Whirlpool Corp /De/ Q2 FY2025 Earnings Call

Good morning, and welcome to Whirlpool Corporation's Second Quarter 2025 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 a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we 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 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 listen-only mode. With that, I'll turn the call over to Marc.

Thanks, Scott, and good morning, everyone. As expected, we navigated a challenging second quarter and continued to operate in an increasingly complex external environment. The macroeconomic uncertainty marked by elevated interest rates and evolving trade policies negatively impacted consumer sentiment. In particular, weakness of consumer sentiment not only suppressed demand but also impacted itself as we continue to see consumers choosing to move into lower-end products. Furthermore, with the recent delays in tariff implementation, Asian competitors are not yet experiencing the full cost of tariffs and have continued to increase their imports ahead of the tariffs. In fact, we estimate that during the first half of this year, the amount of Asian appliance imports will approach the highest level on record. Needless to say, this preloading has created significant short-term disruption, adding to the promotional intensity throughout the second quarter. We are well positioned to win over time and are confident these effects are temporary in nature. However, it has become clear that they will extend well into the third quarter, putting pressure on short-term margin expansion. Despite these macro challenges, we still delivered sequential net sales growth across all segments in the second quarter and very strong results in our SDA Global business, driven by our exciting new products. Given the prolonged loading impact by competitors and the lack of consumer confidence in the marketplace, we are updating our full year guidance. As we expect the full impact of tariffs to kick in later this year and these temporary negative effects to subside, we are confident that we will see meaningful improvement in the MDA North American business heading into next year. Our perspective has not changed that Whirlpool will be a net beneficiary from these new tariff policies. We are structurally positioned to win in this environment and believe we are operating from a position of strength, driven by our strong domestic footprint. Irrespective of the external challenges, we will stay focused on what we control. We successfully implemented pricing actions, which structurally drove cost out of our business, and we strengthened our balance sheet with our recent debt refinancing. Putting it all together, our investment case remains as strong as ever, and we see a credible pathway for improvement in our results. One, we are excited about the extensive portfolio of new products we're introducing this year, the largest number in more than a decade. Two, we are a clear beneficiary of structural shifts in trade policy. And three, our leadership position with U.S. homebuilders and our deep relationship with national accounts position us to benefit from eventual recovery in the U.S. housing market. Whirlpool is well positioned to deliver sustained long-term value, and we have every confidence we will do so. Turning to Slide 6, I will provide an overview of our second quarter results. Negative consumer sentiment that impacted global industry demand in the second quarter led to a 3% decline in net sales, excluding currency. Despite the challenging demand environment, we continue to see strong growth in our SDA Global business. Global EBIT margins held steady year-over-year at 5.3% and despite significant currency headwinds, primarily from a weakening Brazilian real. Our free cash flow was unfavorable versus prior year by approximately $140 million, driven by the seasonal inventory build. Ultimately, we delivered ongoing earnings per share of $1.34, which was negatively impacted by approximately $0.35 from a noncash loss associated with our minority interest in Beko Europe B.V. Turning to Slide 7, I will provide an overview of our second quarter ongoing EBIT margin drivers. Price/mix favorably impacted margin by 25 basis points. This was slightly below our expectations as the preloading of Asian imports sustained an intense promotional environment. Additionally, weakened consumer confidence pushed mix down further in an environment that was already largely replacement driven. As expected, our cost takeout actions delivered margin expansion of 100 basis points year-over-year, led by our continued manufacturing and supply chain efficiencies and our organizational simplification actions. As expected, raw materials were essentially flat. In the second quarter, we began to experience the increased costs associated with tariffs at approximately 50 basis points. While overall marketing and technology was flat versus prior year, we have continued to invest in our new products. In the second quarter, the Brazilian real and Mexican peso depreciated compared to prior year, resulting in an unfavorable margin impact of 50 basis points. We also experienced approximately $90 million of unfavorable noncash impact from our minority stake in Beko Europe B.V. Ultimately, we maintained flat margins year-over-year despite the challenging global macro environment. And now I will turn it over to Jim to review the second quarter segment results.

