Good afternoon. Welcome to the afternoon session of day one of our sixteenth annual Homebuilding & Building Products Conference. My name is Michael Rehaut, Senior Analyst at JP Morgan, covering the home building and building products space. We're excited to kick off the afternoon session with Whirlpool Corporation and CFO Jim Peters. Jim, welcome. Thank you. We're going to conduct as usual, a fireside chat, but we do have the ability to ask questions from the audience. If you want to do so, please submit a question through the virtual dashboard, the digital dashboard, we'll be sure to ask those towards the end of the session. Jim, like I said, welcome. Thanks for participating and joining here. I guess we'll kick it off with just maybe, you know, some of the questions that are perhaps, you know, front and center as we talk to investors, I believe it's similar to your own experience. Maybe just starting with some comments around the current demand backdrop and how it relates to your overall 2023 outlook. Yep. Yep. To begin with, thanks, Mike, and, you know, I appreciate it, appreciate being here. You know, I would say from a demand environment perspective, you know, the first thing I'd cover here is it's in line with what we expected for the year already. In Q1, you know, we guided to the U.S. being down 4%-6% for the full year, and in Q1, it was pretty much in line with that. You know, I think in April, as you see the numbers coming out here, it's in line with that still. You know, even, you know, I'd say well within the, the lower side of the range, but within the range there. We feel good about what we forecasted. You know, today you would've heard some news around, you know, Home Depot talking about, you know, a little bit lower level of demand and purchases that they were seeing, but that's not outside of what we expected, and it's not outside of what we guided to for the year. You know, we really did suspect or anticipate that the consumer would be a little bit moderate in terms of their buying habits in the first half of the year. We expect the back half of the year to be similar, but when you're looking year-over-year, it's gonna have a better comp because the first half of 2022 was just stronger. We think, you know, when you're gonna start to comp in the back half, the back half of 2022, and it'll be closer to flat. You know, beyond that though, I would say is even some of the comments you heard this morning is that people still believe in the long-term demand out there, and it's not just us in the industry. As we look at housing is under supplied. There are factors right now in terms of just a lack of inventory available, whether it's new housing or existing home sales. Mortgage rates have gone up. S ome of those factors are probably temporarily limiting, you know, housing and which is having an effect on us. W e do expect the longer term demand, you know, characteristics to still be positive. You know, we expect it to, you know, to start to see some growth coming out of this year. Great. You know, I think along with demand, you know, we always get questions and, as I believe you do as well around, the pricing and promotional backdrop. You know, I believe as of your last call, you talked about, you know, reiterating an outlook that promotions in 2023 should be similar to back half of 2022, but still better than, pre-pandemic. Just trying to get a sense for, you know, what drives the view that, you know, pricing and promotions will continue to kinda hit your outlook, if there's any, you know, you know, potholes or potential, you know, downside drivers that might play out as the year, as we get into the back half of the year, and perhaps more broadly, how to think about pricing and promotional discipline in the industry. I'd say, you know, probably the first thing is, you know, and you kinda highlighted it, Mike, when we looked at it, we did see the back half of last year promotions pick up, and kinda as expected as some of the supply chain issues within the industry began to free up. We still had some of our own within Q4. You know, then as we came into Q1, what you would've seen sequentially is the impact of pricing and promotions on our margins. Sequentially, we had a 100 basis point improvement from Q4 to Q1, which is kind of the seasonality we expect in a normal environment, that it is heavier in Q4, lightens up in Q1. You know, when we looked at Q1 year-over-year to back to Q1 of 2022, it was a negative 275 basis points, which also tells us that, like I said, we saw it begin to build in the back half of the year of 2022. It seems to be on a normal seasonality curve, and what we see so far would lead us to expect that what we saw in 2022 is about the level that it's at least settling in right now, which is below 2019. You know, we continue to believe that that's probably gonna be the course for the year. We're not seeing anything out there that's telling us anything differently. If you look at, you know, commodity costs did come down, but then they've leveled off some, so it's not like, you know, there's a significant amount of cost benefits out in the market that, you know, other competitors could be investing in or that we could be investing in the marketplace. I think that also will probably at least, you know, lead most of us to probably keep our promotions at a similar level as we saw in the back half of last year. Beyond that, you know, if you look at where demand is, you know, right now the thing suppressing demand, incremental promotional investment is not gonna drive higher overall demand. I think that the industry kinda understands that. You know, I don't see that a significant amount of incremental investment making sense to drive, you know, higher levels of demand out there. It's probably not gonna happen because the factors that are affecting demand right now are not as much price-driven as they are some of the other macroeconomic factors I talked about around housing. I think as those begin to free up, then the demand