Whirlpool Corp /De/ Q1 FY2024 Earnings Call

Good morning, and welcome to Whirlpool Corporation's First Quarter 2024 Earnings Call. Today's call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; and Jim Peters, our Chief Financial and Administrative Officer. Our remarks today align with a presentation available in the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that during this call, we will be making forward-looking statements to help you understand Whirlpool Corporation's future expectations. Our actual results could vary significantly from these statements due to various factors discussed in our most recent 10-K, 10-Q, and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures that are detailed at the beginning of our earnings presentation. We believe these measures are essential indicators of our operations as they exclude items that may not reflect our ongoing business performance. We think the adjusted measures will provide a better baseline for analyzing trends in our ongoing business. Listeners are directed to the supplemental information package on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. Now, I will turn the call over to Marc.

Thanks, Scott, and good morning, everyone. I'm pleased to report that despite a challenging macro environment, we reported a solid first quarter, in line with our expectations, and we're on track to deliver on our full year guidance. This quarter marked the completion of our EMEA transaction following the U.K.'s CMA approval. It is a major milestone in our portfolio transformation initiative to a higher growth and higher-margin business, unlocking significant value creation opportunities for Whirlpool. As expected, the North America industry volumes were soft during the first quarter as promotions remained elevated on the back of persistently high interest rates, which continue to put pressure on housing affordability and overall consumer discretionary spending. Against this backdrop, we were highly selective with how we promoted and pulled back on promotions that were not value-creating, and we did so while maintaining our market share position. We also remain disciplined and execute towards our operational priorities, achieving meaningful cost reductions in the quarter. Looking holistically at our business portfolio, we had a strong quarter in our small domestic appliance business, where we saw top line and margin expansion. We continue to innovate in this business and launch our automatic Espresso machine product lineup. Outside the U.S., our Latin America and Asia business performed very well, and we continue to see meaningful long-term potential from these businesses. In the quarter, we also executed on the announced sale of our 24% stake in Whirlpool of India, retaining 51% ownership. We remain firmly committed to returning value to our shareholders and continued our nearly 70-year track record of steady or increasing dividends by recently declaring a dividend of $1.75 to be paid in the second quarter, putting us on track to deliver $400 million of dividends for the year. We also continue to derisk our balance sheet and are on track to achieve our long-term leverage targets. We remain committed to our long-term free cash flow goals and fully expect free cash flow to ramp up throughout the year from our seasonal low in the first quarter and with the closing of the European transaction. As we look to the year ahead, we continue to view 2024 as a tale of 2 halves. In particular, we expect the promotional environment in the U.S. to remain elevated in the first half of the year, a carryover impact from last year. However, we will be comping high promotions in the second half of the year. We announced the North America promotion program price increase of 5%, which is now in effect to offset inflationary pressures, which would also benefit our top line. We do see value in our products and expect the benefits from this action to positively impact the second half of 2024. Our positive view of the U.S. housing market remains unchanged. Given the current undersupplying of 3 million to 4 million houses in the market, we remain very bullish on the trajectory of the housing sector and its medium- and long-term prospects. We're clearly well positioned to benefit from a coming housing rebound given the high correlation between existing home sales and appliance sales. We have a strong position with the builders as we work with 8 out of the top 10, holding the #1 share position with builders, which we expect to continue to grow. Importantly, we have a very strong product pipeline for 2024, and we continue to invest in new product development as we laid out at Investor Day. We're particularly excited about the new products that we're rolling out this year, more to come there. We also remain focused on maintaining cost discipline and are taking actions to increase cost takeout in the second half of the year. While we're seeing sticky inflation, especially in our supply chain costs, these actions should put us on the path to deliver $300 million to $400 million in cost savings, excluding any raw material savings. Overall, I'm confident where we're taking the right steps to drive long-term shareholder value, and are on track with both our short-term goals as well as with our long-term strategic plans that we outlined at our recent Investor Day. We are exiting the first quarter on solid footing, and we continue to expect meaningful progress in the remainder of the year. The actions we have taken give us the confidence to reaffirm our full year guidance of $13 to $15 ongoing earnings per share. Turning to Slide 5, I will provide an overview of our first quarter results. Net sales declined approximately 3% in the quarter. As we said in our January earnings call, the carryover of the second half 2023 normalized promotional environment unfavorably impacts price/mix in the first half of 2024. In North America, we held on to the market share we gained last year. At the same time, MDA Latin America saw strong share gains along with improved industry demand for the prior region. Our prior year carryover cost actions delivered as expected, $100 million of year-over-year cost takeout in the first quarter. As previously noted, the sticky inflation impact on supply chain costs, we experienced a slower start to our incremental cost actions, leading us to trend towards the lower end of a $300 million to $400 million range for cost takeouts at this time. We delivered ongoing earnings per share of $1.78 with ongoing EBIT margins of 4.3%, including the margin-dilutive MDA Europe business. Excluding Europe's major domestic appliance business, we delivered ongoing EBIT margins of approximately 5.5%. As you may recall, we expect this transaction will structurally improve our margins by approximately 100 basis points on a go-forward basis. The results were largely in line with our expectations, but not fully the way we expected due to the challenging North America macro environment. Free cash flow was negatively impacted by nonrecurring cash outflows associated with the MDA Europe business of approximately $250 million to $300 million, reaffirming our expectation that the Europe transaction will strengthen our 2025 free cash flow delivery. Finally, 2024 marks the 69th consecutive year of dividends, with $1.75 per share paid in the first quarter. Turning to Slide 6, I will review our first quarter ongoing EBIT margin drivers. Price/mix impacted margin unfavorably by 375 basis points. For context, this is similar to what we saw in the second half of 2023. We expect this trend to improve as a result of recently announced increase of our promotion price programs in North America. Our cost takeout actions delivered 225 basis points margin expansion through strong realization of prior year carryover actions, as previously mentioned. As you have all seen, raw material costs have recently trended upwards. Steel remains stubbornly high and geopolitical tensions are impacting oil prices. While not meaningfully impacting margin in Q1, we continue to closely follow commodity trends, which could potentially put pressure on our raw material guidance. Finally, we saw approximately 50 basis points favorable margin impacted largely from a strengthening peso and Brazilian real. Ultimately, we delivered ongoing EBIT margin of 4.3%. Now I will turn it over to Jim to review our segment results and full year guidance.

