James Peters
Executive Vice President and Chief Financial Officer at Whirlpool
Thanks, Marc. Good morning everyone.
Turning to Slide 7, I'll review fourth quarter results for our North America business. We delivered 1% of revenue growth and 260 basis points of margin expansion. Sales growth was driven by over 1 point of year-over-year share gains resulting from new product introductions and improved supply chain execution. While this was partially offset by a normalized promotional environment, additionally, resilient replacement demand lifted the U.S. industry 2%. Fourth quarter margin expansion was driven by significantly reduced cost, partially offset by negative price-mix from a normalized promotional environment and lower consumer discretionary demand due to higher mortgage rates in 2023 slowing down existing home sales. Overall, the region delivered 8.4% margins for the quarter.
Turning to Slide 8, I'll review our results for our Europe, Middle East and Africa business. Revenue was down 3% year-over-year as the region continues to see demand weakness from negative consumer sentiment. Strong cost takeout actions and held-for-sale accounting benefits drove nearly 400 basis points of margin expansion year-over-year to approximately 3%. We continue to expect the Europe transaction to close by April 2024 and later in the call, I will provide additional insights into the expected impact to our 2024 guidance and free cash flows.
Turning to Slide 9, I'll review the results for our Latin America business. With strong industry demand throughout the region and share gains in Brazil, net sales, excluding currency, increased approximately 13%. Overall, the region delivered solid EBIT margins of 6%, flat to last year as cost actions were offset by negative price-mix and losses in Argentina from currency devaluation and costs related to ramping up our new laundry factory.
Turning to Slide 10, I'll review the results for our Asia business. The region saw net sales growth of 9% driven by share gains and improving industry. EBIT margins of 1.3% with cost takeout actions more than offset by negative price-mix. As you may have seen, we recently announced our intention to sell up to 24% of Whirlpool India's outstanding shares, while retaining a majority interest. We truly believe in the long-term trajectory of India. It is one of the strongest growth opportunities for Whirlpool. Whirlpool of India's long-term outlook for growth and margins are both in the high single digits, making India very attractive to operate in. At the same time, this financial profile has created a very strong local public market valuation.
Turning to Slide 12, I will review our 2024 guidance, which includes the Europe Major Domestic Appliance business only for the first quarter of the year. We have provided a reset baseline for 2023 results, excluding our Europe Major Domestic Appliance business from Q2 through Q4 of 2023. The reset baseline excludes approximately $2.6 billion net sales, and approximately $33 million of EBIT, creating a like-for-like comparison for 2024. On a like-for-like basis, 2023 net sales were approximately $16.9 billion with ongoing EBIT margin of 6.8%. We expect flat 2024 net sales, including $700 million of sales from the EMEA Major Domestic Appliance business in Q1 and flat EBIT margin year-over-year on a like-for-like basis. We expect 2024 free cash flow of $550 million to $650 million; a 50% to 75% increase, driven by improved earnings and working capital reduction. We expect full year ongoing earnings per share of $13 to $15, including an adjusted effective tax rate of 0%, an increase compared to 2023, which impacts 2024 earnings per share by approximately $1.
Turning to Slide 13, we show the drivers of our full year 6.8% ongoing EBIT margin guidance. We expect a negative impact of 150 to 175 basis points from price-mix. This reflects the first half of 2024 carryover effect as the promotional environment normalized in the second half of 2023. We also expect continuing softer mix and discretionary demand in the first half of 2024 from historically-low existing home sales, partially offset by new product introductions. As we drive further reductions to our cost structure, we expect approximately 175 basis points of net cost margin benefit from $300 million to $400 million of cost takeout actions. We expect minimal to no impact to EBIT margins from raw materials this year based on recent commodity trends and executed supply agreements. We plan to continue a strong cadence of new product introductions with investments in marketing and technology impacting margins by approximately 25 basis points. Finally, we expect our portfolio transformation to provide approximately 75 basis points of margin improvement as we contribute the margin-dilutive European Major Domestic Appliance business to the newly formed company.
On Slide 14, I will provide context on our significant cost takeout opportunity. We experienced unprecedented cost inflation of approximately $2.5 billion in 2021 and 2022. In 2023, we were able to drive $800 million of cost takeout, which is a significant step in resetting our cost structure. We expect to further reduce our cost by $300 million to $400 million this year. 2024 will benefit from $100 million of cost actions taken last year. We expect $100 million to $200 million of additional cost takeout with our manufacturing and supply chain operations benefiting from ongoing productivity initiatives and reduced complexity as we enter 2024. And we also expect $100 million of second half benefit as our ongoing portfolio transformation allows us to simplify our organizational operating model.
Turning to Slide 15, I will introduce our new segment reporting structure, effective January 1, 2024. We have updated our reporting structure with the anticipated closure of the Europe transaction. Our regional operating segments historically included the results of our KitchenAid Small Domestic Appliance business in the geographical regions they operated in. We will now only report the Major Domestic Appliance businesses within their respective regions. We will now report our global KitchenAid Small Domestic Appliance business, also known as SDA, as a separate segment. This business has an iconic brand and premium products with a reputation for performance and quality, perfectly fitting our vision of being the best kitchen and laundry company. We will continue to have strong brand synergies between the Small Domestic Appliance and Major Domestic Appliance product portfolio. The regional MDA businesses will have margin profiles 30 to 40 basis points lower than the previously reported figures due to SDA reporting as its own segment. On our Investor Relations website and yesterday's 8-K, we have provided recast quarterly results for 2021 through the third quarter of 2023, reflecting our $1 billion SDA business with its strong 15%-plus margins.
