Whirlpool Corporation (WHR) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to Whirlpool Corporation's Third Quarter 2020 Earnings Call. Todd's call is being recorded. Joining me today are Marc Robert Bitzer, our chairman and chief executive officer; Roxanne Warner, our chief financial officer; Juan Carlos Puente, our executive president of North America and global strategic sourcing; and Ludovic Beaufils, our executive president of KitchenAid small appliances in Latin America. Our remarks today track with the presentation available on the investor relations section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10 ks, 10 Q and other periodic reports. We also want to remind you that today's presentation includes 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 results from our ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the investor relations section of our website for the reconciliation of non 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 open for analyst questions. As a reminder, we ask that participants ask no more than 2 questions. With that, I will turn the call over to Marc.

Thanks, Viv, and good morning, everyone. During the quarter, our execution focused on 2 core imperatives: protecting and expanding our margins in a tough macro environment and disciplined cash management. These imperatives not only shaped our third quarter results, but are also driving our actions as we move towards the end of 2026 and into 2020. What you will hear today are essentially 4 key messages. First, we delivered another quarter of sequential margin improvement, against macroeconomic challenges that undoubtedly intensified over the last 3 months. Second, we made good progress on our pricing actions in particular in North America. This progress was partially offset by incremental inflationary costs and as a result, we did not deliver the margin step up we had expected. In line with a slower pace of margin recovery in the third quarter, we are updating our full year margin guidance. Third, we have implemented further pricing actions of 7% to 10% in North America and in Latin America. We expect the impact of these new actions to be somewhat limited in Q4 and fully ramping up in January. Our structural cost initiatives around strategic sourcing manufacturing optimization and warehouse footprint consolidation are on track. But as mentioned in prior calls, the majority of the cost benefits will impact 2027. These structural cost initiatives together with the additional pricing actions set up strong foundation for margin expansion in 2027. And 4th, we are prioritizing highly disciplined working capital management that positions us to deliver on our full year free cash flow goal. Turning to Slide 7. Let me cover our third quarter results. We delivered net sales of $3.7 billion which was impacted by softer industry demand in North America. We saw a sequential margin improvement of 80 basis points to 2.6% resulting in ongoing earnings per share of negative $0.21 While we made progress on our pricing and cost takeout actions, this progress was partially offset by higher raw material fuel and logistic costs. During the quarter, we maintained strict working capital discipline to prioritize balance sheet strength. Our free cash flow was a consumption of approximately $1.1 billion which was negatively impacted by the timing of our recovery of insurance claims related to Grupo Casas Bahia. This is a major retailer in Brazil, which filed for bankruptcy reorganization the equivalent of Chapter 11 in The U.S. in August. We expect to receive a majority of insurance claim payments related to this event in Q4. Turning to Slide 8, I will walk through our sequential ongoing EBIT margin drivers. We delivered sequential margin improvement of approximately 80 basis points. Our pricing actions in North America and Latin America fully offset the mix headwinds across the business, and result in 250 basis points of improvement. Net cost was a tailwind of 100 basis points as we continue to make progress on structural cost takeout and ongoing cost productivity with her benefits being partially offset by the impact of fuel and logistic costs. Raw material inflation unfavorably impacted margin by 75 basis points primarily driven by higher steel resin, and base metal costs. Net tariff impact was an unfavorable 25 basis points driven by incremental Section 32 tariffs in The U. S. Marketing and technology investments increased by 25 basis points. Offset by a favorable currency impact of 25 basis points primarily from a Mexican peso Brazilian real, and favorable transaction impacts of approximately 25 basis points. Now I will turn the call over to Juan Carlos to review our North America results.

Thanks, Marc. Turning to Slide 10, I will provide an overview of our MDA North America segment. In the third quarter, net sales were $2.5 billion negatively impacted by the persistent softness of industry demand. In Q3, industry was down 3.3%, which is in line with our full year guidance of down approximately 5%. The solid execution of our price increase implemented in April and July combined with our new product launches, drove approximately 32 basis points of sequential margin expansion. This improvement was masked by the inflationary headwinds, resulting in 30 basis points of net sequential EBIT margin benefit. More recently, we announced an additional 7% price increase effective November 1 in Canada and December 3 in the US. While the impact on Q4 results will be limited, we expect this action combined with our structural cost takeout actions to further expand margin in 2027. Turning to Slide 11, let's review the positive impact of this price increase in our retail sellout price data. As a reminder, this chart represents the aggregated view of thousands of price data point collected every week from public sources. The yellow line shows that our price realization progressed strongly through Q3. Maintaining 8% to 9% gains over the January 2025 baseline prices. The blue line shows that competitors' average pricing has also meaningfully moved upwards since the beginning of 2026. This trend is consistent with the full burden of tariffs and increased transportation cost. Ultimately reinforcing our confidence in a long term value of our domestic production footprint. Another element that is centered to our strategy is delivering meaningful product innovation that delights our consumers. Turning to Slide 12. You can see our latest industry first product innovation in our refrigeration lineup. We recently launched the industry first refrigerator with an indoor ice maker under the Whirlpool brand. This true counter depth French door refrigerator is a great addition to our portfolio. It hits the marketplace as a consumer demand for nugget ice accelerates across North America setting a new benchmark for consumer innovation. By combining highly valued features, premium design, this product serves as a standout differentiator that directly supports our premium growth strategy. Turning to Slide 13, we are bringing another industry first innovation to our core laundry category. Our Tupelo washer now features a removable delicate basket which addresses a long standing consumer pain point by allowing delicate items to be gently washed at the same time as the everyday laundry load. By combining delicate care with daily laundry capacity in a single cycle, This unique offering drives premium mix and reinforces our product leadership in MDA North America. On Slide 14, we are maximizing benefits from our manufacturing and supply chain footprint to optimize our structural competitive advantage. In our last earnings call, we discussed 3 key manufacturing footprint initiatives that we announced in Q1. A multiyear modernization and operational optimization of our plant in Amana, Iowa. Unlocking supply chain efficiencies through vertical integration in our facility in Perrysburg, Ohio. And shifting refrigeration production between Ramos, Mexico to leverage scale and lower conversion costs. We have hit key milestones across all 3 initiatives and our progress year to date gives us confidence in our operational trajectory. In U. S. Logistics, we have completed 25% reduction in our local distribution center count and continue to advance a consolidation of regional distribution and return centers. Importantly, we are maintaining reach and proximity with 97% of our customers remaining within a 100 miles of our distribution centers. In total, these manufacturing and supply chain actions represent $290 million in structural cost benefits. While these benefits are largely expected in 2027, our cost initiatives continue to progress contributing to our sequential margin progress and offsetting incremental fuel and logistic cost. Now I will turn the call over to Ludovic to review our Latin America and SDA Global results.

