Good morning, everyone. My name is Korey Thomas. I'm the Head of Investor Relations at Whirlpool, and welcome to our 2024 Investor Day presentation. Our agenda today is gonna be about 1 hour and 45 minutes of presentation, followed by a Q&A session. We'll take a 10-minute break between then and now. I wanted to welcome everyone in the room, as well as the 150 participants that have dialed in so far at the last count. I'm sure it's much more than that by now. If you're online and you'd like to submit a question, there's a Submit a Question button at the top of your screen, on the right, right top of the screen. In the room, there's a QR code at the table. You can use that to submit your questions as well.
Joining us today are Marc Bitzer, our Chairman and Chief Executive Officer, Jim Peters, our Chief Financial Officer, Alessandro Perucchetti, our Executive Vice President, North America, Ludo Beaufils, our Executive Vice President of Global Small Domestic Appliances. Our presentation today will track with the materials you'll find online at the investor section of whirlpoolcorp.com. It contains forward-looking statements. There are also non-GAAP measures included in the presentation. You can find reconciliations in the appendix section on our website. And with that, I'll hand it over to Marc.
Well, thanks, Korey, and good morning, everyone. You know, I was yesterday asked by a journalist about why an Investor Day, and I would say the easy answer would have been, "Well, because we didn't have one for quite a while." Actually, the last one was 2019 here. But that's just the superficial answer. I think the real reason why we're here today is with the transaction Europe about to close in a couple of weeks from now, we are at a critical milestone in our portfolio transformation. And I think with that in mind, we felt it's appropriate, but also a really great time to review a little bit where we are in our portfolio transformation and update also our midterm value creation targets. So that's really the fact that we're at a critical milestone is the reason why we asked for this Investor Day.
To kind of reemphasize what Korey laid out early in the agenda is basically what we wanna talk about today are four blocks. One is I still wanna recap a little bit the portfolio transformation, the journey so far, what led us and where we are today. And I know many of you are in the infinite details of these ones. It's still good to recap a little bit. But then we wanna specifically dive a little bit deeper into North America, where Alessandro will basically show two main reasons why we believe there's quite a bit of growth and margin expansion going forward. One is, at one point, the housing market will recover, but maybe more important is we have a very strong product pipeline, and we continue to invest in the product pipeline, and we feel very good about it.
Then as a third block, Ludo will talk about the KitchenAid SDA business, which frankly, you in some ways could call it, it's been a hidden gem. Hidden because it was embedded in all the segment reports, and we never really showed you really how good and how great our overall KitchenAid SDA business is. So we will spend a little bit more time. And then Jim will finally close with how it all comes together, what kind of value creation targets we have in mind for 2026, that's 22 months away, but also what our capital allocation priorities over that time horizon will be. You will note also that we kept the presentation short, because we wanna have sufficient time for Q&A. On the Q&A, you have a QR code in front of you, so use it.
That does not apply to my colleagues, by the way. So just use it to submit your questions, and I promise you, it's just a pure random selection of the questions. But we will have ample time to answer anything which might be on your mind. You will note today we're not gonna talk about Latin America and Asia, not because they're not important part of our business, but we felt from previous investor feedback, that particularly North America and KitchenAid, it is really the prime, area of focus. So that's what we wanna focus today on. So let me start out with the portfolio transformation. Some of you have seen this chart before.
What really led us to kind of embark on this journey, which we always knew is a multi-year journey, was frankly, a board discussion, which we had 2 or 3 years ago, where we just fundamentally looked at our global setup. And actually, we felt there's two fundamental drivers which change, in some ways, the paradigm of how we look at the business going forward. One, and that's what you see on the left side, is more, call it, external factors. You can call it global decoupling or geopolitical tension. That is certainly one element, but the ever maybe much bigger element is pure global economics. If you really look back over the last 30 years, the number one cost driver was logistics cost inflation, and labor arbitrage became less and less relevant.
At the same time, the nature of our business has also changed because you have more and more home delivery, DTC networks. So what it all comes down to, while 20 years ago, we would have said global scale economies are X, and regional and local scale economies matter, but maybe not as much, we believe that balance has shifted. Global economies still exist, but in our industry, and I'm talking particularly about majors, because small domestic is a little bit different, right now, regional scale economies and local matter more than the global ones. So these were the fundamental, and we've done quite a bit of analytical work behind this, on why we believe now it's got to shift where we have our priorities. I'll put it more bluntly.
It basically means if you're in a region, number 1 or number 2 player, it is a key prerequisite to be successful in that element market. The other side is on the right side. As you know, in particular, those of you followed for many years, not all of our business were equal in terms of value creation. We had some business which performed consistently strong and some business where we had work. And, you know, and in particular, we talk later about the divestitures which we've done. These were largely business where we either were very capital intensive, or we just didn't recover the cost of capital over many years.
And ultimately, the question which we ask ourselves, also with the board, is: If you have only one dollar to spend, do you spend it on trying to improve a business which is in a difficult position, or do you put that dollar against growth and into your high-margin businesses? So in a world of capital constraints, you know, we said it may be a much better choice to put your dollars where you have a high margin, high growth business. So it's a fundamental change as opposed to restructuring, restructuring, restructuring. And to give you one example, and these are the numbers from our European business, and what you see on this chart, the yellow line is the EBIT margin, and the other one is the free cash flow, which, as you know, in the past, we didn't show regional cash flow.