begins to come back anyway. Right. Right. you know, maybe just shifting a moment to, you know, you talked about, you know, maybe in some instances, promotion's not driving necessarily a higher level of, of volume. There are a lot of other factors obviously that come into play as well. you know, I was hoping maybe to shift gears in terms of volume, you know, towards volume, but also market share. you know, you talked about a little bit of share gains in Q1. you know, I was hoping to get a little bit of a bigger picture, you know, stepping back, talk about, you know, the amount of share that you lost over the last couple of years, as it relates to the various supply chain challenges that you had, perhaps relative to the market. you know, how we should think about Whirlpool ostensibly gaining this share back over time, and if so, how long would you expect that to take? To your first point there, you did highlight, yeah, we gained share both sequentially from Q4 to Q1 and year-over-year. The, the biggest driver year-over-year was more, you know, again, our product placement and all that and our products we launched. The Q4 to Q1 was really driven because we did have some supply chain issues in Q4 that we were able to overcome in Q1. Our share historically prior to COVID had been, let's just say, in the low 30s. As we went through various supply chain difficulties that impacted us a little bit more than some of our competitors, we probably dropped down into the mid-20s. We've gone from the mid-20s and back up probably into the, you know, into the high 20s now. As we've talked about, our goal is really to progress about a half point a share every quarter at a pace like that. We continue to look to try and bring ourselves back up over a 1.5-2 year period of time, if you take that run rate we've talked about before, back up closer to that 30% level. You know, when we look at it and say, what's about the sweet spot or the operational space we wanna be in that allows us to play pretty broad within, you know, the, all the different price segments, but also keeps us out of some of the value-destroying areas of the business, we've always said that, you know, somewhere around the low 30s, 30 to low 30s is the right market share to have. We are seeing a progression back towards that, but if you wanna do it in the right sort of a way without destroying value along the way, you've really gotta do it by product launches, by product placement, by investing in the right types of promotions and avoiding the ones that don't make sense. That's why I'd say we're not gonna just rapidly go back because it wouldn't make sense from a margin perspective to get that aggressive. Okay, great. No, that makes sense, and I appreciate the detail there. You know, maybe just sticking on, you know, you kinda mentioned pricing and mix and other drivers of, you know, volume and share. How should we think about, you know, price mix going forward for Whirlpool, you know, in terms of annual contributions, either through, you know, one or the other or combination, particularly if we remain in somewhat of a more tepid, you know, economic backdrop? Here's what I would probably say is if you just take pricing and promotions out, we typically shoot to try and drive 25-50 basis points in mix within, you know, year-over-year. That comes via new product launches, comes via, you know, us looking to get a different mix among possibly our brand portfolio or our retailer portfolio and optimizing where our margins are better. That's the goal and the target and what we typically try and drive within. The remainder that is more the pricing and promotional concept does have a significant amount of... It's driven significantly by the cost of commodities and input costs. If you looked at over the last three years before this, 20, 21, 22, you had significant price increases we were able to drive as commodity costs went up. On the backside, on the way down, we typically are able to bring those down a lot slower and retain some of that benefit for a period of time, but that tends to be one of the bigger drivers in the marketplace, you know, beyond your ability to improve mix, is just the underlying input costs. As I mentioned before earlier, the other big factor is we continue to look to just be very disciplined in our promotional spend. That's where you can really have a significant impact one way or another on that pricing and mix within a year, is if you get too carried away on your promotional spend. I'd say if anything, in the time period leading up to COVID, the few years before and throughout it, we've demonstrated an ability to be very disciplined in our process and only invest in things that we think will give us the lift in our volumes that justify doing that type of spend. Absent of any big swings in commodity or input costs, I would expect pricing to be relatively stable in the near to midterm, and then to see a slight appreciation just coming through mix improvement over that time. Now, great. Now thank you for that. you know, maybe, you know, we can shift to margins, another kind of hand-in-hand, key topic of interest, key area of interest among investors. you know, how should we think about the North American margins longer term? Is the 15% floor that you kind of have alluded to over the past, you know, particularly coming out of COVID or the initial stages of COVID, is that still the goal? you know, with the exit rate this year being targeted at 14%, how do you think about getting back to that 15% number over time? Yeah. Yeah. I don't think our long-term perspective on North America has changed really much at all. you know, to your point, we expect, we moved it quickly from, you know, where it had fallen in Q4 to 10% in Q1. We expect to exit the year at 14 and have a full year average of about 12. If you look pre-COVID in a more stable environment, we were already north of 13% with that business and had the ability to deliver margins above that. you know, to say that, you know, we can get to