Whirlpool Corporation (NYSE:WHR) Q1 2024 Earnings Call Transcript

Whirlpool Corporation (NYSE:WHR) Q1 2024 Earnings Call Transcript April 25, 2024

Whirlpool Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Scott Cartwright: Good morning, and welcome to Whirlpool Corporation’s First Quarter 2024 Earnings Call. Today’s call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial and Administrative Officer. Our remarks today track with a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we’ll be making forward-looking statements to assist you in better understanding Whirlpool Corporation’s future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q, and other periodic reports.

We also want to remind you that today’s presentation includes the non-GAAP measures, outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of our results from ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. At this time, all participants are in listen-only mode. Following our prepared remarks, the call will be opened for analyst questions.

As a reminder, we ask that participants ask no more than two questions. With that, I’ll turn the call over to Marc.

Marc Bitzer: Thanks, Scott, and good morning, everyone. I’m pleased to report that despite a challenging macro environment, we’ve reported a solid first quarter, in-line with our expectations, and we’re on track to deliver on our full-year guidance. This quarter marked the completion of our EMEA transaction following the UK’s CMA approval. It is a major milestone in our portfolio transformation initiative to a higher-growth and higher-margin business, unlocking significant value-creation opportunities for Whirlpool. As expected, the North America industry volumes were soft during the first quarter, as promotions remained elevated on the back of persistently high interest rates, which continued to put pressure on housing affordability and overall consumer discretionary spending.

Against this backdrop, we were highly selective with how we promoted and pulled back on promotions that were not value creating, and we did so while maintaining our market share position. We also remained disciplined and executed towards our operational priorities, achieving meaningful cost reductions in the quarter. Looking holistically at our business portfolio, we had a strong quarter in our small domestic appliance business, where we saw top-line and margin expansion. We continue to innovate in this business and launched our automatic espresso machine product lineup. Outside the U.S., our Latin America and Asia business performed very well, and we continue to see meaningful long-term potential from these businesses. In the quarter, we also executed on the announced sale of our 24% stake in Whirlpool of India, retaining 51% ownership.

We remain firmly committed to returning value to our shareholders and continued our nearly 70-year track record of steady or increasing dividends by recently declaring a dividend of $1.75 to be paid in the second quarter, putting us on track to deliver $400 million of dividends for the year. We also continue to derisk our balance sheet and are on track to achieve our long-term leverage targets. We remain committed to our long-term free cash flow goals and fully expect free cash flow to ramp up throughout the year from our seasonal low in the first quarter and with the closing of a European transaction. As we look to the year ahead, we continue to view 2024 as a tale of two halves. In particular, we expect the promotional environment in the U.S. to remain elevated in the first half of the year, a carryover impact from last year.

However, we will be comping high promotions in the second half of the year. We announced the North America promotional program price increase of 5%, which is now in effect to offset inflationary pressures, which would also benefit our top-line. We do see value in our products and expect the benefits from this action to positively impact the second half of 2024. Our positive view of the U.S. housing market remains unchanged. Given the current undersupplying of 3 million to 4 million houses in the market, we remain very bullish on the trajectory of the housing sector and its medium- and long-term prospects. We’re clearly well-positioned to benefit from upcoming housing rebound, given the high correlation between existing home sales and appliance sales.

We have a strong position with the builders as we work with eight out of the top 10, holding the #1 share position with builders, which we expect to continue to grow. Importantly, we have a very strong product pipeline for 2024, and we continue to invest in new product development as we laid out at Investor Day. We’re particularly excited about the new products that we’re rolling out this year, more to come there. We also remain focused on maintaining cost discipline and are taking actions to increase cost takeout in the second half of the year. While we’re seeing sticky inflation, especially in our supply chain costs, these actions should put us on the path to deliver $300 million to $400 million in cost savings, excluding any raw material savings.