Thanks Juan Carlos. Turning to Slide 15, I will review the results for our MDA Latin America business. Excluding currency, net sales increased 2.5%, driven by higher volume, partially offset by price mix. We experienced temporary margin pressure as our mix shifted out of Grupo Casas Bahia's more premium portfolio. Resulting in an EBIT margin of 2%. As retail inventories adjust and our volume redistribution settles, we expect mix to normalize over time. We have announced incremental price increases across the segment of up to 10%. Effective in Q4, which alongside our key new product launches are expected to increase profitability in 2027. Turning to Slide 16, you can see 2 key product launches that are driving premium growth in MDA Latin America. First, a new lineup of induction cooktops in Brazil, featuring a fresh design that aligns with the premium Brastemp aesthetic. Second, the new Whirlpool and Brastemp French door refrigeration line, with its stunning black liner combining sophisticated design with versatile functionality. These are just 2 examples of how we are expanding our premium product pipeline in Latin America with high margin products as we continue to focus on margin expansion. Turning to Slide 17, let's review our SDA global business. New product launches in our direct to consumer channel continue to support share gains globally, and helped deliver a healthy EBIT margin of 18.6% in Q3. We had another quarter of strong sellout globally, while seasonal order shifts pushed the top line growth into Q4 as evidenced by the approximately 40% increase year over year in our October U. S. Orders. Continue to take actions to grow our business beyond our core categories, and have recently bolstered our portfolio of licensed products by expanding our kitchen accessory sales through our direct-to-consumer channel. We are also introducing KitchenAid Kids, a new line of role play toys with lights, sounds, and motion to captivate aspiring young chefs. KitchenAid toys can already be found in key retailers globally. On Slide 18, let me showcase 2 of our newest product innovations. On the left is our KitchenAid 2026 design series stand mixer, the Luminaire. It combines the built in light of our new Artisan Plus with a new fluted glass bowl, and the result is a striking new visual expression for this iconic kitchen appliance. The luminaire complements our successful artisan plus lineup which has generated strong interest from trade customers and enabled us to capture high-value incremental flooring, and high-mix POS. On the right, we are highlighting the expansion of our KitchenAid GO cordless line. We have added a grater, slicer, shredder, a vacuum sealer, which means a single rechargeable battery can now power 10 different appliances across the KitchenAid Go collection. To summarize, we have had a strong performance in the first 3 quarters, and now enter Q4 highly confident in our ability to deliver double digit growth for the year, at highly accretive margins, in line with our full year guidance. Let me now turn the call over to Roxanne to review our updated guidance and capital allocation priorities.

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

Thanks, Roxanne. Turning to Slide 25. Let me wrap up before we take questions. Despite the persistent macroeconomic headwinds, we are focused on what we can control. Driving margin expansion through pricing realization and disciplined execution of our structural cost takeout actions are front and center. Our rigorous working capital management is protecting our free cash flow reinforcing our balance sheet and maintaining our financial flexibility. Beyond our core major appliances, our business units continue to deliver exceptional value. InSinkErator delivered its second consecutive quarter of year over year revenue growth. And SDA Global is on track to deliver very strong performance in 2026. As we look forward to 2027, we are cautiously optimistic. A combination of 1, a very strong pipeline of new product launches, 2, the benefits from the pricing actions we have already taken and announced, and 3, the structural cost reduction initiatives that are fully underway together create a solid foundation for margin expansion. And this is absent of a change in the macro environment. Most importantly, we are fully committed to creating shareholder value. Strategic investments in our U. S. Domestic manufacturing footprint are deepening our competitive advantage, and our portfolio of iconic brands and leading position in the builder channel. Will capitalize on the tailwinds from the eventual U. S. Housing market recovery. Now we will end our formal remarks and open it up for questions.

In order to ask a question, press star, then the number 1 on your telephone keypad. Your first question comes from the line of Sam Darkatsh from Raymond James. Your line is open.

