Good morning, and welcome to Whirlpool Corporation's Fourth Quarter 2019 Earnings Release Call. Today's call will be recorded. For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Roxanne Warner. Please go ahead..

Thank you, and welcome to our fourth quarter 2019 conference call. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; and Jim Peters, our Chief Financial Officer. Our remarks today starts with the presentation available on the Investors section of our website at whirlpoolcorp.com.

Before we begin, I'll remind you that as we conduct this call, we will be making forward-looking statements to assist you in 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 and other periodic reports.

We want to remind you that today's presentation includes non-GAAP measures. 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 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 a 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..

Thanks, and good morning, everyone. On Slide 3, we show our fourth quarter 2019 highlights. We delivered very strong results, organic net sales growth of 1.2% and ongoing EBIT margin expansion to 7.2%, a 100 basis point increase. We demonstrated a strong performance across the globe as all regions delivered positive EBIT.

North America led the record EBIT margins of 13.3%, despite industry demand softness in the U.S. and Canada. In our Europe, Middle East and Africa region, we continued to realize the full benefit of our strategic actions.

This represents the second consecutive quarter of sequential EBIT improvement in the European region providing a strong confidence and our ability to drive region to profitability in 2020. Additionally, we delivered strong free cash flow of over $900 million with positive contributions from all regions.

This result was driven by working capital improvements and capital spend efficiencies. Lastly, we continue to strengthen our balance sheet and made strong progress towards our long-term gross debt to EBITDA target of approximately 2 [ph]. Turning to Slide 4, I will discuss our full year highlights.

We delivered record ongoing earnings per share of $16 above our $14.75 to $15.50 guidance. With a very strong ongoing EBIT margin expansion of 60 basis points and free cash flow of over $900 million compared to guidance of approximately $800 million.

We took decisive action in a challenging environment by announcing and successfully executing on our global cost-based pricing initiatives and driving positive mix through product innovation.

Additionally, we remain disciplined in our approach to cost takeout and continue to optimize our overall value chain while overcoming significant headwinds from tariffs and material cost inflation.

Despite significant trade and macroeconomic challenges, we fully funded our business investment needs and returned strong levels of cash to shareholders through continued share repurchases and increased our dividend for the seventh consecutive year.

These results demonstrate the fundamental strength of our business and provide us confidence and we have a right strategy in place to deliver our long-term goal. Turning to Slide 5, I will show the drivers of fourth quarter and full-year margin expansion.

In the fourth quarter, price mix delivered 100 basis point of margin expansion as we realized the benefit of pricing actions and mix benefit from our product launches. Additionally, we delivered positive net cost takeout in the quarter.

However, improving trends in raw materials more than offset continued tariff headwinds in North America, resulting in a favorable impact of 25 basis points. These margin benefits were partially offset by continued marketing and technology investments and the unfavorable impact of currency.

Our full year very strong margin expansion from price mix was partially offset by the impact of tariffs, increased brand investments and currency. Overall, we're very pleased to deliver an even slightly over deliver on our margin commitments and are confident this positive momentum will continue to drive strong results in 2020.

Now, I'll turn it over to Jim to review our regional results..

Thanks Marc, and good morning, everyone. Turning to Slide 7, I'll review the fourth quarter results for our North America region. We delivered stable revenue, despite industry softness in the U.S. and Canada, highlighting the agility and underlying strength of our business.

Additionally, we delivered record EBIT with margin expansion to 13.3% as strong price mix execution and disciplined cost takeout offset headwinds from fixed cost leverage and continued cost inflation.

The region drove margin improvement of 150 basis points in the quarter, making it the ninth consecutive quarter of consistent margin [Technical Difficulty]. Turning to Slide 8, we review the fourth quarter results for our Europe, Middle East and Africa region.

Excluding business exits, unit volumes were approximately flat with growth in Italy, France and Eastern Europe, which was offset by soft Middle East and Africa demand. We are pleased to see strong top line exit rates in December across the region, including year-over-year growth in Middle East and Africa.

Momentum from our cost reduction and strategic initiatives delivered a EBIT with margin expansion of 210 basis points. These initiatives remain fully on track and we delivered in line with our guidance of approximately $100 million EBIT benefit on an annual basis with approximately $75 million to be realized in 2019.

This sustained improvement provides us confidence in our ability to return the region to profitability in 2020. Now we turn to Slide 9 to review the fourth quarter results for our Latin America region. Unit volume significantly increased alongside a rebound in Brazil industry demand. Offsetting continued weakness in Mexico.

