Whirlpool Corp /De/ Q3 FY2024 Earnings Call

Good morning, and welcome to Whirlpool Corporation's Third 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 track with the presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will 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 the 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 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 listen-only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than two questions. With that, I'll turn the call over to Marc.

Thanks, Scott, and good morning, everyone. In the third quarter, we again delivered global sequential EBIT margin expansion, largely in line with our expectations. I'm pleased with our team's execution of our operational priorities, delivering 50 basis points of sequential global margin expansion. Our North American business even achieved 100 basis points of sequential margin expansion, led by our previously announced pricing actions. Before I expand further into the results, I want to acknowledge what has been and will, at least in the near term, remain a challenging macro environment in the US. Consumer confidence remains low and is impacted by the uncertainty ahead of the upcoming elections. Despite the recent interest rate cut by the Fed, the US housing market is still constrained by elevated mortgage rates. As a result of this environment, demand in the US has shifted significantly toward lower margin replacement-driven purchases and higher margin discretionary demand continues to be weak due to historically low existing home sales. Although the timing of the US housing recovery is still uncertain, we are confident that the industry will have a multi-year recovery with the underlying housing fundamentals remaining strong. We are well positioned to benefit from this eventual housing rebound. While we await an anticipated multi-year US housing recovery, we are focused on executing our operational priorities. We delivered ongoing EPS of $3.43, supported by our pricing actions, cost takeout, and a more favorable adjusted effective tax rate. Our strong working capital management improved inventory, generating approximately $130 million of cash within the third quarter. We expect to deliver approximately $500 million free cash flow in 2024. As a reminder, year-to-date free cash flow was negatively impacted by non-recurring cash outflows associated with the Europe transaction of $250 million to $300 million. These cash outflows were one-time in nature and will no longer impact our results in 2025, structurally strengthening our free cash flow delivery going forward. Our capital allocation priorities are unchanged and our free cash flow delivery enables us to further reduce our debt levels and continue to return cash to shareholders. We paid dividends of $1.75 per share in the third quarter and declared $1.75 per share in the fourth quarter, returning approximately $400 million to shareholders this year. Turning to Slide 6, I will review the third quarter ongoing EBIT margin drivers. Sequentially, price/mix delivered 75 basis points margin expansion, driven by the pricing actions in North America. Year-over-year, price/mix still impacted margin unfavorably by 125 basis points. We saw the balance of sales shift out of cooking and dish, which tend to be our strongest MDA margin categories, into replacement focused laundry and refrigeration categories. The heavy replacement market in the US unfavorably impacted product mix in the third quarter. Our cost takeout actions delivered 25 basis points of sequential margin expansion and 50 basis points year-over-year. This was led by our fully implemented organization simplification, while raw materials, as expected, were essentially unchanged. Currency negatively impacted margins sequentially and year-over-year as the Brazilian real and Mexican peso experienced some weakening relative to the US dollar. The European transaction impacted the third quarter negatively by 25 basis points due to the equity and affiliates impact from Beko Europe B.V. This negative impact was driven by the weak macro environment in Europe and the integration-related efforts. Ultimately, we're pleased to have delivered 50 basis points sequential margin expansion. And 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 third quarter results for our MDA North America business. Net sales were down 4% year-over-year, driven by unfavorable price/mix as a result of the strong replacement environment and weak discretionary demand. We are seeing further deterioration in the underlying discretionary demand than what we experienced in the first half of 2024. However, price/mix improved significantly compared to last quarter due to our pricing actions. We delivered margin improvement with our pricing actions and our cost takeout program, which is expected to deliver approximately $300 million globally for the full year. Our actions delivered 100 basis points of sequential EBIT margin expansion. Overall, the segment delivered 7.3% EBIT margin for the quarter, and we are very pleased with the margin expansion of approximately 170 basis points delivered since the first quarter. We continue to focus on margin expansion as we head into the fourth quarter and expect cost takeout opportunities to support further margin progress. Turning to Slide 8, I'm excited to take a moment to showcase a few of our new product launches. Product innovation is critical to enable our future growth and margin expansion expectations. In MDA North America, we had two notable product launches in our laundry category. Our newest Whirlpool brand laundry pair fights common causes of front-load odor with the FreshFlow Vent System. The innovative new