Yes. Good morning, Marc, Roxanne, Juan Carlos, Ludovic. How are you?

Good morning.

Good morning.

Morning.

First question, a lot of moving parts. We are starting to get a little bit more visibility into 2027. As it stands right now, what. I mean, I know things are fluid. But as it stands right now, what do RMI and tariff and cost takeouts look like for 2027 and then I have got a quick follow-up.

Yeah. So, Sam, let. I mean, obviously, as you know, it is we give guidance and everything else in more detail in our January call. Having said that, let me give you a little bit of perspective and as you may have heard in my remarks earlier with cautiously optimistic for 2027. Now on the cost side specifically, and, again, these are call it, the external cost elements and the internal ones. Let me first start with internal ones. What we call our gross productivity from design changes, etcetera, is actually also busy pretty well on track. You also need to understand that. And you know it, is these are massive engineering efforts which very often have a quite a bit of sizable carryover benefit. So we know pretty much today what we will get next year from these cost changes, and they are on track. The second part is what I. What we earlier highlight is the structural cost changes with what we have been doing in Amana, what we are doing in Ramos. What we are doing in Brazil also, between Argentina and Brazil, and lastly, with Perrysburg. These are all massive structural cost changes, frankly, which cost us money this year, so they did not give us that much benefit. This year, but they will carry over. So we feel very good about, call it, the cost which we can control. And I would argue from today's perspective, we are probably heading towards 1 of the highest gross productivity numbers in a number of years. The flip side is as you point out, RMI and tariff. The tariff. I mean, we all we all know that we do not know. Right now, we are assuming it is pretty. A more stable tariff environment. Obviously, there is a little bit of uncertainty on the Canadian tariff. that is probably the only 1 right now, we factor in that is just, staying. Hopefully, 1 point, we will go away. But, again, we just do not know right now. We just assume it is stable. On the raw material, as you know, we have the 2 biggest raw material to have is steel and resins. Steel is in particular for North America, has seen a massive price increase over the last 12 months, actually, 50% which I think in many ways you could argue is a little bit disconnected from reality because iron ore went down and the international steel price down on a completely different level. Having said that, we locked in 2 out of 3 contracts, which are long term contracts. And I would call them at fair prices, not spectacular, but they are fair, So to some extent, we are have a certain buffer, and we have a certain protection, not yet entirely. But it is gonna be a hit versus the full year run rate Having said that, that is largely baked in already in the back half of this year. So sequentially, it is not that much of a dramatic change. And then you have a plastic side of a resin side, which in the long term typically follows oil, As you have all seen, oil just in Q3 went up 20% for reasons which we are all aware of. And right now, the only thing which we can do right now if oil stays at, let's say, around $100, yes, that would largely be reflected with our run rate of Q3 and Q4. But we all know there is a certain, call it, volatility risk, which, by way, could go in both ways. On the oil side heading into 2027. So on the raw material, I think oil is right now our biggest factor, which we cannot fully foresee. Steel is a little bit better because we have these contracts. And then, of course, you have a large tail end on raw materials, which for the entire 2026 were not necessarily favorable. But I would say are largely reflected in the Q3 and Q4 run rate. So, Samuel, that was a long answer to a short question, but I just wanna give you a little bit of color.

Thank you for that. The second question the 7% North American pricing effective in December, I am I am guessing that is mostly PMAP. But is that is that PMAP? Is that list? And then what is the 2027 price rollover at this point understanding that almost everything is really to 2027, not to Q4. Thanks.

Yep. And, Sam, let me start, and maybe I will ask Juan Carlos later on to give some additional color. And then let me combine your question, which probably like the question which we might get on page 11 anyhow on the price development, which, again, this chart on price 11 shows pretty much the price development since January 2025, Us versus competitor. You clearly saw in Q3, we were June, July, we were aiming very high. We had course corrected a bit in Q3. And right now, we are kind of call it boosting a number. Price element in Q4 and that. that is what is already been announced with trade. Obviously, the trade is fully aware of what we are doing. Which, in reality, there is some, call it, more smaller tactical moves throughout October, November, and then there is a significant move effective kind of a first week or end of the first week in December. Which fully carries over into next year. That significant move, which, again, is in the ballpark of 7%, is actually a combination of MAP, PMAP, in some cases, also first. So it is a mixed bag of elements. But it is largely on the map where we also gave. And the p maps where we gave trade visibility for quite some months out. So it is it is a not just a kind of a 1 week. it is a fairly predictable 1. Again, that has already been communicated with the trade, but it is a combination of different tools. Juan Carlos?

Yep. So, obviously, the focus is in The US. In The US, it is 7% starting December 3. And in Canada, it is November 1. But it is, basically, we provide to our trade partners 90-day lead time on all the promotional pricing moving forward. And that is what has been communicated with the trade.

Maybe just the last comment I wanna make, Sam, on your carryover question. Needless to say, when you kind of, with the price increases, and knowing that this is a holiday quarter, you cannot impact that much anymore of a Black Friday in the promotion period. Cause correct a little bit, but you cannot impact it. So, yes, there is in the month of December, we expect a sizable lift and that is already baked in. And, of course, that lift will carry over into next year. that is part of the reason why we are cautiously optimistic. Again, this is a competitive environment. But this is what we communicated And, obviously, with these exit run rates, we have, I would say, several points of positive pricing carrying into 2027.

