Good morning, and welcome to Whirlpool Corporation's Fourth Quarter 2023 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 Officer. Our remarks today track with a presentation available in 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, outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of our results from our ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. At this time, all participants are in a listen-only mode. Following our prepared remarks, the call will be opened for 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, and good morning, everyone. Today marks our first earnings call in the new year, and I do appreciate that everyone's attention will be on our perspective for 2024. However, I want to take the opportunity to reflect and look back at last year. During this past year, there have been a number of achievements we're proud of. One, we gained more than 1 point of market share in North America. This is a clear testimony of the success of our great products and brands in the marketplace. Two, we were able to reduce our net cost base by $800 million, which is what we had in mind when we started the year. And three, the signing of our EMEA transaction with Arçelik marked a major milestone in our portfolio transformation and is expected to provide significant opportunities to unlock value. At the same time, there are a number of areas where we fell short of our own expectations. The promotional environment, which reversed back earlier than anticipated to a pre-COVID intensity, put pressure on our EBIT margins. And while our full year EBIT margin of 6.1% is solid, it is still more than 1 point short of where we want it to be. And we were not able to reduce our inventories fast enough, which negatively impacted our full year cash flow. Obviously, these results were impacted by a still unfavorable housing cycle in 2023. The rapid and steep increase of US mortgage rates led essentially to a freeze of existing home sales. Ultimately, this resulted in the lowest existing home sales in almost three decades. And given the strong historical correlation between existing home sales and appliance sales, the discretionary appliance sales, which are margin attractive, slowed down significantly. This was mitigated by strong replacement demand, which tends to be less margin attractive. These strong replacement sales confirmed our view of more intensive use patterns of appliances, leading to shorter replacement cycles, a favorable trend which we expect to continue in the foreseeable future. Now, the key question is, what does this all mean for 2024? Let me start on the housing macro cycle. We remain bullish on the mid- and long-term housing cycle. The market has been undersupplied for over a decade by 3 million to 4 million units. The long overdue rebalancing of demand and supply will occur at one point, but not in the very short term. While we already see a gradual and steady recovery of new home orders and starts, we all know that these trends typically need six to nine months to turn into appliance sales. The existing home sales market, on the other hand, will need a catalyst to unfreeze. That catalyst can only be a return to lower mortgage rates, which we expect to moderate as the year progresses. So, how will we position ourselves in 2024? Essentially, it will be all around cost discipline and margin expansion. On the cost side, we have put actions in place to deliver $300 million to $400 million in cost savings. While this number may appear lower than in 2023, we're not factoring any raw material savings. So, these $300 million to $400 million are all structural cost takeout actions. The margin expansion will essentially be driven by the benefits of a refocused portfolio after the completion of the EMEA transaction, as well as a very disciplined approach focused only on value-creating promotions and product mix. You will see later in our presentation a full year negative impact of pricing, but this is entirely related to carryover pricing effects. Lastly, as it relates to our portfolio transformation, we continue to expect to close our EMEA transaction by April. And in anticipation of this transaction closure, we are changing our reporting segments. We will not only highlight our major domestic appliance business in North America, Latin America, and Asia, but also provide visibility to our KitchenAid small domestic appliance global business. With strong margins, the KitchenAid small domestic appliance business is a critical component of our brand and product portfolio, improving life at home for our consumers. I am confident that our refocused portfolio, cost actions, and improving free cash flow generation positions us for continued shareholder value creation in 2024. Now, turning to Slide 6, I will provide an overview of our fourth quarter results. We delivered over 3% of revenue growth, including over 1 point of year-over-year share gains in North America, coupled with $350 million of reduced costs. Working capital conversion and free cash flow of $366 million was impacted by shipments occurring later in the quarter than expected. We exited 2023 with elevated trade customer inventories, which we expect to normalize mostly in the first quarter of 2024. Ultimately, we delivered ongoing earnings per share of $3.85, supported by tax benefits related to the Europe transaction. And now, I will turn it over to Jim to review our Q4 regional results and perspective on 2024, including our plans for the proceeds of a recently announced India transaction.

