Whirlpool Corp (WHR) Q3 2026 Earnings Call Transcript

Welcome to Whirlpool Corporation's third quarter 2026 earnings call. Today's call is being recorded. Joining me today are Mark Vitzer, our Chairman and Chief Executive Officer, Roxanne Warner, our Chief Financial Officer, Juan Carlos Puente, our Executive President of North America and Global Strategic Sourcing, and Ludovic Buffiz, our Executive President of KitchenAid Small Appliances in Latin America. Our remarks today track with the presentation available on the Vestero 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 10K, 10Q, and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures, outlining further detail at the beginning of our entrance 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-gap items to the most directly comparable gap measures at this time all participants are in listen-only mode following our prepared remarks the call will be open for analyst questions as a reminder we ask that participants ask no more than two questions with that i'll turn the call over to Mark.

Thanks, Viv, and good morning, everyone. During the quarter, our execution focused on two core imperatives, protecting and expanding our margins in a tough macro environment and disciplined cash management. These imperatives not only shaped our third quarter results, but are also driving our actions as we move towards the end of 2026 and into 2027. What you will hear today are essentially four key messages. First, we delivered another quarter of sequential margin improvement against macroeconomic challenges that undoubtedly intensified over the last three months. Second, we made good progress on our pricing actions, in particular in North America. This progress was partially offset by incremental inflationary costs, and as a result, we did not deliver the margin step-up we had expected. In line with a slower pace of margin recovery in the third quarter, we are updating our full-year margin guidance. Third, we have implemented further pricing actions of 7% to 10% in North America and in Latin America. We expect the impact of these new actions to be somewhat limited in Q4 and fully ramping up in January. Our structural cost initiatives around strategic sourcing, manufacturing optimization, and warehouse footprint consultation are on track. But as mentioned in prior calls, the majority of the cost benefits will impact 2027. These structural cost initiatives, together with the additional pricing actions, set up a strong foundation for margin expansion in 2027. And fourth, we are prioritizing highly disciplined work in capital management that positions us to deliver on our full-year free cash flow goal. Turning to slide seven, let me cover our third quarter results. We delivered net sales of $3.7 billion, which was impacted by softer industry demand in North America. We saw a sequential margin improvement of 80 basis points to 2.6%, resulting in an ongoing earnings per share of negative 21 cents. While we made progress on our pricing and cost takeout actions, this progress was partially offset by higher raw material, fuel, and logistic costs. During the quarter, we maintained strict working capital discipline to prioritize balance sheet strength. Our free cash flow was a consumption of approximately $1.1 billion, which was negatively impacted by the timing of our recovery of insurance claims related to Grupo Casa Bahia. This is a major retailer in Brazil, which filed for bankruptcy reorganization, the equivalent of Chapter 11 in the U.S., in August. We expect to receive a majority of insurance claim payments related to this event in the fourth quarter. Turning to slide 8, I will walk through our sequential ongoing EBIT margin drivers. We delivered sequential margin improvement of approximately 80 basis points. Our pricing actions in North America and Latin America fully offset the mixed headwinds across the business and result in 250 basis points of improvement. Net cost was a tailwind of 100 basis points as we continue to make progress on structural cost takeout and ongoing cost productivity, with the benefits being partially offset by the impact of fuel and logistic costs. Raw material inflation unfavorably impacted margin by 75 basis points, primarily driven by higher steel, resin, and base metal costs. Net tariff impact was an unfavorable 225 basis points driven by incremental Section 242 tariffs in the U.S. Marketing and technology investments increased by 25 basis points, offset by a favorable currency impact of 25 basis points, primarily from a Mexican peso and Brazilian real, and favorable transaction impacts of approximately 25 basis points. Now I will turn the call over to Juan Carlos to review our MDA North America results. Thanks, Mark.

Turning to slide 10, I will provide an overview of our MDA North America segment. In the third quarter, net sales were $2.5 billion, negatively impacted by the persistence of industry demand. In Q3, the industry was down 3.3%, which is in line with our full year guidance of down approximately 5%. The solid execution of our price increase implemented in April and July, combined with our new product launches, drove approximately 230 basis points of sequential margin expansion. This improvement was masked by the inflationary headwinds resulted in 30 basis points of net sequential EBIT margin benefit. More recently, we announced an additional 7% price increase, effective November 1st in Canada and December 3rd in the U.S. While the impact of Q4 results will be limited, we expect this action, combined with our structural cost takeout actions, to further expand margin in 2027. Turning to slide 11, let's review the positive impact of this price increase in our retail sellout price data. As a reminder, this chart represents the aggregated view of thousands of price data points collected every week from public sources. The yellow line shows that our price realization progressed strongly through Q3, maintaining 8% to 9% gains over the January 2025 baseline prices. The blue line shows that competitors' average pricing has also meaningfully moved upward since the beginning of 2026. This trend is consistent with the full burden of tariffs and increased transportation costs, ultimately reinforcing our confidence in a long-term value of our domestic footprint. Another element that is centered to our strategy is delivering meaningful product innovation that delights our consumers. Turning to slide 12, you can see our latest industry-first product innovation in our refrigeration lineup. We recently launched the industry-first refrigerator with an indoor-novatized maker under the Whirlpool brand. This true counter-debt French door refrigerator is a great addition to our portfolio. It hits the marketplace as a consumer demand for Nugget Ice accelerates across North America, setting a new benchmark for consumer innovation. By combining highly valued features with premium design, this product serves as a standout differentiator that directly supports our premium growth strategy. Turning to stage 13, we're bringing another industry-first innovation to our core laundry category. Our Tableau washer now features a removable delicate basket, which addresses a longstanding consumer pain point by allowing delicate items to be gently washed at the same time as the everyday laundry load. By combining delicate care with daily laundry capacity in a single cycle, this unique offering drives premium mix and reinforces our product leadership in MDA North America. On slide 14, we're maximizing benefits from our manufacturing and supply chain footprint to optimize our structural competitive advantage. In our last earnings call, we discussed three key manufacturing footprint initiatives that we announced in Q1. A multi-year modernization and operational optimization of our plant in Amana, Iowa. Unlocking supply chain efficiencies through vertical integration in our facility in Perisbrook, Ohio. and shifting refrigeration production between Subsa and Ramos, Mexico, to leverage scale and lower conversion costs. We have hit key milestones across all three initiatives, and our progress year-to-date gives us confidence in our operational trajectory. In U.S. logistics, we have completed 25% reduction in our local distribution center count and continue to advance with the consolidation of regional distributions and return centers. Importantly, we are maintaining reach and proximity with 97% of our customers remaining within 100 miles of our distribution centers. In total, these manufacturing supply chain actions represent $290 million in structural cost benefits. While these benefits are largely expected into 2027, our cost initiatives continue to progress, contributing to our sequential margin progress and offsetting incremental fuel logistic costs. Now I'll turn the call over to Luro to review our MDA Latin America and SDA global results.

