So, I would say, not necessarily in the first quarter, but more in the middle half of the year is when you should expect to see us reducing inventories.
Operator: Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.
David MacGregor: Yes. Good morning, everyone. Thanks for taking the questions.
Marc Bitzer: Hey, David.
Jim Peters: Hi, David.
David MacGregor: Hey, good morning, guys. Can you talk a little bit about the market share gains and at what price points? And was this really just a recovery of some of the share that you lost during the pandemic or do you think it might have been incremental with a different consumer or the different price point? And how does all this kind of mesh with what the consumer is doing right now in terms of mixing up or mixing down?
Marc Bitzer: Yeah. So, David, I mean, first of all, the 1 point or 1.1 point, to be precise, full year gains in North America — and the good thing is they’re spread across multiple product categories. So, it’s basically not a single product category where we would point to share weakness, we grew across the board. Obviously, a number of new product introductions helped and supported that share growth. The other element which partially helped but is not yet fully visible, we had significant share growth in the National Builder business, but obviously because the broader market is still soft, that is not yet fully showing, but that’s a big source of share gains. So, it’s pretty much across the board. I wouldn’t point to specific price points.
Now, against the context of a broader market, and this is coming back to what I think we mentioned also in the last earnings call, the nature of a market which is now so heavily impacted by the replacement markets, again, with 60% of our sales right now of the total market, which is much more than past, replacement market inherently comes with a slightly lower margin profile than discretionary demand. It’s just what it is, because consumer either look for specific dimensions or they’re in a rush. They only have one or two days to make decisions, so that typically comes with a lower margin profile. So, I wouldn’t point to specific price points where we gain market share, but the broader market being so heavily replacement driven, that doesn’t necessarily help you from a price/mix compared to previous periods.
David MacGregor: Got it. Thanks for that. And then, just as a follow-up, I want to go back to the $300 million to $400 million cost reductions. I guess my question is really clarification. This is a net number, right? It’s net of any inflation in your non-raw material variable costs and fixed costs? In other words, your gross number…
Marc Bitzer: Yes, David. Yes, this is a net number like we always put on the net cost line. And so, again, yeah, it takes more in gross actions to get to this number as we have to offset inflation in certain areas and especially in some of our higher-growth, emerging markets outside the US, but this is a net $300 million to $400 million.
Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open.
Mike Dahl: Good morning. Thanks for taking my questions.
Jim Peters: Good morning, Michael.
Mike Dahl: So, follow-up on the inventory comments. When you look at where retail inventory ended up, I guess, two-part question, is there any specific category that saw outsized inventory growth that you need to now work down? And then, do you think Whirlpool was effectively in-line with the industry as far as the inventory build? Is that kind of a Whirlpool-specific comment? Is that an industry comment? How do you think you shake out versus the market in terms of where inventory position ended the year?
Jim Peters: Yeah. So, Michael, I’ll start here and I’ll let Marc kind of add a little bit of color to it. But I would say, to begin with, across categories, I can’t say that I could call out and differentiate any one category where it’s significantly different. Again, as we kind of got through the year-end, saw through — where sell-through was from a holiday perspective, and then you look across the broader environment, I’d say it’s in — we see it in in many of the categories. So, I don’t think that there’s a big differentiation for us there. And then, as you said, is it a Whirlpool-only issue? I think no. As you look across the entire industry and you look across the retailers right now, this is not a Whirlpool-only issue.
And again, as you’ve seen, many of our competitors have already started talking about things. You’re hearing a similar story out there that everyone is seeing a retail environment that seems to have higher levels of inventory than expected. So, just based on at least information out in the public, I don’t believe that it’s a problem that disproportionately affects us.
Marc Bitzer: And, Mike, maybe just give you a little bit more color and coming back to what I mentioned before, essentially, when you look back at Q4 North America, the industry sell-through was softer than most people expected, okay? And it comes back to, yeah, the amount of discretionary demand out there was not as high as people expected. That led to both, the return on investment on market promotions was just not attractive; and two, it also led to higher inventories of our retailers relative to what we had in mind in industry sell-through. And as Jim mentioned earlier, I think that will impact somewhat the shipments, the industry shipments in Q1 and maybe to a lesser extent Q2. From everything — and, of course, we don’t have precise sellout data from competitors, but from everything which we see from a broader industry, it certainly was not a Whirlpool-specific issue.
This was across the board. And right now, it just means a little bit of inventory overhang as we enter the industry in Q1, but again, that we will work through.
Mike Dahl: Yeah, that makes sense. Helpful. Thanks. My second question, either Marc or Jim, is around the free cash flow guide. And specifically, if I look at cash earnings and operating items, the expectation is $1.1 billion to $1.2 billion in fiscal 2024, you did — you’re expecting EBIT to be about flat at $1.15 billion. On that number, you did $910 million of cash earnings in 2023. It seems like your interest expense is unchanged year-on-year. Your cash tax is unchanged year-on-year. And so, if your EBIT is unchanged year-on-year, what is the actual bridge in terms of which items are getting you to a higher cash earnings number in ’24, higher cash earnings conversion relative to EBIT?
Jim Peters: Yeah. So, Michael, this is Jim. And really there’s two components that go into that line. It’s your actual earnings, which as you pointed out are relatively flat and that does make sense. And then, the other one that’s always hard from the outside to really kind of look at is that we have a lot of other operating accounts that are on our balance sheet, such as accruals for promotional spend, such as accruals for employee compensation in other areas. And actually, when we look at the end of this year versus the end of 2023 versus the end of 2022, what we saw is that because 2022 was a really strong year, you had a lot higher payouts on some of those areas within the beginning of 2023, that negatively affects cash.