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

Yes. Good morning, everyone.

Good morning, David.

I wanted to ask you about the fourth quarter free cash flow that is implied in your $300 million for the year. And you specifically around working capital, because you talked about reducing inventories, increasing collections, Maybe you could provide some examples of exactly what is your plan to do differently there that gives you confidence in that number. And then also, you know, you have got your Casa Bahia recovery coming through in Q4. And how much of that should we be modeling?

So, David, let me make. Give you a high level, and then I would ask Roxanne to give you a little bit more color and details. So first of all, as you know, I mean, in Q4, that is typically the quarter where our cash flow flips from negative or low to positive. So that is not unusual. Let's follow up to the typical seasonality. Q3 is. And, again, we will give you a little bit more color. it is heavily impacted because, of course, we had to the receivable from Casas Bahia are out or were a negative in Q3, of which we collect a big portion back into Q4. You look at our full year cash flow guidance in the bridge, of course, we are kind of softer on the earnings side, and we basically make it up on the working capital. You also saw on the working capital initially, so it is now showing a 300 million. If you compare it to last year, last year, consumed working capital of a 150. So the first 150 is basically just to flip back to normal working capital. But, yes, we challenge ourselves with an additional $150 million working capital. Which requires work, and I am the first 1 to admit it. The reason why we are, positive about it is our inventories, which is typically the most difficult piece kind of adjust in the short term, are on a very low level. I would even argue, to some extent, a too-low level. So typically, when you have a lot of work in Q4 to take it down, we are already at that level. So we know that is on a pretty level. Good level. In fact, we may even produce more, which gives us a little bit of a boost on the payable side. So but yes, we are collecting. We challenge ourselves with an additional $150 million working capital beyond what we had in mind to offset the earnings shortfall. And right now, we have plans in place. To go after that. Okay?

Thanks, Matt. Hi, David. So just to put some numbers, particularly on the Casas Bahia portion, In Q3, there is approximately $100 million of the receivable that we wrote off. And that has an impact on the Q3 free cash flow Our expectation is to then collect approximately $100 million of that in Q4. So you see that timing shift. And then as Marc said, to be very specific, we came into this year saying that we are going to go after working capital with everything we have, and that is exactly what we did. We did in the first half execute the inventory actions precisely as we mentioned in the call that we would do. And then now in the Q4, we are very, very focused on cash collections, reducing overdue to levels that we have not had before. And then similarly on accounts payable, working very closely with our suppliers to get those terms that we need to ensure that we deliver the working capital of approximately $300 million for the year.

Okay. Yeah. Thank you for that. So question, I guess I just wanted, Marc, to get your impression on replacement demand. And I think we can all track what is going on in the builder channel and discretionary. But the replacement demand we have always thought of as being kind of the rock, right? That was the 55% to 60% of demand that we knew we could count on. It seems as though that is easing up a little bit. People are maybe finding it a little easier on the household cash flow to repair rather than replace What are you seeing in the numbers right now when you when you look at replacement demand? And how are you thinking about that for 2027?

Yeah. So, David, I would say there is a long term perspective on replacement and kind of more temporary 1. First of all, the long-term 1 is, Reality is we are living right now in the replacement market. You also. You know, as well as anybody else at the minus 5% of minus 5% that we are forecasting is largely coming off discretionary. it is. that is essentially what. that is a painful part because the discretionary, as you all know, is the more margin-rich and mix-rich Part of the business. So replacement is right now a dominant factor Now, coming to the temporary 1, which you probably alluded to. We have seen in where you had a very negative consumer confidence or other elements. That people even hold back some replacement, decisions. For example, on dishwashers, or on a second appliance. So we have seen this kind of situation before where people temporarily shift into, oh, I am going to repair another time, or I am gonna hold off. In the past. And, again, we have a reference to the global financial crisis in 2008 and other elements, that temporary situation did not last very long. I mean, at 1 point, people will replace it. But, yes, we have seen these kind of temporary moves before, and they will course correct. Does not change the fact that we are, in a broader context, living in a replacement market. Which. Our supply chain, et cetera, we are well set up to deal with it, but right now, does not help you on the mix side.

Next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open.

Just wanted to start out on the price increase in North America. I mean, Marc, you mentioned you are having a course correct a little in 3Q and when you think about the additional price actions, it does not seem like at least at this point, you know, your competitors did not follow on the summer increases and I do not believe they have announced similar ones, the way you have incrementally. Is this going to represent kind of a shift in how you are viewing margin preservation or progress versus share in the near term? Or how would you describe that?

Yeah. Michael, so first of all, obviously, as you know, I cannot comment on the competitive price move or what they plan or not plan. I can refer to what is not in the slide, that is what we have seen in October, and we have seen price moves by the competitors. So. But that is just what we see, and I cannot speculate in going forward. As we have shown in Q3, we will take the leads that is what we are doing, because it reflects real cost, it reflects real material cost, and real tariff cost. So, yes, we take a very rational approach, and but it is in the context of what you alluded to is our focus is on margin expansion. And that is our focus in Q4. that is our focus in 2027, and you will see that also when we talk about it. And if sometimes you go a little bit ahead and you take a certain risk, on the share, that is what we will do. And what we have been doing, but all in the context of margin expansion and, frankly, even if I look year to date, our overall year to date market share is pretty stable. That comes from very strong new products and today, partially, it is already something. But in particular, when you look at our Q1, what we will show is that we have a lot of strong products coming. that is why I think it is also I think we can take a certain risk on pricing because we have good products.