Thanks, Marc. Good morning, everyone. Turning to Slide 7, I'll review fourth quarter results for our North America business. We delivered 1% of revenue growth and 260 basis points of margin expansion. Sales growth was driven by over 1 point of year-over-year share gains, resulting from new product introductions and improved supply chain execution, while this was partially offset by a normalized promotional environment. Additionally, resilient replacement demand lifted the US industry 2%. Fourth quarter margin expansion was driven by significantly reduced cost, partially offset by negative price/mix from a normalized promotional environment and lower consumer discretionary demand due to higher mortgage rates in 2023 slowing down existing home sales. Overall, the region delivered 8.4% margins for the quarter. Turning to Slide 8, I'll review our results for our Europe, Middle East and Africa business. Revenue was down 3% year-over-year as the region continues to see demand weakness from negative consumer sentiment. Strong cost takeout actions and held for sale accounting benefits drove nearly 400 basis points of margin expansion year-over-year to approximately 3%. We continue to expect the Europe transaction to close by April 2024, and later in the call, I will provide additional insights into the expected impact to our 2024 guidance and free cash flows. Turning to Slide 9, I'll review the results for our Latin America business. With strong industry demand throughout the region and share gains in Brazil, net sales, excluding currency, increased approximately 13%. Overall, the region delivered solid EBIT margins of 6%, flat to last year as cost actions were offset by negative price/mix and losses in Argentina from currency devaluation and costs related to ramping up our new laundry factory. Turning to Slide 10, I'll review the results for our Asia business. The region saw net sales growth of 9%, driven by share gains and improving industry. EBIT margins of 1.3% with cost takeout actions more than offset by negative price/mix. As you may have seen, we recently announced our intention to sell up to 24% of Whirlpool India's outstanding shares while retaining a majority interest. We truly believe in the long-term trajectory of India. It is one of the strongest growth opportunities for Whirlpool. Whirlpool of India's long-term outlook for growth and margins are both in the high single digits, making India very attractive to operate in. At the same time, this financial profile has created a very strong local public market valuation. Turning to Slide 12, I will review our 2024 guidance, which includes the Europe major domestic appliance business only for the first quarter of the year. We have provided a reset baseline for 2023 results excluding our Europe major domestic appliance business from Q2 through Q4 of 2023. The reset baseline excludes approximately $2.6 billion net sales and approximately $33 million of EBIT, creating a like-for-like comparison for 2024. On a like-for-like basis, 2023 net sales were approximately $16.9 billion, with ongoing EBIT margin of 6.8%. We expect flat 2024 net sales, including $700 million of sales from the EMEA major domestic appliance business in Q1, and flat EBIT margin year-over-year on a like-for-like basis. We expect 2024 free cash flow of $550 million to $650 million, a 50% to 75% increase, driven by improved earnings and working capital reduction. We expect full year ongoing earnings per share of $13 to $15, including an adjusted effective tax rate of 0%, an increase compared to 2023, which impacts 2024 earnings per share by approximately $1.

Turning to Slide 13, we show the drivers of our full year 6.8% ongoing EBIT margin guidance. We expect a negative impact of 150 basis points to 175 basis points from price/mix. This reflects the first half of 2024 carryover effect as the promotional environment normalized in the second half of 2023. We also expect continuing softer mix and discretionary demand in the first half of 2024 from historically low existing home sales, partially offset by new product introductions. As we drive further reductions to our cost structure, we expect approximately 175 basis points of net cost margin benefit from $300 million to $400 million of cost takeout actions. We expect minimal to no impact to EBIT margins from raw materials this year based on recent commodity trends and executed supply agreements. We plan to continue a strong cadence of new product introductions, with investments in marketing and technology impacting margins by approximately 25 basis points. Finally, we expect our portfolio transformation to provide approximately 75 basis points of margin improvement as we contribute the margin dilutive European major domestic appliance business to the newly formed company. On Slide 14, I will provide context on our significant cost takeout opportunity. We experienced unprecedented cost inflation of approximately $2.5 billion in 2021 and 2022. In 2023, we were able to drive $800 million of cost takeout, which is a significant step in resetting our cost structure. We expect to further reduce our costs by $300 million to $400 million this year. 2024 will benefit from $100 million of cost actions taken last year. We expect $100 million to $200 million of additional cost takeout with our manufacturing and supply chain operations, benefiting from ongoing productivity initiatives and reduced complexity as we enter 2024. And we also expect $100 million of second-half benefit as our ongoing portfolio transformation allows us to simplify our organizational operating model.

