Whirlpool Corp (WHR) Q1 2023 Earnings Call Transcript

Whirlpool Corp (NYSE:WHR) Q1 2023 Earnings Call dated Apr. 25, 2023.

Corporate Participants:

Korey Thomas — Head of Investor Relations

Marc Bitzer — Chairman and Chief Executive Officer

James W. Peters — Executive Vice President and Chief Financial Officer

Analysts:

Susan Maklari — Goldman Sachs — Analyst

Sam Darkatsh — Raymond James & Associates, Inc. — Analyst

Michael Rehaut — JPMorgan Securities, Inc. — Analyst

David MacGregor — Longbow Research, LLC — Analyst

Elizabeth Suzuki — Bank of America Merrill Lynch — Analyst

Eric Bosshard — Cleveland Research Company — Analyst

Michael Dahl — Royal Bank of Canada (RBC) Capital Markets — Analyst

Presentation:

Operator

Good morning, and welcome to Whirlpool Corporation’s First 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 — Head of Investor Relations

Thank you and welcome to our first 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 on the Investors 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 non-GAAP measures outlined in further detail on Slide 3 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 will turn the call over to Marc.

Marc Bitzer — Chairman and Chief Executive Officer

Thanks, Korey, and good morning, everyone. As you will have noted in the earnings release, we did start the year with a very solid first quarter. It was the first quarter, which demonstrated significant improvement from our Q4 of last year 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 a macroenvironment. The global industry demand was down, but frankly, that is what we expected. It was instead the 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, both sequentially and year-over-year. In short, we did what we told you we would do. This first quarter further strengthens our confidence in our full-year guidance. While the macro-environment remains challenging and volatile. We know we have a right operational priorities and demonstrated that we can execute them with rigor and discipline.

Our market share gains in particular in the US build segment will continue throughout the year. Coupled with early signs of a stronger US housing market, we expect to see an improved revenue topline, as the year progresses. Beyond our Q1 operational and financial performance this morning, we will also give you a short update on our portfolio transformation, which is fully on track.

Turning to Slide 6, I will provide an overview of our first quarter results. Across the globe, we’re still seeing lower demand due to softer consumer sentiment impacting discretionary appliance purchases. This resulted in a revenue decline of 5.5%. Our Q1 operating margin of 5.4% is 200 basis points ahead of Q4 and our North American margin improved by 120 basis points to a 10% EBIT margin. Overall, we delivered first quarter ongoing earnings per share of $2.66, in line with our expectations, and are reaffirming our ongoing EPS guidance of $16 to $18.

Now turning to Slide 7, I will share more details on our 200 basis points of sequential margin expansion. Our overall Q1 price mix is more in line with our expectations. The year-over-year price-mix margin decline is largely driven by our limited participation and promotions during the first half of 2022. For the full year, we continue to expect the promotional environment to be at similar levels as the second half of 2022.

On a sequential basis, our price mix is slightly improved versus Q4 but frankly, this is simply a reflection of a normal seasonal promotional activities, which tend to be higher during the fourth quarter. Looking at both net cost takeout and raw materials let me first remind you what we told you during our last earnings call. We anticipated Q3 and Q4 marked the peak of our cost inflation and we would expect with to now turn favorable and that is exactly what you see in the sequential cost progression there were a total of net cost and raw materials, show a 0.5 point of favorable cost development. As the year progresses, we do expect net cost takeout and raw materials to be the key driver of margin improvement. Our cost actions are on-track. We will see more seasonal volume leverage and raw materials will continue to improve, even though at the low end of our raw material expectations. Finally, we had a negative impact from foreign currency of 25 basis points year-over-year ultimately deliver in Q1 an ongoing EBIT margin of 5.4%.

Turning to Slide 8, I will provide an update on our supply chain, operational priorities. We aim for flawless supply-chain execution and while our historical supply-chain model has served us very well over many decades. the last few years have shown us is that in order to succeed moving forward we need to be more responsive and adaptive supply chain. We have significantly expand our dual sourcing of critical components and prioritized high-value strategic parts and components to derisk this part of our supply chain. Additionally, over the past two years, we have also made significant progress in reducing our parts complexity. In the first quarter, we further reduced our active parts by approximately 5%. This is a key driver and increasing our supply-chain resiliency. As a result, our overall product availability, a significant improved versus 2022 even though not yet fully to pre-pandemic levels.