Got it. Got it. Okay. And then just shifting gears, I wanna make sure we understand your comments about steel dynamics. So I think we all appreciate as a large volume buyer, and paying anywhere close to what the spot rates would have done. But I think conceptually, you guys are. You know, your steel buys are multibillions in the US alone. I believe. Correct me if I am wrong. So even if it is not 50%, even if it is 20%, 10%, I mean, that could be theoretically hundreds of millions of dollars in terms of incremental steel costs. To you. And when I look at your bridge in the second half of this year on raw materials in total. Yeah. Raw materials in total are not are not that bad. So your comment about that being largely reflected in the second half, can you just flesh that out a little and maybe again, like, correct us if we are wrong on kind of ballpark there, but help us understand what you are really trying to say on steel into 2027.

Yeah, Michael. I am just. As a caveat is, of course, I do not wanna tell every 1 of all my competitors what I am doing on steel. Second of all, we have steel partners out there, and we are trying to respectful and not revealing too much detail. To give you a little bit broader context, and some of you followed that very closely, A couple of years ago, we changed our steel contracts from annual steel contracts to multiyear steel contracts. That was actually pre election, pre tariffs because we just wanted to be secure, and we did not want to have big surprises. We still contract in their nature are a little bit like a hedging contract. So you basically typically define certain floors. You define a certain cap, and you typically agree on a on a trailing price versus a spot rate. it is a combination of this 1. What it basically does is it gives you clearly a certain buffer. It gives you a too-big discount versus spot rate. But, ultimately, it does not completely disconnect you from a long term steel price. Trend. that is the reality. And we felt that also in 2026. So, yes, we had multiyear contracts. But given that the steel prices went pretty much through the roof, we also felt it. I really wanna emphasize a big part of that cost is sitting in our Q3 and Q4 margin. So a big element of why Q3 is not in line with our expectation was actually raw material being very prominent in this 1. In that context, Michael, we have secured 2 of these long-term contracts already. Because they pretty much expired or are about to expire, and we renew them. As I really wanna emphasize, I would call them at fair prices. Not usually positive or negative. But it gives us a certain predictability and we know pretty much what we carry into next year, which, again, is not too different from our Q3 and Q4. there is 1 contract which is still open, but I am confident we can close that also pretty soon. Of course, there is always a question what happens to steel price in the long term. And we are all seeing this massive run up in the last year of basically almost 50%. Which I wanna emphasize is disconnected from iron ore prices. There is not a big rational element behind this 1. And, you know, ultimately, we also know thankfully, all the steel producers are putting in capital investments to improve product because, as you know, American steel today is not cost competitive versus China or Europe. By a wide margin, and we welcome these investments to make it more productive and competitive because we all believe in a strong American steel industry, it only works if they are competitive. And there is capital investments that are going in the right direction. Also know we have a capacity investment plan, which may not immediately help you for 2027, but over time will bring a what I would call a much healthier, much stronger US steel market.

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

Thank you. Good morning, everyone. My first question Good morning.

My first question is going back to your comments, Marc, on the channel inventories. It sounds like they are running fairly lean despite the deceleration in demand that we saw this quarter. Can you just give a little more color on where things are? What that implies for the fourth quarter, and as we think about going into next year? And within that, as you mentioned that your market share was stable, is there any mix shift in terms of the floor space that you are that you have that could also be a benefit as we think about next year as those new products continue to come through. Yes. Susan, let me start, and maybe also Carlos can give some additional color on this 1. So first of all, I would say trade inventories and our inventories are low, and I am talking about North America in particular.

So I think there is a certain cautiousness both with the trade and, frankly, also with us. So I think the combination if you would look at an aggregate number of inventory between us and our retailers, probably 1 of the lowest in multi years. Again, that is probably more a reflection of people. They are cautious about the current market.

Which for Q4 means also we certainly do not have to lower production any further. So all the volume deleveraging, which we talked about, is largely behind us. So we are sitting right now in low inventories, and we are actually carefully because we do not wanna overshoot kind of ramping up production also to be in a right inventory position as we head into 2027. So right now, trade inventories are low, which by way is also part of the reason why industries and our revenues were also down in Q3 because we know specifically where some of our retail partners reduced inventories. But, again, it is right now. it is it is certainly not elevated. it is quite the opposite, and we will we have work also in front of us to kind of rebalance everything. I would I would just add. So consumer confidence and market, what volatility is what is translating into trade and also being a little bit more cautious on the supply chain and being more effective. Like Mark was commenting, we will build a little bit more of inventory so we can get that 1 back on track and we can capitalize on growth which is moving forward. Susan, the only upper comment I wanna make relates to your mix question. I mean, as we talked about and we did not reiterate it today, we feel despite the softness of a discretionary slowdown, we feel very good about the premium products we brought to the market this year. So the kind of volumes which we have seen on the KitchenAid build in line, some of our French top bottom mounts, which we brought to market, we feel very good. So that it works even though the discretionary environment is just very soft, but even given that into context, I am really pleased. And, again, we will talk a lot more in our January call we are now bringing a major push on our premium laundry space. Which has not yet launched, but we launched throughout Q1 and Q2. Where we have another strong element to help on our mixed despite discretionary poor or discretionary soft environment, which probably will be around us for some time.