Turning to Slide 15, I will introduce our new segment reporting structure effective January 1, 2024. We have updated our reporting structure with the anticipated closure of the Europe transaction. Our regional operating segments historically included the results of our KitchenAid small domestic appliance business in the geographical regions they operated in. We will now only report the major domestic appliance businesses within their respective regions. We will now report our global KitchenAid small domestic appliance business also known as SDA, as a separate segment. This business has an iconic brand and premium products with a reputation for performance and quality, perfectly fitting our vision of being the best kitchen and laundry company. We will continue to have strong brand synergies between the small domestic appliance and major domestic appliance product portfolio. The regional MDA businesses will have margin profiles 30 basis points to 40 basis points lower than the previously reported figures due to SDA reporting as its own segment. On our Investor Relations website and yesterday's 8-K, we have provided recast quarterly results for 2021 through the third quarter of 2023 reflecting our $1 billion SDA business with its strong 15%-plus margins. Turning to Slide 16, I will review our new segment guidance.

Starting with industry demand, we expect a dynamic global industry to be flat to up 2%. We expect to see similar demand trends in the US that we saw in the second half of 2023, with resilient replacement demand creating a solid footing for industry volumes and consumer discretionary demand continuing to be impacted by elevated mortgage rates driving down existing home sales. Overall, we expect MDA North America to be flat to slightly positive as well as we expect the MDA Latin America industry to also be flat to slightly positive. India has one of the fastest growth rates globally and we expect MDA Asia industry volumes to accelerate by 4% to 6%. While we expect the SDA Global industry to be up 2% to 4%, we want to preface this guidance with the fact that KitchenAid is largely present in the premium segment and also not in all SDA categories. Finally, we expect demand contraction of negative 8% to 6% in the first quarter for MDA Europe from continued negative consumer sentiment. For MDA North America, we expect to deliver full year margins of approximately 9%, with promotional carryover negatively impacting first-half margins and elevated channel inventories impacting first-quarter demand. We expect approximately 50 basis points to 75 basis points of sequential margin expansion every quarter and to exit 2024 with EBIT margins of approximately 10%. For MDA Latin America, we expect EBIT expansion and strong margins of 6.5%, with cost takeout actions and improved consumer sentiment. For MDA Asia, we expect margin expansion to approximately 3% EBIT margins. For SDA Global, we expect very attractive EBIT margins of approximately 15.5%. Lastly, we expect MDA Europe to deliver approximately 1.5% margins in the first quarter. And overall, expect an ongoing total EBIT margin of 6.8%.

Turning to Slide 17, let me provide you with additional detail on our US industry expectations. Replacement demand drove industry growth in 2023 and we expect this trend to continue into 2024. The last four years of elevated usage is shrinking the historical average life of appliances, coupled with an installed base from 2015 through 2017 that grew 4% to 5% and is nearing replacement. This is driving replacement demand to approximately 60% of industry volumes. We expect to continue to drive value creating share gain in 2024. With housing starts trending higher in the second half of 2023, Whirlpool is disproportionately positioned to benefit from new construction demand. Forecast for 2024 are calling for low- to mid-single digit growth in housing starts, most likely benefiting Whirlpool in the second half of 2024 or early 2025. For every 5% increase in new construction, we could see approximately $100 million impact with our leading builder share. Finally, discretionary demand, which accounts for approximately 25% of total industry volumes is driven by existing home sales, which are coming off their worst year since 1995 and are expected to improve in the back half of 2024 as interest rates moderate.