Organic net sales which excludes 2018 Embraco sales increased approximately 17% driven by Brazil share gains and very strong direct to consumer sales. EBIT margins contracted in the quarter as cost productivity benefits and favorable raw material inflation were more than offset by currency devaluation in Brazil and Argentina.

Finally as a reminder, our fourth quarter 2018 results include the impact of the Embraco compressor business in its consolidated results. We now turn to the fourth quarter results for our Asia region which are shown on Slide 10.

Excluding the impact of currency, net sales were approximately flat as strong top line growth in India was offset by negative industry demand in China. India delivered double-digit EBIT and continued share gains, which was offset by brand transition investments in China.

These investments remain on track with Whirlpool brand share increasing sequentially and year-over-year. Now I'd like to turn it back over to Marc to review our guidance and operational priorities..

Thanks, Jim. Turning to Slide 12, we'll review our guidance assumption for 2020. In line with our long-term goals, we expect to drive organic net sales growth of approximately 3%. We expect to deliver approximately 7.5% ongoing EBIT margin, an increase of about 60 basis point.

Lastly, our free cash flow guidance is $800 million to $900 million, which includes a net unfavorable impact of $140 million from one-time items. Turning to Slide 13, [indiscernible] drivers of approximately 7.5% ongoing EBIT margin guidance in 2020.

We expect approximately 25 basis points of improvement related to price mix as we deliver new and innovative products and services to our customers. We expect net cost to drive approximately 50 basis points of improvement. As we realize the benefits of our global standardization and complexity reduction initiatives.

Additionally, based on what has been announced to date, we do not expect tariffs to have a year-over-year impact on 2020 results, while favorable trends in raw materials are expected to drive approximately 50 basis points of margin expansion.

Further, we expect a negative margin impact of approximately 50 basis points as we continue to invest in our digital transformation journey and an unfavorable impact from currency of approximately 25 basis points.

Moving to Slide 14 and 15, we want to highlight just a few of our innovative products which allow us to drive positive price mix during 2020. The first slide shows how we will achieve product leadership in the North America premium top load laundry segment.

These products will launch throughout the first quarter of this year, replacing our entire premium top load laundry segment. These connected capable products have purposeful innovation to meet customer needs such as Load and Go dispenser a new Pre-Treat Station and an Extra Power function.

The second example on slide 15 highlights our new dishwasher build in our first ever true global architecture, which is set to launch in North America and Asia in the first quarter and at a later stage in Europe.

By leveraging our architecture globally, we are able to drive significant improvements in parts and compressor reduction, therefore, driving cost efficiencies. Even more importantly, this innovative product features a new full third rack with a full functioning spray arm, the largest third rack available in the market.

We fully expect to see major growth in our mass and premium segments as a result of these innovative consumer relevant features. Again, these are just a few examples of exciting innovations that we expect to launch this year that will continue to drive positive price mix. Now, I'll turn it back to Jim to highlight a few remaining guidance items..

Thanks, Marc. Turning to Slide 16, we expect to deliver ongoing earnings per share of $16 to $17 in 2020. Our ongoing tax rate is expected to be 20% to 25% compared to 15.3% in 2019, resulting in a year-over-year headwind of approximately $1.55. The European tax law change in late 2019 favorably impacted our effective tax rate.

Excluding this benefit, our tax rate would have been near the midpoint of our previous guidance. Additionally, several of our tax reform benefits and strategies from prior years are no longer effective in 2020, further increasing our rate to our current 20% to 25% range.

Secondly, as we mentioned earlier, we expect to drive EBIT margin expansion in all regions, totaling approximately 60 basis points, resulting in strong earnings accretion. Our earnings per share guidance includes a headwind of $0.60 as 2019 EBIT includes approximately $50 million related to Embraco.

Additionally, we expect moderately lower interest expense after the repayment of our $1 billion term loan in 2019. Lastly, we highlight the carryover benefit from our 2019 share buybacks, while we expect to continue to repurchase shares at a moderate level. We do not provide specific guidance for 2020 and do not reflect that as a driver.

On Slide 17, we show our regional guidance for the year. Starting with the industry demand, we maintain our cautious demand outlook for North America, while U.S. housing starts show positive signs of strengthening that has not yet translated into higher appliance demand.

In EMEA, we expect a continuation of modest growth, while in Latin America, we expect growth of 3% to 4% as improvements in Brazil are offset by continued weakness in Mexico. Asia industry is expected to be approximately flat as growth in India is offset by continued demand pressure in China.

In total, we expect the global appliance industry to be approximately flat for 2020. Regarding our EBIT guidance, we expect continued margin expansion in North America, driven by focused cost discipline and favorable price mix related to new product introductions.