Thanks, Marc. Good morning, everyone. Turning to Slide 8, I'll review the second quarter results for our MDA North America business. Net sales were down 5% year-over-year as we continue to experience a challenging macro environment in the U.S. Consumer sentiment remains weak as a result of the economic uncertainty and evolving tariff policies. As Marc stated, the significant preloading of Asian imports from foreign competitors due to the delay in tariff implementation caused the promotional intensity to persist. In the first half, we saw Asian imports up over 20%, while the industry was down despite being propped up by the inventory loading. All this is effectively delaying the impact of tariffs on appliances being imported by our foreign competitors well into the second half of this year. Despite these challenges, MDA North America delivered an EBIT margin of approximately 6%, with strong cost takeout offset by lower volume and unfavorable product/mix. While we continue to experience a choppy macro environment, we are confident in our growth potential for North America. Turning to Slide 9, I'll review the results for our MDA Latin America business. In the second quarter, MDA Latin America experienced a net sales decline of 1% year-over-year, excluding currency, with implemented pricing actions offset by double-digit negative consumer demand in Mexico. The segment delivered a solid EBIT margin of 6%, with favorable price/mix and cost actions driving approximately 20 basis points of expansion year-over-year. Turning to Slide 10. I'll review the results for our MDA Asia business. In the second quarter, MDA Asia saw a net sales decline of 4% year-over-year, excluding currency, driven by industry decline, partially offset by continued strong share gains. The segment delivered over 7% EBIT margin in the quarter, with 90 basis points of year-over-year margin expansion from continued cost takeout. Our Asia business continues to operate well, overcoming the geopolitical tensions in the second quarter and delivering substantial margin expansion and share gains. Turning to Slide 11, I'll review the results of our SDA Global business. The segment delivered another strong quarter, with net sales growth of 8% year-over-year driven by direct-to-consumer sales growth despite a declining industry in North America. We continue to see growth and margin expansion from our recent product launches in high-growth categories, including our semi and fully automatic espresso machines. The SDA Global business is well positioned to continue to deliver significant growth in the second half of the year, which typically accounts for two-thirds of annual demand. Now I will turn the call over to Marc to provide an overview of North America's growth catalysts.