Turning to Slide 18, I will share further perspective on 2024. We expect soft discretionary demand and higher retail inventory levels to weigh on total industry expectations in the first half of 2024 with a more pronounced impact on Q1. We expect 2024 promotional activity to be at similar levels as the second half of 2023, creating a margin headwind to the first half of the year. We expect cost actions from 2023 to benefit the first half of 2024, while additional cost actions ramp up. Additionally, the demand and earning seasonality of our SDA Global business varies from our major domestic appliance business. It delivers approximately 75% of its demand and profitability in the second half of every year, with consumers favoring small domestic appliances as gifts and increased baking activities in the fall and holiday season. Overall, we expect to deliver approximately 35% to 40% of our earnings in the first half of the year.

Turning to Slide 19, I will provide the drivers of our free cash flow guidance. We expect improved cash earnings of approximately $1.1 billion to $1.2 billion. We expect approximately $600 million of capital expenditures as we continue to invest in our products and fund organic growth, including our plans to launch over 100 new products in 2024. We plan to improve our working capital conversion by approximately $100 million largely through inventory reductions. We expect approximately $50 million of restructuring cash outlays related to previously executed actions and complexity reduction with our simplified organizational model after the Europe transaction. Overall, we expect to deliver free cash flow of $550 million to $650 million, or approximately 3.5% of net sales, including approximately $200 million to $300 million of cash consumption for MDA Europe business operations prior to the closure and one-time charges.

Turning to Slide 20, I will review how we are well positioned to deliver our 2024 capital allocation priorities. We have a solid balance sheet with $1.6 billion of cash on hand coupled with $550 million to $650 million of 2024 expected free cash flows, plus anticipated $400 million to $500 million of proceeds from asset sales, as we previously announced our intention to sell a portion of our interest in Whirlpool of India and recently signed an agreement to divest of our Brastemp branded water filtration business in Brazil. As you can see, we are well positioned to deliver our clear capital allocation priorities for 2024. Last year marked the 68th consecutive year of steady or increasing dividends from Whirlpool. Subject to Board approval, we expect to pay dividends of approximately $400 million. We are committed to maintaining our strong investment grade credit rating and reducing our debt by at least an additional $500 million. We expect limited share buybacks to offset share dilution. Finally, we are committed to funding innovation and growth with capital expenditures plus research and development of approximately 6% of net sales. Turning to Slide 21, you can see our commitment to deleveraging our balance sheet. As a reminder, in 2022, with the acquisition of the value-creating InSinkErator business, we increased our debt by $2.5 billion in term loans. Compared to 2022, we expect at least $1 billion of debt reduction by the end of this year. With the combination of strong free cash flows expected in 2025 in the first full year following the close of the Europe transaction and our product innovations delivering earnings expansion, and beginning to realize the free cash flow benefits of our adjusted effective tax rate, we are confident in our ability to further reduce our net debt leverage to approximately 2 times by 2026. Now, I will turn the call back over to Marc. Thanks, Jim. Turning to Slide 23, let me provide an update on our Europe transaction. As I mentioned in our third quarter earnings call, we passed major regulatory milestones with the approvals from the European Commission, Germany, Austria, and China. The UK's Competition and Market Authority is in the process of conducting a Phase 2 review of the transaction. We are continuing a constructive dialogue with the CMA about the newly formed company that will benefit consumers. And we continue to expect the transaction will close by April. Turning to Slide 24, let me recap what you heard today. We will further improve our cost structure and are confident in our ability to deliver $300 million to $400 million of cost takeout. Our portfolio transformation to a higher-growth, higher-margin business continues to progress. The Europe transaction will meaningfully accelerate our structural free cash flows by approximately $200 million to $300 million in 2025. We have clear capital allocation priorities, including strong dividends and reducing debt leverage, supported by a flexible balance sheet with $1.6 billion cash on hand, along with strong 2024 cash generation. We're confident in the trajectory of our business and our portfolio transformation to deliver sustained shareholder returns. Finally, I will close on Slide 25 with an invitation to join us at our 2024 Investor Day on February 27th at the New York Stock Exchange. We look forward to hosting our first Investor Day since 2019. We plan to review how our portfolio transformation is creating a very different Whirlpool, positioning us towards higher-growth and higher-margin business. We're excited to review our growth and margin expansion opportunities for our MDA North America business, we will highlight the rich history of our premium KitchenAid SDA business, in addition to introducing the remainder of our 2026 value-creation goals. We hope to see you there. Now, we will end our formal remarks and open it up for questions.

