Whirlpool - Q2 2023

Transcript

Operator (participant)

Good morning, welcome to Whirlpool Corporation's second quarter 2023 earnings release call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Korey Thomas.

Korey Thomas (Senior Director of Investor Relations)

Thank you. Welcome to our second quarter 2023 conference call. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial Officer. Our remarks today track with a presentation available in the Investor section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we'll be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q, and other periodic reports. We also want to remind you that today's presentation includes the non-GAAP measures outlined in further detail on slide three of the 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 a 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 two questions. With that, I'll turn the call over to Marc.

Marc Bitzer (Chairman and CEO)

Thanks, Korey, good morning, everyone. As you will have noted in our earnings release, we did post another quarter of solid sequential improvement, and it was a quarter which puts us firmly on track towards our full-year guidance. If you look at the drivers of this improved performance, we did not get a lot of help from the macro environment. Global industry demand was down, but frankly, that is exactly what we expected. It was instead our consistent and disciplined execution of our operational priorities that drove this improvement. We were able to achieve meaningful cost reductions, we improved our supply chain, our product innovations drove strong consumer demand, and we gained market share. In short, we did what we told you we would do. As we are looking towards the second half of 2023, we are leaving our industry demand outlook unchanged.

We are starting to see early but clear signs of a strengthening U.S. housing market, which will benefit us disproportionately, the broader consumer sentiment is still cautious and not yet pointing towards more discretionary purchases. We are also seeing the operating environment essentially return to pre-pandemic conditions with stabilized supply chains, improved inventories, and a promotion environment which is similar to pre-pandemic levels. Frankly, this is an environment we have demonstrated that we can successfully operate and create value in. Turning to slide six, I will provide an overview of our second quarter results. The world we are operating in today is very different from the first half of 2022, where supply chains were fragile, inventories were historically low, promotions were largely absent, and inflation was at historically unprecedented levels.

In the second half of 2022, we saw a global demand shift with industry declines in key countries. We continued to experience this trend into the first half of 2023, with global demand declines in the mid-single digits. Second quarter year-over-year revenue declined 6% versus the prior year, in line with expectations. The promotional landscape is normalizing at pre-pandemic levels, negatively impacting price and mix. Yet we continue to gain momentum with year-over-year share gains in the Americas through improved supply chains and our strong product lineup. In Q2, we delivered a strong operating margin of 7.3%. This represents a 200 basis point expansion from the first quarter, driven by our strong cost takeout actions.

These actions delivered $150 million of year-over-year benefit and are on track to our full year target of $800 million-$900 million of cost takeout. Delivered strong second quarter ongoing earnings per share of $4.21, in line with expectations. Turning to slide seven, I will share more details on our second quarter EBIT margin. The second quarter was unfavorably impacted by the normalization of promotions, which reemerged in the second half of 2022 and are now following historical seasonal trends. Sequentially, price mix negatively impacted margins by 50 basis points, with a year-over-year impact of 350 basis points. Our strong cost takeout actions delivered 275 basis points, both sequentially and year-over-year. As expected, marketing, technology, and foreign currency negatively impacted margins.

Overall, we are pleased with our second quarter performance, delivering ongoing EBIT margin of 7.3%. Turning to slide eight, you can see we are on track to deliver $800 million-$900 million of year-over-year cost takeout benefits, including $300 million-$400 million of reduced raw material costs and $500 million of additional cost takeout actions driven by enhanced supply chain resiliency, reduced parts complexity with approximately 50% fewer parts since 2021, and improved transportation rates and reduced premium freight costs. In aggregate, we have reduced our salaried workforce by 7% and remain disciplined with discretionary spending and other indirect costs. The cost actions we took over past quarters, we are fully on track towards delivering our cost takeout targets.

While the chart shows high year-over-year cost reduction in Q3 and Q4, it is important to note that this is entirely driven by the baseline effects in the second half of 2022, and will not require additional new cost takeout actions. I will turn it over to Jim to review our regional results.

Jim Peters (CFO)

Thanks, Marc. Good morning, everyone. Turning to slide 10, I'll review results for our North America region. Year-over-year share gains and the addition of InSinkErator was more than offset by industry decline of 1% and increased promotions, resulting in 5% revenue decline. The region delivered sequential margin expansion with solid double-digit EBIT margins of 10.3%, as our strong cost takeout actions continue to gain traction alongside the integration of InSinkErator. We expect the region to deliver 100+ basis point margin expansion each quarter, driven by strong cost takeout actions. We are confident in the structural strength of our North America business and continue to expect our actions to deliver strong results, exiting the year with 12%-13% EBIT margins. Turning to slide 11, I'll provide additional color around the U.S. housing market.