Turning to Slide 9, we provide an update on our cost take-out. First, I want to put this in context. Our business saw unprecedented levels of inflation with $2 billion of cost inflation in 2022 on top of an incremental one billion of raw-material inflation in 2021. Coming into this year, we were aiming to reduce our cost base by 800 to 900 million, of which, $300 to $400 million were raw material benefits and $500 million were internal cost takeout actions. In short, we are on track. More specifically, these material cost trends would put us at the lower end of this range. While our internal net cost takeout actions of approximately 500 million are largely on-track. We continue to reduce supply chain inefficiency and premium costs. Our proactive headcount management delivered an additional one point reduction in our global workforce in the quarter bringing our aggregate reduction to approximately 5%. Additionally, we’re seeing benefits from reduced discretionary spending and our indirect costs.

To summarize our net cost actions are on track and commodity prices have eased, but at a slower pace than initially expected. As a result, we’re trending towards the lower end of our 800 to 900 million total cost takeout range.

And now, I’ll turn it over to Jim to review our regional results.

James W. Peters — Executive Vice President and Chief Financial Officer

Thanks, Marc, and good morning, everyone. Turning to Slide 11, I’ll review results for our North America region. Our share recovery efforts, driven by product innovation and improved supply-chain execution continue to build momentum delivering one point of sequential and year-over-year share gains. Consumer sentiment impacted first quarter industry demand down approximately 5.5%, in line with our full-year industry expectations of down 4% to 6%. We expect a Q2 industry decline of 5% to 10% and a second-half industry decline of low-to-mid single-digits as we compare to the near double-digit demand declines experienced in the back half of last year. The region delivered over 400 basis points of sequential margin expansion, and ongoing EBIT margin of 10%, as our strong cost takeout actions gained traction alongside our first full quarter within synchrotrons. We remain confident in the structural strength of our North America business and continue to expect our actions to deliver very strong results including approximately 100 basis points of sequential margin expansion in every quarter of 2023.

Turning to Slide 12, I’ll provide additional color around our mid-to-long-term North America industry outlook. While we are experiencing short-term demand softness, we remain very optimistic about mid and long-term demand trends. Replacement demand, which represents 55% of the total industry will increase in the mid to long term. After the post-financial crisis industry volume declined from 2008 to 2011, the industry began to grow again in 2013. Further, with remote and hybrid work trends continue to drive elevated usage of well above two times pre-pandemic levels in our cooking appliances, reducing the replacement cycle by approximately two years.

Combined with a very strong installed base of Whirlpool’s family of appliances in two out of every three households in America support strong replacement momentum. Additionally, housing demographics such as a moderating interest-rate environment, the oldest housing stock in US history, the need for household formations to catch up with population growth rates, and the two million to three million unit under-supply of US houses supports mid to long-term discretionary and new construction demand, which is 45% of the total industry. We feel extremely confident in our ability to capitalize on the significant tailwinds despite the near-term pressures of housing affordability and softening consumer sentiment impacting discretionary spending and have reflected all of these drivers in our mid to long-term industry growth outlook of 3% to 4%.

Turning to Slide 13, I’ll review results for our Europe, Middle East, and Africa region. Excluding the impact of foreign currency and the divested Whirlpool Russia business. First quarter revenue was down approximately 8%, driven by continued industry demand weakness. EMEA benefited from cost actions alongside held-for-sale accounting benefits due to reduced depreciation of approximately $30 million that will continue each quarter until the transaction closes, which is expected in the second half of 2023, subject to regulatory approvals.

Turning to Slide 14, I’ll review results for our Latin America region. The region saw signs of demand improvement in Mexico, an improving, but still soft demand in Brazil. More than offsetting cost-based pricing carryover actions. Continued inflationary pressures were partially offset by our cost-takeout actions resulting in solid EBIT margins of over 5%.