We still want to show you at one point. As a side note, that regional cash flow excludes restructuring cash, which over years, as you know, were well in excess of more than $500 million. So, Europe for us, and I want to emphasize, it was no reflection of our team. We have a very strong team. It is a fundamentally difficult market to earn the adequate returns and to generate the right cash flow. And frankly, the assessment we had is, yep, there may be, as a standalone company, a path to fix it, but it would require more funds of investment. And that gets back to the choices you make.
Do you put that into, let's say, North America, Latin America, and small domestic, or do you put that in trying to improve a business which is in a very difficult structural position? As a little side note, I know in some of the earnings calls we referred to, and you also asked about post-Europe transaction, we expect $200 million more cash flow. That's exactly the red line down there, because if you take a multi-year average, and in particular, if you add a restructuring to it, on average, we had basic cash drain of about $200 million every year. So that explains also the absence of it. Yep, that is improving our cash flow profile. So basically, the portfolio transformation was all around and is around essentially, we defined three core pillars to, for us.
Two existing business and one could be a future path of growth, where we have a small business today. It first starts out with what I would call our exceptionally well-positioned business in North America, South America, but our majors and our global SDA business. And you will see later on, we just, I'm proud to say it, that we're exceptionally well-positioned in what we also consider more structurally better and healthier markets than some of our other global markets. Beyond this one, we also have growth opportunities. That's in particular for us, India, and over time, the commercial appliance business. The commercial appliance business for us today is relatively small. We're present, but we like the inherent nature of it, because it's a little bit countercyclical and the inherent margins are attractive.
We will not focus today a lot about the commercial because it's still very small. We focus today on the majors business and the SDA business. Ultimately, we do believe, from an investment perspective, a focused portfolio is a more attractive portfolio. Even economically, it drives better cost efficiency because it's just a simpler way to run the business. Ultimately, in our view, it leads to better capital allocation. You've seen some of these pictures before. Again, these are the three pillars. The central pillar, of course, with majors, the biggest one, that is kind of the lion's share. That's the majors, where we over the past years, that is a business which should generate around more than 10% EBIT.
Now, of course, for some regional business, we're a small domestic business, where we'll talk later on a lot more about with 15%+ margins. And again, the commercial appliance business is much smaller. And if you now look back the last couple of years, there have been a lot of portfolio moves. We had the very margin attractive InSinkErator business, which we will talk later on about it, which we felt is very attractive because literally, it's the next door neighbor to our dishwasher. And there's, the more time we spend on this business, there's a lot of synergies on distribution, on product development, et cetera. So it's certainly a business we like. We know it's also tied to housing, but we like that position, which is really unique in the marketplace and a growth opportunity.
We didn't talk a lot about what we see here, Elica India, which has been a small business, but maybe the most attractive growth businesses in India is actually the emerging kitchen business, and they have a very, very strong position in there, and it's a business we like also. Both businesses are very, very solid, double-digit margins. What was abstracted or sold was South Africa, China, where we still have 19%. We sold Embraco completely. We sold Turkey and Russia, and we're now, and that's why you see the two asterisks, hopefully in the last couple of weeks until we can close Europe, which of course, we're highly confident because we got the preliminary reading or investigation report from the CMA, which is positive, but it's not final, but we expect to close this on April 1.
Zooming in a little bit more on the central pillar, and I think that exemplifies why we believe it's an exceptionally well-positioned business. Our position in the Americas is a clear number one. We're number one in North America, we're number one in South America. Internally, we talk about from Alaska to Patagonia, we're number one, and we feel good about it, and there's a lot of synergies, both also between both continents, also from a manufacturing perspective. India, we're number three, but India, if you by any definition, with ups and downs, in our view, has a very, very strong growth trajectory in the next 10, 20 years. It's just because the penetration rates are low, you have high demographics, and you have growing rich demographics, so we believe it's an attractive market.
But if you now look at it, it's a very clean portfolio. It's a much more focused portfolio, where I think we have a very, very strong position. Lastly, you've seen this also in the earnings call. Of course, that changes also our segment reporting. So on the left, you see this is how we report the segment so far, and the KitchenAid small domestic business was embedded in the respective regions. And I think in the earnings call, we talked about, you know, excluding KitchenAid SDA, you basically see about 0.4 margin difference. Of course, that differs, because in particular, if you look at Europe on the left and right, and Europe was a big part of the profit because the underlying profitability was very low. And our KitchenAid Europe business is very strong.
In North America, as a percent, it's a little bit less, but it's also an element. So we showed now the SDA, the Q1 earnings call in late April, first time, completely separate. We already released the historical data. Europe still shows up on the right side because, until Q1, in all likelihood, it's still part of our business. And then going forward, you basically will see the four segments. So with that, I will hand it over to Alessandro, who will show us how we can grow our business in North America, and then later on, we have Ludo. Alessandro?
Thank you, Marc. Good morning, everyone. My name is Alessandro Perucchetti. I've been with Whirlpool for about 23 years, out of which 10 in North America, in the past, from 2009 to 2018. Then I moved back to EMEA for about 5 years, and I came back, in early 2023 to run the U.S. business, and then I'm currently responsible for North America. So our North American business is strong and growing, and we are confident about delivering a stronger, profitable growth in the next few years. And our confidence level, you will see, comes from a few key drivers that are our new product introductions, our strong supply chain, and the expected growth in the housing market, where we believe we are very strongly positioned to capture the growth.