Thanks, Juan Carlos. Turning to slide 15, I'll review the results for our MDA Latin America business. Excluding currency, net sales increased 2.5%, driven by higher volume, partially offset by price mix. We experienced temporary margin pressure as our mix shifted out of Grupo Casas Baez's more premium portfolio, resulting in an EBIT margin of 2%. As retail inventories adjust and our volume redistribution settles, we expect the mix to normalize over time. We have announced incremental price increases across the segment of up to 10 percent, effective in Q4, which alongside our key new product launches are expected to increase profitability in 2027. Turning to slide 16, you can see two key product launches that are driving premium growth in MDA Lab America. First, a new lineup of induction cooktops in Brazil, featuring a fresh design that aligns with the premium brass stamp aesthetic. Second, the new Whirlpool and brass stamp French door refrigeration line with its stunning black liner combining sophisticated design with versatile functionality. These are just two examples of how we're expanding our premium product pipeline in Latin America with high margin products as we continue to focus on margin expansion. Turning to slide 17, let's review our SDA global business. New product launches and our direct-to-consumer channel continue to support share gains globally and help deliver a healthy EBIT margin of 18.6% in the third quarter. We had another quarter of strong sellout globally, while seasonal order shifts pushed the top-line growth into Q4, as evidenced by the approximately 40% increase year-over-year in our October U.S. orders. We continue to take actions to grow our business beyond our core categories and have recently bolstered our portfolio of licensed products by expanding our kitchen accessory sales through our direct-to-consumer channel. We are also introducing KitchenAid Kids, a new line of role-play toys with lights, sounds, and motion to captivate aspiring young chefs. KitchenAid toys can already be found in key retailers globally. On slide 18, let me showcase two of newest product innovations on the left is our kitchen aid 2026 design series stand mixer the luminaire it combines the built-in light of our new artisan plus with a new fluted glass bowl and the result is a striking new visual expression for this iconic kitchen appliance the luminaire complements our successful artisan plus lineup which has generated strong interest from trade customers and enabled us to capture high value incremental flooring and high mix pos On the right, we're highlighting the expansion of our KitchenAid Go cordless line. We've added a grater, slicer, shredder, and a vacuum sealer, which means a single rechargeable battery can now power 10 different appliances across the KitchenAid Go collection. To summarize, we've had a strong performance in the first three quarters, and now enter Q4 highly confident in our ability to deliver double-digit growth for the year at highly accretive margins, in line with our full year guidance. Let me now turn the call over to Roxanne to review our updated guidance and capital allocation priorities.

Thanks, Ludo. Turning to slide 20, we are updating our full-year guidance across organic net sales, ongoing EBIT, and ongoing EBIT margin to reflect the current pace of our margin recovery. On a like-for-like basis, we now expect revenue decline of approximately 1.5% in 2026. This reflects softer demand in the U.S., along with price and mixed pressures, particularly in Latin America. We anticipate a full-year ongoing ebit margin between 2% and 2.2%, driven by continued momentum from our new product launches, strategic pricing, and sustained structural cost takeout. We are being extremely aggressive around what we can control. On a full-year basis, we expect to deliver approximately $250 million of gross cost savings driven by design-to-value cost reductions and strategic cost initiatives. These positive drivers are being offset by the negative impact of volume deleveraging tied to softer demand and fuel and logistics costs, resulting in net cost takeout below $150 million. Despite these external headwinds, our cash generation is resilient. We expect to deliver free cash flow of approximately $300 million or approximately 2% of net sales driven by rigorous working capital discipline, including proactive inventory reductions and stronger cash collection. Turning to slide 21, let me walk you through our updated EBIT margin guidance for the year. We are now expecting a benefit of 25 basis points in 2026 from Pricemix, with the benefits of our multiple pricing actions extending into 2027. We expect a 125 basis point headwind from our cost actions being more than offset by inflation and volume deleverage. We now expect a 100 basis point headwind from raw material inflation driven by elevated resin and base metal costs. We expect a lowered 75 basis point headwind from the impact of tariffs, net of tariff mitigation actions. It is important to note that these impacts represent currently announced tariffs and do not factor in any future or potential changes in trade policy. We also now expect no material impact for marketing and technology and a favorable currency impact of 25 basis points driven by the Mexican peso and Brazilian real. Turning to slide 22, I will review our updated segment guidance. Starting with industry demand, we now expect MDA Latin America to increase 5% to 7% with our expectations for MDA North America and FDA Global unchanged. For MDA North America, we now expect to deliver a full-year EBIT margin of more than 2%. For MDA Latin America, we now expect to deliver a full-year EBIT margin of approximately 3%. percent. Our full-year EBIT margin expectations for our SDA global business remain unchanged. Turning to slide 23, I will outline the components of our free cash flow guidance. As I mentioned, we expect to deliver approximately $300 million in free cash flow in 2026. We expect our lower earnings contribution to be fully offset by robust working capital management, including stronger cash collection and inventory optimization, which are expected to protect our cash flow generation and maintain our balance sheet resilience to navigate challenging market conditions. Turning to slide 24, let me reiterate our capital allocation priorities. Investing in organic growth through product innovation is critical to our business. We will continue to invest in product innovation digital transformation and cost efficiency projects with approximately 400 million dollars of capex expected this year turning to our balance sheet and capital allocation we are very pleased with the proactive steps we've taken to secure long-term financial flexibility in what remains a challenging operating environment as part of our commitment to optimizing our portfolio, we fully exited our stake in Beko Europe during the second quarter. In tandem, our strategic capital structure actions have successfully extended our debt maturity profile, leaving us with no major maturities until 2028. Furthermore, we are raising our year-end net debt outlook. We now expect to close the year below $4.5 billion, improving on our prior target of net debt of less than five billion dollars. Now I will turn the call back over to Mark for closing remarks.