Overall, I’m confident we’re taking the right steps to drive long-term shareholder value, and are on track with both our short-term goals as well as with our long-term strategic plans that we outlined at our recent Investor Day. We are exiting the first quarter on solid footing and we continue to expect meaningful progress in the remainder of a year. The actions we have taken give us the confidence to reaffirm our full-year guidance of $13 to $15 ongoing earnings per share. Turning to Slide 5, I will provide an overview of our first quarter results. Net sales declined approximately 3% in the quarter. As we said in our January earnings call, the carryover of the second half 2023 normalized promotion environment unfavorably impacts price/mix in the first half of 2024.

In North America, we held on to the market share we gained last year. At the same time, MDA Latin America saw strong share gains along with improved industry demand throughout the region. Our prior-year carryover cost actions delivered as expected $100 million of year-over-year cost takeout in the first quarter. As previously noted, with sticky inflation impacting supply chain costs, we experienced a slower start to our incremental cost actions, leading us to trend towards the lower end of a $300 million to $400 million range for cost takeout at this time. We delivered ongoing earnings per share of $1.78, with ongoing EBIT margins of 4.3%, including the margin-dilutive MDA Europe business. Excluding Europe’s major domestic appliance business, we delivered ongoing EBIT margins of approximately 5.5%.

As you may recall, we expect this transaction will structurally improve our margins by approximately 100 basis points on a go-forward basis. The results were largely in-line with our expectations, but not fully the way we expected, due to the challenging North America macro environment. Free cash flow was negatively impacted by non-recurring cash outflows associated with the MDA Europe business of approximately $250 million to $300 million, reaffirming our expectation that the Europe transaction will strengthen our 2025 free cash flow delivery. Finally, 2024 marks the 69th consecutive year of dividends, with $1.75 per share paid in the first quarter. Turning to Slide 6, I will review our first quarter ongoing EBIT margin drivers. Price/mix impacted margin unfavorably by 375 basis points.

For context, this is similar to what we saw in the second half of 2023. We expect this trend to improve as a result of a recently announced increase of our promotion price programs in North America. Our cost takeout actions delivered 225 basis point margin expansion through strong realization of prior-year carryover actions, as previously mentioned. As you have all seen, raw material costs have recently trended upward. Steel remains stubbornly high, and geopolitical tensions are impacting oil prices. While not meaningfully impacting margin in Q1, we continue to closely follow commodity trends, which could potentially put pressure on our raw material guidance. Finally, we saw approximately 50 basis points favorable margin impacted largely from a strengthening peso and Brazilian real.

Ultimately, we delivered ongoing EBIT margin of 4.3%. Now, I will turn it over to Jim to review our segment results and full-year guidance.

Jim Peters: Thanks, Marc. Good morning, everyone. Turning to Slide 7, I’ll review first quarter results for our MDA North America business. With stable share, revenue was down 8% year-over-year as the segment continued to be impacted by the promotional environment. The U.S. industry was down approximately 2% with elevated mortgage rates impacting existing home sales and discretionary demand. Overall, the segment delivered 5.6% EBIT margins for the quarter. While the MDA North America business had a slower start than expected, we are confident that previously announced promotional program actions will drive sequential margin expansion of over 1 point per quarter, with pricing action benefits being fully realized in the third quarter.

Turning to Slide 8, I will review the broader cost environment and how sticky inflation has led to a slower ramp up in incremental cost benefits in 2024. As you may recall, beginning in 2021 and continuing through 2022, we experienced unprecedented inflation and absorbed $2.5 billion of raw material inflation along with rising labor and freight costs. In 2023, we delivered our cost takeout actions, driving approximately $500 million of net cost takeout coupled with $300 million of raw material benefits. We took a significant step toward resetting our cost structure. However, we have seen inflation persist more than expected in 2024, and our input, logistics, and labor costs remain elevated. Despite the macro environment, we delivered approximately $100 million of cost takeout in the first quarter, supported by strong carryover from 2023 actions.

We expect to see our manufacturing and supply chain cost actions continue to ramp up throughout the year. With the EMEA transaction finalized, this allows us to simplify the complexity of our organization operating model globally. We executed the first wave of our global actions in the first quarter and we’ll begin to see the margin benefit in the second quarter. Additionally, the second wave of actions will be executed in Q2, and we will see the full impact of the organizational simplification efforts in Q3. Both waves combined eliminate approximately 1,000 global salaried roles. We remain confident these actions will position our business to be successful now and into the future. Turning to Slide 9, I will share more about our actions to expand margins in North America.