During our earnings call in October 2022, we presented our upbeat long-term view on the US housing market. Nothing has changed, and we are very optimistic about mid- and long-term housing-driven demand trends, currently representing 15% of the total industry demand. New housing construction has significantly lagged historical averages for more than a decade. For perspective, there was only one year in the 40 years prior to the Great Recession in which fewer than 1.2 million new homes were built. Much of the period between 2007 and 2017 was below this level, leading to the oldest US housing stock in the country's history. In total, we estimate 3 million-4 million unit undersupply of housing.

While we do not expect housing starts to reach a steady state of supply to fill this gap in the near term, we do believe housing starts will begin to increase to 1.7 million units annually or higher due to the housing shortage. Turning to slide 12, you can see we are well positioned to capture this trend as the number one choice for home builders. The combination of, one, the best brand portfolio with multiple $1 billion brands, including Whirlpool, Maytag, and KitchenAid, two, an innovative product portfolio that targets 90% of the consumers, and three, our strong final mile delivery capabilities across the region, strongly positions Whirlpool to drive value creation as the housing market rebounds, with every new home having a full suite of typically five new appliances.

It is not surprising that we have become the number one choice for U.S. home builders, serving eight of the top 10 national builders. Turning to slide 13, I'll review our results for our Europe, Middle East, and Africa region. Organic second quarter revenue was down approximately 12%, driven by continued industry demand weakness across key countries. EMEA margin expansion was driven by strong cost takeout actions, alongside held-for-sale accounting benefits due to reduced depreciation that will continue each quarter until the transaction closes, which is expected in Q4 of this year. Turning to slide 14, I'll review the results for our Latin America region. The region saw a demand improvement in Mexico and year-over-year share gains, resulting in a 4% revenue increase. Inflationary pressures were partially offset by higher volumes, resulting in solid EBIT margins of 6.5%.

Turning to slide 15, I'll review results for our Asia region. Excluding the impact of currency, revenue declined approximately 8%, driven by consumer demand weakness. Sequential share gains drove a 15% revenue increase compared to the first quarter. The region delivered EBIT margins of 3.7%, with our strong cost takeout actions offset by negative price mix. Turning to slide 16, I will discuss our full year guidance. We are reaffirming our ongoing EPS range of $16-$18 and free cash flow guidance of approximately $800 million. We continue to expect to deliver approximately 60% of our full year earnings in the second half of the year, driven by our cost structure reset.

We now expect to deliver EBIT margins of 7.25%, as promotional spend has slightly increased and demand weakness in EMEA has been greater than anticipated. Our guidance also includes updated expectations for our adjusted effective tax rate, now 10%-15% for the year. As the Europe transaction progresses, we will continue to assess the adjusted tax rate, which has the potential to be at the low end of our range. We continue to expect to deliver $800 million of free cash flow. Turning to slide 17, we show the drivers of our updated full-year ongoing EBIT margin guidance. We have updated our expectation of price mix by 25 basis points to a negative 250 basis point impact, reflecting a global promotional environment at pre-pandemic levels. All other margin drivers remain unchanged.

We now expect to deliver solid margins of 7.25% for the year. Turning to slide 18, we show our regional guidance. We see no change to our full year regional industry expectations. While second quarter North America industry shipments were slightly favorable versus our prior expectation, this was largely driven by retailer restocking and slightly higher retailer inventory levels. The consumer sellout was relatively stable, with a low single-digit decline. While there might be some uptick in consumer demand driven by the housing rebound, consumer sentiment in the region continues to be impacted by macro uncertainty. Therefore, our market assumptions are unchanged. Overall, we expect continued EBIT margin expansion, driven by our strong cost takeout actions, as well as raw material inflation tailwinds.

In North America, we expect to deliver full-year margins of approximately 11.5%, with the region's strong cost takeout actions partially offsetting a promotional environment that is at normal pre-pandemic levels. We expect to partially offset the impact of the promotional environment with positive mix, driven by a strong lineup of new product introductions, delivering year-over-year share gains. We now expect EMEA to deliver approximately 1.5% margins, as the region continues to be impacted by soft consumer sentiment. Lastly, EBIT margin expectations for Latin America and Asia remain unchanged. Now, I will turn the call over to Marc.

