Good morning. And welcome to Whirlpool Corporation's First Quarter 2022 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, Korey Thomas.

Thank you. And welcome to our first quarter conference call. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; Jim Peters, our Chief Financial Officer; and Joe Liotine, our Chief Operating Officer. Our remarks today track with a presentation available on the Investors section of our website at whirlpoolcorp.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. 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 provide you a better baseline for analyzing trends in our ongoing business operations. Additionally, price increases or pricing actions referenced throughout this call reflect previously announced cost-based price increases. 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 listen-only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions. With that, I'll turn the call over to Marc.

Thanks, Korey. Good morning, everyone. It is my pleasure to discuss the results of our first quarter to date and to provide some perspectives for how we intend to continue to transform our business for the better. Turning to our business. Over the quarter, we worked relentlessly to deliver strong results despite rising cost inflation, supply chain disruption and higher levels of volatility. In fact, this was among the top 10 strongest quarters in the history of our company despite the many external factors that we had to grapple with. We obviously faced a very tough comparison period from the record growth seen last year. Relative to our performance in 2020, however, we saw very robust growth. Thanks to the relentless effort of our entire organization, the business remains stronger than where it stood pre-pandemic. Our management team and I have also placed significant emphasis on improving operating margins over the last few years, and we remain committed to sustaining the structurally higher levels for the future. To emphasize, we are structurally stronger than Whirlpool was just a few years ago, and this quarter is another reflection of our ability to perform well even in a tough macroeconomic environment. I'm very confident in the strong fundamentals of the underlying business, and my belief in the go-forward growth remains unchanged. Today's guidance change, as you see in our press release, is merely a function of a higher volatility in the environment. We still expect a strong second half and continued robust performance for the remainder of this year. We're exiting the first quarter on strong footing, and our brands are performing very well. With that in mind, I'm pleased to announce that we're taking our growth efforts further and are announcing two separate but highly interconnected initiatives. First, we're conducting an overall portfolio review that will help us transform the company into a high growth and high margin business. Reflective of that, we have also made the decision to embark on a strategic review of the EMEA business. Our EMEA segment has enjoyed solid recovery and turnaround over the past two years despite significant COVID headwinds. Given significant operational improvement in the region, we have decided that now is the right time to conduct the strategic assessment of our long-term value creation in EMEA. We expect to provide you an update with the conclusion of this review by the end of Q3. You will be hearing more from us on this as we continue to grow both organically and evaluate inorganic opportunities in select strategic areas of interest. We are committed to continuing to improve Whirlpool, and I couldn't be more confident in the strength of our businesses and brands. To get into the quarter in more detail, we delivered a solid first quarter with ongoing EPS of $5.31, down by $1.89 versus the all-time record first quarter of last year, but up by 86% against 2020 and up 70% against 2019. This demonstrates that our business is fundamentally stronger than pre-pandemic levels. We remain confident in the strength of our business and believe that Whirlpool's deliberate actions over the last several years have made us a stronger company today. As our industry and most other industries face historical levels of cost inflation, we observed over $400 million in the fourth quarter, or approximately a 10% increase on cost of goods sold. Despite this, we delivered over 9% ongoing EBIT margins and over 16% EBIT margins in our North America business, again demonstrating the earnings strength of the region and the actions we took, transforming margins over the years. We now expect higher levels of inflation to persist throughout the year and have increased our full-year cost inflation expectations by $600 million to $1.8 billion. We also expect a higher price mix contribution as a result of the additional recently announced price increases. We are positioned to deliver a strong second half of '22, exiting the year with actions fully offsetting cost inflation. In other words, there's currently a lag between inflation and pricing, but we expect a catch-up in the second half and remain confident in our actions. However, supply disruptions impacting shipments in the first half of 2022, alongside accelerated cost inflation, led us to revise our full-year ongoing EPS guidance from $27 to $29 previously now $24 to $26. Lastly, with the confidence we have in our business and the strength of our balance sheet, we continue to fund innovation and growth and return cash to shareholders. This includes a 30% year-over-year increase in expected capital investments and a 25% increase in our quarterly dividend. And we are on track to return approximately $1.5 billion in cash to shareholders in the year. Now we'll turn to our first quarter highlights. Again, we demonstrated solid performance during the first quarter, delivering ongoing EPS of $5.31 and ongoing EBIT margin of 9.4%. Our successful go-to-market actions in every region partially offset over €400 million of inflation in the quarter. Lastly, we returned a significant level of cash to shareholders with $533 million of buybacks and increased our dividend for the 10th consecutive year. Turning to the drivers of our first quarter EBIT margin, several extraordinary items impacted the quarter, and we still delivered a strong margin. Price mix delivered 600 basis points of margin expansion, led by the successful execution of our pricing actions within each region across the globe, driving positive price mix. Net costs negatively impacted EBITDA margin by 250 basis points, largely driven by increased logistics and energy costs, which were intensified by the Russia-Ukraine conflict. Additionally, raw material inflation continues to be a significant year-over-year headwind, negatively impacting margin by 700 basis points. Lastly, our strong discipline related to marketing and technology investments positively impacted margin by 50 basis points. Overall, we're pleased to deliver solid operating margins in what remains a very challenging environment and remain confident in our ability to sustain and grow margins in the future. Now I'll turn it over to Joe, to review our regional results.