Thanks, Jim. Turning to Slide 13. We outline why North America is well positioned to unlock significant value creation. As mentioned before, there are three fundamental components that serve as catalysts for growth of our North America business. First, we strengthened our leading brand and product portfolio with over 30% of our North American products transitioning to new products in 2025. For context, this is our largest product portfolio refresh in over a decade. Our trade customers have responded very positively to the new product innovations we are launching this year, resulting in gaining a significant number of new floor spots. While the new product launches are taking place throughout 2025, we expect to see the biggest impact from our new KitchenAid suite launch, which starts shipping late September. Secondly, our strong U.S.-based manufacturing footprint positions us as net winners of a new tariff and trade policies. In an industry where most competitors are largely importers of major domestic appliances, eight in ten products Whirlpool sells in the U.S. are made in the U.S. Furthermore, the majority of our raw materials and components are also domestically sourced, with over 96% of the steel used in our U.S. factories sourced from the U.S. With our larger domestic production footprint, we are uniquely positioned in the appliance industry and the current economic landscape. Based on the announcements in effect as of today, we expect that foreign competitors will begin to experience the full implications of tariffs on appliances as they sell down their preloaded inventory in the back half of 2025. Lastly, turning to the U.S. housing market. We continue to see strong underlying fundamentals that point to a likely multiyear recovery. The industry has been experiencing multi-decade lows in existing home sales as mortgage rates have remained elevated. This is also shaping the profile of major appliance demand, which has seen discretionary demand contract by ten points as existing home sales tend to be the primary driver of discretionary demand. While we're not assuming a housing market recovery in 2025, we believe in the mid- to long-term fundamentals and are positioned to capitalize on this opportunity. Simply put, there is no company better positioned to benefit from eventual housing market recovery than Whirlpool. Now turning to Slide 14. I would like to highlight some of the exciting new product launches. Let me start with our innovative downdraft induction cooktops from JennAir. As you might know, the downdraft cooktop is the heritage product of a JennAir super premium brand. What is new is the unique combination of induction technology with the most advanced and most powerful downdraft system, which we developed jointly with a leading European downdraft company. Apart from the obvious benefits of a downdraft, like faster, more effective extraction and an unobstructed view, this product can be installed without a duct, which offers a great replacement demand opportunity. Based on what we learned from Europe that this product is leading in the marketplace by value, we believe there is significant growth opportunity in the U.S. as well. On Slide 15, you see a picture of our all-new KitchenAid suite, which starts shipping at the end of September. To put this in context, the last time we introduced an all-new KitchenAid suite was in 2015, and this line of products represents over $1 billion of business. Beyond the modern and advanced design, this line will be unique in its personalization opportunity. The personalization comes from a combination of interchangeable colors, handles, and knobs, which can actually be changed at the customer's home. We introduced this new line to the design and builder community a few months ago, and the response has been remarkably strong, with hundreds of new floor spots gained. Lastly, on Slide 16, we show you our new Maytag pet top load laundry. You might recall that our Pet Pro technology has been hugely successful in the top load agitator segment. We're now bringing this innovation also to the impeller top load machines, which tend to be more in the premium segment of the marketplace. It is an industry-first technology, and the Maytag brand has all the credibility in getting the job done to launch this innovation. Turning to Slide 17, we'll discuss the tariff landscape for appliance imports into the U.S. This slide summarizes the relevant tariff actions taken by the administration and illustrates the estimated tariff rates as a percentage of total product value, assuming rates as of today, and the August 1 reciprocal tariffs. You can see in the table how the various tariffs, including Section 232 in steel content, Section 301 in specific components and finished goods, and the reciprocal IEEPA tariffs from various countries impact appliance imports. While the overall tariff picture is still fluid, a 44% tariff on Chinese products and a 16% tariff on finished goods from other Asian countries should substantially impact competitors and, in turn, benefit American manufacturers. Slide 18 clearly shows why we believe that no matter how you look at the U.S. appliance industry, there is no other company better positioned than Whirlpool with our U.S. manufacturing footprint to navigate this trade landscape. As you can see, 80% of our MDA North American products sold in the U.S. are produced in the U.S. This compares to the rest of the industry, excluding Whirlpool, which has only about 25% domestic production. We are proud to be invested in U.S. manufacturing, and we will continue to invest in the U.S. as we have for over a century. As the only primary domestic producers compared to our major competitors who are largely importers, we're confident that this is a new competitive advantage for Whirlpool in the new tariff landscape. Turning to Slide 19. Let me review how our North American business is well-positioned to benefit from an overdue housing market recovery in the U.S. Appliance demand is broken down into three main drivers: discretionary demand, which is highly correlated to existing home sales; new home construction; and replacement demand driven by direct purchases. The U.S. housing industry has slowed in recent years as interest rates have risen sharply, drastically impacting discretionary demand. Notably, the size of these demand drivers has shifted significantly in this time frame, with replacement demand becoming a bigger portion of overall demand. While replacement demand has continued to be strong, this comes with a weaker mix relative to discretionary demand. Return of discretionary demand will bring a much stronger appliance mix. Turning to Slide 20, we show how discretionary demand is impacted by existing home sales. As mentioned earlier, there is a strong correlation between discretionary demand and existing home sales. In 2022, the rapid increase in mortgage rates slowed home sales significantly to the lowest level in 30 years. As mortgage rates begin to moderate off the peak, we expect existing home sales to improve. Discretionary demand has a richer mix with more building products and full kitchen suite sales. We expect existing home sales will unlock in the mid-term and improve discretionary demand. On Slide 21, we discuss U.S. new home construction, which has been undersupplied since the financial crisis and creates long-term upside potential for Whirlpool. There is an undersupply of U.S. housing of approximately 3 million to 4 million homes, along with the rising median age of U.S. homes to over 40 years, which is the oldest housing stock in U.S. history. Given the favorable demographics in the U.S., a multiyear improvement in new housing starts is needed to address the undersupply gap. Turning to Slide 22, we highlight how our leading builder business is positioned to benefit from the overdue housing recovery. A few years ago, we made the conscious choice to invest in the U.S. builder business and significantly strengthen our position in this part of the segment. As a result, today, we're proud to hold the number one position with national builders approaching 60% share. We also do business with eight of the top ten builders in the U.S. Our final-mile delivery capabilities, along with the breadth of our products and brand portfolio, allow us to directly serve our builders and meet their needs, a truly differentiated capability. Putting it all together, you see that we are at an inflection point in terms of our performance and our position to win in this environment. To wrap up this section, let me repeat our three catalysts for structural long-term growth in our North American business with new products, strengthening our leading brand portfolio; a unique domestic footprint, which positions us as a winner in the new trade policy; and our number one position among builders, which will provide sizable upside in the eventual housing market recovery. And now I will turn it over to Jim to review our 2025 guidance and capital allocation priorities.