Turning to Slide 15, I’ll review results for our Asia region. Excluding the impact of currency revenue declined 3% driven by consumer demand that has not yet fully recovered. The region delivered EBIT margins of 3.1%, driven by our cost takeout actions offset by negative foreign currency and price mix. We continue to believe in the long-term growth potential for the region and India in particular.

Turning to Slide 17, I’ll discuss our full-year 2023 guidance. We are reaffirming our ongoing EPS range of $16 to $18 and free cash flow guidance of approximately 800 million. Additionally, our net sales guidance of $19.4 billion alongside approximately 7.5% full-year ongoing EBIT margins with North America exiting at 14% remains unchanged. As we navigate a softer first-half demand environment, easing inflation and our cost takeout actions ramp, we continue to expect to deliver 35% to 40% of our earnings in the first half of the year.

We are updating our GAAP guidance to reflect charges related to our EMEA business. First, we have recorded approximately $60 million in charges related to certain EMEA legacy legal matters. Second held-for-sale accounting treatment effectively requires that we mark-to-market the value of our EMEA net assets through a quarterly assessment. Based on this assessment, we recorded a Q1 non-cash loss related to the transaction of $222 million, primarily due to working capital changes and the impact of foreign currency. We may have additional adjustments that increase or decrease the noncash loss as we complete this reassessment each quarter. These items were removed from our ongoing earnings in Q1. I would like to highlight that the amount of consideration to be received for the transaction has not changed. Additionally, given EMEA’s free cash flow is largely back-half weighted, the timing of the transaction closing could impact our 2023 free cash flow.

Turning to Slide 18, 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 including InSinkErator’s largest product launch in over a decade, which Marc will discuss in a moment. Additionally, we remain confident in our ability to generate strong free cash flow, alongside our strong cash balance. We continue to have flexibility to support our commitment to return cash to shareholders demonstrated with nearly 70 consecutive years of cash return to shareholders through our very strong dividend. In the near-term, we will continue to prioritize debt repayment driving an optimal capital structure and maintaining our strong investment-grade credit rating.

Now, I will turn the call over to Marc.

Marc Bitzer — Chairman and Chief Executive Officer

Thanks, Jim. Turning to slide 20, let me provide an update on our portfolio transformation. Whirlpool today is a very different company from a Whirlpool of the past. In my last five years, we’ve taken several significant steps to transform the company to a higher-growth, higher-margin business. These actions will create an even stronger and more value-creating Whirlpool and position us for the future.

Turning to Slide 21. I will highlight how the addition of InSinkErator is strengthening our portfolio and supports our number-one position in the Americas. In the fourth quarter of 2022, we closed the acquisition of InSinkErator, the largest manufacturer of food waste disposal in the United States. Our integration efforts are well underway and remain on track. The sustained EBIT margins of above 20% to 75% replacement demand were excited about the rich history and strong product legacy that InSinkErator adds to our portfolio. We continue to expect InSinkErator to add approximately 50 basis points to our consolidated EBIT margins.

Turning to Slide 22, I’m pleased to highlight our upcoming product launch. InSinkErator already has the best-selling product line with an overall 4.7-star rating and we’re excited to launch the next product during the summer of 2023. This marks the biggest InSinkErator product launch over the past decade. Our fully redesigned brings multiple innovative new features and performance improvement including InSinkErator’s quietest performance with the SoundSeal noise reduction technology, and a rugged induction motor with enhanced MultiGrind performance allowing consumers to divert more food waste from landfills. The easiest installed ever, thanks to a complete redesign of disposal and like our current disposals, the NextGen units will be manufactured in our Racine, Wisconsin facility. The next-generation disposal is expected to deliver growth and margin expansion through enhanced product offerings and manufacturing efficiencies.

Now turning to Slide 23, I will provide an update on our Europe transaction. As a reminder, in January we agreed to contribute our European major domestic appliance business into a newly formed entity with Arcelik. We expect the transaction to close during the second half of ’23, subject to regulatory approvals. We will own approximately 25% of the new company and the new companies expect to have over EUR6 billion of annual sales, if over EUR200 million of cost synergies. We have a potential to unlock long-term value-creation for our ability to monetize a minority interest. Coupled with our 40-year Whirlpool brand licensing agreement, we expect $750 million net present value of future cash flows. Additionally, post-closing, we expect a positive impact of a transaction to our value-creation metrics of a 200 basis-point improvement to return on invested capital alongside the 150 basis points improvement in ongoing EBIT margin and $250 million of incremental free cash flow annually.

