Whirlpool Corp /De/ Q3 FY2025 Earnings Call

Good morning and welcome to Whirlpool Corporation's Third 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 align with a presentation available on the Investors section of our website. Before we start, I want to remind you that we will be making forward-looking statements to help you better understand Whirlpool Corporation's future expectations. Our actual results may differ significantly from these statements due to various factors discussed in our latest 10-K, 10-Q, and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures, which are outlined in more 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 reflect results from ongoing business operations. We 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 reconciliations of non-GAAP items to the most directly comparable GAAP measures. With that, I'll turn the call over to Marc.

Good morning, everyone. Over the next hour, we will discuss our Q3 results, and we will provide you with plenty of data in detail. However, if you ask me to summarize the Q3 message in just one sentence, it is that our Q3 results demonstrate organic growth, while our margins are still impacted by tariff preloading in the industry. Let me first talk about our organic growth. We had two sources of growth in our business. One, our KitchenAid small domestic appliance business, which achieved double-digit revenue growth. Two, market share gains in our North American major appliance business on the back of our new product launches despite an intense promotional environment. As discussed in prior earnings calls, we have the largest number of new product launches in North America in over a decade. These new products have already secured strong flooring gains, and we are beginning to see very encouraging sell-out performance. Now let me address our operating margins. Our North American operating margins are a point below our expectations, which is not where we want to have them. So why is that? During our last earnings call, we presented three catalysts for value creation and margin improvement in North America. One, our new product launches, they are fully on track. Two, the housing cycle, which will undoubtedly benefit us, but not in 2025, which leaves the tariffs as a third catalyst for margin improvement. Tariffs come in various forms and have been slowly ramping up during Q3. In fact, the full burden of reciprocal tariffs which were announced on August 7 only became effective as of October 5 and are now finally fully in place. This ramp-up brought extensive preloading of inventories ahead of tariffs, and while this is not a surprise, it lasted longer than we anticipated. Regardless of these temporary impacts, the fundamental perspective on tariffs remains the same. We are the domestic producer with more than 80% of our U.S. sales produced in the U.S., while our competitors are largely importers. Tariffs by definition, support the domestic producer. The question is not if, but when. And we do believe we are close to a turning point. Container import volumes suggest a deceleration of imports in August and September following the peak in July. This is also supported by 17 consecutive weeks of container rate declines from mid-June. We do strongly believe in our value creation upside, in particular in our North American business, not only because of our promising new products but also because of our U.S.-based manufacturing footprint, which will, without any question, emerge as a competitive advantage. Our recent announcement of a $300 million investment in our U.S. laundry facilities is evidence of our confidence in our North American business. With this, let me hand it over to Jim, who will discuss the Q3 results as well as our full year guidance.