So I will spend about the next 20 minutes to walk you through those key drivers that will help us generate the growth. This is an overview of our North American business. Just as a reminder, the North American business does not include anymore the small domestic appliance business, KitchenAid, that Ludo Beaufils will cover later. And we enjoy the number one share position that actually we did strengthen in 2023, growing 1 point of share. For 2024, we do expect to see flat to slightly positive industry between 0+ and +2%. We do expect to have a modest share progression that will partially offset the promotional carryover, and together with the cost actions, will help us to deliver the 9% yield.
In 2025, 2026, we expect to see a 2%-3% growth, and we expect to gain 2 points on market share, plus 2 point of this progression. Okay? So this is a history of the North American journey for the past few years, starting from the pre-COVID period. Many of you are familiar with the fact that pre-COVID, we demonstrated for many years an ability to deliver a very strong execution with margin expansion. That was led, actually, by our new product introduction, together with a key focus on being cost-efficient, and we maintain stable market share. During COVID, we've been strongly impacted by availability challenges, and that impacted our volumes. We lost about 20% in volumes, and our market share went down as low as 26%.
During that time, we took decisive actions with the cost-based price increase to fully offset the cost inflation. Post-COVID, we've been impacted by an unprecedented inflation and softening demand. We saw then a normalized promotional environment, but also there, we took actions. We strengthened, and we fully stabilized our supply chain, and that was the key enabler for us to regain 1 point of market share, especially expanding distribution within those channels that were impacted during the COVID time. So what do we see for the period 2024-2026? We do expect, as I was saying, to grow 2 points on market share and expanding margin about 2%, and that will be enabled by our new product introduction, by continued cost actions, and an expected rebound on the home or house market that we will talk about later.
So again, now I will start diving into those, growth drivers. And as I was saying, again, the key drivers that will lead to 2 points of progression in the market share and of margin, are mostly generated by strong replacement and U.S. housing demand, and also the new product introduction. I want to remind you that this is, new product introduction is part of our DNA. I mean, we have a long history of first innovation to market. Whirlpool started, actually, the first product was the first automatic ringer washer, and since then, it is, and it will continue to be a key focus. But okay, I will start now covering the demand drivers that are the fundamental components of the appliance demand in the industry.
That you can split it in discretionary demand, that today is about 25% of the total demand and is mostly driven by the existing home sales. Then new construction, that is now only 15% of the industry, and I will cover the details later, and is driven by the new home sales. And then the replacement demand, that grew up to 60% of the total, and we see keeping growing. So I will dive more in details for each one of those. I start from the replacement demand, that is today the largest driver. The replacement demand has been very stable over time, but we saw in the past few years a very strong progression. Remember, there are two main drivers from the replacement demand.
One is the usage of the appliances, and you can think about that similar to how you use your cars, how many miles you run, and then you need to replace the car. And then the second driver is the install base. So when you think about the first driver, that is the actual usage, with COVID, we saw quite an increase of the fact that consumers are spending more time at home, right? So they're using more the appliances. We see also from our connected appliances that consumers are cooking twice more than what they used to do. And consider that one more day at home is about 15% more usage on your appliances. So we do expect this to continue for the near future as a habit change. But not only, I was talking about the install base.
Post-financial crisis, after 2008, we saw a persistent period of time where the industry picked up and grew more than 4%. And, the average life cycle of the appliance is between 8 and 12 years. So this is now the time where that replacement is starting, and the installed base also is going to continue boosting our replacement demand. Second driver of demand, existing home sales. The discretionary demand is highly correlated to the existing home sales. We know from the credit card consumer data that consumers are increasing their spending the week before or the week after they move into their new home. And, clearly, we saw a correction into the existing home sales due to the interest rate increase, and we expect this to change in the near future.
Combined with the fact that the growth that is expected is not only be driven by the units increase, but also the discussion of demand is connected to a better mix for us, because with that, we sell the kitchen suites or the built-in products that have a richer mix. So the growth that is expected from the housing market that we expect to see starting late this year should benefit not only our top line, but also our bottom line. So let me cover now the last driver. That is about 50% of the total demand that are the new home sales. It is widely accepted that there is a backlog in the housing, like the housing market is undersupplied between 3 and 4 million units.
We know, in fact, that the new housing starts has been under 1.4 million for more than 10 years. Now, combine that with the fact that, first of all, we are starting seeing already this segment is growing, and combine that with the fact that the average median house in the U.S. is more than 40-year-old. Plus, the millennials, that are the largest consumer segment, are in their prime. They are looking for, for houses, right? So, the combination of those three factors should give us confidence that we should see a very fast acceleration in this segment that is already growing. And we are disproportionately positioned to, to benefit from this growth. Let me tell you why.
If you look at the bottom right side of this slide, we gained more than 10 points of share within the national builders in the past 8 years, and we expect to continue with that trend with further growth in the next few years. Those are long-term contracts, and our builder partners, for us, are a key priority. They really rely on us, and we want to make sure we continue being their best partner for them, to be fully reliable. So we made major investment, and we will continue investing on our people, on our supply chain. In fact, with the final delivery, we were able to execute and deliver basically in every zip code in the U.S. We believe that we have the full breadth of products and brands to be able to fit, our business partner consumer needs.