FreshFlow Vent System is the first fan-powered system designed to help keep your clothes and washer fresh. With the successful launch of Maytag Pet Pro TopLoad laundry in 2023, we've brought the winning and innovative Pet Pro Filter to the front-load. The Pet Pro option utilizes the Pet Pro filter lifting and removing pet hair from clothes for a clean you can see. Recently, KitchenAid launched the brand's first four door refrigerator. The KitchenAid refrigerator has a modern aesthetic with sections to keep fresh and frozen ingredients organized and easy to locate. The four-door design combined with the storage flexibility lets consumers customize the refrigerator to their needs. These innovative new products demonstrate our commitment to being the best kitchen and laundry company, improving life at home for our consumers, strengthening our leading position in North America. As we look forward to 2025, we have an even stronger lineup of new product introductions that we expect will positively impact price/mix and share. Turning to Slide 9, I'll review the very strong results for our MDA Latin America business. The segment continued to demonstrate strong net sales growth of 9% year-over-year, excluding currency, driven by industry in both Brazil and Mexico. We delivered a solid EBIT margin of 6.9% in the quarter with 110 basis points of sequential margin expansion from improved price/mix. We expect sustained solid EBIT margins for the full year as we focus on continued growth and price/mix improvement. Turning to Slide 10, I'll review the results of our MDA Asia business. We saw another quarter of double-digit net sales growth of 10% year-over-year, excluding currency. Sequentially, sales contracted due to the seasonal decline as we exited the summer period. Our continued share gains delivered volume growth and we are pleased with the progress made in the segment. We delivered 2.9% EBIT margin from improved price/mix and fixed cost leverage. Turning to Slide 11, I'll review the results for our SDA Global business. Net sales decreased 3% year-over-year, impacted by industry declines in the US. Strength in our direct-to-consumer business and new product launches were more than offset by a softer industry with weak consumer sentiment. We delivered EBIT margin of 14.2%, with the quarter impacted by continued marketing investments in our new products. Our SDA business is well positioned for the holiday season and we expect sustained strong EBIT margins. Despite industry softness seen year-to-date, we are confident in delivering the guided net sales growth of approximately 7.5%, supported by our new product pipeline. Turning to Slide 12, I'm pleased to review our exciting new lineup of KitchenAid small appliances. Our iconic KitchenAid Stand Mixer launched the unique Evergreen design, which has been a hit with enthusiasts everywhere. We launched new additions to the KitchenAid Go Cordless system. A removable and interchangeable battery powers all KitchenAid Go appliances, providing you with the power you need for every creation, with no cord needed. The new top-down chopper, citrus juicer, and hand blender with accessories unlock even more possibilities both inside and out of the kitchen. These new product launches will continue to fuel our growth expectations. On Slide 13, let me review our reaffirmed full-year guidance. Our net sales guidance of approximately $16.9 billion alongside approximately 6% full-year ongoing EBIT margins are unchanged. Additionally, we are reaffirming our ongoing earnings per share of approximately $12 and free cash flow guidance of approximately $500 million. Our guidance includes updated expectations for our adjusted effective tax rate. We now expect an adjusted effective full-year tax rate of approximately negative 18% to 22%. We have further refined the estimated benefits of our tax planning strategies since closing the Europe transaction. With the unique tax impacts of the significant legal entity restructuring we were able to execute with the European transaction behind us, we expect our adjusted effective tax rate to be approximately 20% to 25% starting in 2025. However, our cash tax rate will be significantly lower. We are confident that we have the right actions in place and are reaffirming our full-year guidance. Turning to Slide 14, let me recap our commitments to our capital allocation priorities. We've completed actions to strengthen our balance sheet in 2024. In the first quarter, we completed the sale of 24% of Whirlpool of India's outstanding shares, while retaining a majority interest. Additionally, the planned divestiture of our Brastemp brand water filtration business in Brazil closed on July 1. Combined, these two actions generated more than $500 million of cash. Coupled with our beginning cash on hand of $1.6 billion and free cash flow generation of approximately $500 million, we are well positioned to continue our debt reduction initiatives and pay dividends of approximately $400 million in 2024. With the $500 million of term loan repayment in April, we have made significant debt reduction progress since the acquisition of InSinkErator, with approximately $1 billion paid down. Inclusive of the term loan, we have a total of $1.8 billion of current maturities in 2025 with a weighted average interest rate of approximately 6%. We expect to pay down a portion of our current maturities and refinance a portion at a lower interest rate in 2025. As we look ahead, we have ample space in our flexible debt ladder to optimize our refinancing plans. We are fully on track to deliver our 2024 capital allocation priorities and position Whirlpool well to strengthen our balance sheet. Now, I will turn the call over to Marc.