Thanks, Marc. Good morning, everyone. Turning to Slide 6. I will provide an overview of our third quarter results. We delivered 100 basis points of revenue growth year-over-year, driven by our new product launches in MDA North America and a strong double-digit growth of our SDA global business. Global ongoing EBIT margins of 4.5% were unfavorably impacted by the ramp-up effects of tariffs and foreign competitors preloading of Asian-produced inventory. This resulted in a continued highly promotional environment through the third quarter of 2025. Ultimately, we delivered ongoing earnings per share of $2.09, which was also supported by an updated adjusted effective tax rate of 8%, resulting in approximately $1 of favorability. Our free cash flow was unfavorable versus prior year by approximately $320 million, driven by the timing impact of tariff payments and the inventory build to support both new product launches and the incremental cost of tariffs. Turning to Slide 7. I will provide an overview of our third quarter ongoing EBIT margin drivers. Price/mix favorably impacted margin by 50 basis points. We are seeing positive momentum from the cumulative effect of our new product launches and benefits of previously announced pricing actions. At the same time, these benefits have been dampened by the effects of inventory preloading, resulting in continued promotional intensity. Our cost takeout actions delivered as expected, resulting in margin expansion of 100 basis points year-over-year, led by our manufacturing and supply chain efficiencies. Raw materials were essentially flat as expected. In the third quarter, we experienced incremental cost of tariffs of approximately 250 basis points. While marketing and technology was flat versus prior year, we have continued to invest in our products and brands. Lastly, currency depreciation associated with the Argentinian peso and Indian rupee resulted in an unfavorable margin impact of 25 basis points. Turning to Slide 8, I'll review the third quarter results for our MDA North America business. The segment achieved revenue growth both sequentially and year-over-year as new product introductions gained momentum and supported share gains. The tariff policy implementation delays and on-the-water exemptions led to continued preloading of Asian produced products in the third quarter. While our tariff costs are near steady state, some of our competitors are operating with largely pre-tariff inventory, which has resulted in a continued promotional environment, which negatively affected price/mix. Despite these challenges, we are seeing positive signs that import volumes by foreign competitors are likely decelerating, giving us confidence that we will operate in a more level playing field as we enter 2026. Turning to Slide 9. Let me review our new products supporting our growth in our MDA North America business. As previously mentioned, we have had a very strong lineup of product launches this year, with MDA North America transitioning over 30% of its products. A few highlights of our new product lineup include the Whirlpool and KitchenAid French door refrigerators. The true counter depth size seamlessly fits into your kitchen, allowing you to maximize your kitchen space, while the full depth size offers increased capacity and elevated aesthetic appeal to meet modern consumer expectations. The new KitchenAid dishwasher will allow you to discover next-level dishwashing with the automatic door open dry system, versatile third rack and filtration system that cleans itself. Finally, we have our new Whirlpool top load laundry, which combines refreshed aesthetics with performance, allowing you to choose how to wash with the 2-in-1 removable agitator. These products are just a few examples of how we continue to position our business for growth in MDA North America by bringing new innovation into consumers' homes. Turning to Slide 10. I'll review the results for our MDA Latin America business. In the third quarter, MDA Latin America experienced a net sales decline of 6% year-over-year, excluding currency due to volume decline. The challenging business environment in Argentina has negatively impacted the segment performance by approximately 100 basis points, resulting in an EBIT margin of 5.7%. Turning to Slide 11, I'll review the results of our MDA Asia business. In the third quarter, MDA Asia saw a net sales decline of 4% year-over-year, excluding currency, driven by volume decline. Continued cost takeout was offset by industry volume declines, resulting in approximately 2% EBIT margin for the segment. Turning to Slide 12, I'll review the results of our SDA Global business. The segment achieved double-digit net sales growth of 10% year-over-year, driven by the success of its new product launches. The segment continued to deliver a very strong EBIT margin of 16.5% as favorable price/mix and strong direct-to-consumer business continued to deliver margin expansion. Turning to Slide 15, I will review our guidance for 2025. As Marc highlighted, the near-record levels of preloaded Asian imports have unfavorably impacted our 2025 financial results. As a result, we are narrowing our full year EPS guidance and revising other components of guidance to reflect the timing at which we expect some of these headwinds to subside. Our net sales guidance of $15.8 billion is unchanged. As we continue to experience promotional intensity due to foreign competitor inventory preloading, we now expect to deliver a full year ongoing EBIT margin of approximately 5%. As mentioned, we are narrowing our full year ongoing earnings per share to approximately $7, supported by an improved adjusted effective tax rate. The One Big Beautiful Bill Act enacted in July 2025 includes the permanent extension of certain tax provisions and modifications to the international tax framework. As a result, we now expect an adjusted full year tax rate of approximately 8%. Without the benefit of our updated tax rate, we would be at the low end of the previous ongoing EPS guidance. Lastly, we have updated our free cash flow guidance to approximately $200 million. This reflects the updated expected EBIT margin and the impact of cash payments related to tariffs. Turning to Slide 16. We show the drivers of our updated full year ongoing EBIT margin guidance. We have updated our expectation of price/mix to 75 basis points to reflect the intense promotional environment continuing through Q4 of 2025. Net cost takeout is unchanged and reflects the expectation to deliver approximately $200 million. The expected impact of incremental tariffs is still projected to be 150 basis points. 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. Marketing and technology investments reflect our continued efforts to invest in our products and brands, and the improvement of 25 basis points demonstrates our ability to deliver more efficient marketing assets. Currency and transaction impacts are unchanged. Turning to Slide 17. I will review our revised segment expectations. We have adjusted EBIT margin in North America to reflect the lower-than-expected price/mix due to competitor preloading. We expect a full year MDA North America margin of 5% to 5.5%. With unfavorable currency impacts and continued macro volatility in Argentina, we now expect an EBIT margin of approximately 6% in MDA Latin America. We expect MDA Asia and SDA Global EBIT margins of approximately 5% and 15.5%, respectively, unchanged from our prior guidance. Turning to Slide 18. I will review our free cash flow guidance. We've updated our cash earnings and other operating items consistent with full year EBIT guidance to reflect the impact of tariff costs. We now expect capital expenditures of approximately $400 million as we continue to prioritize and optimize our capital investments. We expect to build approximately $100 million of working capital, primarily driven by incremental tariff costs in our inventory. Additionally, the timing of tariff payments is negatively impacting our working capital as tariff payment terms to the government are much shorter than our existing supplier payment terms. The full effect of tariffs is now reflected in our free cash flow expectations. Our restructuring costs due to previously announced organizational actions are unchanged at approximately $50 million. Overall, we expect free cash flow of approximately $200 million for the year. Turning to Slide 19, I will review our capital allocation priorities. As demonstrated through our 100-plus new products launching this year, investing in innovation that meets our consumer needs is a critical priority to drive our organic growth. Secondly, we are committed to reducing debt levels. We continue to expect to pay down $700 million of debt, taking a significant step toward our long-term target of 2x net debt leverage. As the ramp-up effects of tariffs impact our 2025 financial results, our debt paydown will be delayed into 2026. Lastly, we have declared a fourth quarter dividend of $0.90 per share, continuing to return cash to shareholders through funding a healthy dividend. Turning to Slide 20, I will give an update on the anticipated Whirlpool of India transaction. As you may have seen announced earlier this month, we have now entered into strategic agreements between Whirlpool Corporation and Whirlpool of India, which include brand and technology licensing. These agreements, along with the transition services agreement, paved the way for how Whirlpool Corporation and Whirlpool of India will operate together over the next several years. This is a critical and prerequisite milestone to support the advancement of our expected transaction. With this structure in place, we continue to work toward an ownership reduction to approximately 20%. Ultimately, the proceeds from this ownership reduction will be used to pay down debt. We expect to announce a share sale transaction by December of 2025 and are targeting transaction completion in the first half of 2026. Now I will turn the call over to Marc.