This is why today we are the number one choice within the builders, and those are long-term contracts agreements. And, we have relationship with eight out of the top 10. Now, consumers, I was talking about products. Products are going to be a key driver for share and profitable growth. Okay? Consumers remain and will always be at the center of our innovation, and consumer love our products and they love our brands, and we are fully committed to continue investing on our products and brand to deliver new innovation in the market. I'm not going to walk you through all those numbers, but I'm proud to say that in 2023, we delivered 20% more new product introduction compared to 2022, and you will see this trend to continue and growing.
As I was saying, it's our DNA, it's part of our, what we are. We continue investing to deliver new products, meaningful innovation for consumers. And I want to share with you some of those examples, some that are already in the market and some that are coming soon, that we're very excited about. So the first two are recent launches, and I want to share them because those have been a huge success in the market. The Maytag Pet Pro Washer and Dryer. They've been the first laundry pair that is fitting the need for the homes with pets, and it's a perfect fit for our consumer, for our Maytag consumers.
And again, it has been a great success story so far and is helping driving a better mix for our laundry products. We had a success that it has been in the market now for a bit, is the FreeFlex drawer rack dishwasher. This is the largest available drawer rack in the market with washing capabilities, thanks to a rotating spray jets, and is providing to our consumer the maximum flexibility. And I would argue that this is the best innovation that you can find in the market today in a dishwasher. So we recently introduced the Flush microwave hood, and also this is now fully seated in the market and is already exceeding the expectation, and is fitting the consumer need to have a flush design into their cabinet.
And also here, we've been the first one to launch this innovation, and it is combined with the superior multifunction technology. Last but not least, I'm sure you're familiar with the fact that we recently announced the SlimTech technology. And arguably, this is possibly the most important innovation in refrigeration segment in the past 50 years. It is the first vacuum insulated structure that technology that is going to come in the, in North America soon, later this year. So again, those are just some examples, and there is more to come. I know Marc, Marc yesterday talked about a new front loader coming soon this year. But again, it will be a key driver for our performance. So to sum it up, we do expect to see our market share going up to 30%, with 2 points EBIT improvement within 2026.
The key drivers will be our new product introductions and innovation, then our strong supply chain that will help us continue expanding distribution, especially recovering within those customers where we lost share during COVID. Then we expect to gain share from the housing market, where we are very strongly positioned to benefit from that growth. Now, I would like to talk to you about InSinkErator today, because InSinkErator now is fully integrated into our business since 2023, and I believe it's a perfect complement to further boost our growth. In fact, InSinkErator also is enjoying the number one share position in the U.S. business. It has an installed base of 60 million houses. 75% of the food disposer is replacement, and it is installing 80% of the new houses.
So from here you can understand how also InSinkErator can benefit from all those demand drivers that we just covered. And that's why we do expect to see a 6%-8% growth with InSinkErator in 2024, and stable EBIT at 20%. But let me share more. Obviously, we're investing also here in product and innovation. And when you look at the food waste disposer, the penetration in the U.S. is 50%-55%. And clearly, as Marc was saying, the food disposer is the neighbor of our dishwasher. So we see clear synergies also with growing our distribution. And we want to make sure we continue educating the U.S. consumers because we don't talk enough, probably, about the fact that the food disposer has an environmental benefit, because it can reduce the methane emission.
You can imagine that an average family of four people in the U.S. is wasting 600 pounds of food and is throwing it to the landfill. So the food disposer can dramatically improve that. We are also excited about the international opportunity. The penetration is a great opportunity to grow. In fact, 10 points of penetration improvements there are going to generate $100 million in revenues for us. Now, let me close InSinkErator with the instant hot and cold drinking water dispenser. It is a great innovation, and we are investing also more there for a further innovation pipeline. It is a very profitable business, and it represents only 10% on the InSinkErator sales, and the penetration is 1.6% in the U.S. So a big opportunity is here to be able to grow this segment.
So again, all in all, you see also how InSinkErator is a perfect fit within our products and brand, and it's a growth platform for us, and is completely aligned with our strategy, where we expect to see growth from our product innovation, from a strong supply chain, and from a growing market, especially with the ability to fully capture the housing market growth. So with this, I hand it over to Ludo.
Thank you. Good morning, everyone. My name is Ludo Beaufils. I've been with the company for about 18 years, the first 4 in our European business, the following 12 or so in our North American business, where I led the refrigeration, P&L, and then subsequently all the major domestic appliance categories. I then spent about a year and a half in our global product organization, before taking the helm of the KitchenAid small domestic appliance business in the summer of 2023. It is an incredible privilege to introduce you to this segment. Marc called it a hidden gem. I would say it's the crown jewel of the corporation. Delving into my French roots, I looked for an analogy, and I would have said this might be the Louis Vuitton of our portfolio.
In fact, I think it's actually better than that, and I told you I have French origins, so maybe you call me arrogant now. This is a brand that Prophet Consulting has actually characterized as one of the only two greatest of all-time brands out there in the world, and this is not specific to domestic appliances, this is across all categories. The other brand, by the way, is called Apple. Why is it such a powerful brand? The reason for that is because consumers relate to that brand in incredible ways, both on an emotional level and a functional level. At the functional level, this is a brand that has a reputation for being a workhorse of a product brand with incredibly long-lasting products.