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

Thanks, Sue. So a very, very short answer your question would be yes, we absolutely have the liquidity and the financial flexibility that is needed to operate in this challenging environment. The longer portion of the question is, you know, as I mentioned in my earlier remarks, I am very, very happy that we very early on, took the proactive steps that were needed to have the liquidity for us to operate in an environment that at that time we saw was challenging. What that has led to is that situation where now we have over $3 billion of available liquidity in a combination of cash as well as our asset backed lending credit facility. We are now in a position based on the strong work that we have been doing in working capital to adjust the guide for the net debt to say that it is 1 that will be lower to a number that is below $4.5 billion. But then the other thing too, as, you know, I touched on before is based on these proactive actions that we have taken, we have cleared the runway in terms of the next time we have a huge debt maturity. it is not until 2028. Which gives us the opportunity with the proactive, bold actions we have taken in terms of cost and pricing going into 2027 to bring us to a position where we can expand margins, and that also would then contribute overall to the free cash flow and contribute to our priority, which is paying down our debt.

Susan, let me maybe add some additional comments on the balance sheet. Because obviously, everybody knows we have done a lot of actions in Q1 and Q2. Between equity offering, renewal of a revolver credit, and some bonds. Some people probably choose as, well, you went too far. But in reality, if we would do the same action, first of all, keep in mind, it would cost us a point to 1.5 points more than it did half a year ago. So we are actually, in hindsight, very pleased with the timing of when we took the actions. 2, to give a little bit color on liquidity, yes, we took a lot of time to renegotiate revolver credit, We have not used the revolver since August. it is zero. I.e., so we have not even tapped into this 1. As Roxanne pointed out, we have a lot of liquidity end of the year. Some people might even argue too much liquidity. But I think, seeing what has happened around our industry the last 2 or 3 years, we wanna be on the safe side. I am the first 1 to admit the excess liquidity costs us interest, and that is why, you know, big part by the EPS was disappointing also. But right now, I am I am prepared to carry a little bit too much liquidity around us because we are living in a very uncertain environment, but we feel very good about the strength of liquidity the balance sheet, the maturities where we are, so I feel much better from this side despite all the negative news in the industry.

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

Hi. Good morning. Thanks for taking my question.

Morning, Rafe. How are you?

Just on the working capital improvement that you are talking about for the fourth quarter and the full year, can you talk about how much of that is sort of structural versus onetime, and how do we think about that going forward? Is there any specific metrics around like, AR or AP that we should be thinking about in terms of a target?

So, Rafe, I would say. Let me split it in 2 pieces. Or 3 of working capital. I think on inventory levels, I do not think. With the current system constraint, I do not think we can go a whole lot lower. I mean, we. And we are testing this limit every day, but we are now over time, can we. I would say over time being over 1 or 2 years can we further improve our system, become better in how we manage inventory? Yes. Within the current constraints, there is not a whole lot. We can do more. But payables, as you all know, largely follow what we have. What we do in our inventory because it is basically just production. Having said that, we have made some good structural progress on extending some term. Not only with overseas suppliers, but also some other suppliers. So we feel good about both work, which has been done over actually the last 1 or 2 years on structurally expanding payment terms. On receivable, I would say, there is going forward still some opportunities on addressing some of the terms because I think some of our terms do not necessarily reflect the inherent logic about the cover the inventory. I. We give more terms than they carry inventory. And that will be a discussion which we will have with our partners from the retail side. 1 big element you guys should also all keep in mind is a part of a work capital improvement comes also, yes, our Q3 revenues were down. Revenues are down, but working capital requirements, particularly in receivables, also come So there is also an element of just reflecting do you breathe in or breathe out on the top line, which ultimately comes through in the working capital.

Thank you. that is that is very helpful. And then the second question, just when we think about the outlook in LatAm specifically, just Brazil, 2 things. Can you remind us what the FX assumption is just because it is changed really materially in the last, like, 48 hours or so. Like, what is baked into guidance? And then, you know, what is the sort of timeline for recovery, and, like, what is the process right now with Casa like, understanding that you have the insurance recovery, but, like, on the fundamental standpoint in terms of the inventory clearance, like, where are we in that process?

So Rafe, let me maybe address the overall currency, and then either Ludovic or Alexander if you can address the customer here issue. So on the FX, first of all, I mean, we typically do not publish our. In our currency assumption. Having said that, keep in mind when we talk about the Brazilian real, and, obviously, you followed it, but the day after the election moved by 10%, which by the way is pretty close to where it was in the beginning of the year, just to put in context. So, yes, we have seen that massive currency move, there is 2 elements, which call it, softens it a little bit. 1 is, of course, we have hedging in place. And in a in a strong real environment, we are hedging costs you, and now we will see the hedging benefits. So we are we will see only a fraction of these moves in our actual P&L once you net out the hedging. The second thing is which you also need to keep in mind more operational, and not. Is yes, some of the components over time, because some of them are important, and cost you more, At the same time, it makes the good. The import of finished goods a little bit more expensive. And keep in mind, we are a local producer. From a competitive environment, I. that is not necessarily all bad news for us. Because, again, we are the local producer in Brazil, much like we are the local producer in The US. So it is not all bad. But given that it is fresh, very transparently, we are now going through all potential ramifications which come with the with election outcome in Brazil.