Turning to Slide 24, let me close with a few remarks. The broader macro cycle has continued to present challenges for most industries and the impact of recent banking crisis has renewed consumer concerns impacting sentiment and demand. In this environment, we executed our operational priorities, delivering a solid first-quarter performance and we are confident in the medium-to-long-term demand dynamics while remaining focused on operating the business in a way that allows us to benefit from rebounding demand. We expect our 2023 operational priorities to deliver $800 to $900 million in cost takeout alongside our North-America business delivering share gains, driven by product innovation and improved supply-chain execution. We reaffirm our ongoing EPS guidance of $16 to $18 and continue to unlock value of our ongoing portfolio transformation efforts. A common theme we’ve discussed over the last three years is that Whirlpool has successfully navigated the fast-changing environment. We expect to do it again this year with our operational priorities, plus 1.4 billion of cash on hand, providing balance sheet flexibility and our expectation for mid-to-long-term demand tailwind, Whirlpool is well-positioned to deliver significant value-creation.

Now, we will end our formal remarks and open it up for questions.

Questions and Answers:

Operator

[Technical Issues]

Marc Bitzer — Chairman and Chief Executive Officer

Good morning, Susan.

Susan Maklari — Goldman Sachs — Analyst

My first question is the market share gains that you saw this quarter were impressive. Can you talk a bit more about what drove those and how you’re thinking about your business relative to the industry outlook for volumes that you outlined for the second quarter and then the back half? Susan, let me just give you a little bit more color on the market-share gains in North America in particular. As we indicated in the prepared remarks, we basically both the conventionally and year-over-year against like the momentum point of share. That is largely the result of one supply chain that has just been in much better shape, not completely resolved, but we’re in a much better shape. And two, we have a number of really good market innovations out there like the two-in-one laundry, automated wet washing. So there’s a couple of really good innovation side which drive a lot of very healthy business. So ultimately, supply chain and innovation and market allowed us to regain that market share or some of the market share. On a full-year basis, as we indicated before, on a full-year base, US we expect the industry to be down 4% to 6% more front-half loaded than back-half, back-half we expect an improvement and I would also expect on a sustained basis we will gain share every quarter. Okay, that’s helpful. And you mentioned that the easing of the commodity prices has been perhaps a bit more tepid than what you had initially expected. We’ve obviously seen steel come off of its more recent trough lately, can you talk a bit more about how you’re thinking of the cadence of those commodity pressures and what you’re expecting for price-cost as we move through the balance of the year.

Marc Bitzer — Chairman and Chief Executive Officer

Yeah, Susan, so again, put in perspective, we indicated on a pure raw materials side that we would get a 3% to 400 million benefit this year and that is on top of a $500 million kind of internal cost takeout, which we target for. On the raw material side, we’re within range, but frankly, we’re probably more right now trending towards the 300 as opposed to the 400 and that is simply a reflection of yes, material prices are coming down but maybe not at the pace as some people would have expected, but well within the range. I also want to remind everybody the big raw-material items like, we don’t buy spot. We typically have in most cases, a three to 12 months contract, which give us a little bit of protection against any kind of spot volatility but again overall we’re 300 to 400 right now more trending towards 300, but obviously still a lot of volatility in the market.

Operator

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

Sam Darkatsh — Raymond James & Associates, Inc. — Analyst

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

Marc Bitzer — Chairman and Chief Executive Officer

Good, Sam, and good morning.

Sam Darkatsh — Raymond James & Associates, Inc. — Analyst

Two just real quick clarification questions, if. I could. With respect to your production versus your shipments from a volume unit standpoint in the quarter did you underproduce shipments again, and what was the impact of earnings or profitability if you could?