Thanks Roxanne. Turning to slide 25, let me wrap up before we take questions. Despite the persistent macroeconomic headwinds, we are focused on what we can control. Driving margin expansion through pricing realization and disciplined execution of our structural cost takeout actions are front and center. Our rigorous work in capital management is protecting our free cash flow, reinforcing our balance sheet, and maintaining our financial flexibility. Beyond our core major appliances, our business units continue to deliver exceptional value. Insign Grader delivered its second consecutive quarter of year-over-year revenue growth and sda global is on track to deliver a very strong performance in 2026 as we look forward to 2027 we are cautiously optimistic a combination of one a very strong pipeline of new product launches two the benefits from a pricing actions we have already taken and announced and three the structural cost reduction initiatives that are fully underway together create a solid foundation for margin expansion. And this is absent of a change in the macro environment. Most importantly, we're fully committed to creating shareholder value. Strategic investments in our U.S. domestic manufacturing footprint are deepening our competitive advantage, and our portfolio of iconic brands and leading position in the Build-A-Channel will catalyze the tailwinds from eventual U.S. housing market recovery.

Now we will end our formal remarks and open it up for questions at this time i would like to remind everyone in order to ask a question press star then the number one on your telephone keypad your first question comes from a line of sam darkash from raymond james your line is open yes uh good morning mark roxanne juan carlos luto how are you good morning good morning first question um a lot of moving parts we're starting to get a little bit more visibility into 2027 um as it stands right now what i mean i know things are fluid but as it stands right now what what is rmi and tariff and cost takeouts look like for for 2027 and then i've got a quick follow-up yes sam that i mean obviously as you know it's um We give guidance and everything else in more detail in our January call.

Having said that, let me give you a little bit of perspective. And as you may have heard in my remarks earlier, we're cautiously optimistic for 2027. Now, on the cost side specifically, and again, these are, call it the external cost elements and the internal ones. Let me first start with the internal ones. What we call our gross productivity from design changes, et cetera, is actually also this year pretty well on track. You also need to understand that, and you know it, is these are massive engineering efforts, which very often have quite a bit of sizable carryover benefits. So we know pretty much today what we will get next year from these cost changes, and they're on track. The second part is what we earlier highlighted is the structural cost changes with what we've been doing in Amanda, what we're doing in Sousa, what we're doing in Brazil also, between Argentina and Brazil, and lastly, with Parisburg. these are all massive structural cost changes frankly which cost us money this year so they didn't give us that much benefit this year but they will carry over so we feel very good about call it the cost which we can control and i would argue from today's perspective we're probably heading towards one of the highest gross productivity numbers in a number of years the flip side is um as you point out rmi and tariff the tariff i mean we all we all know that don't know um right now we're assuming it's a pretty more stable tariff environment um obviously there's a little bit of uncertainty on the canadian tariff that's probably the only one but right now we factor in that's just staying hopefully at one point will go away um but again we just don't know right now we just assume it's stable on the raw material as you know with the two biggest raw material to have is steel and resin steel is in particular for north america has seen a massive price increase over the last 12 months actually of 50 which i think in many ways you could argue a little bit disconnected from reality because iron ore went down and the international steel price are on a completely different level having said that we we locked in two out of three contracts which are long-term contracts um and i would call them they're at fair prices not spectacular but they're fair um so to some extent we're we have a certain buffer and we have a certain protection not yet entirely um but it's going to be a hit versus the full year run rate having said that that is largely baked in already in the back half of this year so sequentially it's not that much of a dramatic change and then you have a plastic side of a resin side which in the long term typically follows oil as you've all seen all just in q3 went up 20 for reasons which we're all aware of and right now the only thing which we can do right now if if oil stays let's say around a hundred dollars um yes that would largely be reflected with our run rate of q3 and q4 but we all know there's a certain called volatility risk which by the way could go in both ways on the oil side heading to 2027. so on the raw material i think oil is right now the biggest factor which we can't fully foresee steel a little bit better because we have these contracts and then of course you have a large tail end on raw materials which for we're entire 26 were not necessarily favorable but i would say they're large reflectors in the q3 and q4 runway so samuel was a long answer to a short question but i just want to give you a little bit of color thank you for that the second

question, the 7% North American pricing effective in December, I'm guessing that's mostly PMAP, but is that PMAP, is that list, and then what is the 2027 price rollover at this point, understanding that almost everything is really to 27, not to 4Q? Thanks.