Thanks, Marc. Good morning, everyone. Turning to Slide 7, I'll review first quarter results for our MDA North America business. With stable share, revenue was down 8% year-over-year as the segment continued to be impacted by the promotional environment. The U.S. industry was down approximately 2%, with elevated mortgage rates impacting existing home sales and discretionary demand. Overall, the segment delivered 5.6% EBIT margins for the quarter. While the MDA North America business had a slower start than expected, we are confident that previously announced promotional program actions will drive sequential margin expansion of over 1 point per quarter, with pricing action benefits being fully realized in the third quarter. Turning to Slide 8, I will review the broader cost environment and how sticky inflation has led to a slower ramp-up in incremental cost benefits in 2024. As you may recall, beginning in 2021 and continuing through 2022, we experienced unprecedented inflation and absorbed $2.5 billion of raw material inflation along with rising labor and freight costs. In 2023, we delivered our cost takeout actions, driving approximately $500 million of net cost takeout coupled with $300 million of raw material benefits. We took a significant step towards resetting our cost structure. However, we have seen inflation persist more than expected in 2024 and our input, logistics and labor costs remain elevated. Despite the macro environment, we delivered approximately $100 million of cost takeout in the first quarter, supported by strong carryover from 2023 actions. We expect to see our manufacturing and supply chain cost actions continue to ramp up throughout the year. With the EMEA transaction finalized, this allows us to simplify the complexity of our organization operating model globally. We executed the first wave of our global actions in the first quarter, and we'll begin to see the margin benefit in the second quarter. Additionally, the second wave of actions will be executed in Q2, and we will see the full impact of the organizational simplification efforts in Q3. Both waves combined eliminate approximately 1,000 global salary roles. We remain confident these actions will position our business to be successful now and into the future. Turning to Slide 9. I will share more about our actions to expand margins in North America. In the first quarter, we saw a promotional environment in the U.S. similar to what we saw in the second half of 2023, without the incremental volume lifts we would expect. It is clear the current level of promotional investments is not achieving our value creation expectations. We remain committed to creating value with our promotional participation, and we are acting to address both the sticky inflation and promotional intensity. As Marc mentioned earlier, we announced a weighted average 5% promotional program price increase. We believe these promotional program actions are in line with our strategy of participating in promotions that create value and reflect the value of our products and brands. By adjusting our promotional programming prices, we are able to quickly and efficiently increase net prices with relatively little lead time. To provide a little context, we communicated and implemented these program changes in the month of April as opposed to our previously executed list price increases, which typically takes 60 to 90 days to implement. These promotional program changes, coupled with our company-wide organization actions, are expected to deliver sequential margin expansion for North America throughout 2024. Starting on Slide 10, I'll review the results for our MDA Europe business. Revenue was down 5% year-over-year as the segment continued to see demand weakness from negative consumer sentiment. EBIT margins decreased 50 basis points year-over-year impacted by negative price mix. As a reminder, MDA Europe will no longer be a reportable business segment moving forward. Turning to Slide 11. Our MDA Latin America business reported very strong results in the quarter. The segment saw 8% net sales growth, excluding currency, driven by share gains throughout the region and an improving industry in both Brazil and Mexico, more than offsetting unfavorable price/mix. EBIT margins expanded to nearly 8% from incremental volumes, cost actions and approximately 200 basis points from an operating tax-related item. Turning to Slide 12, I'll review the solid results for our MDA Asia business. Revenue was down 2%, excluding currency, with increased volumes from share gains. Negative price/mix impacted both sales and margins, with cost takeout actions driving margin expansion to 4.6% for the quarter. Turning to Slide 13, I'll review the very strong results for our SDA Global business. The segment delivered approximately 7 points of net sales growth, excluding currency, driven by key countries and our direct-to-consumer business. We expect continued net sales momentum from our expanded product offering throughout the year. As a reminder of the seasonality for the SDA segment, the first quarter typically represents less than 20% of full year revenues. Finally, we achieved 18% EBIT margins through our cost actions, new product introductions and volume growth. We expect our first half margins to be in line with or slightly better than what was communicated at Investor Day as we will have incremental marketing investments in Q2 related to new product launches. Turning to Slide 14. I will review a few of our exciting new product launches across our business segments. During Q1, we launched many new products across our regional major domestic appliance businesses and global small domestic appliance business. Earlier this month, we launched and showcased our new semi and fully automatic KitchenAid espresso machines