In EMEA, we fully expect to continue to realize the benefits of our strategic actions to restore EMEA to profitability, resulting in EBIT margin expansion of over 170 basis points. As a reminder, we executed several strategic actions, including our business exits in the first half 2019, driving benefits primarily in the second half.

In Latin America, we expect to deliver EBIT margins of approximately 6% as demand improvements and accelerating direct to consumer sales in Brazil are offset by demand weakness in Mexico and currency devaluation in Argentina and Brazil.

Lastly, we expect to achieve EBIT margins of 3% to 4% in Asia as strong India operations are partially offset by weak demand expectations in China.

In total, we expect to deliver approximately 60 basis points of margin improvement and are confident that our operational priorities and initiatives will deliver continued progress towards our long-term goals. Turning to Slide 18, I will discuss the drivers of our 2020 free cash flow.

We expect to deliver approximately $1.7 billion in cash earnings, primarily driven by margin expansion, offset by the sale of Embraco. We expect $550 million in capital expenditures as we continue to invest in our business.

Additionally, we expect to deliver approximately $50 million of working capital improvement primarily through inventory reduction initiatives as we fully transition key product launches across the globe. And we expect $200 million of restructuring cash outlays which includes the re-industrialization of our Naples, Italy manufacturing facility.

Lastly, free cash flow was negatively impacted by approximately $140 million related to several one-time items. Further details of these items can be found in the appendix of this presentation. In total, we expect to deliver $800 million to $900 million of free cash flow.

Turning to Slide 19, we provide an update on our capital allocation priorities for the year. We remain fully committed to funding the business for growth, while continuing to strengthen our balance sheet and return cash to shareholders.

Consistent with our balanced approach to capital allocation, we repurchased approximately $50 million of shares in the fourth quarter and expect to continue repurchasing shares at moderate levels in 2020. In line with guidance at Investor Day, our gross debt to EBITDA is on track towards our long-term target of approximately 2.

Lastly, I'd like to announce that starting in April, we will no longer report units sold in our earnings materials, including our 10-K and 10-Q.

As we continue to redefine what product is, this will lead to an increase in revenue from products not reported as units such as the KitchenAid Smart Oven plus baking stone and the upcoming launch of Yummly's wireless smart thermometer.

Further, we continue to invest in our digital transformation journey and unlock long-term value creation through incremental revenue from digital products and services, such as our Yummly Pro subscription service. As a result, units are becoming less of an indicator of our overall sales performance.

Consequently, we will eliminate units reporting in our earnings materials, including our 10-Q and 10-K. Now we will end our formal remarks and open it up for questions..

[Operator Instructions] Your first question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead..

Good morning. Thanks for taking my questions.

I wanted to start out just a couple of questions around North American volumes and maybe a follow-up about your last comment on, Jim around units, but just in the quarter, with volumes a bit weak it seems like on the major appliance side a little below what [indiscernible] said, and then I think we all were expecting some rebound in small appliance shipments, just given the timing shifts you had indicated last quarter.

Can you talk us through just the inventory dynamics potentially your trade partners both in major appliances and small appliances? And how we should be thinking about what happened in the quarter and maybe how that's progressing into 2020?.

So Mike, it's Marc Bitzer. So let me comment on the NA -- volume in Q4, which as you know, in total, we reported a 3.8% unit decline for North America.

Now, keep in mind, first of all pure majors business and if you want to take one indication, the AM numbers were minus 1.8 for the quarter, which just remind everybody does not encompass the entire spectrum of what we sell, but that's of course one part of that.

If you look at the pure majors business we approximately held market share in Q4, so we feel pretty good about where we offer market share and then particularly during promotional period. On the other parts of the business, keep in mind, Canada is in there. Canada continues to have a market decline and Canadian market itself that might has an impact.

On the SDA volume, frankly, coming into the quarter, we did expect that the trade brings inventories back to normal levels around the end of the year and they did, so the trade inventories on the SDA are lower than the year before, but we feel very good about the sell proof KitchenAid SDA, which is pretty solid and pretty stable.

So these are pretty much of a major components, and maybe Jim you want to comment again on the units reporting..

Yes, Mike. And then on the units reporting, as I mentioned, as we look at our business globally, there are a lot of parts of the world where services and other consumables products that aren't normally included in our unit count or increase -- an increasing part of our sales.