Yeah. And Sam, let me start and maybe have a laugh later on to give some additional color. And then let me combine your question, which probably like the question, which we might get on page 11 anyhow, on the price development, which again, this chart on price 11 shows pretty much the price development since January 25, us versus the competitors. you clearly saw in q3 we were june july we were aiming very high we had course correct a little bit in q3 and right now we're kind of call it boosting another price element in q4 um and that that's what's already been announced to the trade so the trade is fully aware of what we're doing which in reality there's some call it more smaller tactical moves throughout october november and then there's a significant move effective kind of a first week or end of the first week in december which fully carries over into next year that significant move which again is in the ballpark of seven percent is actually a combination of map p map in some cases also first cost so it's a mixed bag of elements um but it's largely on the map where we also gave and the p maps where we gave trade visibility for quite some months out so it's a it's not just a kind of a one week um it's a fairly predictable one again that has already been communicated to the trade um but it's a it's a combination of different tools regardless yeah so obviously the the focus is in the u.s in the u.s it's seven percent starting december 3rd and in canada is uh november 1st but it is basically we provide to our trade partners 90 day lead time on all the promotional pricing moving forward and that's what has been communicated with the trade maybe just the last comment i want to make sam on your carryover question needless to say when you kind of with the price increases and knowing that this is a holiday quarter you can't impact that much anymore of a black friday and the promotion period of course correct a little bit but you can't impact it so yes there's in the month of december we expect a sizable lift and that's already baked in and of course that lift will carry over into next year that's part of the reason why we're cautiously optimistic again this is a competitive environment but this is what we

communicated and obviously vp's exit run rate we have um i would say several points of positive pricing carrying into 27. your next question comes from a line of david mcgregor from longbow research your line is open yes good morning everyone um morning good morning i wanted to ask you about the fourth quarter free cash flow that's implied in your 300 million for the year and specifically around working capital, because you've talked about reducing inventories, increasing collections. Maybe you can provide some examples of exactly what is your plan to do differently there that gives you confidence in that number. And then also, you've got your Casa Bahia recovery coming through a 4Q, and how much of that should we be modeling?

So David, let me give you a high level and then I would ask Roxanne to give you a little bit more color and details. So first of all, as you know i mean in q4 that's typically the quarter where our cash flow flips from negative or low to so positive so that's not unusual that follows us to big seasonality q3 is and for example given a little bit more color is heavily impacted because of course we had to the receivable from casa bahia are out of a negative in q3 of which we collect a big portion back into q4 um if you look at our full year cash flow guidance in the bridge of course we're kind of softer on the earning side and we basically make it up on the working capital you also saw on the working capital initially i'm so it's now showing a 300 million um if you compare it to last year last year we consumed working capital 150 so the first 150 is basically just flip back to normal working capital but yes we challenge ourselves with an additional 150 million working capital um which requires work and i'm first one to admit it the reason why we're positive about it is our inventories which is typically the most difficult piece to kind of adjust in the short term are on a very low level i would even argue to some extent too low level um so typically when you have a lot of work in q4 to take it down we're already at that level so we know that's on a pretty level good level in fact we may even produce more which gives us a little bit of a boost on the payable side so um but yes um we're collecting we challenge ourselves with an additional 150 million working

capital beyond what we had in mind to offset the earning shortfall and right now we have plans in place um um to go after that okay thanks matt hi david so just to put some some numbers particularly on the casa by a portion in q3 there's approximately 150 million dollars of the receivable that we wrote off. And that has an impact on the Q3 free cash flow. Our expectation is to then collect approximately $100 million of that in Q4. So you see that timing shift. And then as Mark said, to be very specific, we came into this year saying that we're going to go after working capital with everything we have. And that's exactly what we did. We did in the first half, execute the inventory actions, precisely as we mentioned in the call that we would do. And then now in the Q4, we're very, very focused on cash collections, reducing overuse the levels that we haven't had before. And then similarly on accounts payable, working very closely with our suppliers to get those terms that we need to ensure that we deliver the working capital of approximately $300 million for the year.

Okay. Thank you for that. Second question. I guess I just wanted, Mark, to get your impression on replacement demand. And I think we can all track what's going on in the builder channel and discretionary. But the replacement demand we've always thought of as being kind of the rock, right? That was the 55%, 60% of demand that we knew we could count on. It seems as though that's easing up a little bit. People are maybe finding it a little easier on the household cash flow to repair rather than replace. What are you seeing in the numbers right now when you look at replacement demand?

And how are you thinking about that for 2027? yeah so david i would say there's a a long-term perspective on replacement and kind of more temporary one first of all the long-term one is reality is we're living right now in the replacement market um you also you know as well as anybody else that the minus five percent of the industry which we're forecasting is largely coming off discretionary um it's that's essentially what um that's a painful part because the discretionary as you all know is the more margin rich margin rich and mixed rich part of the business so replacement is right now a dominant factor and now come to the temporary one which you probably alluded to um we've seen in situations in the past where you had a very negative consumer confidence or other elements that people even hold back some replacement decisions for example on dishwashers um or on a second appliance so we've seen this kind of situation before but people temporarily shift into oh I'm gonna repair another time or I'm gonna hold off in the past and again and we have a reference to the global financial crisis in 2008 and other elements that temporary situation didn't last very long I mean at one point people will replace it but yes we've seen these kind of temporary moves before and they will cause correct it doesn't change the fact that we're in a broader context living in a replacement market, which with our supply chain, et cetera, we're well set up to deal with it. But right now, it doesn't help you on the mix side.

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

Morning. Thanks for taking my questions. I just wanted to start out on the price increase in North America. I mean, Mark, you mentioned having a course correct a little in 3Q. And when you think about the additional price actions, It doesn't seem like at least at this point, you know, your competitors didn't follow on the summer increases, and I don't believe they've announced similar ones the way you have incrementally.