at premium retailers, providing a product lineup offering in one of the categories with the highest growth potential based on current market trends. You no longer have to be a barista to make a high-quality espresso at home. Our new lineup of espresso machines offers quality performance, versatility, unique features and a beautiful design, all coming from a brand that has been trusted in the kitchen for over 100 years. We also introduced our KitchenAid grain and rice cooker with an integrated scale and water tank that automatically senses the amount of grains, rice or beans and dispenses the ideal amount of water. I am extremely pleased to share that these products won multiple awards, recognizing their design from Red Dot and IF. SDA Global continues to expect strong growth in margins from new product introductions. Within North America, for homes with pets, we launched our first Maytag Pets Dishwasher. Using the PetPro Sanitation cycle, you can now conquer pet grime in your pets' bowls like a pro. Finally, as an example, one of the many regional product launches, in Latin America, we launched a freestanding range with the most powerful burner in the value segment, redefining what is accessible to consumers. These are just a few examples of how we are investing in our future growth and innovation to improve life at home. Turning to Slide 15. Let me remind you of the benefits expected following the closure of the Europe transaction. Whirlpool now owns 25% of a newly formed appliance company, Banco Europe BV. From a governance perspective, we have 2 of the 6 board seats. We expect to participate in the significant efficiencies that Banco will generate, including sustained productivity building upon already established purchasing capabilities and continued commitment to product design, innovation and sustainability. We have the potential to unlock long-term value creation through our ability to monetize our minority interest at an estimated net present value of $500 million. Even though we envision a long-term profitable relationship with Arçelik, the shareholder agreement includes a number of exit options at predetermined parameters after 5 years. Our 40-year Whirlpool brand licensing agreement is expected to generate predictable cash flows of more than $20 million per year. Overall, we expect $750 million net present value of future cash flows and approximately $250 million to $300 million of incremental free cash flow expected in 2025, with the absence of the cash-consuming MDA Europe business. We are excited to have achieved this milestone in our portfolio transformation that significantly progresses us towards a higher growth, higher margin business. Turning to Slide 16, I will review our full year 2024 guidance. We are reaffirming our ongoing earnings per share range of $13 to $15 and free cash flow guidance of $550 million to $650 million. Additionally, our net sales guidance of approximately $16.9 billion, alongside approximately 6.8% full year ongoing EBIT margins remains unchanged. Although our MDA North America business had a slower-than-expected start to 2024, we are confident that we have the right actions in place to expand margins sequentially throughout the year. We expect second half MDA North America margins to expand approximately 4 points compared to the first 6 months of 2024. We still expect MDA North America full year margins of approximately 9% with an exit rate of 10% to 11%. We expect to deliver approximately 30% to 35% of our earnings in the first half of the year and continue to expect a full year adjusted tax rate of 0%, reflecting the benefits of the Europe transaction. We are updating our GAAP guidance to reflect noncash charges related to the Europe transaction. We continue to expect our full year GAAP tax rate to be approximately 25%. However, as we finalize the impact of the transaction, the GAAP tax rate may be materially impacted. Turning to Slide 17. Our free cash flow guidance remains unchanged. In the first quarter, working capital consumed approximately $600 million of cash. Accounts receivable was impacted by sales seasonality within the quarter with weak industry demand in January, while March ended stronger than March of 2023. Accounts payable were impacted by lowering production levels in the quarter as we took actions to match supply with demand. As we progress through the year, we expect to see accounts receivable and accounts payable recover to similar levels at the end of 2023, generating sequential free cash flow from working capital throughout the year. As we navigate the challenging macro environment in North America, we will continue to optimize our working capital. Overall, we continue to expect free cash flow of $550 million to $650 million. Turning to Slide 18. I will review how we are on track to deliver our 2024 capital allocation priorities. We continue to take actions to strengthen our balance sheet. In the first quarter, we completed the sale of 24% of Whirlpool of India's outstanding shares while retaining a majority interest. And the divestiture of our Brastemp branded water filtration business in Brazil is expected to close later this year. Combined, these 2 actions generate approximately $500 million of cash in 2024. With our first quarter dividend of $1.75 per share, and declaring the same for Q2, we are on track to pay dividends of approximately $400 million in 2024. Additionally, we repaid $500 million of our term loan in April, demonstrating our commitment to maintaining our strong investment-grade credit rating. We completed $50 million of share buybacks in the first quarter, offsetting dilution from employee compensation programs. As you can see, we are on track to deliver our 2024 capital allocation priorities. Now I will turn the call over to Marc.