Thanks, Jim. And turning to Slide 15, let me review what you heard today. We had a solid quarter and are reiterating our full-year guidance. We are pleased to have delivered sequential margin expansion globally and most importantly in North America. We feel good about our pricing actions and cost plans, both of which are on track. While we continue to navigate a challenging macro environment, we see the housing market clearly positioned for an eventual rebound. The US housing market is structurally undersupplied by 3 million to 4 million units. High interest rates are causing low turnover with existing home sales at multi-decade lows. Home equity values are near all-time highs, meaning homeowners should have confidence in investing in their homes as rates become more favorable. With lower interest rates, this pressure will ease. Our strong position with eight of our top 10 US homebuilders and an exciting new lineup of products positions us well to benefit from housing recovery and improving discretionary demand. Our teams are executing well and we are confident in our strategy, which enables us to capitalize on the US housing market recovery that we expect will drive significant benefit for our MDA North America business. In the meantime, we're focused on what is within our control. We have demonstrated the ability to take out costs with $500 million of fixed costs removed from our operating structure since 2019 and remain on track with our expectation for approximately $300 million cost takeout this year. We continue to see significant opportunities to optimize costs across our products through input costs, design, manufacturing, and supply chain. Overall, we have the right strategy and operational priorities to navigate the challenging environment in our North America business. SDA and the international businesses have a long runway for growth and continue to be very important to our overall portfolio. We are focused on reducing our debt levels while returning cash to shareholders. We're confident in our strategy and the steps we're taking both for short and long-term to deliver value for shareholders. And that concludes our formal remarks and we will now open it up for questions.

Your first question comes from David MacGregor from Longbow Research. Please go ahead.

Yes, good morning, everyone. Thanks for taking my questions.

Good morning, David.

Hi. I guess first question is just on the consolidated EBIT margin progression. Excuse me. You had put a chart in your deck last quarter indicating that your 6% ongoing EBIT margin goal for the year included a 6.3% performance in 3Q. Your actual turned out to be about 5.8% with a 50 basis point variance representing approximately about $20 million if my math is correct. So is that $20 million from the equity method investment loss offsetting what would have otherwise been an on-target quarter? But I think more importantly, you've left the full-year guide at 6%. So if my math is correct, it implies an 8% fourth quarter margin performance and an exit run rate that would exceed your previous guidance of 8%. So is this a correct takeaway? And if so, what would be driving the better-than-expected fourth quarter margins?

Yeah, David, this is Jim. I'll start, and then Marc can add his thoughts. You're right in your initial assumption that the difference in Q3 is mainly due to our 25% stake in EMEA. Looking ahead to Q4, we anticipate it will be around 6%. However, entering the fourth quarter, we expect to see continued margin expansion in North America driven by pricing and the cost actions we've implemented. Additionally, we foresee an acceleration of these cost actions. Also, we do not expect the same level of impact from our EMEA stake. Those are the primary factors when comparing Q3 to Q4. It's also important to note that in Q3, we significantly reduced our inventory levels. This means that as we move into Q4, we'll have a more normalized production environment, which will also benefit us from a cost standpoint and improve our cost absorption within the quarter.