So we've typically looked at a unit is something that has a power cord attached to it and a lot more of the stuff that we sell now today, whether it'd be stand mix or attachments it be, licensed products it be, as I mentioned consumables or services just don't fall into there and so we felt that it was a much less relevant indicator while revenues is a better indicator of how we're doing on a global basis..

Okay, thanks. And that was actually going to be my second question.

Just -- is there any way you can size up those components just before you kind of transition to the new reporting -- just give us a sense of what those represent today but either in aggregate or by major region?.

Yes, I'd say right now that we don't disclose those specifically by region and all that as we said, it's becoming more a part of our ongoing sales and I think as we switch to this new model, we'll look at what relevant measures we think we should be communicating..

Okay. Thank you..

Your next question comes from the line of Michael Rehaut with JPMorgan. Please go ahead..

Thanks. Good morning, everyone. First question I had was just on the competitive backdrop in North America. There's been a lot of chatter and concern as there always is perpetually but given the past year with the ramp of the LG and Samsung lines, we've gotten a lot of questions around how that may or may not have affected the competitive dynamics.

I was hoping if you'd comment on your view of the promotional environment in the fourth quarter, seasonally, there is always.

I think a lift in the fourth quarter, but if you could comment on how that trend has been maybe year-over-year? And if you view anything related to the ramp up of those plants is having contributed to that at all?.

So it's -- Michael, it's Marc. As you mentioned already with question along the competitive background in North America. There are almost the perennial question, so i.e., there has been around for last 10 years and in the last 10 years we expanded our margin on consistent based in North America.

So we of course it's an intense competitive environment, but I think we've also impressively demonstrated that we can expand margins despite a highly competitive environment.

In particular, when it comes to be onshoring of the two Washing Machine factories as we always said, we welcome that because it's managed a level playing field and we feel very confident that we can compete embedded environment. So as such no with a negative impact on the broader competitive environment from the onshoring of that production.

I would say pretty much the same intense environment. Particularly related to your question on the promotional environment. Yes, in Q4, we saw a slight uptick on the promotion intensity particularly from two competitors, but not the entire marketplace.

And that doesn't entirely surprise us, but you've also seen that despite a broader market contraction. We delivered 13.3% EBIT margin in North America which demonstrate that even in a promotional environment, even in a declining markets we are able to deliver very, very strong margins..

Right. So I appreciate that, Marc. And maybe just to dive in a little bit more as my second question on the North American margins which obviously is very, very impressive.

If you could give us any sense of perhaps just being a lot more granular around the drivers of that 150 basis point year-over-year improvement in particular, obviously you have the price mix component, and I'm also curious about cost productivity, what's driving that bucket and what was the contributor there particularly as obviously you don't have any additional volume leverage to take advantage of.

So really what was driving that other bucket?.

Yes Michael, this is Jim, let me maybe start a little bit with that. I'd say for North America, the margin expansion was driven by similar levers to what we said globally. And so there's not a significant difference there. We did obviously have positive price and mix within North America within this quarter.

From a net cost perspective, we also began to see some cost progression there and what we're seeing is one and as we talked about going into 2020, a reduction in headwinds in terms of what we're seeing on materials, tariffs were very stable within the quarter.

So that was positive for us and then we did make some investments similar to what you see on our walk for the whole quarter. So there's nothing unusual within North America outside of what we demonstrated globally that it was really pricing and mix and then a positive cost environment that offset some of the cost headwinds we had to deal with..

Great. Thank you..

Thanks, Michael..

Your next question comes from the line of Susan Maklari with Goldman Sachs. Your line is open..

Thank you. Good morning.

To start off with can you talk a little bit about inflation and how you're seeing steel prices and other kind of key input about 2020?.

Yes, Susan. So when it comes to inflation and let me first repeat what we said several times, we -- coming into 2019. We basically had a cumulative inflation of around $700 million in our business, that is a result of raw materials, tariffs, cost inflation throughout the entire value chain and in particular, logistics.

That was still in total headwind pretty much for our mid-year 2019. And as of Q3 and in particular Q4 we saw that slowly coming around in terms of the total net cost takeout. If you break it down more in terms of the external factors on this one. Yes we saw globally a churn in the raw material with pretty much around Q3 and then more impact in Q4.

And as you've seen in our guidance for 2020, we also expect a number improvement on the raw material side. What has changed since our last earnings call is our outlook on the tariffs because in the last outlook we had to work with what was announced at that time.

And based on what we know today now that tariffs will not have a negative year-over-year impact, and as a result of that, we basically see this 4.5% margin expansion just coming from better raw materials. The other inflation elements like logistics or other cost elements, so far we don't see yet turning around.