Thanks, Marc. Turning to Slide 24. I will review our updated guidance for 2025. As Marc highlighted, there continues to be considerable uncertainty in the macro environment, along with short-term headwinds from the preloading of Asian appliance imports. As a result, we are updating our full-year guidance to reflect this uncertainty and the timing in which we expect some of these headwinds to subside. We now target the India transaction to close around year-end and, therefore, have included the India results from July through December 2024 back into the baseline for comparison purposes. The reset baseline excludes approximately $800 million in net sales and an approximately $9 million EBIT loss, creating a like-for-like comparison for 2025 guidance. On a like-for-like basis, 2024 net sales were approximately $15.8 billion, with an ongoing EBIT margin of approximately 5.7%. We expect approximately flat net sales of $15.8 billion in 2025, reflecting our strong pipeline of new products, offset by the worsening global consumer sentiment impacting demand and unfavorable currency. On a like-for-like basis, we expect an approximately flat ongoing EBIT margin of 5.7%. Free cash flow is expected to deliver approximately $400 million. As a reminder, the adjusted effective tax rate is expected to be 20% to 25% in 2025. We still expect the cash tax rate to be significantly lower. We expect full year ongoing earnings per share of $6 to $8. Turning to Slide 25. We show the drivers of our updated full-year ongoing EBIT margin guidance. We have updated our expectation of price/mix to 25 basis points to reflect the weakening consumer sentiment impacting mix and the delays in tariffs prolonging the promotional pressure beyond what we previously anticipated. Net cost takeout reflects the expectation of delivering approximately $200 million. Transaction impacts reflect our most recent expectations on the noncash impact of equity from affiliates related to Beko Europe, lowered by 25 basis points. We lowered the expected impact of incremental tariffs from 250 to 150 basis points to reflect the most current proposed tariff rates. The biggest adjustment from previous expectations is most notably from China's tariff rates. We expect to offset these impacts through the cost-based pricing actions announced in the second quarter and by continuing to assess our supply sourcing strategy. It is important to reiterate that these impacts represent currently announced tariffs and do not factor in any future or potential changes in trade policy. Turning to Slide 26. I will review our updated segment expectations. Globally, we now expect the total industry to be approximately flat to down 3%. In MDA North America, with the worsening consumer sentiment and pressure on discretionary demand, we expect the industry to be flat to down 3%. MDA Latin America has seen significant deterioration in Mexico and a deceleration in Brazil. Therefore, we now expect the industry to be flat to down 5%. We continue to see demand improvement in India, however, behind initial expectations due to geopolitical tensions and an unusually cool summer selling season in the second quarter. We have adjusted the MDA Asia industry flat to up 3%. Finally, SDA Global continues to be impacted by discretionary demand weakness in the U.S. and Europe, resulting in the expected industry for the year to be flat to down 3%. It is important to note that we continue to expect to deliver incremental sales growth through our new product introductions despite the unfavorable industry. We have adjusted EBIT margins in North America to reflect the prolonged effect of tariff uncertainty and the competitor preloading negatively impacting the promotional intensity. We expect a full year MDA North America margin of 6% to 6.5%. With unfavorable currency impacts and weakening consumer demand in Latin America, we now expect EBIT margin of approximately 7%. We now expect MDA Asia EBIT margin of approximately 5% driven by India consolidated results now being included in the full-year guidance. With the strength of SDA Global's direct-to-consumer growth and previous new product introductions, we now expect an increase in EBIT margin to 15.5%. Turning to Slide 27. I will review our free cash flow guidance. We've updated our cash earnings and other operating accounts, consistent with full-year EBIT guidance. We have not changed our expectations for capital expenditures and continue to focus on delivering product excellence and investing in our U.S. manufacturing footprint. We expect to sustain our low working capital levels and do not expect a material impact. Finally, we've updated the restructuring expectations of the previously announced organizational simplification actions to approximately $50 million. Overall, we expect free cash flow of approximately $400 million for the year. Turning to Slide 28, I will review our capital allocation priorities. Investing in innovative products that meet our consumers' needs is critical to driving our organic growth. We are very excited about the 100-plus new products we are launching this year. Secondly, we are committed to reducing debt levels. We continue to expect to pay down $700 million of debt in 2025, taking a significant step toward our long-term target of 2x net debt leverage. Lastly, we are committed to returning cash to shareholders by funding a healthy dividend. We are confident our business is well positioned for growth. However, the volatile macro environment and prolonged suppressed housing cycle have impacted our short-term results. After careful consideration with focus on our long-term value creation, we are recommending to adjust the annual dividend rate to $3.60 per share starting in the third quarter. While this decision was not taken lightly, it is critical to ensure we create the capacity on our balance sheet for future investments in the U.S. and continued focus on debt repayment. As a reminder, the dividend is approved quarterly by the Board of Directors. Turning to Slide 29. We continue to strengthen our balance sheet and operate with ample liquidity. We proactively refinanced $1.2 billion of debt with 5- and 8-year notes at very favorable rates with a weighted average rate of 6.3%. We still expect to pay down approximately $700 million of debt this year, and the cash generation from the anticipated India transaction, which has generated significant interest from large third-party investors, is targeted to close around the end of 2025. As a reminder, we have ample liquidity for our operations and financing needs as we have access to a $3.5 billion revolving credit facility. Turning to Slide 30. Let me review what you heard today. While we are operating in a challenging macro cycle, we are encouraged by our progress. We continue to reduce costs from our business, launch record numbers of new products and execute previously announced pricing actions. In North America, we're very well positioned for growth, driven by our new product innovation, significant domestic manufacturing footprint, and housing demand fundamentals that suggest a multiyear recovery is on the horizon. We continue to expect the administration's tariff policies will help level the playing field for U.S.-based producers and, in effect, make Whirlpool a net winner. Our SDA Global segment delivers strong value creation as it delivers continued top-line and margin expansion. As we move into the second half, we remain focused on the execution of what is within our control, driving structural cost takeout, implementing previously announced pricing actions, and executing on our capital allocation priorities, including organic growth, debt reduction, and funding a healthy dividend. With the right operational priorities in place, we are confident in our strategy and our ability to create long-term value. Now we will end our formal remarks and open it up for questions.