Hi David, it's Marc. I want to add to Jim's points. Firstly, regarding the Europe bond and taking a broader perspective, we all recognize that Europe was a major transaction this year, affecting our full-year numbers in various ways. As we have consistently mentioned, it negatively impacts our cash flow, with around EUR250 million carrying a negative effect. This situation slightly affects our EBIT line, which is important to highlight as it's related to equity affiliates and not cash relevant. However, it positively influences the tax rate. There are numerous factors involved with the Europe bond, and we expect normalization in 2025, but this year's numbers are affected significantly. Notably, European losses are linked to our integration efforts, which is not entirely unexpected and is also not cash relevant. The key takeaway is that when you filter out the distractions around the margin, it ultimately comes down to the underlying margin progression in North America. Just to reiterate, we had a 5.6% margin in North America in Q1, 6.3% in Q2, and now 7.3% in Q3. For Q4, as mentioned earlier, we are guiding for an 8% to 9% margin. This represents a very impressive margin progression. We all understand that it's not the final goal, and there's no doubt about that. Nevertheless, given the challenging environment, especially in the US, it clearly shows that the actions we've implemented are gaining traction.

Thanks for that. I guess just as a follow-up, I wanted to ask about the SDA segment. And third quarter sales were down 3%, but margins were down about 400 basis points. You noted the need to support the new product launches with marketing investments. So that makes sense. I guess, does this imply a stronger fourth quarter seasonal pattern for this business and just given the amount of support that you're spending now in 3Q? And I guess given that might be driven by new products, should we expect a stronger than normal incremental margin in that segment in 4Q?

Yes, David, I would say we are right on track to meet our full-year guidance for KitchenAid SDA with slightly over 7% revenue growth and around 15% margin. We feel confident about this projection for the full year. It's important to note that the seasonality of small domestic appliances is heavily concentrated in September, October, and November, especially October and November. Therefore, just a day or two of shipping to a trade partner can significantly impact results. However, when you look at the two quarters combined for the whole year, we are optimistic about our position. Also, we have significantly increased our marketing investments to support the new product launches and are seeing a positive response from both consumers and trade, reflected in strong flooring and star ratings. So, we feel good about Q4, but I wouldn’t anticipate a drastically disproportionate lift; Q4 should align with our full-year guidance.

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

Thank you. Good morning, everyone.

Good morning, Susan.

My first question is just digging a bit deeper into the North American MDA margin, can you talk a bit more about that price/mix dynamic that you saw? You mentioned coming out of the second quarter, you were seeing that 1 to 2 points of pricing given the program that you launched earlier this year. Are you on track with that? And then how should we think about it relative to the mix component in there and other factors to that margin as well?

Yes, Susan. Overall, the situation remains similar to what we discussed in the previous earnings call. In North America, there are two opposing factors influencing price and mix. On the positive side, the adjustments we made to our promotional pricing are fully implemented, and we can see that reflected in our numbers. On the downside, we continue to face mix challenges, primarily due to a historically high level of replacement demand, especially within product categories and SKUs that offer lower margins. While the overall effect is a positive shift in sequential pricing, we've observed this trend in Q3 and Q2, and I anticipate it will continue in Q4 as well.

Okay. That's helpful. And then you mentioned in your commentary that you did see that discretionary demand slow further in the quarter relative to what you'd seen in the first half. Can you just talk a bit more about that? What do you think is driving the health of the consumer and any of the broader factors that are maybe going on in the US that are coming through?