Your first question comes from Sam Darkatsh from Raymond James. Your line is open.

Good morning, Marc. Good morning, Jim. How are you?

Hello. Good morning, Sam.

Good morning, Sam.

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

Sam, it's Marc. Let me start with the raw material question and then address the margin question. First, as you know, our primary raw material purchase is steel, followed by resins in various forms. This can be broken down further into smaller elements. In 2023, we experienced a positive impact from raw materials, but currently, we are projecting minimal effects moving forward. Steel remains the main driver, and we do not have formal hedging contracts for steel. Instead, we typically have contracts with individual regional steel suppliers, primarily on an annual basis, particularly in the US, while in Latin America it's less consistent, and Europe also predominantly follows annual contracts. These contracts give us a high level of confidence in our raw material projections, as they are largely locked in now. Negotiations for these contracts typically occur in November and December and are based more on rolling averages and various assumptions rather than immediate spot prices. With most of these contracts finalized, excluding those in Latin America, we anticipate very little variation in steel prices. Therefore, we are quite certain about this key component. Regarding the second component, resins, these are evaluated on a quarterly basis, and there is an element of oil price assumptions, which can have more variation, though it remains much smaller compared to steel. Overall, we believe we are either contractually secure or have reasonable assumptions for plastics for the full year.

Got it. And then, the North America margin question, so what was the fourth quarter '23 North America margin excluding small appliances? And what is your assumed '24 exit rate for North America major appliances versus the 9% annual guide? Thanks.

In the fourth quarter, we reported a North America margin of approximately 8.4%. When considering the full year, KitchenAid typically affects our margin by about 40 basis points in North America. There is some seasonality with KitchenAid, particularly in Q3 and Q4. If we remove that factor, we were exiting 2023 with a North American margin of around 8%, which is about 1 percentage point lower than our target. We are guiding for a full year margin, excluding KitchenAid, of 9%, and we also mentioned our expectation to exit 2024 with a North American margin of approximately 10%.

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

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

Good morning, Michael.

First, I would like to understand your thoughts on the promotional landscape and timing in North America MDA as we move through 2024. I know you mentioned that, on a consolidated level, you anticipate a negative price/mix in the first half and a flat performance in the latter half. However, I would like to grasp how you see 2024 unfolding in terms of gaining market share, especially since you noted an additional point of share in the fourth quarter, and how you plan to navigate the promotional environment as it evolves. Part of my question is regarding how you would handle an increase in promotions in the short term compared to your goal of regaining market share.

Michael, it's Marc. Let me address your question by first reflecting on Q4 in North America, as it presents several challenges and opportunities. Looking back at Q4 '23, particularly in North America, the amount we invested in marketing and promotions was consistent with pre-COVID levels. The key difference is that the increase in discretionary demand was quite limited. In retrospect, the return on investment for some of our promotions did not align with our expectations. As we've mentioned before, we aimed for value-creation promotions, but in hindsight, some did not achieve that standard due to the restricted discretionary demand in the market, which disrupted the overall balance and resulted in some margin decline in Q4. As we consider '24, we typically refrain from providing forward-looking comments on pricing, but our main focus remains on expanding margins. Currently, our exit margins are below our targets. We are concentrating on margin expansion by utilizing all available strategies, including reducing costs, pricing adjustments, managing our product mix, and introducing new products. We feel positive about our share gains, and the current share level provides a strong foundation for our continued focus on margin expansion in the foreseeable future.

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

Sure, Mike, I can address that. Firstly, aside from the supplementary information, we will provide a more detailed overview on February 27th during our Investor Day, where we will delve into the history of KitchenAid, the margin trends, and seasonality. So, you can expect more insights into your question then. At a high level, the seasonality is consistent with what you mentioned, with a greater concentration towards the latter part of the year around the holidays. However, there are also key holidays in the first half that are significant for KitchenAid, and we manage those accordingly. As for the broader margins, which we will detail in the upcoming supplement, we anticipate them to be at 15.5% for 2024, slightly up from 2023. Historically, the multi-year KitchenAid SDA margin hovers around 15% EBIT, indicating it is a robust and margin-enhancing business, which we aim to expand significantly in the future.