Thanks, Marc. And good morning, everyone. Turning to our North American region, we delivered $2.8 billion of revenue driven by our previously announced cost-based price increases. First quarter industry shipments represent one of the strongest quarters on record despite being negatively impacted by constrained supply chain, low inventory levels and production disruptions. We believe the industry will ultimately continue to grow beyond these record levels as the fundamental strength of consumer demand trends remains intact. During the quarter, we experienced increased inflation and operational inefficiencies in addition to the negative impact from temporary volume deleveraging. We delivered at a fundamentally higher level than when we entered the pandemic, sustaining very strong EBIT margins over 16%, demonstrating the lower fixed cost base of the region. Lastly, our previously announced pricing actions that are coming online in Q2 are on track and position us to fully offset cost inflation as we exit the year. Turning to the context of demand in the region, demand remains at sustained strong levels, and all indicators point to multiyear growth beyond these levels. Historical growth of approximately 2.5% alone indicates that the industry has yet to fully recover from the Great Financial Crisis with well over 5 million units needed to catch up. This is largely due to the fact that housing remained well below historical and structurally needed levels for over a decade. This is still the case today, which we are seeing play out with housing demand that is constrained by supply. Next, add the expectation of strong replacement cycles as we compare against a period 10 years ago when the industry grew at approximately 4%. Then combined with consumers' higher usage of appliances, which has remained elevated well after consumers have emerged from COVID lockdowns, we see demand as having even further room to grow. In summary, we remain unwavering in our confidence in multiyear demand expansion in North America. We remain equally confident in the strength of our business and its strong brands that serve the needs of millions of consumers daily. Turning to our Europe, Middle East and Africa region, the region's revenue decline is attributed to a negative impact from currency and reduced volume as demand in the region was impacted by the war in Ukraine and the subsequent impact it had on consumer confidence. Excluding the impact of currency, the region's price mix actions almost entirely offset the negative impact of demand. For the quarter, the impact from our operations in Russia and Ukraine resulted in an approximate $16 million EBIT decline year-over-year. At this time, I want to pause and address the war in Ukraine. It is a time of great concern for us all, and it is devastating to see the impact that it's having on the lives of so many people. Our primary focus is the safety and well-being of our colleagues and their communities, and we remain hopeful for a peaceful resolution. We remain supportive of Ukraine and its people. We are proud of the support our teams have provided to refugees. We will continue to support our colleagues through this situation.

Thanks, Joe. And good morning, everyone. Now turning to the external environment and what actions we have in place to exit the year with a strong second half. First, let us address market concerns and misconceptions about demand. Underlying consumer demand remained strong even with the impact from continued supply constraints and disruptions alongside the spillover effects stemming from greater geopolitical events. We remain very confident that the fundamental strength of consumer demand trends will remain intact over multiple years. With the reorientation towards the home and hybrid work models, the underlying demand strength is here to stay. This is supported as we continue to see consumers using their appliances at sustained and much higher rates post reopening. Next, historic levels of inflation, notably in raw materials, energy and logistics will impact us throughout the year. However, our previously announced pricing actions are on track and position us to fully offset cost inflation as we exit the year. Disruptions continue to impact the supply chain, and inventories remain at low levels. But again, we have taken action announcing over $200 million in refrigeration projects, built-in cooking investments driving automation, capacity and innovation, and increased capacity in dishwashers to support the strong demand for our products. In total, we expect to increase our capital investments by 30% year-over-year. We have the right actions in place and are confident in the underlying consumer demand strength. Now on Slide 15, I will discuss our full-year 2022 guidance. We have revised our 2022 full-year guidance to reflect the increased inflation we expect to absorb alongside the industry disruptions we experienced in the first quarter. We now expect 2% to 3% revenue growth and ongoing EBIT margins of approximately 9.5% for the year. Next, we expect free cash flow of $1.25 billion or 5.5% of net sales. This represents a full-year EPS range of $24 to $26.