Thanks, Jim. Turning to Slide 19, let me recap what you heard today. First quarter results were largely in line with expectations while navigating a challenging macro environment. We had a strong performance in SDA Global, MDA Latin America and MDA Asia. While we had a slower-than-expected start in North America, we continue to be well positioned to disproportionately benefit from a recovery in the U.S. housing market, with 8 of the top 10 U.S. builders under contract. We are and will continue to take action to address the macroeconomic environment, including the already implemented promotion program price increase of 5%. We expect sequential margin expansion to begin in Q2 and fully ramped up by the third quarter. With approximately $100 million of cost takeout delivered in the first quarter, we remain focused on delivering $300 million to $400 million of full year cost takeouts. We have already taken action on our company-wide organization simplification and the second wave will be completed in the second quarter. The EMEA transaction represents a considerable step towards a higher growth, higher margin business. The transaction is expected to meaningfully accelerate our structural free cash flows by approximately $250 million to $300 million in 2025. We have clear capital allocation priorities, including sustaining our strong dividend and reducing debt leverage, supported by strong 2024 cash generation. We are confident that we have right operational priorities and actions to navigate this dynamic environment and deliver sustained shareholder returns. And that concludes our formal remarks, and we will now open it up for questions.

Your first question comes from Susan Maklari from Goldman Sachs. I want to start by focusing on the North America MDA segment. You mentioned that you expect to achieve a 1% price increase every quarter in relation to the 5% promotional price increase that has been announced. What gives you confidence in that 1%? Does that seem conservative or aligned with your expectations? How do you anticipate volumes will respond to this? Also, can you help us understand how to transition from the 5.6% margin reported this quarter to the 10% to 11% exit rate you expect for this year?

Susan, it's Marc. So let me just comment on the North America margins and the pricing announcements which we've done. And first of all, maybe, which I think is beneficial for the broader audience, explain a little bit how pricing in North America is typically structured. First of all, starting out with the retailers set the consumer prices. So the way how we typically talk about prices towards retail and how we guided is there's typically 2 goalposts. One is what we call the MARP, manufacturers adjusted retail price, which tends to be the high mark, and there are promotion price programs. And they're typically tied towards corporate advertising, so there's a monitor incentive to stick to these prices. On our retail side, the vast majority of volume, typically about 70% is somewhat tied towards these promotion price programs. So what we have announced is a structural across-the-board increase of these promotional price programs of 5%. If you compare that to moving MARPs, there is a benefit of being able to move faster because it doesn't take a lead time, so it's in effect now. And it really affects the real business. So it's very relevant. In terms of timing, first of all, for Q2, even though it's now in effect, of course, you can't touch April anymore, so it starts touching May and Memorial Day and then July 4 and then it starts building from there. So that's just the sequence of how you get into the market. As a reminder, and this is typically to our successful price increase in the past, a 5% typically doesn't translate directly into 5% bottom line impact. There is some leakage because of the margin protection, but you typically would expect over time to be this 2% to 3% net price realization. So that explains the sequential move. So of that one in Q2, we expect about 1 point and then subsequently with similar elements. So that's a buildup of the range. Now the volume impact, of course, North America is a highly competitive market environment. But frankly, we feel very confident about our product, product launches as we evidenced over the last 15 months. We had solid share gains. We have a strong product pipeline, so we do believe our promotional pricing and the revised promotion pricing fully reflects the value which the consumer gets for it and what consumer is willing to pay for it. So actually, I think we're pretty confident, particularly also on the back of distribution gains, which we got in the last 3 to 4 quarters that the volume impact will be moderated.