In the first quarter, we saw a promotional environment in the U.S. similar to what we saw in the second half of 2023 without the incremental volume lifts we would expect. It is clear the current level of promotional investments is not achieving our value-creation expectations. We remain committed to creating value with our promotional participation. And we are acting to address both the sticky inflation and promotional intensity. As Marc mentioned earlier, we announced a weighted average 5% promotional program price increase. We believe these promotional program actions are in-line with our strategy of participating in promotions that create value and reflect the value of our products and brands. By adjusting our promotional programming prices, we are able to quickly and efficiently increase net prices with relatively little lead time.

To provide a little context, we communicated and implemented these program changes in the month of April, as opposed to our previously executed list price increases, which typically take 60 to 90 days to implement. These promotional program changes coupled with our company-wide organization actions are expected to deliver sequential margin expansion for North America throughout 2024. Starting on Slide 10, I’ll review the results for our MDA Europe business. Revenue was down 5% year-over-year as the segment continued to see demand weakness from negative consumer sentiment. EBIT margins decreased 50 basis points year-over-year, impacted by negative price/mix. As a reminder, MDA Europe will no longer be a reportable business segment moving forward.

Turning to Slide 11, our MDA Latin America business reported very strong results in the quarter. The segment saw 8% net sales growth, excluding currency, driven by share gains throughout the region and an improving industry in both Brazil and Mexico, more than offsetting unfavorable price/mix. EBIT margins expanded to nearly 8% from incremental volumes, cost actions and approximately 200 basis points from an operating tax-related item. Turning to Slide 12, I’ll review the solid results for our MDA Asia business. Revenue was down 2%, excluding currency, with increased volumes from share gains. Negative price/mix impacted both sales and margins with cost takeout actions driving margin expansion to 4.6% for the quarter. Turning to Slide 13, I’ll review the very strong results for our SDA Global business.

The segment delivered approximately 7 points of net sales growth, excluding currency, driven by key countries and our direct-to-consumer business. We expect continued net sales momentum from our expanded product offering throughout the year. As a reminder of the seasonality for the SDA segment, the first quarter typically represents less than 20% of full-year revenues. Finally, we achieved 18% EBIT margins through our cost actions, new product introductions, and volume growth. We expect our first-half margins to be in-line with or slightly better than what was communicated at Investor Day as we will have incremental marketing investments in Q2 related to new product launches. Turning to Slide 14, I will review a few of our exciting new product launches across our business segments.

During Q1, we launched many new products across our regional major domestic appliance businesses and global small domestic appliance business. Earlier this month, we launched and floored our new semi and fully automatic KitchenAid espresso machines at premium retailers, providing a product lineup offering in one of the categories with the highest growth potential based on current market trends. You no longer have to be a barista to make a high-quality espresso at home. Our new lineup of espresso machines offers quality performance, versatility, unique features, and a beautiful design, all coming from a brand that has been trusted in the kitchen for over 100 years. We also introduced our KitchenAid Grain and Rice Cooker with an integrated scale and water tank that automatically senses the amount of grains, rice or beans and dispenses the ideal amount of water.

I am extremely pleased to share that these products won multiple awards recognizing their design from Red Dot and iF. SDA Global continues to expect strong growth in margins from new product introductions. Within North America, for homes with pets, we launched our first Maytag Pets Dishwasher. Using the Pet Pro sanitation cycle, you can now conquer pet grime in your pets’ bowls like a pro. Finally, as an example of one of the many regional product launches, in Latin America, we launched a freestanding range with the most powerful burner in the value segment, redefining what is accessible to consumers. These are just a few examples of how we are investing in our future growth and innovation to improve life at home. Turning to Slide 15, let me remind you of the benefits expected following the closure of the Europe transaction.