So is this going to represent kind of a shift in how you're viewing margin preservation or progress versus share in the near term, or how would you describe that? yeah michael so first of all and obviously as you know i can't comment on a competitor price move of what they plan or not plan i can refer to what is not in my slide that's what we've seen in october and we've seen price moves by the competitors so that's just what we see and i can't speculate and going forward as we've shown in q3 we will take the lead and that's what we're doing because it reflects real costs it reflects real material costs and real tariff costs so yes we take a very rational approach and but it's in the context of what you alluded to is our focus is on margin expansion and that is our focus in q4 that's our focus in 27 and you will see that also when we talk about it um and if sometimes you go a little bit ahead and you take a certain risk um on the share that's what we will do and what we've been doing but all in the context of margin expansion And frankly, even if I look year-to-date, our overall year-to-date market share is pretty stable. That comes from very strong new products. And today, partially, it's already something. But in particular, when you look at our Q1, what we will show that we have a lot of strong products coming. And that's why I think it's also – I think we can take a certain risk on pricing because we have good products.

Got it. Got it. Okay. And then shifting gears, I want to make sure we understand your comments about steel dynamics. So I think we all appreciate as a large volume buyer not paying anywhere close to what the spot rates would have would have done. But I think conceptually, you guys are, you know, your steel buys multi billions in the US alone, I believe, correct me if I'm wrong. So even if it's not 50%, even if it's 20%, 10%, I mean, that could be theoretically hundreds of millions of dollars in terms of incremental steel costs to you. And when I look at your bridge in the second half of this year on raw maps in total, raw maps in total aren't that bad. So your comment about that being largely reflected in the second half, can you just push that out a little and maybe, again, correct us if we're wrong on kind of ballpark there, but help us understand what you're really trying to say on Steele into 27?

Yeah, Michael, just as a caveat is, of course, I don't want to tell every one of my competitors what I'm doing on Steele. Second of all, we have Steele partners out there, and we're trying to be respectful and not revealing too much detail. to give you a little bit broader context and some of you followed that very closely a couple of years ago we changed our steel contracts from annual steel contracts to multi-year steel contracts that was actually pre-election pre-terrorist because we just want to be secured and we didn't want to have big surprises these steel contracts in their nature are a little bit like a hedging contract so you basically typically define certain floors you define a certain cap and you typically agree on a trailing price versus a spot rate so it's a combination of this one what it basically does is it gives you clearly a certain buffer it gives you to pick a discount versus spot rate but ultimately doesn't completely disconnect you from a long-term steel price trend. That's a reality. And we felt that also in 26. So yes, we had multi-year contracts, but given that the steel prices went pretty much through the roof, we also felt it. I really want to emphasize a big part of that cost is sitting in our Q3 and Q4 margin. The big element of Q3 is not in line with our expectation was actually raw material still being very prominent in this one. In that context, Michael, we have secured two of these long-term contracts already because they pretty much expired or are about to expire and we renew them and as i really want to emphasize i would call them at fair prices not usually positive or negative but it gives us a certain predictability and we know pretty much what we carry into next year which again is not too different from our q3 and q4 there's one contract which is still open but i'm confident we can close that also pretty soon um of course there's always a question what happens to steel price in the long term and we've all seen this massive run up in the last year of basically almost 50 which i want to emphasize is disconnected from iron ore prices um there is not a big rational element behind this one and you know ultimately we also know thankfully some of the steel producers are putting in capital investments to improve productivity because as you know american steel today is not cost competitive versus china or europe by a wide margin and we welcome these investments to make it more productive and competitive because we all believe in a strong american steel industry but it only works if they competitive and various capital investments they're going the right direction you also know there are capacity investment plan, which may not immediately help before 27, but over time will bring what I would call a much healthier, much stronger U.S. steel market.

Your next question comes from a line of Susan McClary from Goldman Sachs. Your line is open.

Thank you. Good morning, everyone. My first question is going back to your comments, Mark, on the channel inventories. It sounds like they are running fairly lean, despite the deceleration and demand that we saw this quarter. Can you just give a little more color on where things are, what that implies for the fourth quarter, and as we think about going into next year?

And within that, as you mentioned that your market share was stable, is there any mix shift in terms of the floor space that you have that could also be a benefit as we think about next year as those new products continue to come through yeah susan and let me start maybe also and carlos can give some additional color on this one um so first of all i would say trade inventories and our inventories are low and i'm talking about north america in particular um so i think there's a certain cautious side both of the trade and frankly also with us so i think the combination um if you would look at an aggregate number of inventory between us and our retailers is probably one of the lowest in multi-years again that's probably more reflection of people they're cautious about the current market which for q4 means also we certainly don't have to lower production any further so all the volume deleveraging which we talked about is large largely behind us so we're sitting right now on low inventories and we actually carefully because we don't want to overshoot kind of ramping up production also to be in a right inventory position as we head into 27 so right now trade inventories are low which by way is also part of the reason by industries and our revenues were also down q3 because we know specifically where where some of our retail partners reduce inventories but again it's right now it's certainly not elevated it's quite the opposite and we will um we have work also in front of us to kind of rebalance everything i would just add so consumer confidence and market volatility is what is translating into trade and also being a little bit more cautious on the supply chain and be more effective uh like mark was commenting we we will build a little bit more of inventory so we can get that one back on track and we can capitalize on growth opportunities moving forward susan the only other comment i want to make relates to your mixed question um i mean as we talked about and we didn't reiterate it today we feel despite the softness of a discretionary demand that we feel very good about the premium products we brought to the market this year so um the kind of volumes which we've seen on the kitchen it's um built in line um some of a french door bottom mount which we brought the market we feel very good so so that it works even more with discretionary environment it's just very soft but even i'm giving that into context i'm really pleased um and and again we will talk a lot more in in our january calls we're now bringing a major push on our premium laundry space um which has not yet launched but the launch route q1 and q2 where we have another strong element to help on our mix despite a discretionary poor or discretionary soft environment, which probably will be around us for some time.