Yeah, Susan, it's Marc. This is particularly related to North America. I would say that global consumer sentiment is actually in fairly good shape. However, North America, and the US in particular, is facing challenges. The general housing market, as indicated by yesterday's existing home sales, remains weak, and this is largely influenced by mortgage rates. Additionally, pre-election consumer sentiment is quite poor, which isn't entirely surprising. We've observed a similar trend during the last two elections. Living in the US, we are constantly exposed to negative news, which dampens consumer sentiment. On a positive note, in previous elections, consumer sentiment typically recovered fairly quickly after the elections, regardless of the outcomes. We have seen low consumer sentiment in September and October, and it is likely to persist until after the elections.

Susan, I'd just add to what Marc said is that we still believe strongly in the long-term housing demand dynamics for the US and again, as we pointed out, a lot of this is right now, as Marc pointed out, I mean, existing home sales again yesterday came in on a multi-decade type of low. So we are in a trough right now. But if you really look at this on a much longer-term spectrum, housing is still undersupplied. We do believe the dynamics of the market, especially as interest rates begin to come down, will become much more positive, but it's not going to be an overnight process.

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

Hi, thanks for taking my questions. I wanted to clarify that you mentioned North America is at 8% to 9%. either Jim or Marc, it seems we're missing something in the explanation. You have a tax benefit for the full year that is contributing to earnings per share, but you're maintaining your EPS and EBIT guidance while improving your tax rate. Is there a reason behind this, or can you help us understand how to reconcile these figures?

Yes, Mike, this is Jim. I would say that to some extent, you're right. As I mentioned earlier, part of it has to do with rounding because we expect the EBIT margin to be around 6%. We faced an unexpected issue this quarter related to our EMEA stake, which we hadn't anticipated. We do expect that to improve over time. In North America, we anticipate continued significant improvements in the fourth quarter. We expect positive costs, along with ongoing benefits from pricing. Additionally, the inventory reduction we've implemented will help us benefit from cost absorption and leverage as we align production more closely with demand. So, while some of it is indeed rounding and related to EMEA's unexpected impacts, we also expect various factors to enhance North America margins in Q4.

Okay, got it. And then, Jim, can I shift to a balance sheet question? I think if we look at the cash balance last quarter, of the $1.2 billion roughly in cash, I think the disclosure in the Q was that about $750 million of that was a combination of your stake in Whirlpool India and then what's being held in Brazil, which you may or may not have kind of free access to on an ongoing basis. Can you give us an update on of the $1.1 billion on 3Q cash? How much is actually in the US and how should we be thinking about the non-US cash and your ability to access that or repatriate that in a tax-efficient way?

Our cash levels at the end of Q3 are quite similar to those at the end of Q2. In the US, we tend to use our available cash to reduce our commercial paper borrowings. The overall access to cash globally is influenced by various factors, including legal entity structures. In the long term, we can access much of this cash through means like repatriating earnings, but in some regions like India, where we have significant minority ownership, much of that cash remains there. We are actively investing in growth opportunities in India, such as increasing our stake in Elica India, which is a strategic move despite the difficulty in repatriating funds from that region. Overall, there hasn't been a significant change in our cash position compared to last quarter. Looking ahead to Q4, a considerable portion of the cash we generate will come from the US, primarily driven by our KitchenAid business and our North America majors business, both of which typically perform well in the fourth quarter.

Michael, it's Marc. I want to add to Jim's point. The cash balance reflects our cash flow for the quarter, so the Q4 cash balance will be noticeably different from Q3, influenced by what Jim mentioned regarding how working capital moves through our business. Specifically in North America, we produce inventory that absorbs cash, and then as we sell and collect receivables, it typically flows into Q4. This pattern is consistent every year, particularly with our SDA business and the seasonal nature of the North American market, which affects the cash cycle and cash balance in the US.

Your next question comes from the line of Laura Champine from Loop Capital. Your line is open.

Thanks for taking my question today. It's on top line for small appliances. I think you guys call out that it's an industry problem that led to the decline on a year-on-year basis. Can you confirm that you held market share and give us a little more color on what's going on with the industry that would cause that to weaken in the quarter?