Marc Bitzer (Chairman and CEO)

Thanks, Jim. Turning to slide 20, let me provide an update on our portfolio transformation. Whirlpool today is very different from Whirlpool of the past. In the last five years, we've taken several significant steps to transform the company into a higher growth, higher margin business based on three structural pillars: small appliances, major appliances, and commercial appliances. These steps in changing our company portfolio lay the foundation for a company with a double-digit EBIT margin profile, which is very different from our historic mid to high single-digit profile. As we look forward, we are reassessing our operating segment structure in anticipation of a potential change after the completion of the Europe transaction. During one of our future earnings calls, we expect to share more information about our assessment and potential resegmentation, specifically about our strong value-creating small domestic appliance business.

Turning to slide 21, I will provide an update on InSinkErator and how it is strengthening our portfolio. Our integration efforts are well underway and nearing completion after acquiring InSinkErator in Q4 2022. InSinkErator's rich history and strong product legacy have us very excited about the brand's largest launch, NextGen, which we presented during our last earnings call. We continue to be pleased with the sustained EBIT margins of approximately 20%, contributing approximately 50 basis points to our consolidated EBIT margins. Turning to slide 22, I will provide an update on our EMEA transaction. In January, we agreed to contribute our European major domestic appliance business into a newly formed entity with Arçelik. The Europe transaction and the regulatory processes are ongoing and progressing as expected, including executing agreement to sell our Middle East and Africa business.

We continue to expect to close the Europe transaction in the fourth quarter of 2023. Until then, we will continue to focus on EMEA delivering the best products and consumer preferred brands. Let me also remind you of the benefits of this transaction. We will own approximately 25% of a new company, which will be well-positioned to deliver value to consumers through attractive brands, sustainable manufacturing, product innovation, and best-in-class consumer services, and is expected to have over EUR 6 billion of annual sales with over EUR 200 million of cost synergies. We have a potential to unlock long-term value creation through our ability to monetize our minority interest. Coupled with a 40-year Whirlpool brand licensing agreement, we expect $750 million net present value of future cash flows.

Additionally, post-closing, we expect the transaction to improve our value creation metrics by $250 million of incremental free cash flows and 150 basis points improvement in ongoing EBIT margin. Turning to slide 23, I will discuss our capital allocation priorities, which remain unchanged. We remain committed to funding innovation and growth and expect to invest over $1 billion in capital expenditures and research and development this year. Additionally, we are confident in our ability to generate strong free cash flows. This, coupled with our balance sheet strength, provides us with flexibility to support our commitment to returning cash to shareholders. In the first half of 2023, we returned $193 million in cash to shareholders, representing nearly 70 consecutive years of dividends. Turning to slide 24, let me further discuss our commitment to maintaining our strong investment-grade credit rating.

We are confident that we are well on our way to delivering debt leverage to below historical norms and towards our target of two times or below, with $1.3 billion cash on hand and strong free cash flow, which, as mentioned earlier, we expect to be $250 million higher after the close of the Europe transaction. We continue to prioritize debt repayment, with approximately $500 million of acquisition-related term loan paydown expected by the end of the year. Turning to slide 25, I will review our healthy debt ladder and how it gives us flexibility and de-risks our balance sheet.

We have an attractive weighted average interest rate of approximately 4.25%, with 70% of our debt held at a fixed rate of just over 3%. Additionally, over $2 billion of our debt is due after 2030. This gives us a balance sheet flexibility to deliver strong shareholder returns and maintain our solid investment-grade rating. Turning to slide 26, let me close with a few remarks. Despite a dynamic external environment, we delivered another solid quarter with sustained margin expansion. Through strong execution of operational priorities, we delivered results in line with our expectations and remain on track to deliver $16-$18 of ongoing earnings per share and approximately $800 million of free cash flow. More importantly, the strength of our brands and products is resonating with consumers, with a point of year-over-year share gains.

With our strong position as the U.S. builder's number one choice and serving eight of the top 10 national builders, Whirlpool is well-positioned to benefit from a housing-driven demand recovery, and we continue to unlock value with our ongoing portfolio transformation. Now we will end our formal remarks and open it up for questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press Star, then the one on your telephone keypad. Your first question comes from the line of Michael Rehaut from JPMorgan. Your line is open.

Michael Rehaut (Executive Director)

Great. Thanks so much. Good morning, and thanks for all the detail. First question, I wanted to hit on the promotional environment, if I could. You know, you kind of mentioned it's now reverted back to pre-pandemic levels, which I guess is maybe a little higher than perhaps you were expecting at the beginning of the year, and it appears the driver of the reduced North American margin outlook. I was hoping to get a sense from you in terms of, you know, how this might affect price cost in the back half, and into 2024. You know, from a margin perspective in North America, I believe, last quarter, you were expecting to end the year at roughly 14%.