Whirlpool now owns 25% of a newly-formed appliance company, Beko Europe B.V. From a governance perspective, we have two of the six Board seats. We expect to participate in the significant efficiencies that Beko will generate, including sustained productivity, building upon already established purchasing capabilities and continued commitment to product design, innovation and sustainability. We have the potential to unlock long-term value creation through our ability to monetize our minority interest at an estimated net present value of $500 million. Even though we envision a long-term profitable relationship with Arçelik, the shareholder agreement includes a number of exit options at predetermined parameters after five years. Our 40-year Whirlpool brand licensing agreement is expected to generate predictable cash flows of more than $20 million per year.

Overall, we expect $750 million net present value of future cash flows and approximately $250 million to $300 million of incremental free cash flow expected in 2025, with the absence of the cash-consuming MDA Europe business. We are excited to have achieved this milestone in our portfolio transformation that significantly progresses us towards a higher-growth, higher-margin business. Turning to Slide 16, I will review our full-year 2024 guidance. We are reaffirming our ongoing earnings per share range of $13 to $15, and free cash flow guidance of $550 million to $650 million. Additionally, our net sales guidance of approximately $16.9 billion, alongside approximately 6.8% full-year ongoing EBIT margins, remains unchanged. Although our MDA North America business had a slower-than-expected start to 2024, we are confident that we have the right actions in place to expand margins sequentially throughout the year.

We expect second-half MDA North America margins to expand approximately 4 points compared to the first six months of 2024. We still expect MDA North America full-year margins of approximately 9% with an exit rate of 10% to 11%. We expect to deliver approximately 30% to 35% of our earnings in the first half of the year, and continue to expect a full year adjusted tax rate of 0%, reflecting the benefits of the Europe transaction. We are updating our GAAP guidance to reflect non-cash charges related to the Europe transaction. We continue to expect our full-year GAAP tax rate to be approximately 25%. However, as we finalize the impact of the transaction, the GAAP tax rate may be materially impacted. Turning to Slide 17, our free cash flow guidance remains unchanged.

In the first quarter, working capital consumed approximately $600 million of cash. Accounts receivable was impacted by sales seasonality within the quarter, with weak industry demand in January, while March ended stronger than March of 2023. Accounts payable were impacted by lowering production levels in the quarter as we took actions to match supply with demand. As we progress through the year, we expect to see accounts receivable and accounts payable recover to similar levels as the end of 2023, generating sequential free cash flow from working capital throughout the year. As we navigate the challenging macro environment in North America, we will continue to optimize our working capital. Overall, we continue to expect free cash flow of $550 million to $650 million.

Turning to Slide 18, I will review how we are on track to deliver our 2024 capital allocation priorities. We continue to take actions to strengthen our balance sheet. In the first quarter, we completed the sale of 24% of Whirlpool of India’s outstanding shares while retaining a majority interest. And the divestiture of our Brastemp branded water filtration business in Brazil is expected to close later this year. Combined, these two actions generate approximately $500 million of cash in 2024. With our first quarter dividend of $1.75 per share and declaring the same for Q2, we are on track to pay dividends of approximately $400 million in 2024. Additionally, we repaid $500 million of our term loan in April, demonstrating our commitment to maintaining our strong investment-grade credit rating.

We completed $50 million of share buybacks in the first quarter, offsetting dilution from employee compensation programs. As you can see, we are on track to deliver our 2024 capital allocation priorities. Now, I will turn the call over to Marc.

Marc Bitzer: Thanks, Jim. Turning to Slide 19, let me recap what you heard today. First quarter results were largely in line with expectations while navigating a challenging macro environment. We had a strong performance in SDA Global, MDA Latin America, and MDA Asia. While we had a slower-than-expected start in North America, we continue to be well positioned to disproportionately benefit from a recovery in the U.S. housing market, with eight of top 10 U.S. builders on the contract. We are and will continue to take action to address the macroeconomic environment, including the already implemented promotional program price increase of 5%. We expect sequential margin expansion to begin in Q2, and fully ramp up by the third quarter.