Thanks, Jim. And turning to Slide 22, let me revisit why North America is well positioned to create significant value in the mid and long term. As mentioned earlier, there are three fundamental components that serve as catalysts for growth for our North America MDA business. First, we are strengthening our product portfolio with over 30% of our North American products transitioning to new products in 2025. This compares to less than 10% product renewal in a normal year. Secondly, our strong U.S.-based manufacturing footprint positions us as the net winner of new tariff and trade policies. Thirdly, turning to the U.S. housing market, we continue to see strong underlying fundamentals that point to a likely multiyear recovery. It is a well-established fact that the U.S. housing market is significantly undersupplied by approximately 3 million to 4 million homes, which is compounded by an aging housing stock with a median age of 40 years. Additionally, the elevated mortgage rates have created pent-up demand that we expect to unlock once interest rates start to ease. Turning to Slide 23. I'm pleased to showcase the new KitchenAid suite, which we began shipping to our trade customers in September. To put this in perspective, this is the first full KitchenAid redesign in a decade, and this line of products represents over $1 billion of annual business with strong margins. We've seen both strong flooring gains as well as very promising sellout trends over the past weeks, and our KitchenAid market share is now trending towards its highest level in over a decade. Beyond the exciting new colors, the modern design is aesthetic. This line is unique in its personalization opportunities. The personalization comes from a combination of interchangeable colors of handles and knobs, which can be easily changed in the consumer's home. Turning to Slide 24. I will reinforce how Whirlpool will be the net winner of trade tariffs. So far, in 2025, tariffs have been a headwind to our business. As they ramped up, our margins were impacted by approximately $100 million of incremental costs in the third quarter. These costs are largely related to imported components and to a lesser extent, to imported finished goods. Our competitors, on the other hand, took advantage of implementation delays and on-the-water exemptions to accelerate imports from Asia and flood the market with lower-cost inventory. In fact, during the first half of 2025, we experienced nearly the highest level of appliance imports from Asia on record. As a result, and not surprisingly, the promotional environment has remained elevated, preventing us from realizing our competitive advantage as the largest U.S.-based producer of appliances. Since reaching peak levels in June and July, we have seen signs that point towards a deceleration of imports. While we do not have import data for August and September available, the ocean container costs have been dropping at a rapid pace, a clear indication of lower demand for ocean containers. Also, as of October 5, we are operating in an environment where all imported appliances will be subject to the full reciprocal tariffs as well as the Section 232 tariffs. With this, the tariffs will finally begin to turn the tide in our favor given our unmatched domestic footprint. As a domestic producer with more than 80% local production, we will have a clear relative advantage over our competitors. To put this relative advantage in numbers, as Whirlpool, we expect to face approximately 3% cost increase on an annualized basis. Our foreign competitors, on the other hand, are estimated to experience approximately 5% to 15% cost increase depending on their production footprint as they are largely importers in the U.S. We are confident that these headwinds are temporary and ultimately, Whirlpool is uniquely positioned to benefit from these policies mid and long term. Turning to Slide 25. Let me summarize our progress against these catalysts for growth. One, we are pleased by the early success of our new products launched this year. We've seen a positive reaction from our trade customers, gaining 30% increase in flooring compared to the prior year. Two, with our domestic manufacturing becoming a competitive advantage, we're investing even more capital in our U.S. footprint. We just announced a $300 million investment in our laundry factories, which will add capacity and further fuel our innovation pipeline. And three, even though the housing market will need further mortgage rates reductions to finally gain momentum, we're exceptionally well positioned to win in the eventual housing recovery. We continue to see strength in our builder channel position and have just recently renewed a multiyear contract with one of the top three builders. As a reminder, we have contracts with 8 out of the top 10 U.S. builders, supported by our product and brand portfolio as well as our final mile delivery capabilities. Turning to Slide 26. Let me just summarize what you heard today. We're pleased to have achieved organic revenue growth in the third quarter. Our SDA Global business continues to be a bright spot. New products and a successful D2C strategy delivered sustained growth and margin expansion throughout 2025 and will continue to drive value creation. Our market share gains in North American major appliances are just the beginning, and we're encouraged by the success of our new products. Beyond the success of these new products, there is no doubt that the two big macro cycles, U.S. tariffs and U.S. housing, will ultimately turn in our favor. Even with these macro cycles turning in our favor, we remain very focused on cost takeout initiatives and see more cost takeout opportunities as we head into 2026. And now we will end our formal remarks and open it up for questions.