As we continue to invest in our business, we expect increased investments of 25 basis points in marketing and technology, and we no longer expect a negative impact from currency. We expect to deliver 55% to 60% of our earnings in the second half as we exit the year with our actions fully in place. We are confident in our ability to again navigate a supply-constrained and inflationary environment and deliver approximately 9.5% ongoing EBIT margin. Turning to regional guidance for the year, we have aligned our global growth expectations to reflect the current consumer sentiment in EMEA, along with supply constraints in North America. We expect the North America industry to be approximately flat on a full year basis as the industry recovers in the second half of the year. We remain very confident in the fundamentals of the demand environment for North America, supported by broader home nesting trends, an undersupplied housing market, and a strong replacement cycle. We remain equally confident in the strength of our business and its brands. In EMEA, we have reduced our growth expectations to negative 5% to negative 3% as a result of the broader impact from the war in Ukraine. This includes a significant demand reduction in Ukraine and Russia. Lastly, Latin America and Asia industry expectations remain unchanged from our previous guidance. Regarding our EBIT guidance, our expectation for North America to deliver very strong margins of approximately 16% remains unchanged. In EMEA, we expect margins to recover in the second half to low-single digits, resulting in a full-year margin of approximately zero percent. On a full-year basis, we expect our EMEA results to be impacted from our operations in Russia and Ukraine by approximately $300 million in revenue. In Latin America, we expect to deliver EBIT margins of approximately 7% as positive price mix is partially offset by inflation. Lastly, we expect to achieve EBIT margins of approximately 6% in Asia, driven by top-line growth, partially offset by inflation.

We have reduced our cash earnings expectation to approximately $2.2 billion due to previously mentioned factors. Our capital investment expectations remain unchanged at $700 million as we continue to invest in our products and fund organic growth. These investments include unlocking capacity constraints, launching innovative products, and furthering our digital transformation journey. We continue to plan for a moderate inventory build as we begin to recover our inventory position, particularly in the United States. We anticipate minimal cash outlays related to restructuring or post-integration activities as these have been largely completed. Overall, we expect to deliver free cash flow of $1.25 billion or approximately 5.5% of sales. Our balance sheet remains very healthy, and we expect this to continue in the future.

Our first quarter results demonstrate that we are a different Whirlpool, delivering structurally improved EBIT margins no matter the operating environment. We have the right actions in place to deliver a solid 2022, including our previously announced cost-based price increases of 5% to 18%, addressing inflation across the globe. Next, the strength in consumer demand trends remains unchanged. The strength of our balance sheet and our strong cash generation expectations provide us with significant optionality. We will continue to invest in the business to support accelerated growth and innovation while returning approximately $1.5 billion in cash to shareholders. These actions demonstrate the confidence we have in our business and our commitment to drive strong shareholder value. Now I will turn it over to Joe to discuss our portfolio transformation, including the strategic review of our EMEA business.

Not only during this past quarter but over the past years, we've done a profound assessment of rapid changes in the global macro environment and how our respective global businesses are positioned to win in the future. As we sit here today, we are operating in a very different world than we were just 10 years ago. In short, it is a less global world where we are experiencing a fundamental global decoupling, which obviously has far-reaching consequences for any global company, a world with rising geopolitical and trade tensions along with global supply chain vulnerabilities and high inflation from freight and logistic costs. While 10 years ago, global scale benefits and the advantages of global asset utilization were significant, we're now experiencing a diminishing advantage of global scale. At the same time, the benefits of regional and local scale become even more compelling and emphasize the strategic importance of leading regional share positions. Put differently, businesses that are structurally in a weaker position will be more impacted by the unfavorable macro trends than businesses that are in a structurally stronger position. At the same time, we at Whirlpool have raised the bar for our long-term value creation. We expect our businesses to support 5% to 6% growth, almost doubling our previous value creation growth target and growing profitably with 11% to 12% EBIT margins and high free cash flow conversion. It is with this value creation criteria that we critically assess all of our businesses. Now moving to our overall portfolio transformation, we will accelerate our portfolio transformation towards higher margin and higher growth businesses. This will have far-reaching impacts on capital allocation, restructuring trends, or the absence of them, but also in M&A and potential divestitures. We will achieve success with three strong pillars: first, strengthen and refocus our major appliances business. We will leverage our number one position in North America and Latin America and regional strength across the Americas and prioritize our investments to win in the Americas. At the same time, we will drive our high growth and profitable business in India as penetration rates accelerate growth. In the not too distant future, India will be among the three largest global markets, and we are well positioned to win there. We will continue to develop and build upon our consumer direct business with leading innovation that transforms consumer experiences and increases engagement with our appliances. We will do this profitably at over 12% EBIT margin, led by the strength of our North America business.