So that is still working against us and that's what we're trying to address.

But again summarizing, I would describe 2020 we will see less of an inflationary environment, but it's not completely gone and certainly not reversed and is obviously our key operational priority to kind of double down and really improve our cost takeout throughout the entire system..

Okay, that's helpful. Thank you.

And then just turning to your EMEA business, can you talk to how much of the improvement in the margin this quarter came from kind of the core business and maybe you're improving position within that relative to some of the benefits of the restructuring actions that you've taken there?.

Susan, I think it's pretty balanced. I mean at the end of the day, it's the combination of all these measures.

Keep in mind, the biggest actions which we drove pretty much for the last several quarters is a fixed cost takeout and the kind of exit of certain non-core business is like Turkey, like South Africa and the points small domestic appliances and the refocus of investments and driving growth in our core markets.

And frankly, I would say, we delivered on all three of these levers. So I think it's the combination of these ones, which drove year-over-year improvements.

But in particular when it comes to the core markets and this may be is embedded in our overall unit number which we have for Europe, we had in our core market growth in Q4, and that's a good thing. So we stabilized or regain market share in most of the core markets and again that's a very encouraging sign when we look into 2020..

Okay, great. Thank you..

Thanks, Susan..

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

Good morning, Marc. Good morning, Jim.

How are you?.

Good, Sam. Good morning..

Couple of questions, if I could. First you're mentioning expectations for flat industry units globally and also a 3% organic sales growth expectations. I'm trying to figure out the rank order, the reasons for the outperformance in sales dollars for you expected in fiscal '20 versus the flat industry shipments. I'm guessing some of that's the D.R.

Horton win, I'm guessing some of that's price mix, but if you could help rank order the drivers of that gap, Jim?.

Yes, Sam, here's what I'd probably start with is, if you look at it what we would say as demand being flat globally. Obviously, we do believe we'll have some share win on certain markets around the world and you pointed to some of the specific examples in North America.

But I think also, as Marc just talked about, within EMEA we also expect to gain back some of the share we lost there. So that will help drive us from a revenue perspective despite an industry being flat globally.

The second thing is, as we mentioned, there is an incremental amount of price mix in there which also does help us on a revenue base, we assume that to be slightly positive for the year. So both of those that would probably be the second biggest driver, that I would say..

And then my second question, the net cost benefit of 50 basis points in 2020 that's obviously constructive but I think it's still below where you'd like to be ideally at least from a productivity standpoint. Are you still anticipating having production below shipments in fiscal '20.

I know you mentioned inventories maybe being down a little bit, but that sounded more like efficiencies than it did production cut.

So if you could talk about production expectations versus shipments, please?.

I can take that Sam. First of all on full year base, as you point out, we're certainly not planning and we're not net cost takeout to have benefit from volume leverage or put it differently, we're not going to increase production beyond the sales forecast. We actually contrary -- we're planning to take out further inventory we have some opportunity.

However, I would say that is not a huge item in there, I mean it's a small negative in the cost takeout efforts, but the other element is, we still have -- we still have logistic cost which are elevated throughout the world and that is still a factor.

The good news is, we're making good progress on the fixed cost takeout in Europe and some other parts. We see some benefit from our global product architecture. So it's all coming to materialize. And yes, internally our job over time is to tackle even more, particularly the supply chain and logistic costs..

So long-term what should that net cost number be as opposed to the 50 basis points?.

I mean and again it's -- Sam I would come back to what we said at the global investor conference. Our aspiration will be yes, 0.5 point to 1 point should be the net cost takeout absent for raw material impact. And that's kind of the long term expectations would have a business of our size..

Thank you..

Your next question comes from the line of Curtis Nagle from Bank of America. Your line is open..

Good morning. Thanks very much for taking my questions.

So the first one would be just trying to understand what is driving the view that North America demand or unit demand will be higher this year versus last, given things like a replacement cycle and housing obviously being late stage, and I think your commentary that we haven't seen much of a push up from that.

So I'm just trying to reconcile yes again how to think about this year versus last?.

So Curtis, let me -- again North America, first of all, to repeat the numbers, we expect North America industry to be somewhere between minus 1% and plus 1%. So pretty much flat year-over-year. As you know, they are basically simplified by two major components in the industry demand.

One is the replacement demand we have which is somewhat related to housing or remodeling. On the replacements, and that's a little bit the same like last year, we're now comping against the low years post-recession and that has been around for the last one or two years and probably will be around us for another year or so.