Laura, it's Marc. I mean, very similar to what I've said before, our full-year guidance on KitchenAid small domestic, we feel very comfortable about that revenue guide of north of 7%. So I wouldn't read too much in Q3 because we're so much about the sell-in shipments in terms of what happens in the last one or two weeks of September versus first one or two weeks of October. We invested a lot in the new products and the new products are really finding good traction with exceptionally strong consumer ratings. So as Jim pointed out, it's the fully automatic, semi-automatic espresso makers, it's this evergreen stand mixer. If you haven't seen it, look it up, the rice and grain cookers. So there's a really whole set of new products that we feel very, very good about. And that's why we have no concerns about the fundamental revenue growth. So don't read too much into the Q3 ins and outs.

Understood. On the North American majors side, why not lower the bar for revenues there for this year, just given you just called out some of the macro numbers are making new rather historic lows on existing home, et cetera?

We are focused on margin expansion in North America, which has been a key theme throughout the year. In this environment, our goal is to maintain market share and keep our top line stable. While there are fluctuations in Q4 revenue due to consumer strength and discretionary demand, our primary emphasis is on improving margins to a healthy level, and I believe we are on track. In recent months, we have been feeling increasingly positive about our market share and revenue. After making pricing and promotional adjustments in April, we did lose some market share—though not as much as we initially anticipated—but we have been recovering since then. Overall, our Q4 revenue aligns well with our expectations for the market.

And, Laura, as we said, within Q4 here in the US with the election cycle going on, we do just expect an unusual pattern of demand that will be a little bit slower and then should pick up significantly like we've seen historically. So again, that's why it makes this an unusual Q4. But to Marc's point, in aggregate across the whole quarter, we do expect it to be relatively in line with what our previous expectations have been.

Your next question comes from the line of Rafe Jadrosich from Bank of America. Your line is open.

Hi, good morning. Thanks for taking my question.

Good morning, Rafe. Good morning.

First, so steel prices have come down quite a bit here. Can you just remind us of the potential tailwind that you would see, how you lock in and when? And then how much of that could potentially be competed away?

Let me provide a broader perspective on raw materials. Different types of raw materials present varying opportunities for locking in prices. Steel is our largest material, for which we typically secure annual or even longer contracts, particularly in North America. In South America and Asia, our contracts tend to be shorter-term. Historically, we aim to finalize these longer-term agreements around Q3 and Q4. Oil prices significantly affect plastic, our primary supply material, for which we usually plan a quarter in advance. This limits our ability to hedge over a longer period, so we generally look ahead by about a quarter. Currently, for the full year, we expect raw material costs to remain about where we anticipated, largely neutral, and this trend appears consistent as we enter Q4. Fuel makes up a smaller portion of our overall costs, and while we're hedging it a bit further out, it is decreasing slightly, aided by spot market conditions. Overall, considering all the factors including zinc and copper, we see raw material costs aligning with our expectations.

Got it. Is there any update on the steel prices for 2025, or is it too early to tell?

I'm a bit surprised it took us half an hour to discuss '25. We will provide guidance in January '25 along with all the details. For the full year '24, we did not anticipate significant changes in raw material costs. There may be some small benefits on certain raw materials that we're trying to secure, but I wouldn't exaggerate that at this stage. To put it simply, there are positive aspects we're looking to incorporate into our contracts, but they aren't significant at this time.

I think the other thing, as Marc called out, the reason we really do wait until January is to kind of give a more comprehensive picture and to start piecemealing some of the factors. It really doesn't give that comprehensive picture because there are a lot of moving parts. And as Marc highlighted, some of the materials, as we get closer to the year and even within the year, there's still a degree of variability to them. And that's why we really wait until January to give you that more holistic picture.

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

Good morning. This is Josh filling in for Sam. Thanks for taking the question.

Good morning, Josh.

Good morning, Josh.