Just want to get a sense of how that changes and how we should think about the new baseline for the business, outside of, you know, additional price mix gains in 2024.

Marc Bitzer (Chairman and CEO)

First of all, Michael, good morning. It's Marc. Let me try to answer that fairly wide question. On the promotion environment first. You asked a question about, Is it higher than we expected? I would rather call it, the promotion normality came earlier than expected. What I mean with that, you know, we always assumed that at one point, the normal promotion environment will return back to pre-pandemic levels. Honestly, we probably would have expected more close to Q3, Q4, and it now basically came in Q2. That's as such, not a surprise, it just happened one or two quarters earlier. That's the only change. The level of promotional depth is frankly not surprising relative to what we see in pre-pandemic. I wouldn't see that as an overly concern.

In that context, what I really want to remind everybody on the call is, and refer back to page seven of our presentation, because I think that tells the full story, and I think it's very helpful in that context. You see both a year-over-year comparison on the margin walk and the sequential. If you first start from a year-over-year comparison, you see, and Jim alluded to this one earlier, yes, there is a big price mix decline year-over-year. I really want to remind everybody, Q1 and Q2 last year were pretty much the last quarter, basically absent of any promotion. It was basically a kind of a dark period from a promotion perspective. These promotions started to kind of resume in the marketplace in Q3 and Q4. You will saw this little ramp up.

As such, yes, the year-over-year comparisons look big, but that's not surprising given that we all knew promotions are coming back into the market. The more relevant perspective, we pointed towards this already in the last earnings call, is right now the sequential look. Sequentially, over Q1, we lost half a point of market share. Keep in mind, Q2 in the marketplace has Memorial Day and July 4th in there, so by definition, it's a little bit more promotional heavy than a Q1 is. We are 0.5 price decline, I wouldn't call that out of a norm. Even more relevant is when you look at relative to cost takeout. Sequentially, we took 2.75 points of cost out. Put it differently, we basically reinvested the marketplace 20% of our cost takeout.

I would call that a very measured and reasonable approach to approaching promotions. Frankly, it worked for us because we picked up market share, and we expanded our overall margin by two points. Put that all in context, I would consider the promotion environment, yeah, we're back to pre-pandemic levels. We know how to operate in that environment very successfully, as we have evidenced over many years, and I think as we have evidenced in Q2. Now, more specific also to the North American margin, we expect North American margin by year-end to be around 12%-13%. Also coming back to this pre-pandemic margin run rate. That was pretty much the margin run rate we had coming into the pandemic. It was around 12 or 12+ in North America.

Yes, we fully expect that to be back on that level, and then we can see where we can expand it from there on.

Michael Rehaut (Executive Director)

Great. No, no, I appreciate that, Marc. Thank you very much. Secondly, I wanted to hit on InSinkErator for a little bit. Wanted to get a little color or more granularity on how the product launch is unfolding and what that's contributing to the business. Also just, you know, in context to that, or maybe in addition to that, I think more broadly, I think you did notch down the full year revenue contribution outlook. I wanted to understand the drivers of that as well.

Marc Bitzer (Chairman and CEO)

Michael, again, it's let me give a context on InSinkErator. First of all, we're very pleased with that business. The margins hold up very strongly, 12%-20%+. It's a very EBITDA accretive business. We like the team, we like the product lineup, we like the product production efficiency. It is a very, very strong business. There's obviously two factors: One is the broader revenue. I would say InSinkErator is even more exposed to the U.S. housing market than our normal appliance business. As such, you know, as we always expected, the first half of the first three quarters of this year will be somewhat soft on housing before the housing fully rebounds. That is one element, hasn't changed in terms of where we, where we are from a market share perspective on InSinkErator.

The second part, in particular, on the new product introduction, NextGen. First of all, you need to know the NextGen carries margins which are stronger than rest of the line, so inherently it's a margin accretive product. Right now you're going through what we call the phase in and phase out. We started the first shipment, actually in July. That is now on the way. In the short term, given that we have, you know, product placement costs and in the phase in and phase out costs, which we do not capitalize, we take it into our ongoing cost, it's actually a slight burden in both Q2 and Q3.

The inherent margin of a NextGen is very attractive, and we're now fully in the process of ramping up the production, and we would expect the full sales element of a new product to be fully visible in Q4.

Operator (participant)

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

David MacGregor (President and Senior Analyst)

Yes, good morning, everyone.

Marc Bitzer (Chairman and CEO)

Morning, David.

Michael Rehaut (Executive Director)

Good morning, David.