Okay. That's helpful color, Marc. And then maybe turning to the small domestic appliance business. You had some really impressive results there, especially on that margin. Can you talk a bit more about what drove some of those factors? And just how you're thinking about where we are today relative to the guide that you didn't change for this year? What are the puts and takes that take us through the next couple of quarters?

Yes, Susan. The small domestic appliance business had a very strong start to the year, similar to Latin America and Asia, and we're very pleased with the results. This segment benefited from good cost management and a solid sell-through in our core products like the Stand Mixer, as well as new introductions such as the cordless product and the rice and grain cooker. These new launches are contributing positively to our momentum. Overall, we had a strong first quarter. However, it's important to note that the first quarter is the smallest of the year for the small domestic appliance business, and the overall performance tends to be more heavily weighted toward the second half of the year. We also have a significant product launch planned for the second quarter, for which we will allocate considerable marketing resources. While we're starting off strong and there may be potential for upside, it's too early to make commitments on changes to the full-year guidance.

Your next question comes from Michael Rehaut from JPMorgan. First, I wanted to delve into the changes in North American industry shipments. You mentioned a 2% decline, which, if we exclude the impact of price and mix this quarter, aligns with the slight sequential gains. However, the AHAM shipments also dropped 6% for the quarter. Could you clarify those two points? Additionally, could you discuss the discretionary demand and why it may be lagging despite some promotional efforts? On a broader level, regarding a potential price increase, if your competitors do not follow suit, I'm curious about the risk of potential market share loss in the coming quarters due to weaker demand.

So Michael, it's Marc. Let me first address the industry shipments. As you noted, AHAM has restated the Q1 numbers, and had some restatements in the past. This restatement was driven by one of the smaller import players. We have some questions about the consistency and validity of these restatements. Typically, in the past, our sell-through data and sales figures from retailers align well with AHAM data, and we feel confident that the numbers we provided are directionally correct. If we take the revised AHAM numbers, it would suggest that we had a considerable market share gain in Q1, which would be positive. However, I think it's more accurate to say that we largely maintained the share gains from last year, with a sequentially flat to slightly up performance. This seems more realistic based on the sell-through data, which aligns with our expectations entering Q1. The U.S. industry was down 2%, and sell-through figures were in that range as well, which appears to be confirmed. This doesn't alter our full-year outlook of 0% to 2%, considering some variables and, of course, the baseline from Q3 and Q4 last year. Consumer sentiment is mixed; elevated mortgage rates negatively impact existing home sales. Due to persistently high mortgage rates, we might still see solid new home sales while existing home sales remain weak. However, we could see a rise in home improvements and remodeling because consumers have equity and financial stability; they just prefer not to move. Therefore, we expect a trend toward remodeling and refurbishment, which bodes well for us. We continue to believe that the 0% to 2% industry guidance is accurate. Regarding promotional price increases, historically, consumer sensitivity to category pricing is low since these products are infrequent purchases. We're operating in a competitive environment, and we make decisions that benefit our business through promotions that add value. We price our products according to their market value. Additionally, with our strong product pipeline and last year’s distribution gains, we have a solid opportunity to implement the price increases with a modest impact on volume.

I appreciate that. I wanted to focus on the EBIT margin bridge for the full year. I noticed that your components remain unchanged regarding price/mix and net cost. At the same time, you're mentioning a 5% price increase related to your promotional program actions, which would be a positive if everything else stays equal. I'm curious why that component hasn't been adjusted. Additionally, you're suggesting that net costs might be at the lower end of cost actions, along with some incremental cost inflation in areas like freight and logistics. This suggests there could be some downside risk, as well as potential upside risk on the price/mix. I would like to hear your thoughts on why some components remain unchanged while some inputs have varied.

Yes, Michael, this is Jim. Let me start and then I'll have Marc join in. As we look at the end of the first quarter, we believe these are the main drivers. We think that in terms of order of magnitude, they are directionally and order-of-magnitude correct. Regarding the price/mix, as we implement the promotional price increases throughout Q2, we will start to see benefits in the latter part of Q2 and more significantly in the second half of the year. Currently, we anticipate reaching the higher end of the range, if not exceeding it, as we progress through the latter half of the year. That's why we are referencing a range to indicate where we think we might land, but we are optimistic about reaching the higher end. From a net cost perspective, we believe we are probably at the lower end of that range now. We are executing the cost actions we mentioned, but if we consider the broader range of $300 million to $400 million, we are likely closer to the lower end. There is potential upside on the price/mix, but we also recognize some unexpected incremental inflation in net costs. At this point, we think they will likely offset each other on an annual basis, but as we move through Q2, we will have a clearer picture of what our actions will yield for the full year.