Marc Bitzer — Chairman and Chief Executive Officer

Yeah, I’d say, Sam if you really look at, I wouldn’t say that we underproduced the shipments. In fact, we did build a little bit of inventory in some key areas but what we did do is we produced obviously less than we did last year in Q1 and we did produce less than we did in Q4. So you’ve got both a lower year-over-year and a quarter-over-quarter impact just lower volumes and the leverage we get off a bit, but in terms of where our production are we are pretty well matched to what our shipments are with just some strategic areas that we’ve decided to reinforce some of our inventories as we head into more of a peak season, around the globe.

James W. Peters — Executive Vice President and Chief Financial Officer

And again just to reiterate, because I think you’re raising a very important question. So, I think we produced pretty much in line with shipments, and towards compared to January 1st would be a slight amount of inventory. However, on a year-over-year base, we produced less and that’s just simply we don’t want to get the inventories out of hand, we want to backfill some spots where we had some availability issues. So we feel pretty good about very right now, supply chain is where we balanced from an inventory perspective.

Sam Darkatsh — Raymond James & Associates, Inc. — Analyst

And then my second question and this is just housekeeping, I apologize. The ongoing corporate expense for the quarter was around 75 million. I think it was running around $30 to $40 million each quarter last year. What the reasoning for the step-up sequentially? And then what are your expectations for the corporate expense for the year, just to make sure we’re all looking at the right line item?

Marc Bitzer — Chairman and Chief Executive Officer

Yeah, and Sam and that’s a good question and part of what’s in there that increases that run-rate is because that’s before you have the adjustments from GAAP to ongoing and so you do have some transactional costs within there that are related to the EMEA transaction that had been included in that, that bucket, but on our GAAP statements and then you’ll see that in the corporate bucket to begin with.

Then the other thing is also last year within the first quarter when you’re looking at a little bit of a comparison here, we did have a gain in the first quarter of last year that came from a sale-leaseback that sits in that number also. So right now, typically what we would say is, for the full year, we expect that to run around $200 million. It’s what it historically has on a full-year basis, it will be a little bit elevated this year with some of those transaction costs in there that then just included in the gain and from an ongoing perspective on the gain and loss due to the sale.

Operator

Your next question comes from the line of Mike Rehaut from JPMorgan. Your line is open.

Michael Rehaut — JPMorgan Securities, Inc. — Analyst

Thanks, good morning, everyone.

Marc Bitzer — Chairman and Chief Executive Officer

Good morning.

Michael Rehaut — JPMorgan Securities, Inc. — Analyst

Just wanted to circle back to the so the market share gains, and I appreciate you kind of talking about the drivers of those gains in terms of what allowed for them. In other words, from a supply-chain angle, etc., I was wondering if you could also kind of address it from the end-market perspective. In other words, do you feel like the gains occurred more in the builder channel versus retail or any, product categories or any parts of retail? Any other color around from that perspective, where the gains came from.

Marc Bitzer — Chairman and Chief Executive Officer

Mike. And again, I presume, just particularly US market-specific questions. So if you look at the Q1, we feel very good about the share gains in laundry, dish, and cooking and we still have some work to be done in refrigeration. That’s from a product perspective. On the distribution side, it’s pretty much across the board. We feel actually pretty, pretty good about above balance of sale, which we have moat trade customers. We feel, in particular, good about our not just short-term, but long-term share gains, which we have to build a segment now. Now needless to say, in Q1, that is not a big driver because the build channel in Q1 was not very high. I think that’s more reasonably bullish in the mid and long-term because our position within the builder segment is very strong and has strengthened over the last couple of years.

Michael Rehaut — JPMorgan Securities, Inc. — Analyst

Great, thanks for that Marc. I guess, secondly. Yeah, the comments before about expectations around the promotional activities for 2023 being in line with the back half of ’22 but still below pre-pandemic levels. And it appears that the first quarter came in line with expectations from a price-mix perspective. So I guess the question is what are the indications so far that you’ve seen that give you the confidence to reiterate your expectations for promotions for the full year, obviously, it’s a big concern for investors as demand. We will be overall for the year, down year-over-year, and concerns, particularly around the back half that promotional activity might increase. So I’m wondering if from some perspectives how channels — channel inventories are progressing or just the overall cadence of what you’ve seen year-to-date or maybe looking into the second quarter, but I was wondering if you could expand a little bit about how you’re thinking about promotions this year. What still gives you confidence that things are on-track relative to last quarter? Yeah, Michael. So, of course, as it’s always difficult to make prediction in and promotion environment, what we said in the prepared remarks, we expect full-year ’23 to be similar to the back half second half of ’22. I think the prime line of confidence behind this one is the second half and even in the first quarter played out in the market pretty much as we anticipated because, of course, people compared to ’21, but ’21 was pretty much a complete absence of promotion. So I think you have now what I would call a reasonably normalized promotion environment. And of course, we monitor them very closely. We participate in smart value-creation promotion that has been our stated guidance policy internally. So as such, in the last three quarters, we were not surprised by what we’ve seen and how we participated, and also Q1 played out pretty much exactly to that level. And from that perspective, our stance and promotion, where we’re participating, where we don’t hasn’t changed and we don’t intend to change that.