Yeah, Michael, I think the other thing to highlight, you'll see in all the supplemental materials we provided, is really if you look at the historical run rate of the business, it has been around $1 billion-plus and 15.5%. And so, some of the information that we did provide, obviously showed a time period when that business benefited from some of the trends that were going on during COVID. But I'd say today what Marc highlighted in there, the size and all that is really more representative of what the trend that business has been on and why we were excited about the growth in the margins we have within there.

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

Thank you. Good morning, everyone.

Hi, Susan.

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

Yeah, Susan. So, this is Jim. And I think the thing you've got to look at there is as we talk about the cost takeout is, you saw this year, to begin with, we significantly invested in technology and engineering and in our products, and you saw that in our overall walk. And so, if you really look at how that $300 million to $400 million breaks down, the first $100 million of that is just cost savings we already implemented this year that are in areas that don't affect our ability to grow and drive innovation. Then, we talk about maybe the next $100 million to $200 million within there, and that's really driving efficiency both within our supply chain, our factories, and that comes from ongoing initiatives that we have that are just to become much more efficient in terms of how we manufacture or much more efficient in how we get product to our consumers in the end. And so, again, those are not areas, those don't affect the investments that we make. And then, if you think about the third bucket there that we've talked about is really SG&A reductions from a simplified organizational model. That also is just us looking at how we operate as a company and how we operated in the past within a much larger business, including EMEA, how do we simplify it? How do we make it more effective? Our investments within our products, whether it be engineering or capital, will actually be relatively consistent to even up this year. So, the areas where we're cutting cost are not the areas that affect our ability to deliver growth and innovation. We're actually invested. What we are is we're reducing cost in other areas, so we can invest more in those areas.

So, Susan, to reiterate what Jim mentioned, we have been and will continue to invest significantly in new products and brand initiatives. Last year, despite various pressures, we invested 75 basis points more in new product marketing and technology. We plan to maintain this investment strategy in 2024. As you’ve noted in our capital plans, we are ready to invest in new products because they are essential for our company’s future growth. At the same time, we are conscious of the need to generate funds for these investments. These funds will come from carryover actions and manufacturing efficiencies. After the Europe transaction is finalized, we will have a simpler business structure and will reassess our SG&A costs to leverage this streamlined approach without the complexity of our current setup.

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

Yeah, Susan, so this is Jim. And listen, here's what I would say. As we talked about within our numbers, the overall cash flow guidance for the year that will reduce working capital by about $100 million at a minimum. I think what you'll see is you'll see some of that come more probably within the second and third quarter, as we just look at where things are, because we did already talk about that retailer inventory levels at the beginning of the year were higher than we anticipated. And so, obviously, we believe that will put some pressure on shipments in the first half of the year, and our goal is to make sure we keep our inventories in-line with the shipments, but then begin to reduce those inventories as we have the opportunity, but also then as we expect to see sales ramp up a little bit later in the year. So, I would say, not necessarily in the first quarter, but more in the middle half of the year is when you should expect to see us reducing inventories.

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

Yes. Good morning, everyone. Thanks for taking the questions.

Hey, David.

Hi, David.

Hey, good morning, guys. Can you talk a little bit about the market share gains and at what price points? And was this really just a recovery of some of the share that you lost during the pandemic or do you think it might have been incremental with a different consumer or the different price point? And how does all this kind of mesh with what the consumer is doing right now in terms of mixing up or mixing down?

Certainly. We achieved a full year gain of 1.1 points in North America, which is notable because it's spread across several product categories rather than being limited to just one. This broad growth was supported by the introduction of several new products. Additionally, we experienced significant share growth in the National Builder segment, although the overall market softness means this growth isn't fully apparent yet. While I can't point to any specific price points that contributed to our market share gain, it's important to note that the current market conditions are heavily influenced by the replacement market. Currently, 60% of our sales come from this segment, which traditionally has a lower margin profile than discretionary purchases. Customers in replacement situations often have specific needs and limited time to make decisions, leading to lower margins. Therefore, the replacement-driven nature of the market doesn't necessarily improve our price/mix relative to earlier periods.