Okay, that's great color. And then maybe shifting to the balance sheet, you've obviously done a lot in the last couple of quarters to restore your liquidity and you're guiding to having less than $4.5 billion of debt by the end of the year. At a high level, do you feel like you have enough liquidity to operate in this kind of an environment? And can you just talk about the ranges and what happens if things continue to stay more challenging versus perhaps an incremental recovery next year?

Thanks, Sue. So a very, very short answer to your question would be, yes, we absolutely have the liquidity and the financial flexibility that's needed to operate in this challenging environment. The longer portion of the question is, you know, as I mentioned in my earlier remarks, I am very, very happy that we very early on took the proactive steps that we needed to have the liquidity for us to operate in an environment that at that time we saw was challenging. What that has led to us is a situation where now we have over $3 billion of available liquidity in a combination of cash as well as our asset-backed lending credit facilities. We're now in a position based on the strong work that we've been doing in working capital to adjust the guide for the net debt to say that it is one that will be lower to a number that's below $4.5 billion. But then the other thing, Sue, as I've touched on before, is based on these proactive actions that we've taken, we've cleared the runway in terms of the next time we have a huge debt maturity. It's not until 2028, which gives us the opportunity with the proactive, bold actions we've taken in terms of cost and pricing going into 2027 to bring us to a position where we can expand margins. And that also would then contribute overall to the free cash flow and the contribute to our priority, which is paying down our debt.

Susan, let me maybe add some additional comments on the balance sheet. because obviously everybody knows we've done a lot of actions in Q1 and Q2 between equity offering, a renewal of a revolver credit, and some bonds. Some people probably accuse us, well, you went too far. But in reality, if we would do the same action, first of all, keep in mind, it would cost us a point to one and a half points more than it did half a year ago. So we're actually, in hindsight, very pleased with the timing of when we took the action. Two, to give a little bit of color on liquidity, yes, we took a lot of time to renegotiate revolver credit. We have not used the revolver since August. It's zero. I.e. we haven't even tapped into this one. As Roxanne pointed out, we have a lot of liquidity end of the year. Some people might even argue too much liquidity. But I think seeing what has happened around our industry the last two or three years, we want to be on the safe side. I'm the first one to admit with success, liquidity costs us interest. And that's why the big part by the EPS was disappointing also. But right now, I'm prepared to carry a little bit too much liquidity around us because we're living in a very uncertain environment. But we feel very good about the strength of liquidity, the balance sheet, the maturities where we are. So I feel much better from this side, despite all the negative news in the industry.

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

Hi, good morning. Thanks for taking my question. Good morning, Ray. Just on the working capital improvement that you're talking about for the fourth quarter and the full year, can you talk about how much of that is sort of structural versus one time? And how do we think about that going forward? Is there any specific metrics around like AR or AP that we should be thinking about in terms of a target?

So, Raffi, I would say, let me split in two pieces or three of working capital. I think on inventory levels, I don't think with the current system constraints, I don't think we can go a whole lot lower. And we're testing these limits every day. But now, over time, can we, I would say over time, meaning over one or two years, can we further improve our system, become better in how we manage inventory? But within the current constraints, there's not a whole lot we can do more. But payables, as you all know, largely follow what we do in our inventory because it's basically just production. Having said that, we've made some good structural progress on extending some terms, not only with overseas suppliers, but also some other suppliers. So we feel good about what will work, which has been done over actually the last one or two years on structurally expanding payment terms. On receivable, I would say there's going forward still some opportunities on addressing some of the terms because i think some of the terms do not necessarily reflect inherent logic that they should cover the inventory i.e we give more terms than they carry inventory and that will be a discussion which we will have with our partners from the retail side one big element you guys should also all keep in mind is a part of a working capital improvement comes also yes rq3 revenues were down revenues are down but working capital requirements to particulate receivables also come down. So there's also an element of just reflecting, do you breathe in or breathe out on the top line, which ultimately comes through in the working capital.

Thank you. That's very helpful. And then the second question, just when we think about the outlook in LATAM, specifically just Brazil, two things. Can you remind us what the FX assumption is just because it's changed really materially in the last, like, 48 hours or so? Like, what's baked into guidance? And then, you know, what's the sort of timeline for recovery, and, like, what's the process right now with Casa Bahia? Like, I'm understanding that you have the insurance recovery, but, like, on the fundamental standpoint in terms of the inventory clearance, like, where are we in that process?

So, Rafi, let me maybe address the overall currency, and then I have a Ludo if you can address the Casa Bahia recovery. So on the FX first of all I mean we typically don't publish our in our currency assumption having said that and keep in mind when we talk about the Brazilian real and obviously you followed it but the day after the election moved by 10 percent which by the way is pretty close to where it was at the beginning of the year just to put in context so yes we've seen that massive currency move there's two elements which which call it soft met a little bit one is of course we have hedging in place and in a in a strong real environment the hedging costs you and now we will see the hedging benefits so we're we will see only a fraction of these moves in our action pnl once you net out the hedging the second thing is which you also need to keep in mind more operational i'm not um is yes some of the components over time because some of them are imported then cost you more At the same time, it makes the imports of finished goods a little bit more expensive. And keep in mind, we're a local producer. So from a competitive environment, that's not necessarily all bad news for us. Because, again, we are the local producer in Brazil, much like we are the local producer in the U.S. So it's not all bad. But given that it's fresh, very transcendent, we're now going through all the potential ramifications which come with the election outcome in Brazil.

Yeah. In regards to the GCB recovery, there's a lot of uncertainty out there. The decisions from the judge on the bankruptcy proceedings happened just last week, which starts the clock, a 60-day clock on the restructuring plan. So we're watching that intently. Obviously, we're a very big supplier to GCB, a very big player in Brazil. So we have a seat at that table and we'll be watching how these guys proceed in terms of recapitalizing the business. This is going to take a little bit of time, we'll have more visibility as we exit Q4. Sequentially, therefore, there's not going to be a whole lot of change from Q3 to Q4, but we expect things to normalize going into 27 as the volume gets redistributed to other players and or GCB reemerges with a much better structure.