With approximately $100 million of cost takeout delivered in the first quarter, we remain focused on delivering $300 million to $400 million of full-year cost takeout. We have already taken action on our company-wide organization simplification, and the second wave will be completed in the second quarter. The EMEA transaction represents a considerable step towards a higher-growth, higher-margin business. The transaction is expected to meaningfully accelerate our structural free cash flows by approximately $250 million to $300 million in 2025. We have clear capital allocation priorities including sustaining our strong dividend and reducing debt leverage, supported by strong 2024 cash generation. We are confident that we have right operational priorities and actions to navigate this dynamic environment and deliver sustained shareholder returns.

And that concludes our formal remarks, and we will now open it up for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Susan Maklari from Goldman Sachs. Your line is open.

Susan Maklari: Thank you. Good morning, everyone.

Marc Bitzer: Good morning.

Susan Maklari: Good morning. I want to start by focusing a bit on the North America MDA segment. You mentioned that you expect to get 1 point of price every quarter relative to the 5% promotional increase — promotional price increase that’s been announced. I guess, what gives you the confidence on that 1%? Does it feel like that is conservative or in line with where you think things will come in? And how do you think volumes will move in response to that? And just can you help us perhaps bridge as that comes through getting from that 5.6% margin you reported this quarter, the 10% to 11% exit rate you expect for this year?

Marc Bitzer: Susan, it’s Marc. So, let me just comment on the North America margins and the pricing announcement, which we’ve done. And first of all, maybe, which I think is beneficial for the broad audience, explain a little bit how pricing in North America is typically structured. First of all, starting out with, the retailers set the consumer prices. So, the way how we typically talk about prices towards the retail and how we guide it is there’s typically two goalposts. One is what we call the MSRP, manufacturer’s suggested retail price, which tends to be the high mark, and there’s these promotional price programs. And they’re typically tied towards [indiscernible] advertising, so there’s a monetary incentive to stick to these prices.

On our retail side, the vast majority of volume, typically about 70%, is somewhat tied towards these promotional price programs. So, what we have announced is a structural across the board increase of these promotional price programs of 5%. If you compare that to moving MSRPs, there’s a benefit of being able to move faster, because it doesn’t take a lead time, so it’s in effect now, and it really affects the real business. So, it’s very relevant. In terms of timing, first of all, for Q2, even though it’s now in effect, of course, you can’t touch April anymore. So, it starts touching May and Memorial Day and then July 4th, and then it starts building from there. So, that’s just the sequence on how you get into the market. As a reminder, and this is typically to our successful price increase in the past, 5% typically doesn’t translate directly to 5% bottom-line impact.

There is some leakage because of the margin protection, but you typically would expect over time to be this 2% to 3% net price realization. So that explains the sequential move. So, of this — of that one, in Q2, we expect about 1 point and then subsequently with similar elements. So, that’s a buildup of the range. Now, on the volume impact, of course, North America is highly-competitive market environment, but, frankly, we feel very confident about our product, product launches. As we evidenced over the last 15 months, we had solid share gains. We have a strong product pipeline. So, we do believe our promotional pricing and the revised promotional pricing fully reflects the value which the consumer gets for it and the consumer is willing to pay for it.

So, actually, I think we’re pretty confident, particularly also on the back of the distribution gains, which we got in the last three to four quarters, that the volume impact will be moderated.

Susan Maklari: Okay. That’s helpful color, Marc. Thank you. And then maybe turning to the small domestic appliance business, you had some really impressive results there, especially on that margin. Can you talk a bit more about what drove some of those factors? And just how you’re thinking about where we are today relative to the guide that you didn’t change for this year? What are the puts and takes that take us through the next couple of quarters?

Marc Bitzer: Yeah, Susan. So, SDA, by the way, very much like Latin America and Asia had a really strong start of the year and we feel very good about it and feel very proud of it. The small domestic appliance business is a combination of both. We had good cost progress, that’s one element. We had a very solid sell-through on called our bread and butter business, the Stand Mixer, but frankly, also some of the new product introductions like the Cordless, and [Rice and] (ph) Grain Cooker. So there’s some good momentum also coming from these new product introductions. So, put that all together, we had a very strong Q1. The reason why, I mean, Q1 is not the right quarter to kind of change the full-year guidance, it’s just in particular on the SDA business, it’s the smallest of all four quarters.