Michael, to add to this, it's typical for Q1. Looking at our various businesses, three are currently exceeding the EBIT guidance, while North America is slightly below, but we still maintain the EBIT guidance. There are some variables in play, but it's too early to consider altering anything. The bridge shown represents the total company, not just North America. Regarding net costs, we are on the lower end due to persistent inflation. However, our carryover and additional costs for Q1 are strong. On pricing, with the announced price increase, we expect to fall within that range, but there are still many factors to consider. Overall, we are confident in our margin guidance for total EBIT for the full year.

Your next question comes from the line of David MacGregor from Longbow Research. I guess I just wanted to start off asking about U.S. retail inventories. It looks like there was a pretty significant destock in January ahead of the retail year-end. It was followed by some relatively flat units in February and March, if you combine the 2 months. But how much additional destock do you think is left at retail? And how would that impact the typical 2Q seasonal build in refrigeration?

Yes, it's Marc. You're right. In January, there was significant destocking in retail. There was a bit of rebuilding in March. Overall, I would say we are slightly below year-end levels, but inventory remains somewhat elevated in the retail environment. This isn't particularly concerning, just slightly higher than usual. The inventory levels we saw at the end of the year haven't fully decreased due to the rebuild in March. I'm not overly worried, and to some extent, it's expected. I don't think this will affect the typical refrigeration seasonal trends.

Okay. I guess as a follow-up, I just wanted to ask you about the Arcelik transaction. Your 25% stake in the earnings moves to the equity income line, I would believe, but can you quantify the stranded costs that were left behind and how those costs resolve over the remaining 3 quarters of this year? And what could that represent the way of incremental margin benefit for full year '25 versus full year '24?

Yes, David, this is Jim. I'll begin with that. As you mentioned, our 25% stake will shift to a different line in the profit and loss statement, and being only 25% will clearly be much smaller. When considering stranded costs, you'll notice that most of it will flow through our corporate expense line, which is currently performing relatively well. The reason for this is that we sold off the fully operating business, so there weren't many stranded costs left; most costs went with it. We still have some remaining costs, but in transactions like this, we typically have agreements to provide services for which we receive payment. When we analyze it this way, along with our cost reduction and organizational simplification initiatives, these will offset any stranded costs we might encounter. At this point, we do not foresee stranded costs as a significant challenge for us this year because we are actively managing them. Looking ahead to 2025 and beyond, the primary factor driving margin improvement will be that we no longer have the dilutive EMEA business in our portfolio. Most costs will be eliminated this year, leading to no major year-over-year impact, but without the dilution. In 2025, similar to 2024, you will see that cost actions have a carryover effect since they are implemented partially through the year. This year, we began with about $100 million of carryover from the previous year in cost actions. As we consider next year, you can generally expect a similar outcome for this kind of cost reduction. We will not delve further into that, but it's important to note that since these benefits tend to materialize later in the year, they will carry over into the next year. We also discussed this at Investor Day, indicating that we anticipate ongoing benefits from this multiyear cost reduction trend.

David, to add to Jim's point for clarity, he is absolutely correct about the minority interest. It's important to note that we also have significant royalty income from the Whirlpool brand, which will reflect in our operating results in North America where most of the Whirlpool brand activities are occurring. This provides a benefit to our North American business. Regarding the stranded costs, to reinforce Jim's comment, it's crucial to understand that the majority of existing costs were effectively transmitted in this transaction. I believe we have largely addressed the stranded costs, which relates back to our announcement in Q1. You might have seen some headlines recently; we are eliminating $100 million in infrastructure and organizational costs. This amount exceeds what would typically constitute stranded costs because our business has become significantly simplified. Consequently, we now have the chance for a considerably streamlined organizational structure. Therefore, the $100 million reduction goes well beyond just the stranded costs that would have been present.

Your next question comes from the line of Laura Champine from Loop Capital. Just wanted to clarify comments that you've made. So the outlook for revenues hasn't changed. The price increase has been announced. And my understanding is that you expect to realize, say, 1% in Q2 and then 2% to 3% in the back half. Does that price increase in North America have any impact on your views on taking market share this year in North America?

So Laura, it's Marc. So again, what Jim alluded to and what I also reconfirmed earlier, that's a 1 point net P&L impact, which we expect in Q2 and then Q3 subsequently. But of course, that also then has an impact on the net revenues. At this point, and of course, that depends on overall market development, etc., I would expect our market share to be stable in the current environment and after the promotional price increase.

Okay. So market share is stable as opposed to market share gains. So there is a change in share, not a change in your view for industry-level demand in North America. Is that true?

Well, again, Laura, you're right. It's just, of course, when you go into price increases, you don't exactly know what will happen to your market, short and midterm. Right now, I think we are adjusting production volumes and everything else with the assumption that we hold market share in that environment. But again, there's a lot of moving parts still, and we need to see now how our retailers and everything else responds to that environment.

