Investor Hot Topics

EMEA

What were the anticipated benefits of the Indesit acquisition?

We acquired Indesit in late 2014. The acquisition was expected to double our European business through a stronger geographic presence, primarily in the U.K., Italy and Russia leading to an expected #1 market share position in units and a #1 position in 5 of the top 7 countries. It presented an opportunity to drive significant cost synergies, as well as an enhanced product and brand portfolio to our consumers. Additionally, it provided access to a strong, low cost manufacturing footprint, including an additional 8 factories which produced front load washers, washer-dryers, free standing ranges and combination refrigerators.

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Is the Indesit integration complete?

Yes, the integration is complete. The Indesit acquisition was structured into 3 phases. Phase 1 was focused on simplifying the organization through governance and management systems and driving synergies through SG&A and procurement. Phase 2 was focused on footprint and architecture consolidation and initial system integrations. Phase 3 was focused on completing the execution of factory and product platform optimization plans, as well as completing the remainder of our process and systems integration activities. The integration activities were completed in June 2018.

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Have you delivered the anticipated benefits?

In total, we have not yet delivered on the anticipated integration benefits.

On the positive side, we doubled our scale and realized all the anticipated cost synergies of approximately $350 million. We also enhanced our product and brand portfolios by selecting the leading products and brands from the combined company. In doing so, we went from 12 brands to 6 and reduced the number of product platforms and SKUs by over 50 percent. These efforts resulted in stronger brands and products for our EMEA customers.

On the negative side, we lost approximately 20 percent of our EMEA volumes during the two year period from 2017 to 2018 driven primarily by system and architecture integration challenges, macroeconomic factors, raw material inflation, and renegotiation of trade customer contracts.

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What are the current actions being taken to address volume and profitability concerns?

On our third quarter 2018 earnings call, we announced two primary focus areas as it relates to restoring EMEA volumes and profitability.

  • Stabilize volumes while sustaining price/mix:
    • Restoring trade relationships and recovering lost flooring
    • Refocusing marketplace investments to our most profitable segments
    • Realizing the benefits from new product launches
  • Refocus and right size our business:
    • Exiting our Turkey domestic sales operations (does not include existing manufacturing operations)
    • Exiting our Hotpoint branded small appliances
    • Evaluating our South Africa operations
    • Announced a new $50 million fixed-cost reduction initiative

These actions represent approximately $100 million in annualized EBIT improvement opportunity, not inclusive of exit costs. Please see our most recent earnings materials for our most recent margin growth expectations for the region.

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Cost-Based Pricing

What pricing related actions have been taken in 2018 to offset raw material and tariff headwinds?

WHR previously announced and implemented cost-based price increases across most regions effective as follows:

  • Q1 2018: U.S. (kitchen), Brazil, most of Europe and China
  • Q2 2018: U.S. (laundry)
  • Q4 2018: U.S.(kitchen) and Brazil
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What pricing actions can be expected in 2019 and beyond?

We do not comment on any future pricing actions or promotions.

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U.S. Demand Drivers

What are the primary drivers of U.S. demand?

Our internal perspective on the drivers of U.S.appliance demand as of the end of the third quarter of 2018 is as follows:

  • Replacement ~50%
  • New Construction ~15%
  • Existing Home Sales ~15%
  • Discretionary ~20%
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What is Whirlpool's perspective on the appliance industry's replacement cycle?

Our internal perspective on the U.S. appliance replacement cycle:

  • We believe a typical replacement cycle of an appliance to be 8-12 years
  • The U.S. recession reduced appliance sales from 2008-2012, so from a replacement perspective we are in the midst of lapping the industry’s low point
  • In a continued healthy economy, we expect increased appliance demand from discretionary remodeling and existing home sales to continue to offset any temporary dip in replacement demand
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Important Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Certain statements contained herein do not relate strictly to historical or current facts and may contain forward-looking statements that reflect our current views with respect to future events and financial performance. As such, they are considered "forward-looking statements" which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," and similar words or expressions. Our forward-looking statements generally relate to our growth strategies, financial results, product development, and sales efforts. These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.

We undertake no obligation to update any forward-looking statement, and investors are advised to review disclosures in our filings with the SEC. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ from forward-looking statements.

Each answer above speaks only as of the date of our most recent quarterly earnings materials (issued on January 29th, 2019). We do not intend to update, and undertake no obligation to update, such answers, until the date of our next quarterly earnings materials.