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

My first question is around the share gains that you have seen this quarter. Can you talk a bit about how much of that is driven by the new product launch and the momentum that you're seeing there relative to promotions? And any changes that you saw company specific during the quarter?

Yes, Susan. Your share gains relate to our major business in North America, where we experienced 2.8% revenue growth, which is a positive and encouraging sign as it's the first growth we've seen in quite some time. The share gains we achieved in Q3 effectively counterbalanced the losses from the first half. Currently, we feel confident about our share position. In terms of their origin, the share gains primarily came from new products, while we maintained our promotional efforts. It’s a combination of both aspects. We stood our ground on promotions despite external pressures, and the new products drove the share gains. As I mentioned earlier, we're particularly pleased with the KitchenAid business, which reached an all-time record market share in the major category, stemming from new product launches rather than promotions. We're also excited about the introduction of a new French door model, along with a complete mid-layer of top load laundry appliances. We are very optimistic about these new products, and based on a couple of weeks of market presence, the sellout data looks promising for what’s ahead.

Okay. That's helpful. And then it's nice to see the continued strength in the SDA business. Can you talk about what is driving that? And especially, it seems to be coming despite the weakness that we're seeing in housing and even with the consumer volatility out there. So can you just talk about the momentum there and how you're thinking about that business going forward?

Yes, we are quite optimistic about our current position in the SDA market and the momentum we are experiencing, which we believe will positively impact next year as well. Several factors are contributing to this. Firstly, unlike the major appliances, the small domestic appliance market is not as influenced by the housing sector; it's more based on discretionary spending rather than replacement sales. We have benefited from three main factors. Firstly, we launched many new products last year and have more on the way. We've also made significant advertising investments to support these new launches, which has helped bolster our business, particularly beyond the stand mixer category, but also within it. Secondly, our direct-to-consumer (D2C) business continues to show strong growth. As this volume increases, our profitability improves because the search and traffic costs are distributed more favorably. We are pleased with the progress of our D2C initiatives. Lastly, while SDA may not seem significantly affected by tariffs, it is a unique situation since most of our SDA production, aside from our factory in Greenville, Ohio, is based in China. The impact of tariffs on the SDA market came earlier, leading to noticeable changes in industry behavior, meaning the effects of tariffs were felt in our sector before they trickled down to the major appliances.