Yeah. In regards to the GCB recovery there is a lot of uncertainty out there. The decisions from the judge on the bankruptcy proceedings happened just last week, which starts the 60-day clock on the restructuring plan. So we are watching that intently. Obviously, we were a very big supplier to GCB, a very big player in Brazil, so we have a seat at that table, and we will be watching how these guys proceed in terms of re. Recapitalizing the business. This is gonna take a little bit of time. We will have more visibility as we exit Q4. So sequentially. Therefore, there is not going to be a whole lot of change from Q3 to Q4. But we expect things to normalize, going into 2027 as the volume gets redistributed to other, players and or GCB reemerges with a much better structure.

Your next question comes from the line of Jeffrey Stephenson from Loop Capital Markets. Your line is open.

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

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

No. that is very helpful. No. Thanks for that. And then I was hoping you could provide more color on the meaningful demand shift in your SDA Global business from the third to fourth quarter, where you are seeing orders up 40% in October? Just any more color there would be helpful.

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

Jeffrey, it is Marc again. Know this is a Q3 call, not necessarily an October business review, but, you know, obviously, just to echo what Ludovic was saying. October on the. For SDA, because it is almost done, is a very, very strong month. Which exactly confirms in actual what Ludovic is right now pointing towards. We feel very good about the FDA run rate, and the overall Q4. So we feel very good and exactly confirms what Ludovic was highlighting.

Your next question comes from the line of Sam Reid from Wells Fargo. Your line is open.

Thanks, everyone. Wanted to touch on the builder channel here. I believe your pricing in the channel is already in place. Just want to discuss realization any benefits that you got from that in the third quarter? Whether that is supposed to ramp into Q4 and 2027?

Sam, it is Marc, and maybe I will have to add on this 1. I think what you are pointing out is very important aspect. The builder segment, as you know, is a very big part of our business. Unfortunately, not that big as it could be because of market environment, but it is a big part. The pricing in the build is not as straightforward as with retailers, very simply because builders give out quotes, and we give quotes to builders quite a bit in advance. And in many cases, we have we have annual or national contracts. So and, of course, we are trying to find, if I will build a partner, the right balance between not breaking quotes, which we have already given, but at the same time, not drag our price increase forever. And that is a careful balancing act, which we have, I think, done in partnership with our builder partners. So I would say in Q3, we have gotten some pricing, in particular towards the end of the quarter, more and more of a pricing. Maybe not fully to a level of retail, but we will continue to work with our builder partners kind of make sure we reflect the real cost. And keep always in mind, in particular builder segment, you have cost increases coming from final mile delivery to construction sites, which are significant. So we are getting it. We are pursuing it. I think there is a good discussion with our builder partners because they understand this cost, but course, nobody wants to surprise a final consumer with a cost increase.

Yeah. What I what I will add, so it is consumer pricing plus support that we give to the channel. In Q3, we saw a significant improvement between Q2 to Q3. More than more towards the end of Q3, and we will see some of that also coming in Q4. But it is pricing in the quotes, plus the aptitude that we have on serving the customer, especially on the final mile like Marc was commenting. But that comes, you know, with a little bit of lag, and we saw in Q3, and we will see more in Q4.

that is helpful. And then maybe let's switch gears and talk commodities a little bit. So, I understand you have locked in, I think, 2 of your major steel contracts, but there is that third 1 that is still out there. I think you mentioned that you would have some visibility into that soon. Maybe just contextualize, you know, the timing there and then perhaps the magnitude of how large that contract hypothetically would be so we have a rough sense as to the implications for 2027. Thanks.

Yes, Sam. Now getting really into the details of our of our steel contract, and, again, that is why I am not quite sure I wanna share with our competitors everything we are doing. Again, we are we have locked in 2 of the contracts, and there are fair terms. But the third 1 is, I would call, in advanced stages. And I am confident we can close it. Keeping also in mind, we have flexibility on shifting volumes between different partners. And between all of this, I am very confident we can close it very soon. And, again, I from today's perspective, assuming steel prices stay on this. At least stay on this super elevated level, which we are right now, I think we will not have a huge surprise coming into 2027.

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

Good morning. Hey, Eric. Hi. Hi. To follow-up, I heard the comment about making good progress with price on builders, and I thought the chart was super helpful of progress on retail pricing. The yellow line was helpful. It must be apples and oranges. The flow through of that I think you reduced your price mix number. And so can you just help me square, like, lots of progress, except that the realized price mix is less than what was targeted 90 days ago? what is the difference between those 2?

So, I mean, Eric, again, first of all, to. Just to clarify, the chart which you see on page 11, given that this is a price scraping tool which we get every week, basically, from websites, literally tens of thousands of data points pretty much on a monthly base. But by definition, it is retail. it is not necessarily the builder price. Okay? So that is. Well, unless the indirect builder pricing, which would come through some of our home improvement channels. So. But it is largely a retail pricing. The builder pricing, of course, is a whole lot less covered and tracked through third-party data. data. Again, having said, and I wanna repeat what I said before, we got significant progress in Q3 on the builder pricing. It is it was clearly and is delayed versus the retail pricing. And that is simply driven by the fact that neither the builder nor us wanna kind of give a huge surprise to consumer who already agreed on a certain overall price. And that is what we kind of managing through. But right now, I would say, overall, the moves on the builder pricing are just happening the same way, just a little bit later.