Your first question comes from the line of David MacGregor from Longbow Research.

Yes. Marc, what's your best estimate of the quantity of pull-forward tariff-free imported product currently on the ground? And how long will it take to move that through retail?

David, it's difficult to give an exact estimate, but I can share a couple of data points. The overall market saw a slight decline in registered sell-in during Q2, while appliance imports from Asia have increased significantly when looking at year-to-date figures, particularly over 20% if we exclude China. There is a notable discrepancy between the officially reported sell-in and actual shipments from Asia. I would suggest that even the declared sell-in is slightly greater than the true sellout. Additionally, the AM shipment figures may contain some consignment stock from competitors, making calibration challenging. Without the June official import data, I'll refer to May's data, and as of the end of May, I anticipate there could be anywhere from 60 to 90 days of inventory from excess Asian imports. This should gradually move through the system, and I hope that each month will show a decrease as the tariffs start to take effect, but there has undoubtedly been a significant increase throughout May.

Okay. I guess as a follow-up, I just wanted to ask you about the promotional calendar. And I guess at this point, all the manufacturers are out with their promotional plans for the second half. What are you hearing in the way of how second half might look different from the first half? It seems as though manufacturers are backing off PMAPs, support for house offers, shifting to more kind of buy more, save more type of promotional programs. Is the problem that your competitors' promotional focus has shifted to more premium products, and that's cutting more into your margins? Just talk about how the second half should play out.

Yes. David, as you know, we typically refrain from making forward-looking statements regarding promotional pricing. In hindsight, including the July 4 period, we significantly reduced our promotional efforts in terms of both duration and depth in Q2. We were likely ahead of our competitors in being less aggressive. This adjustment was influenced by the impact of tariff costs, but more importantly, in a strong replacement-driven market, the return on promotional investment is minimal. The math behind some of these promotions suggests that the gains are often just a pull forward. It raises the question of whether deep investments in promotional periods are economically justified when the returns are so limited. This reasoning led us to reduce our promotional depth and duration in Q2. While we don't issue forward-looking statements, I don't expect our behavior to change significantly. The industry saw substantial promotions during July 4, partly due to excess inventory that needed to be cleared. Post-July 4, we observed a normalization after the promotions. However, it's still difficult to predict what this might mean for events like Labor Day and Black Friday. Overall, I anticipate a more subdued environment than in previous years, but this is purely speculative at this point.

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

Marc, I want to follow up on the import situation. In the last call, the inventory was described as lasting a few weeks, but now it seems to be extending through the third quarter, going back to the comments made in April and extending into September. Given that some of the data we can see is lagging, how much visibility do you have regarding the calculations of how much is in warehouses or how much is at the ports or with your retailers? I’m trying to understand how you assess visibility on that level of imports, especially since it appears that tariffs from China might be delayed again.

Yes, Michael, I’d like to provide a more detailed response to your question. While we don’t have exact inventory data from our competitors, I can give you some context. During our last earnings call in April, which was shortly after the liberation day announcements, we expressed our full support for the administration's initiatives and believe we will benefit from them in the long run. However, since then, there have been several delays, and we are still uncertain about the outcomes around August 1, particularly concerning country-specific tariffs. While we commend the administration's efforts, we have to navigate an environment where tariff implementations have been postponed. This situation sends a signal to our competitors that they can increase shipments in the meantime, and that has been evident throughout the second quarter. An interesting indicator to look at is the container rates, which tend to rise, indicating higher demand for shipments. Each delay in tariffs appears to lead to an increase in loading activity. To be specific, we are aware of the official sell-in data and appliance imports up until the end of May, but we won’t see June’s numbers until mid-August. On a somewhat positive note, shipments from China have begun to level off, likely due to the significant impact of the tariffs implemented. In contrast, imports from other Asian countries have risen sharply. We anticipate similar trends in non-China Asian countries as the 232 tariffs and additional country tariffs take effect. There's considerable decision-making happening at the administration level, and we expect to have more clarity in the coming weeks. From the data we do have on industry sell-in and sell-out, we expect a substantial amount of preloaded inventory by early June, much of which was likely sold through by July 4. Nonetheless, there remains a significant amount of inventory still available. Thus, in Q3, we foresee a similar environment to what we experienced in Q2, but we anticipate gradual improvement. As time progresses and tariffs are enforced, we expect more normalization in the market.