David MacGregor (President and Senior Analyst)

Marc. Yeah, good morning, guys. I wonder if you could just talk a little bit about volume demand or market demand right now? I mean, we had the core six number out that you had indicated in your prepared remarks, included some restock. I wonder if there's any way of just giving us a sense of what you're seeing right now in terms of replacement demand versus the builder channel, which you've highlighted is of growing importance to you, versus maybe discretionary demand is obviously down? Just try and unbundle that for us and give us a better understanding of just the composition of the volume growth.

Marc Bitzer (Chairman and CEO)

David, it's a very good question. First of all, it's a little bit similar to what we already qualitatively alluded to in Q1. The discretionary side of the demand continues to remain soft, and we see that in the major appliances, and I think as one of your colleagues pointed out, we see it all in the small domestic appliances. That's just the nature of discretionary demand, which is right now still impacted by uncertainty in consumer sentiment, which is still not in the positive territory. What is holding up strong is replacement side, as we always expected, because with that, with pandemic, there comes increased usage of appliance, which drives replacement demand, and that is holding up very strong.

To put it on in the numbers, as you've seen, the kind of industry, and I'm more referring to U.S. industry, shipments were -1. In all transparency, the consumer sellout, we expected to be slightly weaker, and we think it was around the -3, -4, pretty much in line with what we initially guide the industry shipments to. The difference is, retailers were restocking what were pretty low inventory levels, so there's a restocking element in there, and that explains the difference. Going forward, as you know, we left the industry assumption unchanged, frankly, because we're still uncertainty out there. There are clear, and that's probably to your point, clear signs and data points about the housing recovery.

What I'm referring to, I mean, and this morning, another nationally recognized big builder came out with numbers. The order intake of the builders is very strong across the board. You do the math to pick an order, translates into an appliance shipment anywhere six to 10 months after the order comes. That's just the time it takes to build the house, and as you know, appliance always come in last when the house is being completed. We do know there's a significant momentum building on the builder side. The only question is, how much of that will fall into the calendar year of 2023 versus 2024? It will come because, you know, these orders are real and there. I think we've seen now six or seven builders with really impressive order intake.

That potentially could translate into some upside on the industry shipment. Right now we've been reluctant to already update that, because again, there's still uncertainty on the discretionary side. We know and we see it, the housing momentum is starting to build, and that's very, very positive news for us.

David MacGregor (President and Senior Analyst)

Thank you for that. Then just as a follow-up, talk about the cost takeout program, and you've got some very well-defined goals for 2023, and you mentioned most of that's just coming from the year-ago comp. What does that imply in terms of the 2024 carryover benefit at this point?

Jim Peters (CFO)

David, this is Jim, and you know what? I'd start with is, first off, we are, you know, extremely happy with, as you said, that we're on track to deliver the $800 million-$900 million. You know, and we're seeing what we expected in raw materials. I think as we look forward, you know, we haven't and we won't give guidance yet, at least on next year. As we look forward, there are some of these actions, obviously, as we've had headcount reduction via attrition throughout the year, but, you know, also different projects we've implemented that have reduced costs within our products that will carry over into next year.

I mean, if you look on a, on a typical basis, you know, and as we've always said, that we typically, in any year, target to do at least a half to a point of, you know, cost reduction. Typically, you know, give or take 25% to, you know, 35%-40% of that is carryover. Right now, at this point in time, we don't have a specific number, but we do expect to come into next year with some strong tailwinds from a cost perspective.

Operator (participant)

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

Susan Maklari (Senior Equity Research Analyst)

Thank you. Good morning, everyone.

Marc Bitzer (Chairman and CEO)

Hi, Susan.

Susan Maklari (Senior Equity Research Analyst)

My first question is around the mix. Are you saying that has been changing either positively or negatively for you? What role is that having within that price mix shift that we're seeing?

Marc Bitzer (Chairman and CEO)

Susan Maklari, it's Marc Bitzer. I think overall, we don't see the big mix down effect, which some people have referred to, particularly in North America. Actually, if you would look in the detail, our dining business, our kitchen business are performing very well, so we feel pretty good about it. Coupled with that, we have two product introduction, like the Maytag Pet, the dishwasher, which really are, you know, just beneficial in the mix. Of course, mix also going forward will be a major lever to offset any promotion pressure. I would say in general terms for North America, but it's also pretty true for most of every region, there's a slight positive mix, that is right now offset by the promotion pressure out there.

Again, mix, in particular product innovation so far has been a good guy for us.

Susan Maklari (Senior Equity Research Analyst)

Okay, that's helpful. You're targeting the $300 million-$400 million in terms of raw materials for the year. Can you talk about any changes to where you expect to fall within that range, especially as perhaps some of the raws have moved over the last few months, and what that could imply for the back half of the year?

