Whirlpool : Q1 2019 Earnings Call Corrected Transcript

Corrected Transcript

23-Apr-2019

Whirlpool Corp. (WHR)

Q1 2019 Earnings Call

	Total Pages: 17
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Whirlpool Corp. (WHR)	Corrected Transcript
Q1 2019 Earnings Call	23-Apr-2019

CORPORATE PARTICIPANTS

Max Tunnicliff	James Peters
Senior Director-Investor Relations, Whirlpool Corp.	Executive Vice President & Chief Financial Officer, Whirlpool Corp.
Marc Robert Bitzer
Chairman & Chief Executive Officer, Whirlpool Corp.

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OTHER PARTICIPANTS

David S. MacGregor	Curtis Nagle
Analyst, Longbow Research LLC	Analyst, Bank of America Merrill Lynch
Sam Darkatsh	Michael Dahl
Analyst, Raymond James & Associates, Inc.	Analyst, RBC Capital Markets LLC
Michael Jason Rehaut	Kenneth Zener
Analyst, JPMorgan Securities LLC	Analyst, KeyBanc Capital Markets, Inc.

Susan Maklari

Analyst, Credit Suisse Securities (USA) LLC

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MANAGEMENT DISCUSSION SECTION

Operator:Good morning, and welcome to Whirlpool Corporation's First Quarter 2019 Earnings Release Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Max Tunnicliff.

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Max Tunnicliff

Senior Director-Investor Relations, Whirlpool Corp.

Thank you, and welcome to our first quarter 2019 conference call. Joining me today are Marc Bitzer, 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.com.

Before we begin, I'll remind you that as we conduct this call, we will be making forward-looking statements to assist you in 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 and other periodic reports.

We want to remind you that today's presentation includes non-GAAP measures. We believe these measures are important indicators of our operations, as they exclude items that may not be indicative of or are unrelated to results from our ongoing business operations. We also think the adjusted measures will provide you a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

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Whirlpool Corp. (WHR)	Corrected Transcript
Q1 2019 Earnings Call	23-Apr-2019

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.

With that, I'll turn the call over to Marc.

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Marc Robert Bitzer

Chairman & Chief Executive Officer, Whirlpool Corp.

Thanks, and good morning, everyone. On slide 3, we show our first quarter highlights. As you saw in our press release, we delivered another quarter with strong results, including a record first quarter ongoing earnings per share of $3.11. Although revenue growth was impacted by softer demand in certain countries including the U.S., Canada, Mexico, China and several European countries, we delivered global EBIT margin expansion of 30 basis points, driven by excellent price/mix progress and sustained fixed cost discipline.

Additionally, our North America region delivered very impressive results with EBIT margin expansion of 90 basis points, despite continued macro pressures. This performance gives us continued confidence in delivering our full- year guidance. It remains unchanged in total as raw material favorability is offset by lower industry demand expectations.

Turning to slide 4, I will discuss our first quarter results in more detail. Excluding currency, we delivered global revenue growth of 1% with very strong price/mix more than offset unit volume decline. Ongoing EBIT margin was 6.3% for the quarter, compared to 6% last year, driven by very strong price/mix. Finally, our first quarter free cash flow reflects normal seasonality of cash usage, and was unfavorably impacted by the time of certain payments. Overall, we are very pleased with our first quarter results and believe we are well positioned to deliver on our full- year commitment.

Turning to slide 5, we show details of our first quarter margin performance. We delivered approximately 300 basis points of margin improvement as we realized a carryover benefits of prior-year pricing actions as well as new pricing actions during the first quarter primarily in the United States. We continue to expect margin benefit from price/ mix throughout the year. It will moderate slightly on a year-over-year basis, as we begin to compare against higher pricing in the second half of 2018. These benefits were partially offset by approximately 250 basis points of cost inflation and unfavorable currency.

Now, I'll turn it over to Jim to review our regional results.

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James Peters

Executive Vice President & Chief Financial Officer, Whirlpool Corp.

Thanks, Marc, and good morning, everyone. Turning to slide 7, I'll review the first quarter results for our North America region. We delivered very strong results in the quarter with revenue growth and strong EBIT margin expansion, despite a challenging macro environment, which included a 7% decline in industry demand and continued cost pressures.

Overall, we expanded EBIT margin by approximately 90 basis points as very strong price/mix was partially offset by over 125 basis points of cost inflation. Our results in North America, once again demonstrate the strength of our underlying business and our ability to overcome significant external pressures, and is a testament to our strong brand and product portfolio, fixed cost discipline and flexible supply chain.

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Whirlpool Corp. (WHR)	Corrected Transcript
Q1 2019 Earnings Call	23-Apr-2019

Turning to slide 8, we review the first quarter results for our Europe, Middle East and Africa region. Excluding the impact of currency, net sales increased nearly 2%, while unit volumes increased 5%, in line with our prior guidance, and our improvement actions to stabilize volume. EBIT margins improved 40 basis points, primarily from the benefits of our fixed cost reduction actions and volume improvement, which were partially offset by lower production levels as we continue to right-size our business.