those longer-term goals of 14%, 15%, I think are still very valid out there. I think where some of that comes from, further margin improvement in North America is a couple of things. It's as we continue to stabilize the environment and our supply chain environment, we will get cost benefits that come along with that still aren't reflected in there. As we continue to grow back, some of that share will get further volume leverage, which will also help our business. As we continue to invest in, you know, certain higher growth, higher margin areas such as InSinkErator and growing that will help our margins over time, there. You know, as we launch new products again and continue to try and drive improved mix within that business, I say that's an opportunity there. On top of that, there's some more longer-term things such as complexity reduction that'll help our entire global business, but I think will also help our North America business. Our, our perspective on the long term hasn't changed. You know, like I said, I think some of the dynamics, such as demand that could be healthy over the coming years, will be a positive. Additionally, some of the inefficiencies in the system that are still there from the past few years that we're continuing to get out offer further cost savings opportunities. I believe there's gonna be opportunity to expand the North America margins for a multi-year period of time. Great. That's great. That's very helpful. You know, I also want to hit on cash flow generation. You know, the goal, the long-term goal is at 7%-8% of sales. You know, I believe this year you're closer to 4% or per your guidance. Can you kind of bridge us from the 4% to the 7%-8%? What needs to happen kind of similarly, either from a balance sheet standpoint and/or a margin standpoint? Yeah. I think you gotta think about it this way. About half of it should come from margin improvement and earnings improvement. That's just as we continue to expand margins over a period of years, especially as you grow the North America margins back to, you know, above the levels where they were pre-COVID and then to, you know, closer to our long-term goals. What you'll see there is that is a cash-generating machine, you'll see a lot of those earnings fall to the bottom line in terms of cash. The second piece is, as we divest of our EMEA business, that business has always had a higher level of working capital requirements than many of our other business. It also has had a higher degree of seasonality within it due to working capital. You know, it's also had a large amount of restructuring costs involved with it that impacted our free cash flow. When you take those two things into account, in addition to the fact that we added the, you know, the InSinkErator business, and we'll now get that up to its full run rate, those are the three big variables. About half of it truly is just operational margin improvement, and the other half really is the big driver is just the disposition of the EMEA business. I think those alone will, you know, as we've said, just the disposition of the EMEA business is over $200 million of free cash flow benefit that comes to us when we look at it on an ongoing rate. Great. No, that's very helpful. You know, uncertain, you referred to Jim, you know, the InSinkErator acquisition, and that could be, you know, an accretive driver for the margins for North America. You know, would love to just maybe take a step back on that acquisition. It was obviously a very large acquisition, and if you could just kind of review in brief, you know, both the strategic and the financial rationale for the acquisition. Obviously, you know, the strategic side, you know, hit on either the growth, the fit, the margin profile. The financial rationale, obviously, you know, I think we'd all agree it came at a pretty robust price tag. Just wanted to understand both of those factors and how you think about this going forward. Yeah. You know, I'd say the way that we think about it, and I'll start off with our whole, you know, strategy around portfolio transformation, is we've really looked at our business and how we wanna position it for the future. One, we wanna invest more in higher growth, higher margin businesses. That's part of why, you know, we've entered into an agreement to divest of our EMEA business because we really saw that as something that unfortunately is not gonna have the growth and the level of margin improvement that we'd like to see to justify further investment. You know, then we said, "Okay, where do we really want to invest for the future?" If we've looked at some of the previous major domestic appliance investments, those have typically been plays where you can generate a lot of cost synergies, but even in the end, those businesses are about average to maybe slightly below average, our overall margin profile in a best case. We started saying, "You know, let's look at the spaces outside of there, especially countertop appliances, premium appliances, higher margin areas that could be things like services in that, commercial appliances." When the opportunity came for InSinkErator, one, strategically, it has a natural connection to the kitchen. Sits underneath the counter, sits right next to your dishwasher. We've actually been selling garbage disposals for a period of time. We sourced from InSinkErator and put the KitchenAid brand on them and then sold them. We knew the margins were very healthy. It's an over 20% EBIT business. It's got good growth potential. It's got low global penetration. There are reasons for that, but there are opportunities to expand that some. Opportunities to additionally put our brand on. Then there are some opportunities from a cost synergy perspective that also us just being a bigger buyer of motors and steel and all that we could bring to that business. That was kind of the strategic fit we saw as we said, "Listen, fits in the space we play, fits in our model, fits in the type of businesses we're looking for." It did come at a premium