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

Marc, you talked about the gains in retail flooring. And I'm just wondering, I realize each of these listings would have a different velocity. But in total, under current demand conditions, what would those incremental listings represent in terms of 2026 unit growth?

That's a very specific question, and I'm a bit hesitant to provide details on the 2026 unit growth perspective. First, we replaced roughly 30% of the SKUs in North America in 2025. While that process isn't fully completed, with the KitchenAid VBL, I can say that around 90% of the products we aim to launch in 2025 have already been introduced. It's important to note that launching products incurs costs, such as display expenses, which impact our margins. Therefore, the immediate value accretion isn't evident due to these initial costs. In launching new products, we feel very optimistic about our flooring discussions. With 30% of our new products, we have secured about 29% more floor space compared to previous SKUs, which is a strong indicator. Everyone in retail knows that gaining flooring is just one piece of the puzzle; selling the products is another challenge. The sellout data varies, with some areas being more mature than others, but overall, especially with the KitchenAid and Top load launches, we are very optimistic. Putting this all together, we are confident about our organic growth opportunities as we approach 2026 in North America, regardless of market conditions. We believe we have significant momentum, and while the flooring costs may not be fully reflected in Q3 margins, we feel a strong tailwind from these new product launches.

And just to be clear on this, and I have a follow-up question. But just to be clear, you're expecting the flooring costs, the upfront flooring costs to be fully realized by the end of the calendar year.

Yes, by the end of Q4, we will have mostly absorbed the flooring costs. Next year, we will have some product launches, but it will be significantly fewer than this year, which has been the peak for product launches.

Right, right. Okay. And the second question is regarding the tariffs and the $225 million of expected unrecovered 2025 tariff expense. How much of this do you expect to recover in 2026, presumably once you have the benefit of tariff protection?

Well, regarding tariffs, there is a gross and net component. On the gross side, we are incurring tariffs. Currently, we expect to pay $225 million this year, assuming tariffs remain stable. This is a significant assumption, as there are many factors at play. The expectation is that the amount next year will likely be around $300 million to $350 million, though this is just a preliminary figure. It's important to analyze the changes in gross tariffs, with year-over-year comparisons largely occurring in Q1 and slightly into Q2. The real advantage for us is that this represents about 3% of our North American sales. When comparing the country of production and respective tariff rates of our competitors, it suggests that their headwinds are around 5% to 15%. This situation gives us a relative competitive advantage, which should lead to volume growth and overall margin improvement in North America.

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

First, I wanted to take a step back and look at the ongoing promotional environment, which is clearly a factor here, and it is expected to continue through the end of the year. I would like to understand how this promotional environment compares to the norms prior to COVID. Are there specific metrics that indicate this situation is 5% more intense from a net pricing perspective than past periods? It would be helpful to have some indicators that we can use to gauge whether things might normalize once excess inventory or promotions are cleared from the channel, allowing us to better anticipate what to expect as conditions stabilize.

Yes, Michael, it's Marc. Obviously, that's a big question, and there's no precise answer to it, to be very transparent. So first of all, on a multiyear perspective, as you all remember, we had, I would say, pre-COVID more or less a normal promotional environment. And it's just a consumer market, which everyone in a while needs to be stimulated with some promotion around the holidays. That's nothing new, nothing abnormal. Now post-COVID, in particular in the context of supply chain crisis, there was essentially a no promotional environment. And then these promotions quickly ramped back up again into the market in late '23, but in particular in '24. So these were the big cycles. Now this year, on top of this massive swing, you have a very rapid change and volatile environment because, of course, when everybody started the year, we didn't anticipate tariffs to that extent. We didn't anticipate the preloading. So you have right now a lot of industry volumes shifting in the market, which is just not comparable to any normal year. So your question around normal or not normal, I would more refer to the volumes which were shipped into the country, which is just outside a normal pattern. The consumer will always need some stimulation around some holidays, but that is nothing new. So the real normalization effect comes from just industry shipments balancing and reflecting both the normal trends, but even more important, reflecting real underlying costs.

I mean, Michael, just to highlight, as Marc kind of discussed earlier in some of his remarks, I mean, next year in the industry, the tariffs will create an unprecedented level of cost increases for many of the participants. And so it's very hard to predict, but obviously, that should have an impact.