Turning to Slide 16, I will review our new segment guidance. Starting with industry demand, we expect a dynamic global industry to be flat to up 2%. We expect to see similar demand trends in the U.S. that we saw in the second half of 2023 with resilient replacement demand creating a solid footing for industry volumes and consumer discretionary demand continuing to be impacted by elevated mortgage rates driving down existing home sales. Overall, we expect MDA North America to be flat to slightly positive as well as we expect the MDA Latin America industry to also be flat to slightly positive. India has one of the fastest growth rates globally, and we expect MDA Asia industry volumes to accelerate by 4% to 6%. While we expect the SDA global industry to be up 2% to 4%, we want to preface this guidance with the fact that KitchenAid is largely present in the premium segment and also not in all SDA categories. Finally, we expect demand contraction of negative 8% to 6% in the first quarter for MDA Europe from continued negative consumer sentiment.
For MDA North America, we expect to deliver full year margins of approximately 9% with promotional carryover negatively impacting first half margins and elevated channel inventories impacting first quarter demand. We expect approximately 50 to 75 basis points of sequential margin expansion every quarter and to exit 2024 with EBIT margins of approximately 10%. For MDA Latin America, we expect EBIT expansion and strong margins of 6.5%, with cost takeout actions and improved consumer sentiment. For MDA Asia, we expect margin expansion to approximately 3% EBIT margins. For SDA Global, we expect very attractive EBIT margins of approximately 15.5%. Lastly, we expect MDA Europe to deliver approximately 1.5% margins in the first quarter and overall, expect an ongoing total EBIT margin of 6.8%.
Turning to Slide 17, let me provide you with additional detail on our U.S. industry expectations. Replacement demand drove industry growth in 2023 and we expect this trend to continue into 2024. The last four years of elevated usage is shrinking the historical average life of appliances, coupled with an installed base from 2015 through 2017 that grew 4% to 5% and it's nearing replacement. This is driving replacement demand to approximately 60% of industry volumes. We expect to continue to drive value-creating share gain in 2024.
With housing starts trending higher in the second half of 2023, Whirlpool is disproportionately positioned to benefit from new construction demand. Forecasts for 2024 are calling for low to mid single-digit growth in housing starts, most likely benefiting Whirlpool in the second half of 2024 or early 2025. For every 5% increase in new construction, we could see approximately $100 million impact with our leading builder share. Finally, discretionary demand, which accounts for approximately 25% of total industry volumes, is driven by existing home sales, which are coming off their worst year since 1995 and are expected to improve in the back half of 2024 as interest rates moderate.
Turning to Slide 18, I will share further perspective on 2024. We expect soft discretionary demand and higher retail inventory levels to weigh on total industry expectations in the first half of 2024 with a more pronounced impact on Q1. We expect 2024 promotional activity to be at similar levels as the second half of 2023, creating a margin headwind to the first half of the year. We expect cost actions from 2023 to benefit the first half of 2024 while additional cost actions ramp up. Additionally, the demand and earnings seasonality of our SDA Global business varies from our Major Domestic Appliance business. It delivers approximately 75% of its demand and profitability in the second half of every year with consumers favoring small domestic appliances as gifts and increased baking activities in the fall and holiday season. Overall, we expect to deliver approximately 35% to 40% of our earnings in the first half of the year.
Turning to Slide 19, I will provide the drivers of our free cash flow guidance. We expect improved cash earnings of approximately $1.1 billion to $1.2 billion. We expect approximately $600 million of capital expenditures as we continue to invest in our products and fund organic growth, including our plans to launch over 100 new products in 2024. We plan to improve our working capital conversion by approximately $100 million, largely through inventory reductions. We expect approximately $50 million of restructuring cash outlays related to previously executed actions and complexity reduction with our simplified organizational model after the Europe transaction. Overall, we expect to deliver free cash flow of $550 million to $650 million or approximately 3.5% of net sales, including approximately $200 million to $300 million of cash consumption for MDA Europe business operations prior to the closure and onetime charges.
Turning to Slide 20, I will review how we are well-positioned to deliver our 2024 capital allocation priorities. We have a solid balance sheet with $1.6 billion of cash on hand, coupled with $550 million to $650 million of 2024 expected free cash flows, plus anticipated $400 million to $500 million of proceeds from asset sales as we previously announced our intention to sell a portion of our interest in Whirlpool of India and recently signed an agreement to divest of our Brastemp-branded water filtration business in Brazil. As you can see, we are well-positioned to deliver our clear capital allocation priorities for 2024. Last year marked the 68th consecutive year of steady or increasing dividends from Whirlpool. Subject to Board approval, we expect to pay dividends of approximately $400 million. We are committed to maintaining our strong investment-grade credit rating and reducing our debt by at least an additional $500 million. We expect limited share buybacks to offset share dilution. Finally, we are committed to funding, innovation and growth with capital expenditures plus research and development of approximately 6% of net sales.
Turning to Slide 21, you can see our commitment to deleveraging our balance sheet. As a reminder, in 2022, with the acquisition of the value-creating InSinkErator business, we increased our debt by $2.5 billion in term loans. Compared to 2022, we expect at least $1 billion of debt reduction by the end of this year with the combination of strong free cash flows expected in 2025 in the first full year following the close of the Europe transaction and our product innovations delivering earnings expansion and beginning to realize the free cash flow benefits of our adjusted effective tax rate. We are confident in our ability to further reduce our net debt leverage to approximately 2 times by 2026.
Now, I will turn the call back over to Marc.