Okay, that's really helpful information. My second question is about the major margins in North America. It appears that the new guidance is relatively flat, and I'm not sure if your comment about being similar in the third quarter pertains to the margin trends. The previous guidance suggested an increase in the latter half of the year. I assume the new guidance is mainly due to this preloading effect, but could you explain the changes in the margin guidance and what the expectations are for the latter part of the year in North America? That would be great.

Yes, Michael, what you mentioned is accurate. The adjustment of our guidance reflects the ongoing delays concerning tariffs. The fundamentals remain unchanged, and we expect to benefit from tariffs in the long run. We've launched a significant number of new products, and over time, we believe we will thrive in the housing sector. However, the positive impacts from these three factors are now postponed, which is affecting our margins in the third quarter. For the fourth quarter, we will need to wait and see. This uncertainty is why we provided a wider range of outcomes in our guidance because we cannot predict how our competitors will react to the tariffs. While we have a good understanding of our performance in the third quarter, the true indicator will be how the market behaves in September and October and how the fourth quarter pans out. I want to emphasize that this is just a delay and not a change in our core investment narrative. I firmly believe in the three key factors I mentioned earlier, which are essential for our growth in North America. Unfortunately, their impact is delayed more than we had initially anticipated.

Yes. Just to add to that, Michael, I think, obviously, as we've talked about with the additional imported inventory, it obviously has had an impact on the promotional environment. But also what that's impacted from our volume perspective is the leverage we get in our factories. And again, as that eventually makes its way through the system and subsides, it allows us then to get better leverage in our factories. I'd say today, the cost actions we're taking, we're seeing the benefits of. We're seeing benefits of many of the pricing actions we've taken. But again, we're operating in an environment where the volumes are just under pressure with all the product that's been imported into the U.S. recently.

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

My first question is looking at the SDA business, which had some really nice performance this quarter despite all the headwinds that you're facing there. Can you talk a bit about what has driven that and how you're thinking about the back half performance there, especially in terms of that segment margin?

Yes, Susan, it's Marc. We're very pleased with the SDA performance year-to-date. They had a strong first quarter, a robust second quarter, and it appears they will also have an impressive third quarter. We feel good about the momentum in the business. One major factor is the success of our new products, such as coffee makers, rice and grain cookers, and portable appliances. These have contributed significantly to our momentum. Additionally, our core stand mixer business is performing well, even in a stagnant market, thanks to new colors, accessories, and bowls, which enhances our product mix. Another key factor is the growth of our direct-to-consumer business, particularly in North America. We're seeing strong growth in this area, which represents a significant portion of our business in Europe as well. These two factors have been crucial for our strong first half. However, the SDA segment tends to be back-loaded, with a large share of revenues occurring in the third and fourth quarters, more so than in the major business. Therefore, while we are encouraged by the first half performance, we need to be mindful of the seasonality as we move forward.

I mean, I think, Susan, also, just the margins that we have in that business right now really speak to the strength of the brand and the products. And obviously, we're very excited about it. But they've also had an impact of tariffs, whether it's exporting to other countries outside the U.S. stand mixers or products that they've brought in from Asia. And again, despite that, you look at that business and the margins are completely on track. So again, I think that just goes back to tell you how strong that business really is.

Yes. Okay. That's very helpful color. And then maybe turning to capital allocation and the decision to recommend the Board reduce the dividend. Can you just talk about how you're thinking of shareholder returns in this environment, how that factors into your priorities and maybe the path from here as you do start to delever the balance sheet further?

Yes, Susan, I’ll begin with that. Firstly, we remain committed to returning cash to shareholders and to our dividend. We also have strong confidence in our business, which is important to emphasize. As mentioned in the prepared remarks, this was a deliberate choice, not a short-term decision. We carefully considered our current situation, capital allocation priorities, and our investment plans. While we aim to continue deleveraging, we also want to focus on investing in our U.S. business because, as Marc noted, we strongly believe in the U.S. housing market and anticipate a recovery. Thus, we examined not just the short term but also our long-term investment goals. We determined that reducing the dividend to $3.60 annually is appropriate, comparable to levels we maintained in a pre-COVID environment with similar earnings. We believe this is the right level of return and will continue to return cash to shareholders, aligning with the current state of the business and our priorities.