Jim Peters (CFO)

Yeah, Susan, this is Jim. What I would say is, if you remember in Q1, as we kind of at the end of Q1, we talked about we thought we were at the lower end of that range as we were looking at where the commodity prices were. As we look at, you know, where we are today and what happened within the second quarter, commodity prices have improved some, but we're still within the range. Whether we're at the midpoint or slightly, you know, better than the midpoint, we're probably at that point. It won't have a significant impact for us in the back half of the year against what we guided before, what we're guiding now, because it's still within that range that we thought. You know, I don't think it's gonna be a big impact for us.

As I mentioned earlier, we won't be guiding for next year until, you know, later till in January 2024.

Operator (participant)

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

Sam Darkatsh (Managing Director)

Good morning, Marc. Good morning, Jim. How are you?

Marc Bitzer (Chairman and CEO)

Good, Sam. Good morning.

Jim Peters (CFO)

Good morning.

Sam Darkatsh (Managing Director)

A couple questions. First off, getting back to North America margins, specific second half versus first half, it looks like you're guiding, I don't know, somewhere around 13% or so in the back half versus the 10% in the first half. I think we can back into the sequential benefits of RMI and cost takeout, we can guess at pricing. The one thing we really can't see externally is your volume production plans sequentially. There's a lot of moving pieces, obviously, with market share and moving expectations around volumes. Can you be specific as to what you're expecting for volume production, specifically in the second half versus the first half?

Marc Bitzer (Chairman and CEO)

Sam, it's Marc. First half, now margins are now 10.15 over 10.2% in the back half, and we said earlier, we expect it to exit with 12%-13%, which again, essentially is spot on to pre-pandemic level in North America margin. Structurally, as you know, there is a little bit of seasonal element in the back half or first half. One is volume-related because you tend to ship more in the second half than first half. The second part is our more seasonal business, particularly Kitchen, it's the mix of which, as you know, is margin creative, tends to be a little bit higher in the back half. These are the structural elements.

Now, specifically to the question about production levels inventory, I think you're rightfully pointing out to last year, we had to take down production significantly in Q3 and Q4. Which frankly, is a fairly costly manner to do it. I would say right now, coming into Q3, I think we're much better balanced. We feel very good about right now our inventory levels. Our supply chain is basically, except for some very small residual items, is running very smoothly. I don't see this kind of the need for this draconian action, which we had to undertake in Q3 and Q4. As such, we expect a pretty level production volume similar to Q1 and Q2.

Sam Darkatsh (Managing Director)

My second question: the corporate overhead line bounces around a lot, and it's hard for us to model. It looks like it was considerably below, at least where we were thinking. I was imagining it was gonna be maybe a $70 million quarterly run rate, excluding items, and it came in around, you know, call it around $20 million or so. What was that due to? I'm guessing it was a confluence of items, but what were the primary drivers of that? How should we model that corporate overhead number going forward, Jim?

Jim Peters (CFO)

Yeah, Sam, and here's what I think you should do. If you kinda look back historically over the last, let's just say, 3 years or even longer than that, typically, on an average, we run between $50 million-$60 million per quarter on that line. If you actually take where we are year to date, I think we're at, like, $47 million, $48 million. You know, I think you should continue to model at that type of number, especially maybe a little bit closer to the lower end of that range, because some of our cost takeout actions we're doing are obviously falling into there, so you'd be slightly lower than historical averages.

Specific items that drive, you know, changes within there, I'm not gonna get into a lot of them, but obviously, you have certain accruals that can be related to employee-related expenses or certain accruals that can be related to some of the legal cases that we're resolving in EMEA as we close that out. Those just cause some fluctuations between quarters, but for a full year, we do not expect to be outside of our normal range of $50 million-$60 million average per quarter.

Marc Bitzer (Chairman and CEO)

Sam, maybe just adding to what Jim was alluding to. Again, you know, the corporate expense base has two structural items. One is the ongoing corporate, call it infrastructure cost, the other one are kind of all these one-timers, you know, either legal costs or other actions. Of course, the latter one is always a little bit difficult to model because that's the nature of the ins and outs. It's important to look also at the underlying, the corporate infrastructure. As we allude to in our remarks, our prepared remarks, our overall salaried workforce is down 7% year-over-year. That is a very significant number, and that is also visible in our corporate expenses.

Keep in mind, we are starting to reposition our corporate headquarters basic to a potential post-Europe environment. We took proactive measures, and as such, our ongoing corporate expenses, they are lower than they were several years ago. There's also this element, which is just structurally lower than it was a couple of years before.