James W. Peters — Executive Vice President and Chief Financial Officer

And I’d say, maybe if I could add a little bit to it, Michael, to, as when we look back to try and compare the patterns and all that in the periods of promotion, we see things that are similar to 2019, not necessarily love look depth as we said, we don’t see that at the levels that were pre-pandemic but the amount of proposed promotional periods and the durations of some of them are very similar to that type of time period. So it’s kind of normalized from what we saw during COVID.

Marc Bitzer — Chairman and Chief Executive Officer

Michael, just because you also raised trade inventory. First of all, and I know you’re fully aware of it last two-three years has seen extreme swings on inventory up and down given the supply-chain disruptions that we all face in the industry. I think we now see more normalized trade inventory levels from what we see across the board most trade inventory levels end of Q1, are pretty much normalized. So hybrid elevated or usually kind of get significantly low. So we feel pretty good about the trade inventory position. I don’t think there is a lot of pressure out there from excess inventories, so I think by and large, it’s pretty well-balanced.

Operator

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

David MacGregor — Longbow Research, LLC — Analyst

Yes, good morning, everyone.

Marc Bitzer — Chairman and Chief Executive Officer

Good morning, David.

James W. Peters — Executive Vice President and Chief Financial Officer

Good morning, David.

David MacGregor — Longbow Research, LLC — Analyst

Good morning, gentlemen. Slide 12, where you laid out the history of the data was interesting. That’s total appliances rather than core six. I guess, but I wonder I really wanted to isolate replacement demand and see if you could talk a little bit about what you’ve got baked into the 3% to 4%. And anything you can find on discretionary builders as well would be interesting as well, but just trying to sort of parse out individual components of that number and see what your think.

Marc Bitzer — Chairman and Chief Executive Officer

So, David, as you all know, we basically in the most simplistic terms, you can split the demand in two components, one is replacement be one is by and large discretionary. Replacement demand even in the last couple of quarters actually has been pretty stable as we expected, even slightly up because of course COVID and also post-COVID drove significantly higher appliance usage. So as such replacement demand is very solid and even start increasing.

What has taken a beating the last 12 months is at frankly discretionary demand because, of course, consumer sentiment is a key driver of discretionary demand and consumer sentiment because of war in Ukraine, interest-rate shocks and all kind of our external bad news may drove sentiment. So that is the part which you’ve seen come down in the last couple of quarters now. On a go-forward base, again, we continue to expect replacement demand to be solid or even increasing and we also see it kind of rebalancing of discretionary demand in particular also really to your question on housing. Of course, when you read all the articles in housing, you feel a little bit like sky is falling, we don’t fully subscribe to that point of view. And actually, if you look at the Q1 housing data. If you look at housing starts, 1.2 million after has been way strong most business anticipated, you look at the build the results deal Horton team up with strong results pulled ahead this morning, very strong results. The housing market is not as bad as most people anticipated. And if you take the housing starts and you’ve you add you took the completion, six to nine months to it, I think towards the back-end of easier, I think you may see more, but coming out of the housing market than most people anticipated.

So we feel gradually good about the increasing discretionary demand, in particular coming off on build side now, frankly not exactly the next one or two quarters, but towards the year-end. I think we feel pretty good.