And that's just because you're comping against these low years. And [indiscernible] already effect in 2019. Coming into 2019, frankly, we expected more momentum coming out of housing and of course the -- and then again we're not going back in time Q4 '18 weak housing impacted what we sold in the housing rate of the market in 2019.

From a housing model, I would say, a little bit of a softer side compared to what we originally expected coming into 2019. As you turn the page, in 2020, I would say, we're reasonably optimistic on housing, but we still want to wait and see.

What I mean with that is the initial data points which we got in December from housing were in fact very encouraging. But it's the first positive data points and we want to see that stabilizing. I would also add when you look at the news from homebuilders, these were in fact very strong, very encouraging signs.

But I also want to remind everybody is between an order of our new house and the actual client shipments, you typically have nine to 12 months. So good signs which we see now on the order side, it takes a while until it shows up in our revenue line. So but I would say if housing stabilizes and seize more positive trends that we've seen in December.

I would say that spells with news for our industry and for us..

Okay, understood. And then just as my follow-up, yes, I mean, I guess, how should we think about restructuring caution I guess kind of the past going forward.

The commentary from you guys for few years now that we should expect that kind of ticked down this year it's going to be elevated and I understand for, I guess, what I call a one-time item, but past 2020 do you guys still think we will see a tick down or how should we think about it?.

Yes. Curtis, this is Jim. And what I'd say is we expect to be from a P&L perspective at $100 million of restructuring cost this year. And most of that is related to the already announced actions we're taking around our Naples factory within EMEA. So that's also the $100 million is about the run rate you should expect that or less on a go-forward basis.

What we do have within this year is we still have assumed $200 million of cash outlays for restructuring and that's just some of the ongoing projects that we have, including Naples, that's the finalization of those, but we've already taken the P&L charge for those, but somewhere $100 million or less than that is what you really should think about on an ongoing basis that we'll see..

Curtis and it's Marc and let me also echo what Jim was saying.

And again stepping back in time post the acquisitions which we did and also post-recession we had several years where we had restructuring $150 million to $200 million and over $200 million and rightfully many of you asking when is that coming down? So I would say 2020 is now the first significant year where we basically get down to $100 million.

And again to Jim's point the cash is following it over time, but the charges such will be $100 million and, I would say, 2020 is the first significant year where you see a significant reduction restructuring and that I think should be a trend going forward..

Okay, understood. Thanks very much..

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

Yes, good morning. Congratulations on the quarter, as always a good quarter overall. I guess just on your -- just go back to an earlier caller's question on Europe and just looking at your 2020 EBIT guide of 100 to 150 basis points.

How much is the expected improvement is related to a full year of the savings that you've delivered so far versus how much is related to top line drivers like listing growth and favorable mix?.

Yes, well I'd say, David. If you start off with -- we said that the actions we took to deliver about $100 million on a run rate basis and we really realized about $75 million of that so far. So there's about $25 million that will come within next year from those actions we've already planned.

And then additionally, we've got other continuing cost takeout initiatives that we've entered into there and we continue to drive. We have, as I mentioned, the action around the Naples factory that at some point in the time, while we don't expect it to be a significant benefit within 2020, it will be from an ongoing perspective.

And then, as I mentioned earlier, really volume lift or regaining some of the market share in some of our key markets is what we see is the opportunity to close the gap in terms of that margin progression there..

I don't want to get cut off because I've got a second question.

But if I could just ask you to elaborate on the answer you just provided and just how much of a drag on the segment EBIT was the EMEA business?.

David, the EMEA business was a drag throughout pretty much Q3. As you know, we had some [indiscernible] certification against the new industry standards, but EMEA in Q4 was pretty much in line with where we historically had it and where we should be, but it was a drag pretty much until September.

So it's -- it was a little drag on a full-year year base. So yes, I would say that is a further leverage off a lever for further operation organic improvements in 2020 because you just now comping against the word three quarters..

Right, okay. And then my follow-up question, I guess, with respect to the North American business. I guess there's a lot of questions in the market today.

Regarding you've got negative North American units, the working capital certainly was below the guide that you discussed on the October call yet revenues were generally flat and you put up some pretty impressive margins.

So I guess within the revenue growth math, can you talk about how strong is the mix and just how confident are you that the mix will remain strong through 2020. And I guess you've got a lot of innovation in the market right now. It's a matter of just -- we had a good year in mix and then we end up against some pretty tough mix comps.

Are we in the beginning of maybe a two, three, four-year stretch driven by innovation, a very strong mix contribution to the P&L?.

So David, I'm -- overall, I would say, in Q4. First of all, it was driven -- the pricing was driven by, yes, our continued discipline in line with our established policy around promotional and participation.