So, there’s a full year coming and the seasonality in the small domestic appliance business is more back-half loaded. We also have a massive product launch in Q2, which we will invest with significant marketing dollars. So, there’s some moving parts. But no matter what, we’re off to a very strong start. And could there be some upside at one point? Yes, but it’s way too early to kind of commit and confirm that.

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

Michael Rehaut: Yes. Hi, good morning, everyone. Thanks for taking my questions.

Marc Bitzer: Good morning.

Michael Rehaut: First, I just wanted — good morning. First, I just wanted to drill down a little bit on the movement in North American industry shipments. I think you said down 2%, which would actually, if you kind of strip out the headwind from your price/mix in the quarter, would be consistent with the slight sequential gains. But also the AHAM shipments kind of fed down 6% for the quarter. I was wondering if you could kind of reconcile those two. And also more broadly just talk about the discretionary demand and why it’s lagging here perhaps in spite of some of the promotional activity. And you’re talking about a — kind of on a bigger picture question, a price increase. If your competitors are not following that, I’m just kind of wondering in a weaker demand backdrop, if they don’t follow, let’s say, if there could be some potential for share loss in the next quarter or two?

Marc Bitzer: Michael, it’s Marc. Let me first address the industry shipments. As you noted, AHAM has restated the Q1 numbers. We had some restatements in the past. This restatement was driven by one of the smaller import players. And frankly, we have some questions about the consistency and validity of these restatements. And the reason why I’m saying this one, typically, in the past, we — between what we know from our sell-through data, what we know from our balance of sale from retailer, it typically triangulates very well with AHAM data, and we feel pretty confident about the numbers which we’ve given are directionally correct. Having said that, so if you would take the revised AHAM numbers, that would mean we had in Q1 a fairly sizable market share gain, which would be nice, but I think it’s more fair to say we basically held on to the share gains which we had last year and sequentially flat to slightly up.

And I think that’s a more realistic scenario. So, right now and also based on the sell-through data, I would say that is again pretty much in line with the expectations that we had coming to Q1. U.S. industry was down minus 2%. I think sell-through was pretty much in the ballpark, and that’s also what we seem to be confirmed. It doesn’t change our full-year outlook on 0% to 2%. Obviously, with some moving parts, and of course, there’s also baseline from last year Q3 and Q4. And we all know it’s ultimately driven — consumer sentiment is mixed. The mortgage rates don’t help existing home sales. I think as a result of stubbornly high mortgage rates, you might see still fairly solid new home sales, existing home sales being soft. But you may also see a resurgence of home improvements and remodeling, because people need consumer equity, but the balance sheet is not bad.

People have money, but just don’t want to leave existing homes. So, I think you will see more and more trends towards remodeling, refurbishment. And to be honest, that’s not a bad business for us. So again, we right now at this point, we still feel the 0% to 2% industry guidance is the right one. As it relates to promotion price increase, again, let’s first of all keep in mind, historically, consumer elasticity to broader category pricing is very little, i.e., given that it’s an infrequent purchase, consumers — there’s no hypersensitivity on consumer side towards category pricing. And, of course, we’re living in a competitive environment. We do what we think is right for our business, where we participate and do promotions that create value for us, and we do what we think our products are valued from the marketplace.

And, again, it comes back to — we have a strong product pipeline, and with that product pipeline and the distribution gains of last year, I think we have a very good opportunity to make the price increase work and have a very moderated impact on volume.

Michael Rehaut: Okay. No, I appreciate that. I guess, also just wanted to focus on the EBIT margin bridge for the full year. I noticed that your components remain unchanged in terms of price/mix and net cost. At the same time, you’re talking about a 5% price increase on your promotional program actions, which would be a, everything else equal, a positive. So, wondering why that component hasn’t been changed. Also the net cost, you’re talking about maybe being at the lower end of the cost actions, as well as some incremental cost inflation on areas like freight, logistics, et cetera. So, it seemed like maybe there’s a little bit of downside risk there, a little bit of upside risk maybe on the price/mix. Just kind of your thoughts on why some of the components haven’t changed yet while some of the inputs have?