In fact, the stand mixer, which is, as you know, the crown jewel itself of our, of our brand, the stand mixer typically lasts an average of 17 years, but it's actually, more often than not, passed on to generations as an heirloom. It is also a, a product that is known to deliver substantially better performance than, than the competition. So on a, on a functional level, there's a high attachment to, to the brand. On an emotional level, there's an even higher attachment to the brand based on both the design excellence that we provide in the marketplace, as well as the fact that we're effectively selling the ability for consumers to engage in their lives, to engage with food, not just to make food, but to make memories. This is the brand that gets marked to receive consumer letters on a regular basis.
They're just thanking us for putting incredible products out there. This is a brand that people tattoo on their arm. You don't see that very often with any other brand, frankly, and this is a brand that people are proud to own and proud to gift. You see it as well in our preference numbers on this slide. The level of preference that we have with this brand relative to the nearest competitor is just unmatched. It is just incredibly powerful, and it's relevant to all generations. It is a 100+-year-old brand, has deep, deep roots in the stand mixer, for sure, but it speaks to all generations equally today, again, with massive differentiation to the next competitors.
Now, what that enables us to do from a business standpoint, and the reason I'm talking so much about the brand, is because it's such a great foundation for a business. It is an incredible asset to build our P&L and our growth upon, and as you can see, it's already grown to be a billion-dollar brand with profitability in the double digits, you know, mid, mid-teens, type of range, pretty sustainably over the years. I will comment on the trends over the last couple, because obviously, you know, that is not the sell strand that we would have loved to see. There are a couple different factors happening here. Number one, the industry, kind of bloomed, if you will, during COVID times. A little different from major domestic appliances. There was a bit of a bubble.
People were staying at home, learning to make sourdough, and then built or bought a lot of small appliances. By the way, this is the total small domestic appliance market, about a $55 billion addressable market. So that market grew substantially during the COVID years, and then it saw a significant amount of negative growth, if you will, in 2022, which you see on the chart here. 2023 is a little misleading, because what happened there is two things: yes, sell-through started to rebound, which is really positive, but a couple things happened. One, there was still some destocking in the industry, particularly in the first half of the year, and then, two, while the industry at large was back into a slight growth mode, there was still a bit of trading down happening, given the current economic conditions.
So if you were to look specifically at the mass premium segments in which KitchenAid operates, that was actually a little bit lower of a performance. With that said, we actually gained share in 2023. Very, very happy with the performance that the brand evidenced during that time, and importantly enough, again, in a depressed industry with very high inflationary, you know, input cost inflation, we still came out with very strong performance from a financial standpoint. So this is a very strong brand that has now a ton of potential in front of it, and this is what we, really what I want to be talking about, is what we're going to be doing in order to extract more growth out of this brand, while continuing to show the type of margins that you're seeing here.
So there's a couple different ways this is going to happen. One, industry rebound. We do hope or expect that this is gonna happen and continue to happen, as it's just started, I think, in around a variety of regions around the world. But two, maybe more importantly, we have innovation potential in the categories we operate in, and then, three, even more importantly, we have a lot of growth potential beyond the categories in which we operate today. This is a brand that effectively is gonna serve the full journey. It is relevant in every category in your kitchen. We already have a very strong stand mixer business, as you're aware, which is a system of a product. There's the stand mixer, there's all the attachments that go with it, also extremely profitable business.
We've already started to grow into food prep. We have very strong positions in hand mixers, hand blenders, for example, some of those stowable, portable appliances, which I'll talk about more in a few minutes. We wanna grow further in blenders, which are incredibly relevant to Latin America, in particular, coffee and breakfast, very relevant. Coffee, globally, breakfast, very relevant to the European markets, more specifically, and then, countertop cooking, that's more of a North American slash, growing also in Latin America type of a business, where we have a ton of potential. Not displayed on this slide, but also relevant to us, is a licensing business, so the non-electric segments in your kitchen, think about, you know, linen, gadgets, pots and pans.
The brand is present in those categories at the premium end, 'cause it's all about generating the right brand impression, making the brand available to a lot more consumers in the right channels, with the right product, at the right premium, which also generates a very substantial amount of profit for us. That also has a ton of growth potential in, in a variety of regions around the world. Now, why are we confident that we can grow in these categories? The answer is on this page, and it's basically the license that consumers are giving us. If you remember what I said earlier, what was on a couple slides prior, 29% is the preference on average for the brand.
Evidently, much stronger on the stand mixer, but even in categories where we have very little penetration today, we enjoy a very high degree of preference from consumers. So they're not just giving us license, they're almost demanding that we come to these categories and offer them what they've come to expect of the KitchenAid brand. 34 preference in food pro, 29 in blenders, 21 in espresso. These are really, really big numbers that give us an incredible platform for growth, again, at the mass premium end of the market with very attractive margins. So speaking of those categories and those opportunities, I, I'm pleased to talk about a couple launches, that one of which just happened and one is on the verge of happening.
So the first one is our KitchenAid Go system, also depicted on the right here in the, in the room. This is a cordless system of appliances. So think about power tools and how they went from corded to cordless, and typically, if you own power tools, you're gonna be a yellow person or, or a red person or a green person, depending on the brand that you ended up, you know, basically trusting in that particular space. This is what's happening here, is we're taking all of your stowables, all of your handheld devices, and we're making them a whole lot more convenient to use anywhere you want in the kitchen, a whole lot more convenient to stow by removing the cord and, putting a removable battery in its place, which is a battery you can switch from product to product to product.