James W. Peters — Executive Vice President and Chief Financial Officer

I’d say the other thing is we look at it longer-term as we mentioned, is there still an under-supply of housing in the US and you’ve got to take that into account and the replacement side of the business as we know is going to grow for an extended period of time futures look-back at some of the previous peak. So also from a long-term perspective, there’s just a lot of things out there that indicate to us that we should see continued growth and even additionally, if the housing market stays where it is, then you most likely see an increase in the number of remodels, as consumers will invest in their existing home if they’re not going to move, if it makes sense. So we see all of those as opportunities on a mid to long-term basis.

David MacGregor — Longbow Research, LLC — Analyst

Okay, thanks for that. Jim, you had made a reference when you were talking about the sale of the European business that because of the seasonality of working capital, there could be some impact on your full-year free cash flow. Can you just talk about the risk that might represent the 800 million guide number?

James W. Peters — Executive Vice President and Chief Financial Officer

Yeah, David, and here’s what I’d say is the seasonality of our business overall with working capital tends to we build throughout the first half of the year, it comes down throughout the second half of the year and EMEA is a little bit more pronounced on that. And so depending on when we would close this transaction, obviously due to the regulatory approvals that are still to come. If you would see being closer to almost a net zero effect at the end of the year versus what could be a $100 million possible impact if it’s earlier within the quarter. So that’s the kind of range that I think you should just put it there and expect that could be in that type of range but the closer we get to year-end the closer it will probably most likely just be at a net zero type of level.

Marc Bitzer — Chairman and Chief Executive Officer

David, let me, maybe also echo what Jim is saying. First of all, to reiterate what Jim said in the prepared remarks. What we get as proceeds and future value-creation auditors Europe transaction has not changed. Now with the held-for-sale accounting various moving parts left and right and up-and-down mark-to-market but it doesn’t change what you get for the business. The cash flow seasonality is Europe of all our region is one which turns positive on cash will be latest in the year typically it turns positive in Q4. So the closer you get to the year-end, the more business basis zero, zero for the cash flow, and depending on where we exactly close it will have an impact.

Operator

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

Elizabeth Suzuki — Bank of America Merrill Lynch — Analyst

Great, thank you. I’m just curious how much in sync contributed to North American net sales and whether it’s fair to assume that excluding InSinkErator that North American sales would have looked more like down high-single-digits. And then if the share gains that you cited are independent of InSinkErator.

Marc Bitzer — Chairman and Chief Executive Officer

So Liz, first of all, the share gains for InSinkErator because that’s not captured in the T5 and T6, what we typically report. So that is purely major domestic appliance sales. The InSinkErator again consistent with what we previously committed, we expect 2023 about $600 million of net sales, Q1, Q2 because the seasonality will be slightly lower. So, ballpark, 120 and 140 million. So that’s pretty much what you should include. Keep also in mind, have the North America sales numbers. We also have Canada in there and KitchenAid small domestic and the small domestic appliance business, Q1, Q2 also, we expect it is still a little bit softer than the major domestic market, but major appliances we had a very solid share gain and actually on the pure major appliances, we were pretty close to the revenue zero, zero.

Elizabeth Suzuki — Bank of America Merrill Lynch — Analyst

Okay. Thanks. Very helpful.

Operator

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

Eric Bosshard — Cleveland Research Company — Analyst

Two questions for you. First of all, curious about your take on the current consumer demand trends. There’s some moving parts in 2Q but even if you clean up the comparisons in terms of industry growth, I’m just curious how you would characterize the momentum in terms of current demand.

Marc Bitzer — Chairman and Chief Executive Officer

Eric, I mean, in short, in particular, US demand is as expected, that’s how I would characterize it, again we base because, of course, the baseline, which you had in ’22 the base automotive we expected in the consumer sentiment. We expect the first half to be softer in the ballpark of minus five to minus 10, it may be a little bit close to the minus five and we expect the back half to get close to the zero line. So again, part of that is just the baseline effect of ’22, which was a little bit softer in the second half, but we also do see a gradual improvement of the discretionary side of demand, which has been a little bit suppressed in Q3, Q4, and Q1 and there may be some carryover into Q2. By and large is it’s as expected which also means it’s not as bad as some people, we’re seeing, it could be, and of course when you read the press around articles about the macroeconomic environment. Frankly, I think the US economy is more resilient than most people expected, and that’s what we also see on consumer demand side as the year progresses.