And Susan, it's Marc. From my perspective, making the recommendation to the Board to reduce the dividend to pre-COVID levels was not an easy decision. Ultimately, we believe there is a clear path to pre-COVID margins for the respective business units, which we've reflected in this decision. The existing dividend was set during the peak of COVID, and currently, we do not foresee a short-term path to those peak margins. Importantly, this decision is not driven by funding constraints, as we are well-funded with $1.2 billion backing us. Instead, it is about creating financial capacity for the future. We have confidence in the business, but I want the ability to pay down debt, especially with the U.S. market developing positively as we described earlier. Next year looks promising for investment in the U.S., and we want to ensure we have the capacity on our balance sheet. This is the main factor influencing our decision.

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

Can you talk about the sellout that you saw in North America MDA in the second quarter and 3Q today? And maybe talk about Whirlpool versus the broader industry?

Rafe, this is Marc. There's no single source for sellout data. We gather information from our customers and have a good understanding of our sales balance, which helps us calibrate our insights. In Q2, I would say the sellout was at best flat, likely down by about 2% to 3%. We particularly lost market share in April and May due to our promotional price adjustments being made ahead of our competitors, though we began to regain some ground towards the end of the quarter. As we enter July, we're feeling optimistic about our position. So far, the sellout in July appears to be positive, although it's still early to draw conclusions. We are uncertain about how the competition is faring, but it seems prudent to assume a market volume decline of 0% to minus 3%, which has influenced our industry guidance adjustment. One important note is that while the market may look somewhat stable in unit sales, the mix isn't healthy. It’s primarily driven by replacement demand, and consumer sentiment negatively impacts the quality of product mix. This is why launching new products is crucial, as it is our main strategy to improve our mix despite the negative trends in the market. Volume is one aspect, but the accompanying product mix is not where we want it to be, reflecting the overall weak consumer sentiment and very low existing home sales.

That's helpful. And then can you just give an update on the India sale in terms of what the potential timing is, proceeds? Has the structure of it changed? Just what you guys are exploring there.

Yes. And Rafe, this is Jim. And I'd say, listen, from the last call till now, there's been no significant change. We still anticipate the proceeds to be in the range of $550 million to $600 million. We still expect to close by or around the end of this year. We're in the middle of the process, and we continue to narrow down the number of participants in the process just as a normal process would work and work with those potential purchasers. And so right now, we believe it's on track, and nothing's really changed. We just continue to execute the process. And hopefully, by the next call, we'll be able to give a further update around where that is and talk more about the possible closure.

I think just one additional point is on this one. So the change has been about the expected closing of a transaction. So the transaction as such, we're highly confident and that it will materialize. Right now, in the updated guidance, we assume that the close would likely not technically happen in '25 but will fall into '26, but we expect to get clarity on the transaction a lot earlier.

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

Two things, if I could. The first one, in the deck, you include a data point where the impact of tariffs you expect to offset with, I think, mostly price. I'm curious what you're seeing so far that gives you confidence that you'll be able to get in the level of price that you're outlining to offset those tariffs.

Yes, Eric. Essentially, we have already implemented the necessary pricing actions through our promotional price increase and some list price increases in Q2, which I mentioned earlier. We have addressed what was needed to offset the tariffs. However, this positive impact is somewhat obscured by a negative mix we experienced in Q2, which has been quite unfavorable. We have two opposing factors at play: the positive effects of our promotional and list price adjustments, and the negative impact from the mix. Overall, we have largely executed the actions required in Q2. It’s important to note that we are still facing uncertainty regarding final tariff outcomes, so while we feel confident about our current pricing actions, there may be further adjustments needed down the line.

Yes. I think, though, on top of that, too, is to highlight is it's not just pricing that we're taking to offset that. We're taking cost actions. We're looking at supply sourcing and other things. And again, we're going back to our suppliers with an expectation to be able to find solutions to these increased tariff costs.

Okay. And then secondly, I understand that you've talked a lot about the noise of preloading and the impact that has. I guess excluding the impact of tariffs, which seems like it's not really in place right now, your North American share is contracting, and so I guess the protection of the tariffs is coming. But excluding that or in advance of that, why is your share not performing better? Or why is your share performing like it is?

Yes. Eric, as I mentioned earlier, we experienced a slight decline in market share in Q2 during April and May, losing less than one point. By the end of June, we adjusted our strategy and began to stabilize. While we do not want to lose market share and are confident we will not lose it over the course of the year, our confidence stems not only from the tariffs but also from our new product offerings. We have effective tools in place. However, we are facing significant promotional pressure due to a large amount of preloaded inventory. As previously stated, we will not engage in every promotion, especially those that do not provide value for retailers or competitors. If a competitor gains temporary share, I view it as unstable and not sustainable. What we truly need is a solid market share built on strong and healthy brands and products, and that remains our focus.

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

This is Alex Isaac on for Mike. First thing, on the demand side, with the revision downward of your demand expectations, can you sort of give some more granular details into what's driving those across regions? And how should we see this trend into the rest of the year and into '26? Do you feel this to be more transitory? Or are these more longer-term demand headwinds?