We're creating value but second of all, to your point, it's product mix where we started -- I emphasize started leveraging some of the product innovation and that's also the reason why we showed earlier in the script our kind of two major new product ones because they're both impacting North America.

So and that's why we're confident we will have good mix -- solid mix across brands, across product also on a go-forward basis and that is our big opportunity..

Thanks very much..

Your next question comes from the line of Seldon Clarke with Deutsche Bank. Your line is open..

Hey, thanks for the question.

Just given all the moving pieces in free cash flow, what do you think the right way to think about long-term EBITDA to free cash conversion is?.

Well, as we've always said, we see our long-term free cash flow goal around the 5% to 6% of sales. So as we begin to exit this year, I think you start to look at a conversion that begins to get into the 85% plus area.

And again, I think 2020, as we mentioned, we still have some key one-time items that we need to do such as some legal settlements and other things, but once you get beyond that, we do expect to be in that 5% to 6% of sales as a free cash flow percentage..

All right.

And that's -- you think starting in 2021?.

In 2021. I'd say we're going to get -- we will get much closer to their and it will be a progression as you go through over the next few years.

But most of these items as we mentioned coming out of 2020 our restructuring cash outflows will be less and we'll have some of these -- whether they're legal settlements or product actions that we had to take behind us. And so we do feel confident that our free cash flows will begin to reflect that stronger performance..

That's helpful.

And then I know you manufacture the majority of your appliances in the U.S., but do you anticipate any major impacts to production stemming from this Corona virus outbreak, whether it'd be related to Whirlpool specifically or just the industry more broadly?.

Seldon, it's Marc. I would say at this point, the answer is no, we don't expect a major impact. So labor is a little bit on this one, and first of all, it's going to -- our biggest concern is right now around our people and but so far, it looks like all our 10,000 people are safe and healthy.

Beyond this one is in -- of this Corona virus from what you can see today, it may have three potential impact. One is the China domestic markets, obviously, when people don't go into stores, the market will decline, you all know that our exposure to China domestic market is limited. So I guess that's not going to hurt us a whole lot.

Two has been on production and three is on components. Production, the China production is largely serving Asia and to only a lesser extent Europe and to almost very small extent North America. As you know, North America 80% of what we sell in North America or U.S. is produced in U.S.

So that exposure somewhat limited in particular with one factor where we export from Chinese, it's almost 1000 miles away from Wuhan. So we are a little bit, I would say, protected but it's a bit further away. The third element is components, keep in mind, this whole thing happens around the Chinese New Year.

Every year on Chinese New Year, you plan if your supplier inventory levels when we stop production, when we start production. So, I would say, we're pretty well covered, well covered for these three or four days of extension for Chinese New Year, and beyond this one, we got to see it.

The other thing which you also need to keep in mind, throughout the last couple of years in most critical components we went aggressively for dual sourcing. So we're not -- we're single source only in very, very few components. We're largely dual source and which gives you a little bit of a hedging..

Okay, that's helpful. I appreciate the questions..

Thanks, Seldon..

Your next question comes from the line of Eric Bosshard with Cleveland Research. Your line is open..

Good morning. Two things in the U.S. market be curious about. First of all, your expectation of share, it looks like you've got some key new product launches interested in how you think about your major plants market share performance in '20.

And then secondly, curious how you're seeing retailers managing their business and what looks to be a sustained somewhat slower growth environment and also an environment where it appears Sears has probably giving up last year funding their growth?.

Yes. So Eric, it's Marc. I mean, as you've seen in our outlook. So for North America, we have a lot of new product innovations where we do believe we have some share growth opportunities. Certainly on the two products which we've just shown on top-load and dishwasher. Dishwasher platform architect which we have almost 10 years old.

So I mean bringing in such an architecture with such great features next should open opportunities for some share growth, and I'm not talking about promotional share growth, I'm talking about structural share growth in a healthy business. So yes, we have certain ambition for share growth in North America.

Related to your question about retailers, yes, it's obvious that the kind of windfall which came out of Sears decline for many other retailers that has diminished. I mean, that's based on existing.

But right now, I would say, it's a reasonably stable retail environment of home improvement having a strong growth in home appliances best by being very well established, but also some other good regional players. So I think it's -- right now, we don't see the dramatic moves across the retail landscape.

We've seen some ins and outs when it comes to inventory management of retailers. And I think you all have seen that in the AM shipment data in October and then subsequent in December, so there has been some moves which of course impacts us and our entire supply chain, but beyond this one, we don't see dramatic moves across the different retailers..