price, but when we look at that and when we look at the benefits we think it can generate and the synergy opportunities and all that, we do believe that this is something that will help to drive us, continue to move our margins higher and give us growth opportunities beyond some of our current businesses that we have today. Those were really the big driving factors that came into play, you know, and we're very happy with it so far. I mean, we've really found that we're very happy with it. We also think that, you know, as the housing market continues to come back, the opportunities will be, you know, more significant within that business. Just to remind us, the CAGR, I think, that was discussed when the business was acquired, I want to say it was like 4% CAGR over a 10-year period top line. Is that something that you would see as a good yardstick to work off of in a normal environment? Or, you know, to the extent that you feel there might be additional sales synergies either at home or abroad, you know, internationally that or through product development that might be able to be a little higher? Listen, I think we have the opportunity to drive it higher via some of the international expansion and in that, those are things that we're working on and haven't necessarily quantified all of that. You know, we really just saw this as where the opportunities were within the demand in the portfolio they have, and then tying it to what we see for housing and all that. We believe it'll just that 4% puts it pretty similar to what we see for the rest of our business. Any further opportunities we can drive, now those will take a little bit more time to drive, whether it be international expansion or whatever. At least in the near to midterm, we see this being in line with or even slightly better than the rest of our portfolio. Great. Great. let me just pivot here and see if we have any questions from the audience. Okay, I don't see any as of yet. That's fine. I have a few more of my own. let's move to the balance sheet for a moment. Yep. You know, currently net debt to EBITDA around four times, set to go down to about three times by the end of the year. How should we think about leverage and where it could go, you know, past 2023 and, you know, what type of timeline are you looking at? Yeah. As we've always said, listen, our target is to get our gross debt to EBITDA down closer to two to give ourselves the firepower to do additional acquisitions and other things. I would say over the next, you know, this year and next year, our focus will be more on reducing our debt levels. Maybe if I rewind a little bit, if you take 2021 and 2022, we really returned a lot of cash to shareholders, bought back a lot of shares, obviously raised our dividend multiple times, continue to keep the dividend where it is. You know, we decided now to invest, obviously, in InSinkErator, took on some debt. We do intend to bring those levels back down to give us some flexibility. It will go back to being a balance between, you know, whether we see additional acquisitions that make sense for us or, you know, do we continue to buy back, you know, you know, start to buy back shares again. Our overall capital allocation priorities have not changed in terms of funding the business, paying our dividend, you know, getting our debt levels to where they give us flexibility, and then balancing between share repurchase and acquisitions. You know, I would say that probably in the, at least in the near term, debt, you know, deleveraging is our, probably our number one priority. Right. you know, obviously, there's a lot of variables, and I don't wanna necessarily get into 2024 guidance or things of that nature. you know, going from roughly 3 times net debt to EBITDA at the end of this year, when do you think you'd be able to hit, like, closer to a 2 times number? Yeah. Here's what I would say is, I would say it would be sometime within the, you know, the next two years after that, if you just logically take our cash flow and the progression, but also take EBITDA expansion. I think that's where, you know, further the opportunity, you know, comes. If you look at really the last 12 months, or, you know, the last whatever, yeah, 12 months have probably from an EBITDA perspective been obviously lower than we had expected to be due to macroeconomic factors, supply chain issues or whatever. We truly believe we'll be back up above 2019 levels. We forecasted that, you know, coming out of this year. That'll put us from an EBITDA perspective in a good position. We'll then, you know, over the next two years, this year and next year, obviously focus on debt paydown. I think that puts us in a good position. Does it put us to two by that point? Not quite sure that it does, but it's gonna put us in a very good position in terms of being, you know, relatively close to that and probably within 12 months of being able to get to those levels if it makes sense. That's back to where I said, you know, we wanna give ourselves the flexibility to be targeting that, but, you know, also knowing that we can flex up or down. I'd say over the next couple of years. Right. Okay. Makes sense. Also kind of looking at your geographic footprint, you know, you're on the cusp of hopefully completing the EMEA transaction, you know, sooner than later. Following that, if you looked at your remaining international segments, Latin America and Asia, we calculate it would estimate somewhere in the 15%-20% range of gross EBIT pre-corporate expense, with margins that are only roughly half that of North America. Therefore well below your consolidated margin target of about 12% or better. How should we think about those remaining regions as part of your strategy going forward? Yeah. Maybe I'll break them down into two separate ones there because they're probably easiest to do it there. First, I'll talk about India, you know, and broader Asia, but it's really our business there is primarily India. Then we do business also in Hong Kong, Taiwan, Australia, New