Operator (participant)

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

Eric Bosshard (CEO and Consumer Industry Analyst)

Thank you. Good morning.

Marc Bitzer (Chairman and CEO)

Morning, Eric.

Jim Peters (CFO)

Morning.

Eric Bosshard (CEO and Consumer Industry Analyst)

Two questions if I could. I guess first for Jim, just a housekeeping question. The comment was made that mix was stable. I'm curious, can you just help us understand the North American organic revenue? Ex-InSinkErator looks like it's down than 7%, 8%, 9%, it sounds like your units are up better than the industry. Is that all price? Can you just help us understand the mechanics between the gap between your dollar decline and your apparent unit volume growth?

Jim Peters (CFO)

You know, as you said, that year-over-year, we did pick up share. That would obviously be a positive. Still within the quarter, as we said, the industry was down slightly, so that would be a negative. Then, you know, as Marc talked about earlier with the promotional environment, that's your incremental piece that you just have to take off of the top there to say... Again, when you're looking year-over-year, as he highlighted earlier, last year in the first half of the year, it was, there were not many promotions at that point in time, so that's having a significant impact year-over-year.

As we get to the back half of the year, it will have much less of an impact, and that's why you see the full year average for price mix being below where this quarter is when you walk it year-over-year.

Marc Bitzer (Chairman and CEO)

Eric, it's Marc. The additional comment I wanna make is, keep in mind, when we show the North America business, there is the U.S. core business, but then you have other elements like InSinkErator, KitchenAid, small domestic appliance, and you have Canada in there. The pure U.S. core business was better than the number which we show for North America. What hurt us in Q2 was Canada was fairly weak. Canada had the last couple of years, very strong years, and this year is kind of a way softer than the prior year from an industry perspective. The small domestic appliance business was also softer than prior years. These were two offsetting items, but the U.S. core business was slightly better than the number you see here.

Eric Bosshard (CEO and Consumer Industry Analyst)

Okay. Secondly, a strategic question, I guess, for you, Marc, which is from a promotional standpoint, I'm curious how, what your thoughts are. I guess, first of all, is the promotional environment now stable or more intense in the back half than the first half? Within this, are you planning to focus on participating and maintaining or improving market share, or is your focus more on margin and less on promotion and share? Just curious how we should think about that relative to your guidance.

Marc Bitzer (Chairman and CEO)

Yeah, Eric, so first of all, I would describe the promotional environment, it's back to normal, okay? I know that sounds boring, that's pretty much it, we know how to operate in that environment fairly effectively and efficiently. Which also means we've always said we will participate in promotions as long as we're value-creating. From an overall margin expansion, of course, there will always be an element where some of the cost savings you have to reinvest in the marketplace. We've done that in Q2, the map overall worked for us very well, where we expanded market share and expanded margin, and that is also gonna be our, the balancing act going forward. We want to continue to win market share, we certainly will expand also our margins. That's the balancing act.

Again, overall, the promotion environment, you know, it just came a little bit earlier, but it's right now not to levels which we wouldn't know how to operate in. We know and feel very confident about the cost takeout, and some of that will be reinvested in the marketplace, but not all of it.

Operator (participant)

Your next question comes from a line of Mike Dahl from RBC Capital Markets. Your line is open.

Mike Dahl (Managing Director)

Morning. Thanks for taking my questions. Marc, just to follow up on that, you know, presumably, some of your competitors have some cost tailwinds as well, maybe not to the same extent as you do, given some of your company-specific items and not just the RMI tailwinds. In an environment where, you know, gross prices have still risen substantially the past few years, sellout is a little soft, and costs are down across the industry, how do you handicap the risk of just the other competitors leaning more into promotion and reinvesting more of some of the overall cost tailwinds into promotion here in the back half?

Marc Bitzer (Chairman and CEO)

Yeah, Mike, I can only repeat what I said before. First of all, the raw material, yes, it's probably fair to assume it's more or less, most people kind of benefit from the same tailwinds. With different color, keep in mind that North American raw materials were particularly bad the last couple of years, worse than some of the Asian raw materials. I would say right now, you come to a period where the North America production slightly gets more raw material benefit than an Asian production. That is already one differentiating element. I would say on the company-specific cost takeout actions, and you've seen that before, I mean, our own numbers, more than half of our cost takeout is discrete to us. That's what we are doing, okay?