Yes, our revision on the industry guidance is due to various reasons. In North America, it's mainly influenced by consumer sentiment, which is currently not very positive. Consumers, like investors, are concerned with uncertainty and unpredictability, which is heavily affecting their mindset right now. However, consumer sentiment can change rapidly, often quicker than other factors. It can shift significantly in just a couple of months, so the overall outlook will depend on macroeconomic news. It’s important to remember that consumers have considerable home equity, which contributes to their wealth and gives them the capacity to invest in their homes, but presently they are holding back. I'm not being overly optimistic, but these sentiments can change swiftly compared to other economic factors. In Latin America, we've observed a more widespread economic slowdown, particularly in Brazil and, to a lesser extent, Mexico. This isn't solely about consumers, but reflects a general slowdown. While it's not a negative environment, it is decelerating. In Asia, especially in India, the situation is significantly influenced by seasonal weather patterns. Last year had a strong second quarter due to favorable weather, whereas this year has been quite different, which makes us cautious about the outlook in Asia. Small domestic appliances face unique challenges from a macroeconomic standpoint and are especially influenced by consumer sentiment. While there is some replacement demand, the category is predominantly driven by discretionary spending. We are also being cautious in this area. Nonetheless, the upcoming season for small domestic appliances is crucial, and consumer sentiment during September and October will play a significant role in shaping the industry's outlook.

I appreciate all the color on that. To dig in on SDA, I was just wanted to know if you could share some more details on direct-to-consumer and what percentage of that made up of SDA and then also how the margin profile varies between direct-to-consumer sales versus the overall segment.

Yes. We usually don't share specific details about our direct-to-consumer business compared to other areas. However, I can provide some context. Our direct-to-consumer business is in the mid- to high single digits, with significant variation across different segments. Notably, our Latin America business and small domestic appliances have the highest direct-to-consumer sales, accounting for roughly one-fourth of the business. This segment is quite healthy and will not replace our relationships with established retailers, which we value and depend on. Instead, it complements our offerings, especially for products like stand mixers. While the margin structure isn't drastically different, it remains an attractive business due to a higher revenue base combined with a healthy level of margins. As you know, the direct-to-consumer model has substantial fixed costs related to consumer search and purchasing, so a larger revenue base leads to increased profitability.

Your final question comes from the line of Josh Wilson from Raymond James.

Filling in for Sam Darkatsh. For my first question, could you talk a little more about your assumptions for North American market share and how that's changed from a quarter ago? I know you were expecting to gain share in the second half, but now with the delays in channel inventory headwinds, does that mean like flattish share in the third quarter and bigger gains in the fourth quarter? Or how are you calibrating the cadence there?

Josh, in general terms, we expect the same, i.e., we expect a healthy share level in the second half, driven largely by the new product introductions. And keep in mind, every quarter, we have more products, new products being floored. The second point is, as I mentioned earlier, we took the necessary pricing action promotion levels in Q2. Some competitors didn't do it. They will have to catch up at one point to deal with the cost, and I think that will create then more a level playing field and allows us to kind of pick up some market share. So we feel good about our plan for second half market share, and we have no intention whatsoever to concede market share easily.

And then as it relates to the dividend change, could you talk about what has changed either in your plans or the environment that catalyzed you to make the decision now versus 3, 6 months ago?

Yes. And this is Jim. And I would say, Josh, again, probably 3, 6 months ago, we really looked at the environment. We said there was a lot to it that we still wanted to see and understand better. We wanted to see how the tariffs rolled out. We wanted to see the impact it would have on volumes. Again, as I said, we remain confident in the business. We remain committed to the dividend, but we just thought it was very prudent to really understand the environment better and then kind of make the right appropriate deliberate capital allocation decision. And so again, as we said, this is as much about us looking at wanting to increase the capacity within our balance sheet but also to create the ability to invest further in our U.S. manufacturing footprint because we really do believe, based on what Marc said earlier and the actions that the administration is taking, this can set us up to win. And so we wanted to create that additional capacity, and we felt this was the right time.

I think we have reached the end of the Q&A session. Thank you all for being here today. You've heard a lot of information. A key takeaway is that, as a company, we don't take changes to our guidance lightly. I acknowledge that. At the same time, I hope you sense our confidence, and our investment thesis remains unchanged. This isn't solely based on being net winners from the tariff situation; it largely stems from the confidence and feedback on our new products, and our perspective on the housing market remains positive for the mid to long term. So, while we believe our investment thesis is stronger than ever, we felt it was necessary and wise to adjust our guidance to reflect the delays in certain impacts that will positively affect our business. Thank you once again, and we look forward to our next earnings call.

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