I appreciate that. I understand it's a very fluid environment. I wanted to shift focus to the balance sheet. You mentioned that you've postponed the $700 million debt paydown until the first half of next year. Could you address how you plan to manage the revolver and financing needs over the next couple of years, especially as certain elements of the revolver come due? Will the remaining financing needs be refinanced and extended, or will there be additional debt paydown? Any further details on this would be helpful.

Yes, this is Jim. I want to start by saying that our long-term goals remain unchanged, specifically our aim to achieve a 2x net debt to EBITDA ratio. However, the timing of some plans has shifted. At the beginning of the year, we successfully refinanced $1.2 billion of our term loan, which places us in a strong position. Additionally, we are making good progress with the India transaction, and we have announced that all major agreements necessary for completion are in place. Although the closing of this deal is now pushed to 2026, we are optimistic about receiving the proceeds and using them to reduce our debt. Overall, from a liquidity standpoint, we feel confident. Our revolver utilization has been a cyclic process we've managed for many years, and we believe we are well-positioned now. In terms of capital allocation and debt management, the only change has been the adjustment in timing. We are pleased with our current liquidity and access to resources, and we are taking steps to lower our debt levels, feeling good about our strategy for accomplishing this in the near future.

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

I wanted to inquire about the balance sheet and cash flow situation. The guidance for free cash flow, although lowered, still suggests a significant improvement in the fourth quarter, despite the increased product costs you've mentioned. Can you clarify the factors affecting free cash flow and how you plan to manage that? Additionally, if tariff payments increase again next year, there will certainly be changes in other areas. However, your free cash flow target of $200 million aligns roughly with your reduced dividend, which doesn't significantly contribute to reducing debt. How are you approaching the dividend, and could you share any insights on the trajectory of free cash flow beyond 2025?

Yes, Mike, this is Jim. I'll take this question. First, I want to mention that our working capital is currently higher than usual for this time of year. This increase is due to our recent product launches and the inventory we built up in anticipation, along with tariff costs that are included in that inventory. Consequently, we have an elevated inventory level. Our receivables are at a typical pre-year-end level; they will decrease as we ship more products and collect cash before year-end. This working capital situation alone likely provides us with a benefit of over $600 million as we move into the latter half of the year. Additionally, many of our promotional payments occur early in the year, allowing us to accrue more over time, which also benefits us in the latter part of the year since we don’t pay most of those until the following year. From a free cash flow perspective for this year, there are several significant factors at play. I also want to note that the tariffs, which were a considerable one-time expense that we had to pay within 30 days, have now been fully accounted for. This won't negatively impact us going into next year, but rather, it will become a regular cost. Regarding the dividend and our free cash flow, we believe our free cash flow will increase next year. Without the one-time impact of the tariffs, we will see an automatic benefit as we look ahead. While we are not providing guidance at this moment, I believe we will return to a more typical level and see some of these working capital effects stabilize, leading to a more earnings-driven free cash flow profile.

Okay. Yes, that's helpful color, Jim. The second question, I guess, is on the implied fourth quarter guidance and the margin dynamics seem pretty clear. It seems like the revenue guidance implies that there's a healthy step-up in year-on-year growth in the fourth quarter despite this competitive environment and soft macro. Can you just talk a little bit more about what's underlying that fourth quarter assumption to get to the $15.8 billion for the full year?

Yes, Mike, it's Marc. So actually, ultimately, the Q4 revenue or implicit revenue guidance for the fourth quarter is largely driven by what I mentioned before, our Q3 itself from a growth perspective, the organic growth perspective was very good. And in particular, on the two components, SDA, which by definition, even Q4 is bigger than Q3. So you have this SDA component where you carry a lot of momentum into Q4, and we feel very good. But the same is true for majors, North American majors. The new products are working and particularly the KitchenAid suite, which I presented earlier, that is only flowing now. So we start now seeing the full revenue benefit. So we feel really strengthened by these product launches in majors and with SDA, and that ultimately drives that. So we do not assume a higher-than-usual participation in promotional environment. We do what is right for our business and what creates value. So it's really coming from new products.

Your next question comes from the line of Jeffrey Stevenson from Loop Capital.

How has demand historically trended the following year after elevated levels of new product introductions and incremental floor space wins like we've seen this year? And have you typically seen an acceleration in demand in the following year for new products benefiting from areas such as brand and marketing investments and then a full year of in-store floor displays?