Additionally, EBIT margins were unfavorably impacted by approximately 60 basis points as we continue to liquidate our remaining inventory in Turkey. As it relates to our improvement actions, we are on track to complete the exit of our Turkish domestic sales operations, and Hotpoint-branded small appliances business by the end of the second quarter. And we continue to actively market our South Africa operations for a potential sale.

Now, we turn to slide 9 to review the first quarter results for our Latin America region. Excluding the impact of currency, net sales increased approximately 7%, driven by unit volume growth, share gains and positive price/mix, despite negative industry demand in Mexico. EBIT margin benefited from the carryover impact of our previously announced cost-based price increases plus additional improvements through continued cost discipline. These actions offset unfavorable currency of over 100 basis points. Lastly, prior-year results were favorably impacted by the monetization of approximately $22 million in certain tax credits.

We now turn to the first quarter results for our Asia region, which are shown on slide 10. Including the impact of currency, net sales decreased to 12%. Our India business had another excellent quarter and delivered solid unit volume growth with share gains and EBIT margin improvement. However, this was offset by significant volume weakness due to sharp decline in industry demand along with increased brand investments in China as we transition from Sanyo-branded products to the Whirlpool brand.

Now, I'd like to turn it back over to Marc to review our guidance.

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Marc Robert Bitzer

Chairman & Chief Executive Officer, Whirlpool Corp.

Thanks, Jim. On slide 12, our guidance assumptions for 2019 remain unchanged. In line with our long-term goals, we expect to drive organic net sales growth of approximately 3%. As before, we expect to deliver ongoing EBIT margins of 6.5% to 6.8%, a 40 basis point improvement compared to 2018. Consistent with our previous guidance, we expect free cash flow of $800 million to $900 million, progressing strongly towards our long-term cash conversion goal of 5% to 6% of net sales. Our first quarter results strengthened our confidence in delivering on our full year financial commitments and we continue to expect to deliver ongoing earnings per share of $14 to $15.

Turning to slide 13, we show we updated drivers of our EBIT margin guidance. We expect approximately 150 basis points of improvement related to continued price and mix benefits in 2019, in line with our previous guidance. We now expect to deliver net cost improvement of 50 basis points, based on revised industry demand and related lower production volume expectations.

Although macroeconomic pressures remain elevated, raw material inflation has slowed down, leading us to revise our cost inflation guidance favorably by 25 basis points for the full year. In total, our margin guidance remains unchanged, and we continue to expect meaningful margin expansion versus the prior year.

Now, Jim will cover our regional guidance and cash priorities.
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Whirlpool Corp. (WHR)	Corrected Transcript
Q1 2019 Earnings Call	23-Apr-2019

James Peters

Executive Vice President & Chief Financial Officer, Whirlpool Corp.

Thanks, Marc. On slide 14, we show our regional industry and EBIT margin guidance for the year. Our regional industry guidance ranges are unchanged with the exception of North America. Based on weaker-than-expected U.S. industry in the first quarter, we are revising our guidance range to negative 2% to flat for the full year.

Although industry demand guidance is unchanged for the remaining regions, we are trending towards the low-end of the range in Latin America and Asia, as Mexico and China both experienced negative industry demand in the first quarter.

In North America, we continue to expect EBIT margins of at least 12% as benefits from price/mix actions are partially offset by lower industry demand and raw material and tariff inflation. As we look to the second quarter, we have two items that will cause North America margins to more closely resemble the first quarter rather than the normal sequential quarterly improvement that you would expect. We plan to reduce production volumes to right- size inventory levels and increase marketing investments in support of product launches.

In EMEA, we remain confident in our ability to deliver above-breakeven results for the full year as we continue focusing on restoring volume and right-sizing our business. We anticipate exiting the second quarter at a breakeven rate, meaning third quarter results should reflect the first full quarter of positive EBIT in the year. Lastly, our guidance for Latin America and Asia remains unchanged.

Turning to slide 15, I will discuss the drivers of our 2019 free cash flow. With margin guidance unchanged, we continue to expect cash earnings to positively impact free cash flow, partially offset by the sale of our Embraco compressor business. We remain committed to driving sustainably lower working capital, which is expected to result in $200 million of working capital improvement in 2019.

We continue to anticipate lower restructuring cash outlays, leaving guidance unchanged at $100 million for the year. And as previously discussed, our first quarter free cash flow was unfavorably impacted by the timing of certain items, primarily the partial French Competition Authority payment of approximately $50 million. The remaining balance of approximately $50 million will be paid in the second quarter. In total, we remain committed to delivering free cash flow of $800 million to $900 million, excluding the anticipated proceeds from the sale of Embraco.

Turning to slide 16, we show our capital allocation priorities. Our capital allocation priorities for the year remain unchanged. We will continue to make significant progress towards our year-end gross debt to EBITDA target of

2.0times. In addition, we raised our quarterly dividend for the seventh consecutive year, which is a reflection of our confidence in the business and our ability to generate strong free cash flow going forward.

Lastly, we repurchased approximately $50 million of common stock in the quarter and anticipate a similar level of quarterly repurchases for the remainder of the year.

Now, we will end our formal remarks, and open it up for questions.

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