Jim Peters: Yeah, Michael. This is Jim. Let me start and then I’ll have Marc kind of chime in. And as you called out, as we look at where we are at the end of the first quarter, we do believe these are the big drivers. And we do believe in terms of order of magnitude. They’re directionally correct, but they’re also order of magnitude correct. I would say to your point on the price/mix, as we roll out the price increases or promotional price increase that we’ve done here, it’s coming out throughout Q2. So, we’ll see the benefit partially in Q2, later Q2, but in the back half of the year. As we look at it today, it should take us to the higher end of the range or possibly even better than that, as we get to the back half of the year.

But I’d say right now that’s why at least we use a range to point out where that could be, but we do think we’re going to the higher end there. From a net cost perspective, as we did highlight, we do think we’re possibly at the low end of that range right now. And we are driving the cost actions that we mentioned. But I would say if you looked at the broader range, the $300 million to $400 million, we’re probably closer to the low end. So, we do see some possible upside on price/mix, but we do know we have some additional incremental inflation that we weren’t counting on in the net cost. And right now, we believe they’d offset each other on a full-year basis most likely, but as we get through the second quarter, we’ll continue to have a better picture of what all our actions will deliver for the full year.

Marc Bitzer: Michael, just maybe to add on this one. Obviously — and that’s just the nature for Q1. If you first of all look at our different businesses, you have three businesses which are right now running higher than EBIT guidance, and North America slightly running behind of what we have the EBIT guidance. I think at the end of the day, right now, yes, there’s still some moving parts, but there’s way too move — too early to kind of even think about a change in — on this one. The same is a little bit on the components. First of all, just to clarify, the bridge which you saw, that’s the total company bridge. That’s not necessarily North America. To Jim’s point on net cost, yes, because sticky inflation, we’re kind of more on the low end.

But I think also with what we demonstrated, we deliver as carryover and additional cost actions in Q1, I think we’re pretty solid on this one. On pricing, and with the price increase which we announced, it could be on the better part of that range. But again, there’s still a lot of moving parts. But overall, put it all together, we feel confident about this margin guidance as a total EBIT, which we’ve given for the full year.

Operator: Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.

David MacGregor: Yes. Good morning, everyone, and thanks for taking the questions.

Marc Bitzer: Good morning.

David MacGregor: Hey, guys. I guess I just want to start off by asking about U.S. retail inventories, and it looks like there was a pretty significant destock in January ahead of the retail year-end, it was followed by some relatively flat units in February and March if you combine the two months. But how much additional destock do you think is left at retail? And how would that impact the typical 2Q seasonal build in refrigeration?

Marc Bitzer: Yeah. So, David, it’s Marc. So, you’re correct, in January, there was quite a bit of destocking of a retail side. I think there was a little bit of rebuild back up on March. So, I would still say quite slightly down versus year-end. We’re still, by and large, a little bit elevated inventory level in the retail environment, not particularly concerning, but slightly elevated. So, what we saw end of the year is not being completely reduced, because, again, there was some rebuild back into March. Doesn’t make me overly nervous, and it’s — and again to some extent expected, and I don’t think it should impact the typical refrigeration seasonality.

David MacGregor: I guess as a follow-up, I just wanted to ask you about the Arçelik transaction. Your 25% stake in the earnings moves to the equity income line, I would believe. But can you quantify the stranded costs that were left behind? And how those costs resolve over the remaining three quarters of this year? And what could that represent in the way of incremental margin benefit for full-year 2025 versus full-year 2024?

Jim Peters: Yeah, David, this is Jim, and maybe I’ll start out with that. As you said, now our 25% stake will move to a different line in the P&L. And being only 25% will obviously be significantly smaller. If you look at it from a stranded cost perspective, you would see most of that flow through our corporate expense line, which actually right now is trending in a relatively positive level. And why is that? Well, there’s a couple of things there. One, we actually did sell off that business in terms of fully operating business. So, there weren’t a significant amount of stranded cost that stayed. I mean, we did — a lot of the cost went with it and we do have some remaining costs that we may have had. But obviously, in a transaction like this, you have transaction service agreements where you’re also providing those services and being paid for them.