We will grow our small domestic appliance business. This business is more global in nature with both distribution structures in place to continue to grow at an outpaced rate. With the KitchenAid brand, we own the most desired small domestic appliance brand in the world, and we will further accelerate our organic growth. At the same time, we're assessing inorganic growth options in pursuit of serving our consumers’ full cooking journey. With our innovative presence and leading position that dates back to the launch of our KitchenAid products, we are positioned to do this by driving portfolio-accretive margins of over 15%. Third, we will grow our commercial appliance business. To date, this is clearly the smallest of these three pillars with a healthy commercial laundry business in North America. What makes this segment attractive is the inherent attractive margin profile of more than 15% EBIT coupled with a high level of free cash flow conversion, as well as the somewhat countercyclical and stable nature of the business. It also provides opportunities and natural synergies across technology that can be cascaded to our residential business. The significant progress of our company with four years in a row of all-time record earnings and cash flow has now put us in a position to embark on this portfolio transformation. The opportunity of this transformation would not have been available to us 10 years ago. We have a very disciplined approach to M&A and remain selective to pursue only value-creating acquisitions that make long-term strategic sense for our business. While I'm the first one to recognize that this is not a short-term transformation and will require hard work, I'm excited and frankly energized about the path in front of us. We have demonstrated that Whirlpool today is very different from the Whirlpool of the past. This will create an even stronger and more valuable company and positions ourselves for the future. Now I will discuss the strategic review of our EMEA business.

This business has undergone significant changes. In the last two years, we have taken it from a contracting and loss-making business in 2018 to a profitable and growing business in 2021. That structural growth is based on share gains in key countries where we have leading positions. With strong brands that consumers love and higher margins as a result of successfully implemented cost actions and a focus on the growth of highly profitable built-in products. As we look at this business, we do so with both the evolving external landscape including the war in Ukraine and our performance to date. While we continue to have confidence that this business can achieve attractive EBIT margins, we have to acknowledge that the timeline to achieve these margin levels may take longer than anticipated.

We are assessing the long-term value creation opportunities in EMEA, including the option of continuing ownership as is today. Ultimately, we are reviewing what creates the most value for Whirlpool Corporation and what is required for future success in Europe. Again, to be clear, all options are being assessed. We expect to conclude this review by the end of the third quarter this year. I will now close my remarks with a few comments. Are we operating in a very dynamic world? Of course, we are. We just delivered another strong first quarter, fundamentally stronger than pre-pandemic levels with actions in place to deliver a strong second half. And we're well positioned with strong, profitable, leading businesses, a balance sheet that provides us optionality, and consumers who have never been more engaged with appliances. We're well prepared to accelerate our focus on high-growth and high-margin businesses, positioning our company for the future as a different Whirlpool operating in this very different world.

Your first question comes from the line of Susan Maklari from Goldman Sachs. Your line is open.

Thank you. Good morning, everyone.

Good morning, Susan.

My first question is despite all the moving parts and the unexpected events, I mean, obviously, your North America margin was incredibly impressive and well ahead of where we were. And I guess in the spirit of no good deed goes unpunished, despite the 16% this quarter, you left the guidance for the year for that region. So can you talk a little bit about how you're thinking of the cadence of that margin as we go through the next several quarters? How we should be thinking about that? And what would potentially drive any upside relative to the guide that you have out there?

Hi, Susan. This is Joe Liotine. Yeah, in terms of the North American business, I mean, we feel strong about the consumer demand continuing to remain healthy, which is really positive. We feel really good about our value creating go-to-market actions and how we've executed that over a long period of time. And that also is a positive. In terms of overall margin, we had a lot of different factors playing in there. We did again, announce price actions that were effective January 1 that helped us mitigate a lot of the cost elements. We are still seeing quite a bit of inflated cost, and we are still seeing quite a bit of disruption in our supply base, kind of limiting our top-line growth. And so on balance, we feel that the approximate 16% EBIT for the year will still be an appropriate target for the North American business at this time.

