Dive Brief:
- Whirlpool cut global production by 35% in Q3 to better align supply with softening consumer demand, President and Chief Operating Officer Joe Liotine said on an earnings call Friday.
- The appliance maker reduced inventories by $300 million compared to Q2. Production now mirrors levels seen in the second quarter of 2020 when the company was facing COVID-19 shutdowns at its manufacturing facilities.
- The company now plans to keep production at a conservative level through Q4, ramping back up in line with consumer demand. “Even though painful within the quarter, we are now much better positioned to manage near-term demand fluctuations,” Liotine said.
Dive Insight:
Whirlpool is facing double-digit demand drops in key markets as inflation and slowing home sales hurt the appliance maker's bottom line. The company's net sales dropped 12.8% YoY last quarter, according to a regulatory filing.
"Related to production, we did see the industry a little bit softer than we had anticipated," Liotine said. "So we made very decisive actions to right-size our production and ultimately our inventory to ensure we were in sync with where we saw the market developing."
The company is not alone in its struggle, with other home goods manufacturers also dealing with demand dips and higher stock levels. LG Electronics adjusted some TV production in the second quarter of the year to combat rising inventories, particularly in North America and Europe, according to a Q2 earnings call.
Whirlpool's drastic measures last quarter did push the company to end Q3 with healthier inventory levels, producing less than it sold. Executives told investors they don't expect to see much change in demand over the next quarter, but are optimistic about their inventory levels headed into next fiscal year.
"We'll start with a healthy level of inventory which then allows us to run our factories in a very efficient way and allows us to, hopefully, as we look at the demand environment and stay in check with it," Vice President and CFO Jim Peters said on the call.
Spiking raw material costs have bruised Whirlpool's bottom line this year, and part of the appliance maker’s calculus in cutting production was to avoid the worst impacts of inflation. Chairman and CEO Marc Bitzer said production cuts were targeted for Q3 because the company expects raw material prices to fall in the future.
“We just felt, why would you want to produce full volumes when you think it's the higher cost base,” Bitzer said.
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