Yes. I'm smiling because there's a notion in the appliance industry that the best year for product launch is the year after the introduction. This holds some truth. The reasoning is that when you phase in new products and phase out old ones, it incurs significant industrial costs. There's a factory ramp-down that requires managing spare parts, often leading to obsolescence, and then a ramp-up that is typically costly. The same goes for the retail floor. You need to manage old and new products, which comes with physical flooring costs and margin expectations for retailers. While introducing a new product is exciting, it does come with expenses. The following year, however, you benefit from a full year of product availability without the associated costs. Additionally, from a retail perspective, sales associates need time to get acquainted with new products, understanding which features to promote and how to sell effectively. With each passing month after the launch, sales associates gain more confidence in selling the product, especially if they see good rotation. Often, the year following the launch turns out to be stronger, and we believe that will be the case for us as well, as this has historically been the trend.

But the KitchenAid product, the KitchenAid major products that we've launched, there will be a multiplier effect as the housing market recovers eventually because this is the segment that's probably been hit the hardest, the discretionary segment and the premium segment. And so to Marc's point, you get the benefit of the launch into next year. But then as the housing market recovers, this is the segment that will benefit the most. And so we kind of see this as a multiyear opportunity.

Okay. Great. No, that's very helpful. And then I wanted to shift to the $300 million capital investment to add new capacity to your Ohio laundry manufacturing facilities. Can you just walk me through what went into that decision and why now was the right time to move forward with both projects?

Yes. What you're referring to is a $300 million investment decision, particularly aimed at our Clyde and Marion laundry factories. First, our laundry business is performing very well. In some areas, especially with the new top load products, we are nearing our capacity limits. Overall, things are progressing positively, although there are some constraints. A capital investment of this magnitude isn't made in a single quarter; it's spread over one or two years. It's not based on past performance but rather on future potential. Given the macroeconomic cycles we've discussed, we currently believe that investing in U.S. manufacturing of domestically made products will yield very attractive returns. Additionally, the tariffs have improved the payback cycle of this investment, making it more appealing. Therefore, this investment is a deliberate decision based on the expectation of a bright future for U.S. manufacturing.

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

So a couple of just clarification questions. First obvious one would be, any view yet, Jim, on what a ballpark '26 tax rate might be?

Yes. Sam, we aren't providing guidance at this time. However, if you look back to the beginning of this year, we mentioned that we believe our rate could eventually normalize between 20% to 25%. We have experienced several years where we've been significantly below that. As we assess the recent changes in the environment and how we've leveraged those opportunities, we will update our outlook at year-end. Nonetheless, that range could serve as a useful long-term benchmark.

Sam, it's Marc. Just as a reminder, a significant part of our favorable tax rate resulted from the Big and Beautiful Bill, which was unexpected at the beginning of the year. While we can always hope for favorable changes, I don't anticipate a similar tax bill change next year. Therefore, we should expect a more normalized tax rate moving forward, and we will provide more details in January.

I have a second question. I understand your hesitance to discuss specifics about 2026, but you have a unique situation with steel costs since you have secured many of your costs for that year, unlike your competitors. How do you currently view the relative cost advantage you have for steel next year? Additionally, around this time in the third quarter, you usually provide some insight into what raw material prices might look like on a year-over-year basis for the following year. Any information you could share on that would be appreciated.

Yes. Sam, I appreciate your question. And as in every year, we've not yet giving the exact guidance on raw materials. But first of all, on steel, as you rightfully pointed out, pretty much one year ago, we went from typically one-year contracts to multiyear contracts. We're largely locked and they're not all the same, but they pretty much operate within certain parameters. So in some ways, you couldn't consider our two- to three-year steel contracts pretty much as hedge kind of setup from a contract. So they give us a very predictable and stable steel cost base. Bearing all to mind, 96% of the steel which we purchased for our U.S. products are U.S. Steel made, so that gives us a very good predictive base. Typically, when we set up these contracts, we expect a certain discount versus the public available market data. And right now, we're well within that range. So we buy on average better than the market. Now sometimes you have spot rate fluctuations. But we're right now buying, I would say, slightly below market, and that's what we expect for next year. Keep also in mind, we still pay a lot more than for any China steel, hence, the whole discussion about the tariffs. So we're still about 2.5x as much as China steel, never forget that. So it's still a very significant cost burden. But to put it in a positive context, we do not expect any surprise on the steel side. And I would also, at this point, do not expect major, major negative or positive surprises on the raw material side in next year. I would say on the raw material, there's a couple of pluses and minuses. We all see the copper trends, but then there's other offsetting elements. So by and large, I would expect a normalized raw material environment for '26.