So building an ecosystem which effectively will create opportunities for people to buy one, and then come back and buy a second and a third and a fourth product within the family. This just launched in the fall of 2023. We have an average of 4.8 star ratings on that product, on those products, those six products, so fantastic performance. They are worthy of the KitchenAid badge, and they're delivering strong performance from a sales and profit standpoint as well. We're not done with that. We're launching three more or two or three more of these products, let's say new products within that family in the course of 2024, and there will be more launches in 2025.
We have first-mover advantage in this particular market, and nobody else has this solution out there, so we're gonna push that advantage hard in order to enlarge the install base that then will become a more recurring consumer base, if you will. Secondly, espresso, this is an incredibly relevant category, $4 billion category, globally relevant to all regions and very relevant in today's times. People spend a lot more time at home, as Alessandro and Mark mentioned. In fact, I'm willing to bet there's a lot of people on the call today that are at home and are probably sipping their favorite drink. The convenience of being able to make your favorite espresso or coffee-based drink at home is what we're pursuing here. So this category has been growing significantly.
It is going to continue to grow, and we're coming at it with, with force, with a complete portfolio. We already have a, you know, more manual unit in the market. We're coming in with a semi-automatic machine as well as three fully automatic machines. As you go up this lineup, you're gonna get what you expect out of the KitchenAid brand and what justifies the very high average selling value, and it's gonna create also a significant amount of premium and therefore, profit for us. Great construction, long-lasting product, great design, a variety of colors, superior performance, a quieter machine than most, effectively giving you the convenience that, you're gonna get the best drink you can at the touch of a button, instead of having to walk down or drive up to, your traditional coffee place.
So very excited about this launch, happening in the course of Q2 in the U.S. and Canada, and then we're gonna reach the shores of EMEA and Asia Pacific in the course of Q3, Q4. So rapid, rapid expansion around the globe on this particular category. You're gonna find these products in all of our traditional retail channels, the best retail channels out there. You'll also find those products on our direct-to-consumer KitchenAid.com website. The reason we focus on KitchenAid.com is because this is the place where we're gonna build the brand, and we're gonna build the best possible experience for consumers. In fact, the most attractive number for us from a direct-to-consumer standpoint is the fact that 25% of purchases right now are repeat purchases. These are consumers coming back to the site.
The reason this is important to us is this is demonstrating a high level of loyalty, and this is demonstrating that what they're finding on the site in terms of product lineup, in terms of experience, is what they're looking for, at least for some types of shoppers. There's always gonna be a shopper for your more traditional retail channel, but this is incredibly encouraging for us. What they find there is, like I said, the widest assortment. They're gonna find opportunities for personalization, customization of your product, things they cannot find in traditional retail and which are very appropriate for a premium brand and a brand that is a very big gifting brand as well. So with that, the direct-to-consumer business has grown tremendously over the last few years.
It evidently boomed during COVID, reached very high levels of balance of sales from a pre-COVID number of 3% to, you know, low double digits in 2020, 2021, and it's continued to grow, which again, demonstrates the success that it's having with shoppers out there. It's reached a 17% number right now. It's actually higher in a number of our regions, so we know the recipe to grow it to a higher number than where it is right now. And we think we can get to 25% and above within 2026. Great business from a brand building standpoint, great business from a margin perspective, great business from a free cash flow conversion standpoint, so very determined to continue to grow that.
With that, I just wanna wrap it up, and effectively just sum it up by saying we have a lot of confidence we can grow this fantastic love brand that sits at the, you know, as the crown jewel of the company. We've got a brand that is incredibly attractive. We've got the, the knowledge, the know-how to build products that are worthy of that badge, and we've got the distribution to push that product in front of consumers successfully and continue to grow as, as well as expand margins. With that, I'm gonna hand it over to Jim. Thank you.
...Thank you, Ludo, and good morning to everybody. What I'm gonna walk you through now is, you know, I'm gonna follow up on what Ludo and Alessandro just talked about here. They gave you a perspective on the areas that we're investing in, and they gave you a perspective on the areas that we see will be critical to the growth of the company, and they gave you a perspective on the areas of the company that we believe will create a lot of value in the future. So, you know, I'm gonna talk about some of our value creation targets, and then I'm gonna talk some about our capital allocation and how we fund all of this. The first thing is, you know, what I'm gonna talk to you about here is our midterm value creation targets.
And if you look, we've laid out for 2026 that, you know, we do believe our business will grow about 3%-4% annually. We do believe we'll expand our EBIT margins to around 9%, and I'm gonna walk you through the building blocks of that in a second, 'cause I think that's what's important for everybody to understand, is how do you get to these targets, and what are the building blocks? Free cash flow, 7% of sales. That naturally follows along with our EBIT. You'll see the biggest driver in increased free cash flow... Well, there's two big drivers that I'll walk you through. One is, as Mark talked about, the divestiture of EMEA, but the other one is earnings expansion. And then return on invested capital, which also naturally comes up as we increase our returns.