Susan, it's also, Marc. Maybe just to position your question positively. The way I look at it, North America had a Q1 margin of 16% and full-year 16% guidance. The same is globally; we're at 9.4%, and we're guiding toward 9.5%. So the way I would look at it is right now, we're already on the right run-rate, which significantly derisks our outlook for the year. Having said that, to Joe's point, we have further price action already announced that will help us on the upside. But we all know there's still volatility out there with raw material prices, etc. So I think it gives us the appropriate and necessary protection to really deliver the margins which we laid out.

Okay. That's helpful. I do have a follow-up question, but first, just on that, is there anything we should be thinking about in terms of the sequential cadence of the margins in North America as we update the model?

Susan, it's Marc again. For your model, I would probably keep it pretty stable. There will always be some pluses and minuses, but it's pretty stable. And again, we feel good about where we had in Q4, Q1, it's pretty steady despite all the moving parts, as you laid out. So I think the team has done a really good job managing toward very stable and sustainable margins.

Okay. And then my follow-up is, obviously, you announced the strategic review of your EMEA operations. Obviously, noting that all options are kind of on the table for you. Can you just give us a bit more detail on how you're thinking about the potential set of opportunities out there? And I guess within that, we have seen over the last year or so, you do some interesting transactions where you are able to keep the Whirlpool brand in certain regions and kind of financially benefit from that while sort of derisking the business a bit. So can you talk about whether that's a potential within this? Or just what are the sort of opportunity sets out there?

Yeah. Susan, obviously, we announced today already yesterday, a broader acceleration of our portfolio transformation. So there are many moving parts, and we're looking at where we can grow organically and inorganically. And obviously, we're also in a strategic review of our European business. Again, just to reemphasize, in Europe, we've made good progress over the last two or three years, turning from loss-making into a profitable business now, but we have been growing. But of course, the question is, as I alluded to earlier, how can Europe fit into our broad portfolio in particular after we raised the bar for performance? As such, the question is out there, what really delivers the greatest value to Whirlpool Corporation, but also what is the best structural answer to improving our business in Europe? So in that context, and I mean literally all options are on the table. I refer to retaining the business. We also referred to changing ownership, but there could also be hybrid solutions in between similar to what you laid out. So we're going through a process, and we expect an answer by the end of Q3.

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

Yes. Good morning, everyone.

Good morning, David.

Yeah, good morning. I just wanted to ask additionally on the portfolio transformation. As you transform the portfolio into higher-margin businesses, how much additional capital do you feel you may need to deploy? And can you talk about your targeted ROICs?

The portfolio transformation will be driven by considering resources at multiple levels. First, we will continue to invest capital as a company, and we've already announced this year an increase in investment in the Americas for new products. Moving forward, we plan to allocate less towards restructuring and more towards business growth and high-margin opportunities, which represents an internal shift of resources. Regarding external opportunities, while it’s still early to specify which ones, I believe that our strong balance sheet and enhanced earning potential provide us with significant options, which we didn't have 5 or 10 years ago. This gives us a lot of flexibility. However, we will remain disciplined and cautious, ensuring we don't overspend and critically evaluating all opportunities. Overall, our balance sheet and earnings capacity are quite robust.

And I think, David, a way to think about it also, this is Jim, going forward, is we've always had a pretty consistent level of capital we invest in our business based on the size and all that. And that will continue to be at that type of level. But as we invest in additional businesses, the amount of capital then could remain the same as we're going to invest some of those. The other thing you asked on ROIC. Our ROIC targets haven't changed at all. If you look at some of the portfolio work we're doing, we're obviously looking at assessing the future of ones that perform below our target ROIC level. And as we do acquisitions going forward in things, obviously initially, they may not be at that ROIC level, but then as you generate synergies and grow them, that's where we see these are businesses that will contribute to our longer-term increase in ROIC.

Yeah, that makes sense. Thanks. And then just as a follow-up, can you comment on the opportunities you see in commercial appliances? I realize you have an existing commercial laundry business that's profitable. And maybe you could size that for us. But do you build a stronger presence in cooking and refrigeration categories? And are you thinking about being just a sort of a really strong niche player? Or do you see Whirlpool eventually holding a leadership position in commercial appliances?

David, let me again, first of all, repeat why we believe it's an attractive business segment. And again, that's also based on our own experience. It is inherently a very strong margin business. It's a very stable business where it's not only about initial sales but the ongoing support for spare parts and kind of fleet sales, if you want to say so, a pretty high cash flow yield. Certain elements are a little bit more counter-cyclical to our residential business. That's why we like this business. A couple of years ago, we started to acquire a small business commercial laundry. But frankly, it’s not only commercial laundry. We have a commercial cooking and kitchen segment, as you might know, that is even bigger than the commercial laundry segment. So that will be a business where we would have to grow through acquisitions. Now it is in its nature, it’s a little bit more regional less global than some of the other businesses, but it’s a very attractive one. Again, it’s too early to talk about what we may target for or not, but it is actually very high on our priority list.