Got it. Thanks for that. And then, just as a follow-up, I want to go back to the $300 million to $400 million cost reductions. I guess my question is really clarification. This is a net number, right? It's net of any inflation in your non-raw material variable costs and fixed costs? In other words, your gross number...

Yes, David. Yes, this is a net number like we always put on the net cost line. And so, again, yeah, it takes more in gross actions to get to this number as we have to offset inflation in certain areas and especially in some of our higher-growth, emerging markets outside the US, but this is a net $300 million to $400 million.

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

Good morning. Thanks for taking my questions.

Good morning, Michael.

So, follow-up on the inventory comments. When you look at where retail inventory ended up, I guess, two-part question, is there any specific category that saw outsized inventory growth that you need to now work down? And then, do you think Whirlpool was effectively in-line with the industry as far as the inventory build? Is that kind of a Whirlpool-specific comment? Is that an industry comment? How do you think you shake out versus the market in terms of where inventory position ended the year?

I'll start here and let Marc add some insights. To begin with, I don't see any specific category that stands out significantly across the board. As we concluded the year and observed the holiday sell-through, it seems consistent across many categories. Therefore, I don't think there is a major difference for us in this regard. Regarding whether this is a Whirlpool-specific issue, I would say no. When you look at the broader industry and retailers, this situation is not unique to Whirlpool. As you may have noticed, many of our competitors have started to address this issue, and there's a common narrative indicating that the retail environment currently has higher levels of inventory than expected. Thus, from the information available publicly, I don’t believe this is a problem that disproportionately impacts us.

Mike, to provide a bit more detail on what I mentioned earlier, the sell-through in Q4 North America was lower than anticipated. This was largely due to a decrease in discretionary demand, which affected the profitability of marketing promotions and resulted in higher inventory levels for our retailers compared to our expectations. As Jim noted earlier, this will likely have some effect on shipments in Q1 and possibly a smaller impact in Q2. While we don't have exact sellout data from our competitors, it's clear that this is not an issue limited to Whirlpool; it's a widespread situation across the industry. Currently, we are facing some inventory surplus as we enter Q1, but we believe we will manage this effectively.

I appreciate that clarification. Thank you. My second question, directed to either Marc or Jim, concerns the free cash flow guidance. Specifically, I see that the expectation for cash earnings and operating items is between $1.1 billion and $1.2 billion for fiscal 2024, and you anticipate EBIT to remain around $1.15 billion, which was the same as last year when you recorded $910 million in cash earnings. It appears that your interest expense and cash tax have remained constant compared to last year. Given that EBIT remains unchanged year-on-year, could you explain what factors are contributing to an increase in cash earnings in 2024 and how those relate to the conversion of cash earnings relative to EBIT?

Yeah. So, Michael, this is Jim. And really there's two components that go into that line. It's your actual earnings, which as you pointed out are relatively flat and that does make sense. And then, the other one that's always hard from the outside to really kind of look at is that we have a lot of other operating accounts that are on our balance sheet, such as accruals for promotional spend, such as accruals for employee compensation in other areas. And actually, when we look at the end of this year versus the end of 2023 versus the end of 2022, what we saw is that because 2022 was a really strong year, you had a lot higher payouts on some of those areas within the beginning of 2023, that negatively affects cash. And when you come through a negative year that you don't have as higher payouts in some of those areas, it gives you a positive in the next year from an operating cash flow perspective. So, it's a good question in that it doesn't really become apparent, but that's the biggest driver within that bucket that you will see. Then, also, throughout the year, there are just some non-cash items that affect that differently here and there. But that's the biggest drivers. The change is in those other types of accruals that don't necessarily sit in working capital.