Your next question comes from the line of Sam Darkatsh from Raymond James. And I wanted to say congratulations to Korey on the new post. Well deserved, Korey. A couple of questions here. First, the price increase in North America seems at least partially a function of what you call the sticky elements of supply chain-related inflation. Can you go a little bit more in the weeds in terms of what specifically you're seeing there? And I'm more so interested in, is this widespread in the industry? Or is this more Whirlpool-specific, especially knowing that you may be potentially alone in the price increase announcement?

Sam, it's Marc. The reason for the price increase is twofold. First, we are experiencing persistent inflation. Second, as mentioned in Q1, while replacement demand is strong, discretionary demand is limited. Therefore, making substantial promotional investments does not make economic sense, as the returns are minimal. There are two main reasons for adjusting the promotional pricing. Regarding persistent inflation, while I cannot speak for our competitors, I assume there are industry-wide influences. We are noticing this in logistics costs and certain strategic components, as we rarely have exclusive suppliers. This is part of a broader inflation trend we've seen since last year, which remains persistent. Specifically, logistics costs and raw material trends, which we didn't see impacting Q1, are being closely monitored, particularly concerning steel and oil prices. These commodity trends are not exclusive to us.

Got it. My second question is directed to you, Jim. Can you provide a detailed explanation of the cash flow from operations guidance? The first quarter showed a cash burn of $870 million, which was significantly higher than we anticipated. This suggests that we might see around $2 billion in cash flow from operations for the second to fourth quarters. From my calculations, considering net income, depreciation and amortization, and working capital, I estimate it to be around $1.6 billion to $1.7 billion, leaving me short by about $400 million to $500 million. Could you help clarify how to reach that guidance, Jim?

Sam, I believe a significant factor you might be overlooking is the high level of promotions in the latter half of the year, which is even more noticeable in 2024 compared to recent years. Much of this expense is incurred in the first half of the year, leading to a substantial shift in cash flow. This situation resembles what we experienced in 2017, 2018, and 2019, when our first-quarter cash flow was typically in the range of minus $800 million to over $900 million. You've identified many elements at play. As you mentioned, we accumulate earnings throughout the year and have specific impacts in the first quarter, including the full extent of EMEA effects. Although we anticipated some of the legacy liabilities to be settled later, they were actually addressed early in the year. The major cash movement occurs when we pay out those promotional expenses at the beginning of the year for the previous year, while our accruals increase over time, resulting in minimal cash outflow that supports us throughout the year. In the first quarter of the following year, we again make those payments. We also have similar initiatives like employee compensation programs, but promotional programs are the primary factor. Including this aspect in your calculations should bring you closer to the $2 billion figure. That's how we arrive at that number.

I want to start by discussing the North America margins to ensure I understood correctly. There was a mention that the second half will increase by 400 basis points compared to the first half. This suggests that your second quarter margin is likely in the 6% to 7% range and the first half would be around 6% to 6.5%. Then, it appears you plan to exit the second half above 10%. Previously, the expectation was to begin around 8% and gradually reach around 9.5% for the second half, finishing closer to 10%. It seems the year started off slow and the environment is somewhat challenging, yet your guidance for second half margins has actually improved. While I understand the additional pricing, it's based on a lower starting point. Could you elaborate on what led to the revised guidance and the expectation for a better ramp?

Yes, Michael, this is Jim. You pointed out a couple of key points, but let me elaborate. At the start of the year, we did not plan for a price increase in North America. As we consider the current environment, the normalization of promotional spending, and its impact on volume, it's clear that value creation isn't meeting our expectations, leading us to implement some additional measures. While we began the year slower than anticipated in North America, introducing a 5% price increase, even if only a portion is realized, could result in a margin improvement of approximately 1.5 to 2.5 points for the latter half of the year. Regarding cost reductions, we will continue to experience benefits from our efforts. However, as we assess our current position, we see inflation being stronger than expected, which will prompt us to take further cost measures to counterbalance that. We anticipate these actions will accumulate over the year. The most significant factor that has changed from our original assumptions is the pricing situation. Additionally, when considering the industry at the beginning of the year, we noted that we expect to see some normalization and hopefully stabilization as the year progresses, coming off a currently low base.

Got it. Okay. And then just a follow-up on the cash flow question. With the driver being some of the timing and payments, to the extent that you're reducing your promotional activity going forward, should we expect to see much of a build in the accruals in the second half? In the past, you have highlighted the seasonality in EMEA cash flows where you typically see some inflows in the second half of the year. This year, you're only absorbing the outflows and not receiving the inflows. So is that dynamic still expected to be different in terms of the first half and second half compared to what you've seen in the past?