Your next question comes from the line of Sam Darkatsh from Raymond James. Your line is open.

Good morning, Marc, Jim, Joe. I hope each of you are well.

Good morning, Sam.

I have a couple of questions regarding the European strategic review. First, Marc, we've discussed this quite a bit in the past. I believe your previous hesitance to consider monetizing the business stemmed from the significant shared technology and R&D, along with concerns about maintaining control of the Whirlpool brand. Has anything changed in that regard? What I'm really trying to understand is whether the sale of the entire business is a realistic option, or if you're more inclined to look at selling a minority stake while keeping some of those assets.

So Sam, again, I can only repeat all options on the table. What you raise are relevant points. But a potential decoupling or partial decoupling of Europe is not a trivial matter. It’s technology and brands where I can assure you we will put contracts in places to ensure control or indirect controllable brand. So the limit to how much you really have a clear sale. There are certain elements that we want to still keep a certain element of control. Technology is a major one, but also here as we've stemmed the impact, there are solutions in a setup that can ensure our long-term interest, also our global scale and getting some global synergies and not completely losing them. These are some of the options which we are looking at.

And are there any parts of the EMEA business that are higher margin and separable? Or is the business mostly a monolithic type of operation that it would be more of a holistic transaction?

I would argue, Sam, there's not a lot of pieces that you can easily cut out or whatever. So it is more of one piece of business. And as such, it’s not like you can separate certain individual countries from the rest of Europe because there's a fairly strong connection with the supply base and the technology base. I think you’re talking about the overall EMEA region in total.

Your next question comes from the line of Michael Rehaut from JPMorgan. Your line is open.

Thanks. Good morning, everyone. I appreciate you taking my questions. First, I wanted to revisit the North America segment for a moment. It's clear that industry volumes are down 4%. Your revenue has decreased by 8% despite a positive pricing mix. It seems that share losses may have accelerated this quarter, and you continue to face supply chain challenges. We are likely four to six quarters into these supply chain issues. I would like to confirm, first, if my assessment regarding the share losses this quarter is correct. Secondly, you mentioned increased investments in the second half and capacity expansions. How should we approach resolving these ongoing supply chain challenges that have been significant factors in the issues over the past several quarters?

So Michael, it's Marc. Let me just address it. First of all, on the demand side, and it may sound like semantics, but I still want to clarify a couple of things. What we see in North America, you refer to the minus 4% demand that is supplied. Consumer demand is clearly strong, in fact, very strong. You have a situation where it's very clear, but demand outstrips supply by a wide margin, and that has been going up for several quarters, and that will continue to some extent. So the underlying demand is very strong, but we also really want to refer to this Page 9, which we have in the presentation, which just shows you the long-term demand trends. They are strong. Of course, if you compare technically Q1 versus Q1 last year, it's slightly down. Most people lose it, but still up 20% versus 2019 and 2020. So this demand is strong. We don't see it going away. Replacement is strong, and housing will also be strong. Our issue has been our supply has not been capable of catching up or matching the demand side. Even today, we have a fairly sizable number of backorders. That ultimately comes back to the fact that throughout the pandemic, North American production was slightly disadvantaged compared to Asia production. It appears right now the tide starts shifting, partly because of the COVID wave in Asia. But we are also seeing easing of our supply constraints in Q2 that in combination with investment in capacity in our own as well as supplier capacities, it will not go away magically overnight, but it appears light is shifting. So we're reasonably confident that we can ramp up our supply. But frankly, it still remains a volatile environment. So it is just choppy out there. But right now, at least what we're seeing, Q2 turns positive.

And I'd say, Michael, this is Jim too. Just to point out that despite the issues and inefficiencies that Marc has mentioned, we're still generating 16% margins within North America. We are managing the challenges and supply chain constraints in a way that is not currently impacting our margins.

