Fitch Ratings has affirmed the ratings of Whirlpool Corporation, including the company's Long-Term Issuer Default Rating (IDR) and senior unsecured ratings at 'BBB', and Short-Term IDR and CP ratings at 'F3'.
Fitch has also affirmed the 'BBB' unsecured note ratings of Whirlpool Finance Luxembourg S.a.r.l. and Whirlpool EMEA Finance S.ar.l. and the 'F3' CP rating of Whirlpool Europe B.V. The Rating Outlook remains Negative.
The Negative Outlook reflects the company's elevated leverage, with EBITDA net leverage expected to remain above Fitch's negative sensitivity for the 'BBB' IDR through at least the first half of 2025. Deleveraging has been slower than expected as the overall demand environment remains weak and margins are pressured. The rating affirmation reflects Fitch's expectation that leverage will improve modestly in 2024 from debt reduction and relatively flat EBITDA.
Fitch expects a combination of EBITDA margin improvement and additional debt reduction to result in EBITDA leverage of about 3.0x and EBITDA net leverage of 2.5x at the end of 2025. A more pronounced decline in demand, lack of margin improvement, neutral FCF and/or delays in debt reduction could lead to a downgrade of the IDR.
Key Rating Drivers
Elevated Leverage: Fitch expects Whirlpool's leverage levels will improve but remain elevated through 2025. Fitch estimates Whirlpool's EBITDA leverage was 4.6x at the end of 2023 as the debt incurred for the $3 billion acquisition of InSinkErator in November 2022, combined with weaker than expected margins, have kept leverage elevated. During 4Q23, the company repaid $500 million of the $2.5 billion term loan incurred from the acquisition. Fitch expects EBITDA leverage will decline to around 4.0x at YE 2024 and 3.0x at the end of 2025. EBITDA net leverage is forecast to approach 3.0x at YE 2024 and settle at 2.5x at the end of 2025. This compares to Fitch's negative sensitivity of EBITDA leverage above 2.8x or EBITDA net leverage above 2.5x.
Fitch's rating case forecast assumes at least $500 million of debt reduction in 2024, funded with cash on hand, FCF (cash flow from operations less capex and dividends), and proceeds from the sale of up to 24% of Whirlpool's stake in Whirlpool of India Limited. Fitch expects further debt reduction in 2025 and EBITDA margin improvement of 150 bps to 200 bps next year. The company has a net leverage target of 2.0x or lower, which the company expects to achieve by the end of 2026. Lower debt reduction than Fitch currently contemplates could result in a downgrade of the ratings.
Margin Pressure: Fitch estimates Whirlpool's EBITDA margin fell 100 bps in 2023 as price/mix, marketing and technology investments, and the negative impact of currency more than offset the benefits of raw material deflation and cost reduction initiatives. Fitch expects EBITDA margin will improve 100 bps to 150 bps in 2024, driven primarily by the divestiture of the margin-dilutive EMEA business, as cost reduction initiatives offset price/mix headwinds. Fitch expects further EBITDA margin improvement of 150 bps-200 bps in 2025 as North America margins recover. The projected margin improvement in 2024 and 2025 is slower than Fitch's previous forecast. Continued negative price/mix during 2H24 or raw material cost inflation could lead to lower margins than Fitch currently projects, which could pressure the ratings.
Weak Demand Environment: Fitch expects continued weakness in overall demand for Whirlpool's products in 2024 as discretionary demand remains muted amid subdued economic activity and, although improving, still low existing home sales activity in the U.S. Fitch expects demand from new single-family home construction to improve and for replacement demand to remain relatively stable. Fitch expects organic revenues to be flat to slightly higher in 2024 and improve 3%-5% in 2025. A weaker demand environment could further pressure margins in 2024 and 2025.
Divestiture of EMEA Business: Fitch expects the company to complete the previously announced divestiture of its EMEA major domestic appliance business in 2Q24. Fitch views the divestiture of Whirlpool's EMEA business as a slight net positive given this segment's underperformance in recent years and expectations of higher FCF generation after the divestiture. The benefits are partially offset by the loss of some EBITDA, overall scale and geographic diversity (EMEA contributed 18.5% of revenues and 6% of EBIT in 2023). While Fitch generally considers overall scale and geographic diversity as credit positives, Fitch does not view this divestiture as a meaningful deterioration in the business profile given Whirlpool's strong market positions in its various local markets and still-strong geographic diversity beyond North America.
Strong Financial Flexibility: Whirlpool has strong financial flexibility to navigate the weak operating environment and meet upcoming debt maturities if the company is unable to access the capital markets. Fitch expects the company will generate FCF margin of around 1% in 2024 and 2%-3% in 2025. Longer term, Fitch expects the company will generate FCF margin of around 2%-3%, which assumes capex of about $600 million annually. FCF, combined with $1.57 billion of cash, should allow the company to reduce debt in the next few years. The company's commercial paper program that is backed by its $3.5 billion revolver also provides additional liquidity to address upcoming debt maturities if needed.