But also, you'll see we're trying to focus on making sure we're very efficient in terms of our usage of assets. The other thing you can see within here is we just have the 2024 guidance, which is what we rolled out earlier this year. And then we have a pro forma number there, and that just reflects what does our business look like when you don't have EMEA in the business anymore? And you can see that from a free cash flow perspective, it improves. You can see from an EBIT margin perspective, it improves. So that's, like, our new baseline that we start building from today. So now, first, I'm gonna talk to you a little bit about the different regions of the world, and you can see. And, you know, we've already gone into some of these parts of the different business units we have.
We didn't talk about Latin America and Asia necessarily in detail today. Doesn't mean they're not important, doesn't mean we don't see them as a strong source of growth, doesn't mean we don't see them as a strong source of value creation. We actually do, and we believe both of those business units, for us, will deliver above average growth over the next couple of years. We expect to see margin improvement within them, and we believe that the markets that they operate in and the countries that they operate in have good potential for the future. So we'll continue to invest in these markets and continue to grow them, but today's focus has been more on our North America business and our small domestic appliance business.
If you look at North America, and as Alessandro talked about, you know, right now, we expect moderate growth over the next couple of years, but we do expect to see margin improvement. Some of that will come via the new product launches he talked about, and some of it will come via cost improvements we plan to make, which I'll walk you through in a minute here. If you look at, as I said, Latin America, we really feel that those will be strong growth markets for us, and you can see from a net sales growth of 3%-4% or 5%-6% in both of them, we do expect to see significant revenue growth.
And then SDA Global, and Ludo just talked about that, but you can see here that as we look out to 2026, we expect this to be a strong double digit type of margin business, you know, 15, 16+% . But really, what we expect to see with some of these new product launches that Ludo was talking about, is we will see, you know, growth in the range of 10%. And that really comes, one, we believe this is a strong market globally, but two, as he said, we're gonna continue to roll out new products under the KitchenAid brand.
So now let's talk a little bit about the margin expansion, and I think the first thing I wanna focus on here, or focus everybody on here, is that you'll see this is a lot of variables that we control as a company, and you're going to see this is a very cost-driven type of margin improvement plan. And as we all know, and we heard earlier, that, you know, the environment that we've worked in or we've dealt in over the last few years has had a lot of uncertainty to it. We've dealt with that well as a company. We've kept our margins in a healthy place, and we've executed along the strategy that we laid out. Now, as we look at the next couple of years, we really see that it's important to continue to take advantage of reducing our cost base and expand our margins.
So first thing I'm gonna talk about, and you're gonna hear me use this phrase a handful of times, but what I'm gonna say is, there are numerous things we already talked to you about previously, whether it was in January or late last year. But to begin with, we've already talked to you about $300 million-$400 million of cost takeout that we plan to execute within 2024. We were fully on track to deliver that. Some of those actions were already executed in 2023. We're executing new actions right now, but a big part of the driver of that is we're simplifying our business. We're simplifying how we operate in line with the new structure that we talked to you about, with the three major domestic business units and with the KitchenAid global business unit.
A big part of simplifying that is really we're looking at these business units and saying... and as Marc talked about earlier, is we're doing less things globally because we really believe the value is created within the regions and at the local level. So that's a big part of the simplification of our business. Additionally, we have numerous other cost takeout programs that we're operating within there. We're looking at manufacturing costs, logistics costs, engineering costs, et cetera. So again, we have multiple things that we look at on a regular, ongoing basis, but we're very confident within 2024, we'll see $300 million-$400 million of cost takeout.
Now, as we look forward, we also believe between now, between the end of 2024 and the end of 2026, we will see another $300 million-$400 million of cost takeout. Much of this coming from similar areas that I just talked about before, but also some of it coming from just simplifying and taking complexity out of our business. We've talked to you numerous times before, how we continue to look at our product portfolio. We look at our product architectures, we look at, you know, our manufacturing environments, and we look to take complexity out of it go forward. Especially as we exit the EMEA business, which has always been one of our most complex businesses.
If you think about the number of companies or countries we operated in, the number of product platforms we had specific to that, this will allow us to take a lot of this complexity out of our business go forward. The one thing, though, that we are going to do, is we're going to reinvest some of these cost savings. We're going to reinvest in our brands. We're going to reinvest in our products. That investment is to drive growth, and it's to drive the growth that we talked about that Ludo and Alessandro would have talked about.
You see, we already have a strong pipeline of new products coming, but we intend to continue that pipeline, and year after year after year, launch new products, especially in the small domestic appliance area, but also, as we talked about with our major domestic clients, new innovative projects like the SlimTech refrigerator. So again, that's the investments we intend to make. So how does this affect our free cash flow? And I think that's another important thing here, is if you really look at, and Mark alluded to this earlier, once we divest of EMEA, we have a $200 million-$300 million per year lift in our free cash flow. He showed you the chart that would have walked you through what our cash flow was within EMEA on an annual basis.
So right now, whether it's usage of cash in operations, usage of cash for restructuring, or investments we were trying to make just to bring that business back to a value-creating state, just by avoiding all that, we will improve our free cash flow by $200 million-$300 million per year. Margin expansion is the next biggest piece, and that's just simple math. As you expand margins, as you reduce your costs, we expect to see about $300 million per year in free cash flow improvement that just comes from that. Working capital. Working capital is another positive. If we look at our working capital today, we would say there's still opportunities, especially within our inventories, as we simplify, as we take complexity out, to reduce our inventory levels. We do think that that will be another benefit that comes within here.