I appreciate your insights. Could you provide more clarity on the portfolio transformation and strategic review in Europe? Taking a step back to evaluate the various components of your broader portfolio goals, it's clear that you've mentioned the assessment of all options for EMEA. However, it's challenging to separate or significantly change the business structure. While you're reviewing different possibilities, it seems likely that an outright sale of most elements may occur, possibly maintaining some stake in the Whirlpool brand or minor aspects of a deal. Given your focus on investing in the Americas and India for higher-margin operations, it seems EMEA is the segment that doesn't align. I want to confirm my understanding that a substantial sale of your assets appears to be in the works. Additionally, regarding the reinvestment of proceeds from such a sale, how should we view that? Will it lean more toward share repurchases, or are you considering reinvestments, perhaps in inorganic growth opportunities? I'm trying to understand how you plan to redeploy the proceeds.

Michael, first of all, with regards to Europe, I would not yet jump to any conclusions about what is more realistic or less realistic. What I said earlier, the decoupling is not trouble but it's doable. It's easy to have a trusted partner on the other side of a transaction when it's a lot easier, but it's doable. Yes, an outright sale is possible. It's one of the options which we look at, and we will go through an objective assessment about all the pros and cons, which again also include retaining the business. That's in a certain way at baseline and we got to assess our own opportunities and how we drive margin to required levels and need to compare with how it stacks up to some other options. But so at this point, I really would not exclude any of the options which we look at.

I'd like to address your question about the proceeds. We're still in the early stages, but I don't believe this will alter our current capital allocation strategy. Our main focus has been on returning cash to shareholders, but as Marc mentioned earlier, our strong balance sheet allows us to explore inorganic growth opportunities. Both of these elements will influence our capital allocation and balance, but our priorities remain the same. Over time, this will enable us to invest more in areas of our business that have higher growth potential.

Your next question comes from the line of Eric Bosshard from Cleveland Research Company. Your line is open.

Thank you. Good morning.

Good morning, Eric.

I have a question and a follow-up. First, compared to 90 days ago, could you clarify the differences between consumer demand and shipments? I noticed that the industry shipment forecast was adjusted from an increase of 2% or 3% to flat, and I'm curious about what led to that change. Secondly, while that forecast has changed, is there anything notable regarding consumer demand? I'd like to gain a clearer understanding of the situation if that's the case.

I can address that. The main change we've observed, which is reflected in our forecast, is that in Q1, supply was lower than we anticipated, and likely lower than what the entire industry expected. Therefore, I attribute the Q1 industry shipment numbers primarily to supply chain constraints. We have our own data, and it's clear we can also follow the trends in the broader industry. Since we don't anticipate the supply to recover from the losses in Q1 for the remainder of the year, that's what is reflected in our guidance. Essentially, the zero percent full-year guidance indicates that we are projecting approximately 3% growth in industry shipments for the rest of the year.

Okay. And then secondly, within the guidance, you lowered the industry shipment numbers. You've raised the raw material number, your performance versus the industry is a bit wider than it was and yet the margin guidance is held. And so what is better within the business or within profitability to offset these two or three other things that are worse?

I would say that we slightly reduced our margin guidance to 9.5%. The primary factor offsetting the significant rise in materials is the additional pricing we announced in the first quarter, which will continue into the second and third quarters. As we previously discussed, we've experienced higher material costs, and we are implementing price increases to compensate for that. The timing of these adjustments is important, which is why we adjusted the margin downward slightly to indicate that our pricing is starting to align with the cost increases we've encountered. This isn't limited to materials; it also includes logistics and energy costs, which have risen significantly and accelerated more than we initially anticipated this year.

Your next question comes from the line of Liz Suzuki from Bank of America. Your line is open.

Great. Thank you. So SG&A had been running above $500 million per quarter for the last six quarters and dropped pretty sharply in the first quarter and as a percent of sales, the lowest it's been in decades. I mean how much of that reduction in SG&A was the result of transitory factors like the temporary layoff of plant workers in Clyde? Or in other words, how much of that reduction is sustainable and how much cost is expected to come back in as supply constraints and production issues ease?

Yeah, Liz. This is Jim. If you take a step back and consider it, there is some benefit from currency translation as we convert everything into dollars globally, which has contributed to the reduction. Additionally, during this quarter, our marketing and technology investments were lower compared to last year, but we plan to increase those investments in the latter half of the year. Another factor is that we had a business in China last year that incurred significant SG&A expenses, which we no longer consolidate. We are also seeing ongoing cost reductions that we have previously mentioned, and we expect to realize their full impact this year. There are also smaller components at play, such as a minor gain from a property sale, but this is somewhat offset by increased bad debt reserves in areas like Ukraine. Overall, I believe that at least half of the improvement can be attributed to structural run-rate reductions, with the rest possibly related to timing issues, including marketing and technology investments.