Zealand, Singapore, et cetera, Vietnam. Actually that part of it, all those small countries are actually a relatively profitable business. India's been a business that was relatively profitable and north of 10% EBIT margins prior to COVID. Going into COVID, India was one of the countries that was probably hit the hardest in terms of the, you know, closures and shutdowns and all the things that went on. Second, then I would probably say that India saw a significant amount of cost inflation that came for a period of time that's now starting to recede, that just we weren't able to pass along at the level that we needed to in the marketplace. I do believe we'll start to see our India margins come back soon here. Are they gonna get to double-digit levels? Probably not in the near term, but I do think it's a business that, you know, we believe, and just even looking at the guidance we gave this year, that can start to get back into those high-single-digit type of EBIT margins, you know, over the long run. Where the benefit comes there is growth. That's a market that still has the potential to grow, you know, high single digits on a year-over-year basis for a continuous period of time. Low penetration, growing middle class, people beginning to upgrade, lots of though initial buyers, you know, just strong demographics that we truly believe in the India market and think it'll be a place that we wanna be from a growth perspective. As long as we get the margins to at least within close to where we wanna have our overall margins, we kinda feel that that'll be a good business to have. Latin America is very similar. The different thing, though, about Latin America right now is Latin America, especially Brazil, demand has been down for a significant period of time. We do expect we're starting to see signs that's beginning to stabilize and that will come back. We know in periods when that business begins to come back that you do begin to just the volume leverage you get starts to give you margins in the high single-digit to close to 10% range. That's just based on our historical margins we've seen in Latin America and all that. We also believe there's a lot of upside growth potential over the long run in Brazil, and other parts of Latin America, because Mexico is also a significant business for us there. We're looking at those more from a growth perspective and just saying we gotta get the margins to a place where they're maybe, you know, higher single digits and close enough to the average that they make sense for us. We believe in both cases that both of those can be value creating businesses. Okay. Okay. You know, maybe just the last one around this, as it also relates to margins and how you think about things big picture. You know, you have that slide in your deck around, you know, your three strategic pillars. It all shows margins, you know, at or above 12%. You know, two out of the three actually at 15%. You know, corporate expense is only, you know, about 1% of sales. When you think about putting those all together, you know, you're probably talking about, you know, a long-term EBIT margin target of 11%-12% that might be even a little bit better. You know, the question kind of is what's holding that back if you have, again, two out of three at 15 and your main one at 12? Is this really kind of a. There's some downward mix with LatAm and Asia that we're not properly appreciating. Just trying to kind of square all those numbers together. No, here's what I would say is, one, you have to remember that in terms of size, those are not three equal businesses. At the major domestic appliances is still the most significant in size in the middle there. The ones that are really have the higher margin potential are also the smaller, but we wanna grow those. That's why we kind of call those out and say, those are areas we wanna invest in. To your point, I think to get to a margin that's at or above our long-term goals and all that, we do need to grow those type of businesses, and that's where we need to see the growth. I'd say the second thing that you've got within there is, you know, as we look at this is you've got the margin potential in all those businesses. Now it's a matter of getting all three going in the same direction at the same time. I do believe if you look at a commercial appliance business, the good thing about that, it's not a very cyclical business, and that would help address some of the cyclicality that we see in our major domestic appliance business. Same with countertop. It doesn't see necessarily the same levels as that's why we wanna grow these two. I don't disagree with you. If, if we're clicking on all cylinders and you've got all three of those businesses going in the right direction, it should be able to put you in that margin type of area that we really targeted from a long-term perspective. You know, the thing right now in the near to midterm is just working through continuing to work through the volatility that we've seen in the market and then beginning to see the demand come back. If we get into a healthy demand environment for a multi-year period of time, I think you can see us progressing pretty quickly towards those targets. Absent of any other changes, even without an increase in demand, you're gonna see our margins continuing to improve just based on cost takeout. Right. Right. Makes sense. That's actually all that I have in terms of my questions, we're probably only a couple of minutes from the end of this session, I think we'll end it here. I don't see any questions in the queue. That really took care of all of the questions I had. Appreciate the time, Jim. It's great to have you. Appreciate Whirlpool's participation in the conference. You know, for those on the line, we'll continue at top of the hour, 2:00 P.M. with Meritage Homes, followed by our later afternoon session, Mohawk, TopBuild, and Century Communities. Thanks again, Jim and the whole Whirlpool team. Appreciate it. We'll talk soon. Sounds good. Thanks, Mike.