Your next question comes from a line of Jeffrey Stevenson from Loop Capital Markets. Your line is open.

Hey, thanks for taking my questions today. I wanted to follow up on Latin America and And, you know, wondered whether the 10% price increase across the, you know, region was incremental to the August 5% increase you announced last quarter for Brazil, or was the timing pushed back on that? And then could you also talk about, you know, any sequential change in promotional intensity in the region as we move through the back half of the year?

Yeah, so the pricing we took in August, this was specifically Brazil pricing to the extent of about 5%. So we've actually been fairly pleased with the fact that our volumes held as we went through that price increase. Obviously, we were also dealing with the Casas Baia situation at the time. So that led to a little bit of erosion in that pricing realization, but it's still there and being realized. The up to 10% price is across the entire segment. So there's a wide range across the various markets that we deal with. Some of that is going in markets very, very shortly. You'll see limited impact in Q4 when it's all said and done, given that we're sort of unwinding, and some of that will hit mostly December, but not have a whole lot of impact to the quarter. With that, we're also, to the second part of your question, we're moderating, to some extent, the promotional activity around Black Friday, again, in a variety of markets, in particular, I would say, in Mexico at this point, and to some degree as well in Brazil.

Thanks for that. And then I was hoping you could provide more color on the meaningful demand shift in your SDA global business from the third to fourth quarter, where you're seeing orders of 40% in October. Just any more color there would be helpful.

Yeah, so maybe take a quick step back on the sort of how this business works. Specifically in the U.S., you have large trade partners that buy in what we call bulk orders for the season to get ready for the major activity that happens around Black Friday in particular. These bulk orders will sometimes concentrate more so in Q3, sometimes more so in Q4, and this year is a year where they have shifted from Q3 to Q4, which led to this more muted top line in the third quarter for the business. The result of that is visible and tangible at this point in our hands. That's the 40% increase in our order position as of this point in the month of October. Going into the quarter, we also had an extremely strong year-over-year comp in terms of orders on hand for the entire quarter, because the good news is while these bulk orders are bulky, are lumpy, I'm sorry, they are known. And so we're readying ourselves from a production standpoint, as well as from a shipment standpoint. They are on our hands in our books, and they're being shipped as we speak, which, again, gives us really strong confidence we can have a fantastic Q4 and exit the year at double digit growth, consistent with the guidance we've given.

And Jeffrey, it's Mark again. And I know this is a Q3 call, not necessarily an October business review, but, you know, obviously just to echo what Luda was saying, October for SDA, because it's almost done, is a very, very strong month, which exactly confirms in actual what Luda right now is pointing towards. So we feel very good about the SDA run rate and the overall Q4. So we feel very good and exactly confirms what Luda was highlighting.

Your next question comes from a line of Sam Reid from Wells Fargo. So your line is open.

Thanks, everyone. I wanted to touch on the Builder channel here. I believe your pricing and the channel is already in place. I just want to discuss realization, any benefits that you got from that in the third quarter, or whether that's supposed to ramp into the fourth quarter in 2027.

Sam, it's Mark, and maybe I will have concullers to Adam with one. I think what you're pointing out is a very important aspect. The Builder segment, as you know, is a very big part of our business. unfortunately not that big as it could be because of market environment but it's a big part the pricing the build is not as straightforward um as if retailers um very simply because builders give out quotes and we give quotes to to builders quite a bit in advance and in many cases we have we have annual or national contract so and of course we're trying to find if our builder partners the right balance between not breaking quotes which we've already given but at the same time not dragging our price increase forever and that's a careful balancing act which we've i think done in partnership with our builder partners so i would say in q3 we've gotten some pricing in particular towards the end of the quarter more and more for pricing maybe not fully to the level of retail but we'll continue to work with our builder partners to kind of make sure we reflect the real cost and keep all this in mind in particular builder segments you have cost increases coming from final mile delivery to construction sites which are significant um so we are getting it we're pursuing it i think there's a a good discussion with our builder partners because they understand these costs but of course nobody wants to surprise the final consumer with a cost increase yeah what i what i will add so it is consumer pricing plus support that we give to the to the channel and q3 we saw a significant improvement between q2 to q3 uh more than

more tended to Q3, and we will see some of that also coming in Q4. But it is pricing in the quotes, plus the adage that we have on serving the customer, especially on the final mile, like Mark was commenting. But that comes with a little bit of lag, and we saw in Q3, and we will see more in Q4.

That's helpful. And then maybe let's switch gears and talk commodities a little bit. So I understand you've locked in, I think, two of your major steel contracts, but there is that third one that's still out there. i think you mentioned that you've had some visibility into that soon uh maybe just contextualize you know the timing there and then perhaps the magnitude of you know how large that contract hypothetically would be just so we have rough census two implications for 2027. thanks yeah sam we're now getting really into the details of our steel contract and again that's why i'm not quite sure i want to share with our competitors everything we're doing again where we have logged in two of the contracts and they're fair terms but the third one is i would call in advanced stages um and i'm i'm confident we can close it um keeping also in mind we have flexibility on

shifting volumes between different partners um and between all this one i'm very confident we can close it very soon and um and again i from today's perspective assuming steel prices stay on this at least stay on this super elevated level which we are right now i think we will not have a use of price coming into 27.

Your next question comes from a line of Eric Bessard from Cleveland Research. Your line is open.

Good morning. Eric. To follow up, I heard the comment about making good progress with price on builders, and I thought the chart was super helpful of progress on retail pricing. The yellow line was helpful. It must be apples and oranges.