Your next question comes from the line of Andrew Carter from Stifel.

First question I wanted to ask, getting back to kind of the cash flow for the year. It went from a neutral to $100 million since the last quarter. I realize things changed, but the tariff has changed a little bit. So I'd ask why such a significant change? And also, what does that say kind of in terms of your visibility into all the tariffs and all the dynamics? And do you have complete visibility into what the actual cost should be, what your buy should be, et cetera?

Yes. I'll start this off, and this is Jim, and then Marc can comment if he wants. To begin with, regarding the tariff environment, it has been evolving throughout the year. It's important for everyone to understand the tariffs and how they should be calculated. You're not just dealing internally; you're also working with third-party brokers and others. It's a more complex process than we all anticipated at the start. That said, I believe we now have a good grasp of it, which is why we've updated our numbers accordingly. From a cash flow perspective, as we discussed earlier, we knew the payment terms were relatively short, but the dollar amounts have continued to fluctuate. We feel we have that revised correctly now. When looking at how this flows through our cash conversion cycle, unfortunately, it doesn't change our ability to collect cash on the other side, which became clear during the process. The $100 million change in working capital is related to the costs of the tariffs, as well as the new product launches and other activities we've had going on. We've built up certain levels of inventory, and in a typical year, there could be some variability. However, given this year's volume and the introduction of new products, there's slightly more variability. We believe this will normalize as we continue to supply enough inventory to the retailers because, as Marc mentioned earlier, the flooring has performed very well. Therefore, we want to ensure we have enough product to support the sell-through associated with that flooring.

Okay. Yes, that's helpful color, Jim. The second question, I guess, is on the implied fourth quarter guidance and the margin dynamics seem pretty clear. It seems like the revenue guidance implies that there's a healthy step-up in year-on-year growth in the fourth quarter despite this competitive environment and soft macro. Can you just talk a little bit more about what's underlying that fourth quarter assumption to get to the $15.8 billion for the full year?

Yes, Mike, it's Marc. So actually, ultimately, the Q4 revenue or implicit revenue guidance for the fourth quarter is largely driven by what I mentioned before, our Q3 itself from a growth perspective, the organic growth perspective was very good. And in particular, on the two components, SDA, which by definition, even Q4 is bigger than Q3. So you have this SDA component where you carry a lot of momentum into Q4, and we feel very good. But the same is true for majors, North American majors. The new products are working and particularly the KitchenAid suite, which I presented earlier, that is only flowing now. So we start now seeing the full revenue benefit. So we feel really strengthened by these product launches in majors and with SDA, and that ultimately drives that. So we do not assume a higher-than-usual participation in promotional environment. We do what is right for our business and what creates value. So it's really coming from new products.

Your next question comes from the line of Jeffrey Stevenson from Loop Capital.

How has demand historically trended the following year after elevated levels of new product introductions and incremental floor space wins like we've seen this year? And have you typically seen an acceleration in demand in the following year for new products benefiting from areas such as brand and marketing investments and then a full year of in-store floor displays?

Yes, I'm smiling. There's an old saying in the appliance industry that the best year for product launch is the following year. There's some truth to this. When you phase in and phase out products, it incurs significant costs because you have to ramp down production, manage obsolete spare parts, and ramp up new ones, which is usually expensive. There are also costs related to the trade floor. You need to manage both old and new products, which come with physical flooring costs and margin expectations from retailers. So, while introducing a new product is exciting, it does have costs associated with it. The following year, however, you benefit from having a full year of the product available without those initial costs. On the retail side, sales associates also need time to become familiar with the new product and understand its features to effectively sell it. As time goes on after the launch, sales associates gain more confidence in selling the product, especially if they see good sales rotation. Therefore, it's often the case that the year after is actually a stronger year. We certainly believe this holds true for us as well, as it's been historically the norm.

But the KitchenAid product, the KitchenAid major products that we've launched, there will be a multiplier effect as the housing market recovers eventually because this is the segment that's probably been hit the hardest, the discretionary segment and the premium segment. And to Marc's point, you get the benefit of the launch into next year. But then as the housing market recovers, this is the segment that will benefit the most. We kind of see this as a multiyear opportunity.