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

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

Jason, it's Marc. Given our significant presence in the Americas, the impact there is minimal. There have been some delays in East Coast shipments, primarily affecting timing rather than costs, with a delay of one to two weeks. This could eventually have an impact on our European operations. Currently, Europe remains in good condition, but there's some uncertainty regarding the European supply chain, which is less pronounced than for North America. Container costs have been relatively stable for us, especially after experiencing extremely high rates during the COVID and post-COVID periods, which have since normalized. The overall effect of this change is limited. It's also worth noting that, compared to our competitors, our production is primarily based in North America and the Americas, making us less susceptible to container cost fluctuations than most of them.

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

Yeah. So, Jason, I mean, first of all, split into two pieces. There's finished products and there's components. On finished products, our exposure is relatively small. We import microwave food combination and some refrigerators into the Americas and into Europe, and some dishwashers also into Europe. So, on finished products, it's actually, frankly, in particular for Americas, not a very big number. Components, in particular in electronics, you have exposure, like everybody else, to China or broader Asia, I would say, because it's not just China, it's also Vietnam, Thailand, et cetera. Again, back to my early comments, in the competitive landscape, we're by long shot, the least exposed to China. And it's just because of our historic strong footprint in the Americas, our focus on producing in Americas and sourcing from Americas, except for electronics where you just have a limited supply base in the Americas.

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

Thanks. Two questions. I'll give the both to you. The first is the other half of the free cash flow question, I understand the bridge within the cash earnings. Can you just give us a little bit of context of the $200 million to $300 million Europe cash usage that is alluded to in that slide? I just don't exactly know where that fits within the moving pieces. And then, the second question relates, Marc, you talked a lot about the focus on margin progress, the flat margin in 6.8%. Related to that, I guess, the core of it is that you still have this 11% to 12% long-term margin guide, and just wanted to see if that is the number that you're still aspiring to and aiming to. Thank you.

Yeah. So, Eric, this is Jim, and I'll start with your first question there on EMEA. And typically, if you'd looked within a full year, EMEA over some of the past years has consumed around $200 million of cash and whether it's due to restructuring, it's due to some legacy liabilities and matter to the operations of the business. Now, as we look to close the transaction in the Q1 of the year, typically, that negative cash flow actually did occur much earlier in the year and then they would gain cash throughout the year. So, to begin with, they start the year with a negative cash flow as they begin to build some working capital. The second piece of that though that comes along with it is that also within there, we have some various working capital financing type of programs that are related to accounts receivable and other things that we will unwind as we do this transaction and then as we contribute this business to the new company. There will be other things that might exist within there, but there are just some things we need to unwind as we go through the process. So right now, we look at it as possibly having an impact at least on our cash flow for the year of a negative $200 million to $300 million. But once we get closer to the close, we'll update that number.

And Eric, to add a comment to Jim's point, the $550 million to $650 million cash flow, excluding Europe, would convert to over $800 million on a normalized basis. This is because we need to unwound working capital financing activities and other factors. Regarding your second point about margin progress, I also want to mention our upcoming Investor Day where we will provide updates about our segments and our mid and long-term value-creation goals. In short, Eric, we believe that the margins we experienced before COVID are still achievable. Specifically for North America, we have historically operated with a 12% or better operating margin, and we believe this is possible again. Currently, we are navigating a tough macroeconomic environment, as the existing home sales have significantly dropped from over 6 million units to 3.7 million, which directly affects us. However, we know how to manage through these cycles, and we are confident that we can restore the margins we had before. We will discuss this in more detail at our Investor Day. As we near the end of our session, I want to thank everyone for joining us today. We feel positive about our market share and our ability to reduce costs, as demonstrated in 2023 and as we expect in 2024. We are also progressively strengthening our balance sheet and funding perspective. These factors position us well to cope with the negative macro cycle impacting the industry, particularly in the first quarter and likely into the second quarter. However, we are starting from a strong foundation and have effective plans to create a robust business, especially in the latter half of 2024. Remember, on February 27th, you will gain more insights, particularly regarding our North America business and our KitchenAid SDA business, which we haven't highlighted much before, along with discussions on balance sheet and cash flow development. Looking forward to seeing you all on February 27th. Thank you.

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