First, I'd like to make sure we were understanding the 4Q guidance correctly for like-for-like sales. It looks like it's about up 6%. A fairly meaningful inflection. Is that entirely volume-driven or is there mix or other components in that plus 6%?

I believe the most significant factors are, first, there is strong industry demand internationally, which we've discussed. Second, we've mentioned the small domestic appliance segment previously, and overall, we anticipate that the latter half of the year will be consistent, although Q3 was somewhat lower. This suggests Q4 will show stronger performance. There's a mix of factors at play, along with some natural seasonality. Those are likely the main elements influencing our expected revenue improvement in Q4.

And then in terms of the productivity and cost savings ramping higher in 4Q, can you just provide more detail on exactly why that's improving so much sequentially, especially maybe if you're working down inventory and selling off higher cost units?

Well, I'd say, when you look at it on a sequential basis, the biggest drivers that we see in cost and I'll kind of go back to is our organizational simplification efforts that we've rolled out, again, we started in Q2. We continue to execute that in Q3 and you have a full benefit now coming in Q4. So that's one of the biggest pieces that you have is a lot of the actions we've taken this year get to a point of where we're getting the full benefit within our fourth quarter. I'd say the other thing when I talked about again the inventory reduction and you're looking at this sequentially, we just will have higher production levels, which allows us to get better leverage within our factories, which means we'll absorb more cost in Q4 because now that we've got our inventory levels to the right point for year-end, we can bring our production levels back to normal. So those are the two big sequential drivers from a cost perspective.

Josh, I want to expand on Jim's point regarding our inventory and how this year’s Q3 differs from previous years. In simple terms, production influences productivity. The timing of inventory adjustments significantly affects measured productivity. In typical years, we usually start reducing inventory and production in Q4. However, this year, due to uncertainty, we reduced both inventory and production earlier in the year. Consequently, our September inventory levels align more with what we typically see in October or mid-November. This means our Q4 production levels should remain fairly strong. This cautious approach to inventory has also impacted cost productivity a bit differently this year.

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

Sorry, Michael wasn't able to call in today. Thank you.

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

Thanks. I'm just wondering if you can help connect the dots a little bit better. I understand the benefits of higher production levels in 4Q. I guess what I'm trying to get a better sense of is, from a market share perspective and then from promotions, Marc, I think you were pretty clear of prioritizing margin, but also feel good about market share. As you're running the business in 4Q, is there a different mindset or I'm just trying to figure out how you think about those three things together?

Sure, Eric. First off, it's important to note that different regions have varying dynamics. We have a strong market share in Latin America and India, particularly in the premium small domestic supplies segment. In the US, as I mentioned earlier, we experienced a slight decline in market share following our pricing and promotional changes in April and May, but we've been on a recovery path and feel optimistic about the trend. Looking ahead to Q4, it's worth mentioning that this quarter is somewhat unique due to the election year in the US. While we can compare it to previous election years, it doesn’t fully align with '23 or '22. Consequently, the usual uplift from promotions during this period is limited because consumer sentiment isn't where it typically is. Therefore, as we've stated in Q2 and Q3, we will participate in promotions only when we see the potential to create value and achieve an uplift. In the current environment, those opportunities are very restricted. Our primary focus remains on expanding margins.

Thank you.

And there are no further questions. I will now turn it back over to our CEO for closing remarks.

All right. Well, thank you, first of all, all for joining us today. I mean, you heard us talking today before quite a bit. We feel good about the margin expansion, which we had sequentially, both on a global and North America level, in particularly North America, which is, given the challenging environment, particularly North America is not an easy one, not a given one, but I feel very good about how our organization executed the actions which we've put in place. And I think they give us good momentum into Q4 and next year. And we all know that is an environment where housing recovery will come. And we all wish it comes sooner than later, but it will come and we're very, very well set up for housing recovery. And I would repeat what I said before. There's no company like Whirlpool which benefits more from housing recovery in the US. So with that in mind, I appreciate you all joining and talk to you sometime soon.

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