Eric Bosshard — Cleveland Research Company — Analyst

And then, secondly, in terms of the promotional environment and perhaps it’s linked to your Europe outlook that you expressed there. You talked about the stable promotion environment and I appreciate your comments in the second half was similar to your expectations of last year, the second half also did get more promotional. And so again what underlies your expectation that promotions are stable from here after the step-up that we saw take place to the back half of last year? Why doesn’t it not step up again?

Marc Bitzer — Chairman and Chief Executive Officer

Eric, I can only repeat what I said in the earlier question is right now, the last three quarters turn from promotion environment exactly as we expected. Again, people refer to more promotion that compares to ’21 with no promotions, okay. So right now we see a reasonable stable promotion environment and that’s been our extend over nine months. Of course, we have a sense about what’s happening in Q2, but also here, we don’t expect major surprises. The US industry will always be an environment where you see some promotions around certain holidays but we don’t see that right now getting out of hand in any way or reaching whatever 2016 to 2017 levels. So that’s what right now, gives us the confidence, what we expect to see a reasonably stable promotion environment. Your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open.

Michael Dahl — Royal Bank of Canada (RBC) Capital Markets — Analyst

Hi, thanks for taking my questions. Just a couple kind of follow-up housekeeping. On the held-for-sale accounting with the depreciation suspension. So it sounds like that’s about $120 million for the year tax affected. Maybe that’s like a bucket, but 90. I guess the question is, was that already anticipated in your prior guide or is that incremental in terms of that impact versus what you laid up earlier this year?

Marc Bitzer — Chairman and Chief Executive Officer

No, that was already included. If you look at the 2.5% that we guided to of margins for EMEA for the year that’s included in that. And obviously, we had a small little bit of that in Q4 that came as we turn these assets to held for sale. And I think as you look about that look at that, you step back, the thing you’ve got to keep in mind is, as you go to 2024 and once this transaction gets approval and closes, you’re going to take the entire EMEA business out of it to look at what our ongoing run-rate of the business will be. And so whether you have depreciation or not this year, the underlying business or the remaining business that will stay that’s got the same. And what that will drive year-over-year If you just look into next year alone is about 125 to 250 basis points of improvement in our overall margins just by taking the EMEA business out this year. So it is included, but I think as you look forward, you’ve got to say you know what. EMEA will be completely will not be in the picture, post-2023.

Michael Dahl — Royal Bank of Canada (RBC) Capital Markets — Analyst

Right. Okay, that makes sense. Thanks, Jim. And then the second question again kind of follow-up here just on the corporate side. It’s similar to the held-for-sale with respect to depreciation, was there anything in terms of potential ex-stranded overhead costs that got shifted out of EMEA into corporate? I know you highlighted a couple of things that were maybe transactional in nature, but is there something that’s more ongoing in terms of how we should be thinking about those stranded costs potentially?

James W. Peters — Executive Vice President and Chief Financial Officer

No. I would say there’s nothing that we shifted out of EMEA into our corporate bucket. Again, I highlighted a few of just the unique items that are in there and obviously, we also have some other things where we may decide to make investments at a corporate level throughout the year that can cause the buckets that bucket to go up and down on a quarterly basis, but again to my point earlier, we expect that to be about $200 million a year on a run-rate in an existing situation today. So no other significant items to highlight within there.

Marc Bitzer — Chairman and Chief Executive Officer

Michael, just to echo what Jim is saying, and to be crystal clear. So the held-for-sale only applies to the assets and business, which are part of the scope of the agreement, okay, there is no corporate element in the held-for-sale that is sitting in our normal on corporate ongoing cost, and if it’s not out in any way. So that’s crystal clear on this one.

So now we came to the last question, I just want to thank you all for joining us today. I think you heard that we are off to a very solid start. We feel good about how our operational priorities are being executed upon. There is no big surprises from what we see from a market environment which is still challenging, but when you were coming in, but we feel we executed a very solid Q1 and we feel confident about the full year. So, with that in mind wish you all a wonderful day and talk to you at our next quarterly earnings call in July. Thanks a lot.

Operator

[Operator Closing Remarks].