Stability Through the Cycle: Whirlpool's favorable end-market exposure relative to U.S. building products peers has enabled the company to maintain relatively stable profitability and credit metrics through business cycles. About 60% of industry sales come from product replacement demand, with roughly 25% from discretionary purchases and 15% derived from new residential construction. Fitch views the high product replacement demand as a uniquely stable source of revenue when compared with investment-grade building products peers and is a credit positive for Whirlpool.
Leading Market Positions: Fitch believes Whirlpool's strong market share positions in core markets leads to higher and more stable operating margins over time. Additionally, the diversity of the company's geographic exposure, notwithstanding the pending divestiture of its EMEA business, end-market exposure and distribution are credit positives relative to more U.S. centric building products peers with higher exposure to particular end-markets or channels. Whirlpool is the world's leading home appliance manufacturer with strong market positions in key countries including the U.S., Brazil, the U.K., Canada, Italy, France, Mexico and India.
Litigation Risk: Whirlpool has exposure to risks associated with ongoing litigation and tax matters. The company is a defendant in a case filed in the U.K. relating to the Grenfell Tower fire due to the role played by a Hotpoint-branded appliance in the initial source of the fire. Whirlpool is also defending against certain tax assessments received by the Brazilian government and an investigation by the French Competition Authority. Unfavorable rulings or settlements in these cases could result in a material use of cash for Whirlpool and potentially constrain discretionary cash flow or negatively affect credit metrics.
Derivation Summary
Whirlpool's Long-Term IDR is comparably positioned with other Fitch-rated investment-grade building products companies. The company's credit metrics are currently weaker than most investment grade peers due to higher debt levels from an acquisition completed at the end of 2022, combined with lower margins. Fitch expects Whirlpool's EBITDA leverage to be sustained longer term at levels comparable with 'BBB'-rated peers such as Masco Corporation (BBB/Stable) and Fortune Brands Innovations, Inc. (BBB/Stable). The company typically holds meaningful cash balances relative to its peers.
Whirlpool's scale, global diversity and end-market exposure are favorable when compared with Fortune and Masco and is comparable to Mohawk Industries, Inc. (BBB+/Stable). Whirlpool's revenue and earnings stability through the housing cycle are stronger than Mohawk, but Mohawk typically maintains lower leverage levels. The competitive intensity of the appliance industry and Whirlpool's relatively weaker EBITDA and FCF margins are also factored into the rating.
Key Assumptions
Revenues are flat organically in 2024 and improve 3%-5% organically in 2025;
EBITDA margin of 9.2%-9.7% in 2024 and 10.5%-11.5% in 2025;
EBITDA leverage of around 4.0x at YE 2024 and 3.0x at the end of 2025;
EBITDA net leverage of 3.0x-3.5x at the end of 2024 and 2.5x at the end of 2025;
FCF margin of around 1% in 2024 and 2.0%-3.0% in 2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to an Outlook revision to Stable:
Improvement in margins and cash flow, leading to EBITDA leverage approaching 2.8x or EBITDA net leverage approaching 2.5x.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch's expectation that EBITDA leverage will be consistently at or below 2.0x;
Fitch's expectation that FCF margins will be consistently above 3.0%;
--(CFO-capex)/net debt consistently above 22%.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Debt reduction of less than $500 million in 2024 and EBITDA leverage above 4.3x or EBITDA net leverage above 3.3x at the end of 2024; EBITDA leverage sustained above 2.8x or EBITDA net leverage consistently above 2.5x thereafter;
--(CFO-capex)/net debt consistently below 17%;
Meaningful and continued loss of market share and/or sustained inflation in raw material costs leading to EBITDA margins sustaining below 8.5%.
Liquidity and Debt Structure
Solid Liquidity Position: Whirlpool has solid liquidity with cash of $1.57 billion and minimal borrowings under its commercial paper program that is backed by the company's $3.5 billion revolving credit facility that matures in May 2027. The company has meaningful debt maturities in the next three years, including $300 million of senior notes maturing in March 2024 and $500 million of its term loan coming due in April 2024, $1.5 billion of term loan and $350 million of senior notes maturing in 2025, and EUR500 million of senior notes coming due in 2026.
Fitch expects the company will use cash on hand, FCF, and proceeds from the sale of a minority stake in Whirlpool of India Limited to pay some of the upcoming maturities, but may also refinance the senior note maturities as they become due. The company has sufficient CP/revolver availability to meet these maturities if needed, although liquidity will be meaningfully strained if Whirlpool is unable to access the capital markets to refinance some of these maturities.
Issuer Profile
Whirlpool Corp. is a global leader in the manufacturing, marketing and distribution of home appliances. The company's products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers and other small domestic appliances.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Whirlpool Corp. has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to the risk of potential legal claims being filed against Whirlpool in relation to the role played by a Hotpoint-brand appliance in the Grenfell Tower fire in the UK. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
WHIRLPOOL CORPORATION 