Yes. Here's what I would say is, listen, I still think, as you get to the end of the year, we still have higher promotional accruals than we do now because if you just think seasonality in the promotional periods, even in an environment where we're raising our promotional program prices, they're still going to be Black Friday and there's still going to be things that go on in December in terms of promotional programs, that will be at higher levels than they are throughout the year. So we will build the accruals throughout the year. I'd say the other thing that you look at on cash flow, and you mentioned EMEA, and part of the reason why we said our cash flow would be $550 million to $650 million this year despite the fact that typically on these type of earnings, we would think we could generate a higher level of cash flow is that we've assumed that EMEA would have a negative this year without a positive to correspond with it necessarily in the back half of the year. And some of that negative was just the unwinding of some of the working capital programs, working capital finance programs that we had in Europe. So we expected this. This is where we expected to start. We did expect it, and we said, when we go to 2025, you can then take that negative for EMEA and add that to this year's number to give you where you should plan to be for next year. I think the other thing that maybe we haven't highlighted yet in the questions around free cash flow, you will see an improvement in working capital throughout the year. And when we get to the end of the year, you will see a significant improvement in working capital from where we are today. And that is one of the big drivers where our cash flow is today to where we expect to end the year.

Your next question comes from Rafe Jadrosich from Bank of America. Following up on the price increase, can you clarify what portion of the business it encompasses? Does it apply to the entire North America MDA business? Additionally, what assumptions are you making regarding realization in your guidance? Is the net 1% increase included in your guidance for the remainder of the year?

Let me clarify the price increase. Overall, we mentioned earlier that it impacts about 70% of our North America business. To be more specific, it does not include builder-related programs or other programs that are typically excluded from the promotion programs. Therefore, you can generally assume that about 70% of the business is affected. The exact increase varies among different product groups; for some products, you may see an increase of $20 to $30, while for others, it may be as high as $70 to $80. This increase is uniform and has a significant effect, especially on the retail and freestanding segments. Regarding the realization, we previously indicated a 5% increase, which we expect will translate to a 2% to 3% net profit and loss impact as we progress through the quarters.

How do you strategically view market share in relation to pricing? If margins improve in the second half but you lose some market share, is that a trade-off you're willing to accept? How do you balance pricing and volume?

Just to clarify, we didn't say we want to give up market share. I said right now, our assumption is that we basically hold market share and that assumption is built based on the product pipeline, which we have, the distribution expansion, which we gained last year. So ultimately, you have to earn market share from a consumer. So you got to provide for consumer value proposition through innovation and what we deliver product, which is being earned. And we feel actually really based on the momentum which we built last year and what we see coming, we feel very confident that what we offer as a consumer, value proposition justifies and potentially at one point offers the opportunity to even expand market share.

Your next question comes from the line of Eric Bosshard from Cleveland Research. A follow-up and then a question, if I could. The 1Q margin around 2 points lower than expected. You've talked about it a little bit, but the bridge between the 7.5% or 8% and the 5%, 6%, what explains that difference?

In terms of which, are you talking North America or global margin?

Just the North American margin.

So as we said, I mean, within the North America margin and the slower start to the year, we would say is, one, that what we saw is volume was a little bit weaker than we thought. Cost was a little bit higher than we thought from an inflationary perspective. And then the promotional environment was right about where we thought, but again, probably at the higher end of what we thought. So you take all those factors and combine them, and that's why we would have said we had a slower start. Now you start to roll that forward. And as we said, that's why we're taking incremental actions, especially on the cost and the pricing side, is we did see things in the first quarter that told us that we needed to take additional actions on top of what we planned. But I'd say those are the 3 biggest drivers, but the sticky inflation was probably one of the biggest impacts we saw at least within the first quarter compared to what we expected.

Eric, it's Marc. I want to add to your earlier question about the North American margin of 8% in Q1. As you know, we refrain from disclosing quarterly margins by region. I can confirm that North America has indeed had a slower start. This has likely underperformed our internal expectations by about 1 to 1.5 points. This slowdown reflects an increasingly intense promotional environment, and some inflation has proven to be stickier than we initially anticipated. Moreover, we usually ramp up production and inventory in Q1 and Q2 across most regions, but this year we've been a bit cautious and haven't increased inventory significantly. Consequently, this has affected our volume leverage on the production side. These are the three key factors. Earlier, you heard about our plans to address this through a combination of promotional price increases as well as additional cost measures, some of which have already been announced. This outlines our strategy to improve the margin in North America from Q1 to the full year.

Your next question comes from the line of Eric Bosshard from Cleveland Research. A follow-up and then a question, if I could. The 1Q margin around 2 points lower than expected. You've talked about it a little bit, but the bridge between the 7.5% or 8% and the 5%, 6%, what explains that difference?

Thank you. That concludes our formal remarks. We appreciate your questions and your interest in Whirlpool Corporation. We will now take a few questions until the end of the call.

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