Okay, that's really helpful. I have a follow-up question regarding whether the price increases from 2022 will offset inflation by the second half of the year. Should we anticipate some positive impact from pricing compared to inflation in 2023?

This is Marc. The current environment is so volatile, but to be honest, there are a lot of moving parts that will happen before now in '23. But having said that, with all the actions we have right now in place, particularly on the pricing side, but also what we do on the supply side. Absent of further massive volatility shocks on the raw material side, I think we will have a very strong exit run rate coming out of Q4, which by definition should spill over into '23. But again, the caution I have right now, even entering the first quarter, we didn't have a war on our radar screen. This is a very dynamic environment. We've just got to prepare for everything. But having said that, absent of major shocks, we will have very, very strong exit run rate.

Your next question comes from the line of Dan Oppenheim from Credit Suisse. Your line is open.

Great. Thanks very much and thanks for taking the call. Just wondering in terms of the supply difficulties that you've spoken about initially, there's a talk in terms of the 30% increase in CapEx over the course of the year. Later, you talked about some of the issues in and shifting here in the second quarter. Just trying to get a better sense in terms of how meaningful that is in terms of what you're saying with the easing or if we should think about that as more sort of being but later in the year in terms of significant progress on that and then sort of benefiting that as the CapEx comes through?

Yeah, Dan. This is Joe Liotine. So we did talk about how March performed a little better, and we expect that kind of ramp to continue into Q2. It's going to be a slight improvement in Q2. Then a bit more meaningful improvements into Q3 and Q4. There are a lot of factors in here, but we've seen already indications that give us a bit of optimism, and we've seen some actual performance that has been slightly better. Combining that sets forth the Q2 that's going to have improvement, but really the bigger ramp happens in Q3 and Q4 with an exit rate in Q4 that shows us the opportunity to get growth back and share back that we have been discussing.

Yeah, Dan, this is Jim. As we move through the year, we expect to gradually increase our inventories as we anticipate some recovery in certain areas of our supply chain later in the year, though it won't be significant. Currently, we're guiding for about a $200 million increase year-over-year in working capital, with the largest portion coming from inventories. Our goal is to ensure our stock levels within our logistics network are healthy as we work to fulfill some of the backlog of orders. The next step for us is to continue improving the health of our supply chain.

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

It's actually Chris calling on for Mike. Thanks for taking our questions. For my first question, I was hoping you could give us an update on the current state of your Russian operations today. And is maintaining a presence there going to complicate any potential EMEA divestitures in the future?

I can address that. As we have shared, we are producing locally in Russia, which has historically accounted for about 80% to 90% of our volumes there. We are no longer importing goods from our European facilities into Russia, but we are operating at a minimal level in our Russian factory, just enough to keep it functional. Is this sustainable in the long run? Probably not. However, we are currently maintaining operations at a specific volume, fully adhering to all sanctions. I want to clarify that our examination of strategic options in Europe is not driven by our situation in Russia. While Russia has been a valuable market for our European operations, it is not the cause of our strategic review. It is one element of the broader long-term considerations that many companies will need to assess regarding future possibilities in Russia.

Understood. And just turning back to your demand outlook in North America, you're expecting demand to remain strong in the second half, even though leading housing indicators are starting to decelerate, and clearly, there's more uncertainty around demand going forward. So I want to get your sense on the rationale for this and confidence around making that assumption at this point.

It's Marc. In all honesty, I don't see where you see the uncertainty of demand. I said earlier, the demand clearly and has for the last two years outstripped supply by a wide margin. Replacement is as strong as ever, and the COVID pandemic and now also the more and more hybrid work models will further accelerate replacement because you basically have a higher usage of appliances. We still see that confirmed even two years into the pandemic. So our outlook on the fundamental long-term consumer trends in North America are as bullish as we've ever been. Honestly, I just don't see that slowing down. Also on the housing side, I know we're just talking about mortgages. If you look at the fundamental demographic trends, the age of the housing stock, the demand out there, I wouldn't bet against U.S. housing. We're certainly very optimistic about the long-term U.S. housing trends. Okay. So with that, it looks like we're coming to the end of the Q&A session. So first of all, thank you all for joining us today. As you've just seen and heard, Q1, we feel very good about, very solid Q1. Obviously, a lot of moving parts, as some of you pointed out in the quarter and the environment around us. But I think we've demonstrated yet again, we can deal with a lot of challenges. I think we have put all the right actions in place to have a very strong second half. As it comes to the portfolio transformation, we will keep you updated in particular, once we come to the earnings call after the third quarter. With that in mind, thanks again for joining us, and have a wonderful day.

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