.
Speaker Change: Working down inventory and selling off higher cost units.
Speaker Change: Well I'd say when you look at it on a sequential basis. The biggest drivers that we see in costs don't kind of go back to is our organizational simplification efforts that we've rolled out again, we started in Q2, we continue to execute that in Q3 and you have a full benefit now coming in Q4.
Speaker Change: So that's one of the biggest pieces that you have is a lot of the actions. We've taken this year get to a point of where we're getting the full benefit within our fourth quarter I'd say the other thing when I talked about again, the inventory reduction and Youre looking at this sequentially. We just will have higher production levels, which allows us to get better leverage within our factories means will absorb.
Speaker Change: Cost in Q4, because now that we've got our inventory levels to the right point for year end.
Speaker Change: We can bring our production levels back to normal. So those are the two big sequential drivers from a cost perspective.
Speaker Change: Maybe just.
Speaker Change: Adding to Tim's point about the inventory.
Speaker Change: This year different than Q Friedman compared to other years.
Speaker Change: In the most simplistic terms as you know production or if you produce it drives productivity. So depending on when you reduce or increase inventory has a pretty big impact on the measure productivity.
Speaker Change: 10 years, but it's not the same as in 'twenty three in 'twenty two.
Speaker Change: As such we are.
But kind of lift which you might get out of promotion in the current period or just less than usual because of consumer sentiment is just not there and therefore, we kind of continue what we said in Q2 and Q3, we we participant promotion, where we think we create value out of it when we get the lift in the current environment, but it's just barely made it a focus.
Speaker Change: Our margin expansion.
Speaker Change: Thank you.
Speaker Change: And there are no further questions I will now turn it back over for to our CEO for closing remarks.
Speaker Change: Alright, well. Thank you first of all all for joining us today.
Speaker Change: I mean, you heard us talking today before quite a bit we feel good about the margin expansion, which will add sequentially. Both on a global and North America level, and particularly in North America, which is you know given the challenging environment, particularly North America is not an easy one not to give them on but I feel very good about our organization executed the actions, which.
Speaker Change: We put in place and I think will give us good momentum into Q4 and next year.
Speaker Change: And we all know that is an environment, where housing recovery will come and we all wish it come sooner or later, but it will come and we are very very well set up for housing recovery and I would repeat what I said before there's no company like whirlpool, which benefits more from housing recovery in U S. So Nevada mines I appreciate you all joining and talk to us.
Speaker Change: Sometime soon.
Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's conference call you may now disconnect.