Juan Carlos here. I would just say that it is magnified with a lower mix basically, because of the replacement market. So that is kind of also impacting the PMR.

Right. Okay. In terms of the global price mix, the 2 things to keep into consideration is, 1, it does not only reflect The US. So the decline that you are seeing is also us reflecting the Grupo Casas Bahia bankruptcy reorganization impact. That Ludo just touched on from a mix standpoint. And then the second element is the element exactly that Marc and JC just touched on, which is the mix related to the replacement demand and us just reflecting that in the overall price mix number. The pricing itself is absolutely on track. Okay. Perfect. Great.

And then And then, secondly, the progress we have made on price and the additional price, this is a North American retail question. Question. In aggregate, it is it is, like, 15%, almost 20% price into North American retail, North American consumer How are your thoughts about making that level stick? And does that have any impact on demand or mix? Or does that just basically flow through?

And so, Eric, again, specifically in North America, again, when we talk about these very big increase number, that always relates to January 2025. And as you saw last, we already took some price. So year over year, it is a little bit less than this since January overall. Having said that, and this is what you saw in Q3, I think, by and large, it is sticking. And whenever we see certain elements where we are course correct, we slightly course correct, but by and large, it is sticking. I absolutely today, do not see an impact on the overall category demand from consumer perspective. Again, it is a replacement market. Consumers know they have to replace a product. Typically, the awareness of consumer going into a store bought the expected price is limited. So the elasticity, if you wanna say so, is very limited. Having said that, you do see sometimes that a consumer wants to just stick to a certain budget. I.e., a consumer goes in the store and say, I do not wanna spend more than $600 on a top loader. So what it basically means for us, it could be the consumer mix down 1 price point or 1 SKU from our perspective. And that is exactly what we are kind of trying to balance between what is the benefit of raising prices versus how much you lose on the mix side. I think over years, we have gotten a pretty good experience in how we fine-tune that. And that is what we do also going forward.

What I will add there is, our new product launches and we described 2 of them in the presentation, but we have been talking about them throughout the different earnings release. That is supporting and enhancing our margin expansion and top line growth. So we will continue leveraging our product, product launches to be able to drive innovation, pricing, and margin expansion.

Your next question comes from the line of Andrew Carter from Stifel. Your line is open.

Hey. Thank you. Good morning. Wanted to ask, and I know what I am kind of thinking through on your on your actual pricing is kind of. Is difficult, but I think you would be probably, from what you are saying at retail and what is flowing through, somewhere in the kind of mid to high single digit range. Your organic growth in Q4 or third quarter was down 8% in North America. That puts your kind of shipment volume, whatever, in the -12%. I realized there is some mix in there that is probably unfavorable. But that compares to AHAM shipments down in the -3% range. So I guess first off, like, you said you were holding market share earlier. So how do those 2 square? And anything you can give us on POS, where you have visibility of your brands relative to the overall category. Thanks.

So, Andrew, there is a very simple answer to this 1. Our market share this year is very steady throughout all 3 quarters. You had last year following our pricing rules, you had in Q2 a very soft market share and in Q3 a much higher market share. So it is a pure baseline comparison Actually, if I look at our market share Q1, Q2, and Q3, it is very, very stable, and I feel very good about having said that, we monitor our POS trends every week and see exactly what we need to be doing and what we do not need to be doing. But, you know, I. it is. Of course, we saw in the month of September, and also October, the industry was soft. And, of course, we see that also reflected now POS trend. There. there is 1 big element which I wanna also add, which is a point of strength for ours increasingly, we typically have POS data from our big trade partners. But there is still a very significant independent retail or builders, in particular, independent retails where we actually have strengthened our position over last year. And that is a little bit richer from a mix perspective channel. it is not fully captured in POS data. So I would say whatever we might lose on some POS accounts, we have right now good compensating element on the on the independent retail.

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

Yeah. So, Andrew, of course, we are not yet giving 2027 guidance. Having said that, our clear focus for Q4 also for next year is margin expansion period. And we as some of you followed us a little bit longer. Every once in a while, a couple of years, we have a clear focus on margin expansion, and we tend to be doing what we talk about. And that is the number 1 priority across the entire company. Of course, if you right now add up what we are doing with structural cost increases, And if you add on top of that the carryover pricing, would feel very good against that objective. But we all experience in 2026 The macro environment turned out very different than we assumed in January. Okay? that is the reality. We do not like it, but that is reality. So as you would expect from us, we are kind of right now having plans on the margin expansion which might go well beyond what we actually end up communicating. But, again, that is a decision which we will make in January once we see the year unfolding. But from a underlying work, which has been done with structural cost takeout, and the pricing action, I think we set ourselves up for what I would call a very solid foundation for margin expansion. So with that in mind, I think that was the last question. I am not even quite sure I should repeat what I just commented, but, again, it is. I wanna reiterate this. You know? Of course, 2026 was full of challenges. I am not blaming the external environment. We focus on what we can control, and that is cost takeout and pricing. You heard us talking quite a bit about it. We are I would say, beginning to be cautiously optimistic about 2027. But we also recognize we have work to be done. We are still living in a very volatile overall macro environment. With that in mind, I thank you for listening to us, and hope to talk to you sometime soon. Thanks a lot.

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