All right. Thank you..

Your next question comes from the line of Ken Zener with KeyBanc. Your line is open..

Good morning, everybody. So -- I just have a quick question. So look the EPS mix given your expansion in margins that you guys are giving guidance should we basically expect kind of a normal EPS cadence meaning front half a little under half the earnings first quarter kind of that 21%, 22% range. Just given the strength and the different moving parts.

I just want to make sure we're kind of thinking about if you're business balance is shifting this year?.

Yes, Ken. I think you should expect within this year a similar seasonality and I mean even in the first quarter, we tend to be pretty close to 20% is what if we look at historically, but still similar 45-55 type of split that you've seen in other years is a safe assumption..

Okay. And then given the kind of in North America and I understand you're moving to away from the volume price mix discussion, given AHAM [ph] long history there, I understand.

I'm wondering if you might be able to anticipate, I mean if the result -- If the revenue is down, I mean how are you guys going to go about kind of explaining this -- what type of communication could we expect to hear from you absent that those data points just so none of us get caught by surprise you all or us in terms of if results are better worse just so we can properly interpret it.

I mean do you think you'll be able to talk about volume even though you're not reporting it or the price mix.

How will that dialog change?.

Well, Ken, I would expect. First thing is there'll still be obviously industry data out there that will give an indication of which direction the industry is going from a North America perspective now that it's really two key markets and the biggest one being the U.S. Currency also doesn't play a big difference within there.

So as I said, I don't think that whether we disclose units or not within the North America business will make a significant difference because the couple big variables that are ready drive that are out there.

Obviously, we will talk about how we believe we're doing from a share perspective and then what the benefits of price and mix and we'll continue to talk about that on a go-forward basis which also is an indicator of revenues versus what unit performance is doing..

Okay. And then I guess this is just looking at AHAM and it's kind of interesting right. I mean you had for the year, laundry was up 1 to 2 points Kitchen Fridge was down I think 3 to 4.

How do you think about or what does that say to you about kind of the market that we're seeing some of these categories in a sustained growth challenging environment relative to Marc that the fixed cost because this global architecture that you mentioned in the laundry seems to be really important factor for Whirlpool given your global platform to kind of extract leverage from categories that really are a challenge in terms of growth?.

Yes. So Ken, I mean on a go-forward basis, to be honest, we don't see dramatic differences across the different product groups in terms of where we would see the industry growth or developments.

Given what I said before, it's kind of there is, at least early indication at the housing may strengthen, housing strengthening met to bigger translates in Kitchen suite. So that should help the cooking, the dishwasher, refrigeration business, but I would not get read too much into this one.

So I wouldn't break down the pieces too much, I would say, right now, our guidance for next year industry is pretty much a flat but very frankly, I think the uncertain factor for the upside could be housing in housing develops if at stabilize and if we see the growth trend extending beyond the December number, but again, don't read too much into the different sub-categories..

Thank you, and I enjoyed your interviews yesterday..

Okay. Appreciate it, Ken. So first of all, thank you for joining us all and let me given that we just came to the last question, let me just quickly wrap up and summarize. First of all, I want to start out with all the numbers in and out. I want to remind everybody, we had an all-time record year last year.

We feel very good about it and we closed an all-time record year with the best quarter ever in our history, which I think is more remarkable given that we did not have a lot of tailwind throughout the year. Industry demand didn't help us. We still saw cost inflation for most part of the year.

So we feel very good about what we've achieved last year, but January 2020 most important thing about last year is that it gave us a good momentum as we exited the year, so we feel very good about momentum which we care into 2020, now I hope you heard all that confidence throughout the earnings call.

As we look into 2020 and we laid that out, we have clear operational priorities, we are very focused on getting the cost out of the system, we are focused on executing the product launches which we talked about and obviously there is a lot more launches beyond both two months which we highlighted.

And from a regional perspective, of course, we have a key focus not only in maintaining strong margin in North America particular turning -- continue to turn around Europe and China. That is the key focus. But then in a broader perspective and this comes back to our Investor Day, I want to remind everybody, our strategy has not changed.

Beyond the operational priorities and delivering on our commitments, we have a very strong focus on continuing to execute along our strategic imperative which is not only about product leadership but it's our entire digital transformation be it on redefining what the product is, be it on winning digital consumer journey.

So there is a strong focus in our company around the strategic transformation and we feel very good about where we are and we will kind of increase our efforts throughout the year to kind of create a long-term strong and sustainable business. With that in mind, I just want to thank you for joining us today and talk to you next quarter..

This concludes today's conference call. You may now disconnect..