I would pride ourselves, we took actions early and fairly decisive, we see some of these cost elements, reductions probably earlier and more than most other competitors. I mean obviously, we got to see. As such, we feel confident about our cost takeout. We know how to operate in a promotion environment, as we've evidenced and demonstrated to you, too. From my perspective, I don't expect a change in the back half relative to what we've seen right now around July 4th.

Mike Dahl (Managing Director)

Got it. Okay. Then just as a follow-up, with respect to inventory and the channel, I mean, inventory was running fairly lean. You called out some restock. How would you characterize inventory at retail now? Is it back to normal? Is it still climbing back toward normal off of levels that are still, you'd characterize to lean, or are there any pockets where you think there's now relative to the sellout environment, potentially, you know, a little too much?

Marc Bitzer (Chairman and CEO)

Michael, first of all, we got to recognize and remind ourselves, the last three years, we've seen extreme swings on manufacturer and retail inventory levels. This was bullwhip effect up and down, and that's what we've seen in the last couple of years. I think we're now back to a normal environment on many fronts, including trade inventories, which I would consider we're back to normal trade environment, trade inventory levels. Basically, the retailers over the last half year took opportunity or advantage of restocking to required levels, that's how we would look at this one. Right now, from what we've seen, we don't see excessive inventories out there. You also know there's one trade customer who doesn't carry inventory, there are not excessive inventories out there.

I, again, I would just describe them as normal retail inventory levels, which we see out there and which are basically all pointing to this post-pandemic environment normalcy.

Operator (participant)

Your next question comes from a line of Liz Suzuki from Bank of America. Your line is open.

Liz Suzuki (Senior Analyst)

Great. Thank you. Just, you, as we think about the ongoing tax rate, you know, in 2024 and beyond, I mean, what do you think is kind of a normalized level? It's obviously quite suppressed this year, but just as we think going forward. I mean, I know you're not giving 2024 guidance, but in just any normal year, what do you think a tax rate should be that we incorporate into our models?

Jim Peters (CFO)

Liz, this is Jim, and historically, you know, we have said that, you know, we thought the tax rate on an ongoing basis and on a cash basis would be closer to the 2025 rate over an extended period of time. What I would say is, as we go through our divestiture of EMEA, we have a significant amount of tax assets there that have resulted from losses that we've incurred over the years and funded and paid for already. As we go through this process, we're really looking at our ability to utilize many of those, because, like I said, these are losses that we did incur.

What we're finding is that, you know, we're finding more and more opportunity to continue to utilize those. That's why this year, we think, you know, similar to last year, we're gonna be in the 10%-15% range. I think over a midterm, we could see a rate that's below that historical thing that I was quoting of 20%-25%. Maybe even, you know, closer to the 15%-20%, at least for a period of time, or closer to the 15%.

Until we get to the end of this year, we get through all this transaction, we look at the global footprint that we have and the remainder, and then we look at the assets that we have, it's hard for us to give a longer-term guidance, but I do believe it'll be better than we've set historically. In addition to that, I do believe we'll be able to realize significant amount of just cash benefits over the period of years as we utilize some of those losses that we've already incurred.

Liz Suzuki (Senior Analyst)

All right, that makes sense. Just to follow up on the price mix guidance, you know, which for the year is estimated to be below what the first half is tracking at. I mean, is most of that improvement in the back half of the year, easier comparisons, or do you think is it more gonna be concentrated in the home builder side of the business versus retail? I'm just curious, how you think about pricing by channel as we get into the back half.

Marc Bitzer (Chairman and CEO)

This is Marc Bitzer, I can take it. I basically fully come back to the earlier comments. By definition, you have baseline effects of last year. Keep in mind, first half last year, basically had no promotions, and they were building the second half. That's the element of where the comparison is getting a lot easier in the back half, because, again, every quarter, the promotions have been building. As such, I mean, with 2.5 on a fully base of just a quarter, difference versus what we had in mind, but just a reflection is, yeah, we saw the normal promotion environment kind of one quarter early when we originally expected. Not fundamentally different from baseline and where we expected the year-end to be.

I think with that was pretty much the last question which we had, and I want to take the opportunity to thank you all for joining us today. Hopefully, as you heard before, we feel very good about the Q2. I mean, this was a quarter with 200 basis point of margin expansion, which is a significant step up. It's a step up fully back to pre-pandemic margin run rates. You also see or heard that we kind of, we start seeing positive signals on the market demand environment more towards the end of the year, but very undeniable, and they will at one point provide tailwinds for us, for our industry, and we feel good about it.

With that, we feel good about where we are Q2, puts us on track towards reaffirming our full year guidance, and I'm looking forward to talk to you again at the Q3 earnings call. Thanks a lot for joining us.

Operator (participant)

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