The flow through that i think you reduced your price mix number and so can you just help me square like lots of progress except that the realized price mix is less than what was targeted 90 days ago what's the difference between those two so i mean eric again first of all to just to clarify this chart which you see on page 11 given that this is a price scraping tool which we get every week basically from from websites um literally ten thousands of data pretty much on the monthly base that by definition is retail it's not necessarily the builder price okay so that's well unless the indirect builder pricing which would come through some of our home improvement channels so but it's largely a retail pricing so the builder pricing of course is a whole lot less covered and track proof for the real data again having said and i want to repeat what i said before is we got significant progress in q3 on the builder pricing it is divorced clearly and is delayed versus the retail pricing and that is simply driven by the fact that neither build is not going to kind of give a huge surprise to consumer who already agreed on a certain overall price and that's what we're kind of managing through but right now i would say overall the moves on the builder pricing are just happening the same way just a little bit later on carlos i would just say that it it's magnified with a lower mix uh basically because of the replacement market so that's kind of also

impacted in the PMR.

Okay. In terms of the global price mix, the two things to keep into consideration is one, it does not only reflect the US. So the decline that you're seeing is also us reflecting the GCB bankruptcy reorganization impact that Ludo just touched on from a mixed standpoint.

And then the second element is the element exactly that Mark and JC just touched on, which is the mix related to the replacement demand and us just reflecting that in the overall price mix number the pricing itself is absolutely on track okay perfect great and then and then secondly um the progress we've made on price and the additional price this is a north american retail question um in aggregate it's it's like 15 almost 20 price into north american retail north american consumer uh how are your thoughts about making that level stick and does that have any impact on demand or mix or does that just basically flow through so eric um again

specifically in north america again when we talk about this very big um increase number that always relates to the january 2025 of um and as you saw last we already took some prices so year over year it's a little bit less than since january overall having said that um and this is what you saw since you free i think by and large it's sticking and whenever we see certain elements where we have to course correct we slightly course correct but by and large it's sticking i absolutely today do not see an impact on the overall category demand from consumer perspective again it's a replacement market um consumers know they have to replace a product um typically awareness of consumer going into a store but the expected price is limited um so the elasticity if you want to say so is very limit. Having said that, you do see sometimes that a consumer wants to just stick a certain budget. Your consumer goes in the store and says, I don't want to spend more than $600 on a top loader. So what it basically means for us, it could be the consumer mixed down one price point or one SQ from our perspective. And that's exactly what we're kind of trying to balance between what is the benefit of raising prices versus how much you lose on the mix side. I think over years, We've gotten a pretty good experience in how we fine-tune that, and that's what we do also going forward.

What I will add, Eric, is our new product launches, and we described two of them in the presentation, but we've been talking about them throughout the different earnings release. That is supporting and enhancing our margin expansion and top-line growth. So we will continue leveraging our product launches to be able to drive innovation, pricing, and margin expansion.

Your next question comes from a line of Andrew Carter from Stiefel. Your line is open.

Hey, thank you. I wanted to ask, and I know what I'm kind of thinking through on your actual pricing is kind of difficult, but I think you would be probably, from what you're saying at retail and what's flowing through, somewhere in the kind of mid to high single-digit range. Your organic growth in the fourth quarter or third quarter was down 8% in North America. That puts your kind of shipment volume, whatever, in the minus 12. I realize there's some mix in there. That's probably unfavorable. But that compares to AHAM shipments down in the minus three range. So I guess, first off, like you said you were holding market share earlier. So how do those two square and anything you can give us on POS, where you have visibility of your brands relative to the overall category?

So, Andrew, there's a very simple answer to this one. Our market share this year is very steady throughout all three quarters. You had last year, following our price increase, you had in Q2 a very soft market share, and in Q3 a much higher market share. So it's a pure baseline comparison. Actually, if I look at our market share Q1, Q2, and Q3, it is very, very stable, and I feel very good about it. Having said that, we monitor our POS trends every week and see exactly what we need to be doing and what we don't need to be doing. but you know it's of course we saw in the month of september and also october the industry was soft and of course we see that also reflected now pos trend there's one big element which i want to also add which is a point of strength for us increasingly is we typically have pos data from our big trade partners but there's still a very significant independent retail or builders and particularly independent retails where we actually have strengthened our position over last year and that is a little bit richer from a mixed perspective channel. It's not fully captured in POS data. So I would say whatever we might lose on some POS accounts, we have right now good compensating element on the independent retail.

Thanks. Next question. I guess in terms of you said at the top of the call, you wanted to expand margins in 2027. I guess simply put, at this point, with the cost savings you have in hand, the kind of known inflation, What kind of pricing do you have to execute next year? And could you hold margins in a flat volume environment with your savings, pricing, et cetera, next year?

So, Andrew, of course, we're not yet giving 2027 guidance. Having said that, our clear focus for Q4 and also for next year is margin expansion, period. And some of you followed us a little bit longer. Every once in a while, every couple of years, we have a clear focus on margin expansion. and we tend to be doing what we talk about and that is the number one priority across the entire company of course if you right now add up what we're doing the structural cost increases and if you add on top of that the carryover pricing would feel very good against that objective but we all experienced in 26 the macro environment turned out very different than we assumed in January okay that's the reality not that we like it but that's reality so as you would expect from us we're kind of right now having planned some margin expansion which might go well beyond what we actually end up communicating but again that's a decision which we'll make in january once we see the year unfolding but from our underlying work which has been done with structural cost takeout and the pricing action i think we we set ourselves up for what i would call a very solid foundation for margin expansion so with that in mind i think that was the last question i'm not even quite sure should repeat what i just commented but again it's i want to reiterate this you know of course 26 was full of challenges and i'm not blaming the external environment we focus on what we can control and that is cost takeout and pricing um you heard us talking quite a bit about it um we are i would say beginning to be cautious the optimistic about 27 and but we also recognize we have work to be done and we're still living in a very volatile overall macro environment um with that in mind i want to Thank you for listening to us and hope to talk to you sometime soon.

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