The last bucket there is interest and tax. The reason I kinda highlight that, and I'll talk a little bit about it in capital allocation here, but if you think about as we bring our debt levels back down to where they normally are, in this type of higher interest rate environment, that obviously has a significant benefit from an interest perspective for us. Additionally, we've talked to you before about the benefits that, you know, we expect or that we are seeing, the tax benefits we're seeing as we've restructured the European business and divested of it. We have numerous tax assets that we will be able to realize over a period of multiple years that will, that will have our cash tax rate being actually lower than our accounting tax rate.
And that's, as we've talked to you about, is over the last few years, you've seen a tax rate that's been relatively low. Those cash benefits actually play out over a longer period of time and will allow us to have a lower than average cash tax rate, at least for an extended period of time. So now I'm gonna talk a little bit about capital allocation, and this will go back to, again, and I'll reemphasize it, that a lot of this we've talked to you about before, and it's very consistent in terms of our capital allocation priorities. The how we prioritize those and the order or how we look at them may be different from year to year, but the priorities tend to stay very similar. So to begin with, we've had a very shareholder-friendly capital allocation.
If you look over the last five years, you know, we've returned almost $4 billion to shareholders through share buybacks and/or through dividends. If you then look on the next line there, inorganic investments, and Marc talked about some of this, and Alessandro talked about some of this, but our two big investments we've made recently are InSinkErator and Elica India. I'll talk a little bit here about how right now, for 2024, inorganic growth is not necessarily a priority, but we do continue to look at what possibilities there are out there, and we continue to monitor the environment. Then organic investments. This is something every year we continue to invest through engineering spend, through capital expenditures in our products, in our product portfolio, in our capabilities as a company, in our IT capabilities, in our logistics capabilities, in our manufacturing environments.
The products that Ludo and Alessandro would have talked to you about, those are a result of these investments we make every year, which is about 5% of our sales. And you'll see on a go-forward basis, now that we aren't investing significant capital into EMEA, we can invest more into our products, which will allow us to bring more innovative products to the marketplace. So the capital allocation priorities, and as I said, this is very similar to what we would have talked about before. You know, just looking at funding our organic growth. And you can see there is, you know, right now, we continue to fund our organic growth. We continue, as I mentioned, invest in our R&D, invest in our CapEx, and we also continue to bring numerous new products to the marketplace.
Fund our dividend, and I'm gonna go a little bit deeper into this in a second. We've been paying a dividend for almost 70 years now. You'll see that we've been very consistent. We've always either raised or held it constant, so it's been a one-way street for us as a company. But I'll walk you through a little bit more just about how we think about our dividend and how we think about it on a go-forward basis. Debt service. That will continue to also be a priority of ours as we look to bring our debt levels back closer to a 2x net debt to EBITDA. And that's always been a level that we've targeted, we've been at, we made an investment in InSinkErator, and now we look to get back to that level. And then share buyback, or value creating M&A.
I'll also have a slide in here that'll just walk you through what some of our thoughts are there, but as I already highlighted in the previous slide, we have done significant share buybacks in some of the previous years. We then put that on hold as we decided to invest in InSinkErator, which Alessandro then talked to you about how that fits so well within our kitchen portfolio. So it's an acquisition we're very happy with. We like the margin profiles, we like the growth potential, and it's an investment we're very glad we made. So funding the dividend. You know, as I mentioned here, we are almost 70 years, I think 69 years exactly, we have been paying a dividend. It's gone only in one direction. As I said, we've either raised it or held it constant year-over-year.
If you look on a multi-year perspective, whether it's 10 years, three years, we tend to be around 30% of our ongoing earnings that we pay as a dividend. You just would have saw in February, after our board meeting, again, we authorized a dividend for this quarter, which was consistent with what we had last year at $1.75 per, per quarter. So again, I think it's something that, that we look at. We think it's important. It's something that we, we definitely feel that we will continue to make a priority and fund. And so, you know, that's, you know, kind of what I wanna cover there.
I think the other thing that we think about it as, is we'll get the question every now and then, you know, you have some ups and down years and you don't adjust it, and that's why we look at it over a multi-year period of time. We tend to, right now, we're using about a three-year window, is what we like to use, and say, "Okay, within a three-year window, what do we think our earnings will be? What have they been, and then how does this compare as a percentage to that three-year window?" And as you can see right now, we're in about the 30% range. Net debt improvement. I think this is the other thing we've continued to talk to, to talk to you about.
As you can see here, our target is, as I mentioned earlier, by 2026, to get back down to our targeted levels. We always target to be investment grade, and we, at times, will make decisions to bring our leverage levels up for an opportunistic thing like an acquisition. But then we also make sure we put in place a plan where we can generate enough free cash flow to bring ourselves back down. One of the things this year we also did is we looked at some opportunities, such as monetizing some of the businesses we have within our portfolio, to add to our ability to bring debt back down. As many of you would have seen recently, we divested of a 24% stake in our India business.
We still have a majority stake of 51%, but it allowed us to raise $468 million, which we'll use as part of the debt paydown that we've talked about already this year. And so we've already funded a big part of that debt paydown for the year. We also have other smaller transactions that we've entered into, as we just look at our portfolio and try and determine what is core to our business or what is something that might provide just a good opportunity for us to monetize. You know, additionally, as you look at this go forward, you can see the path over the next couple of years, and by the end of this year, we expect to be around 3.5.
But then we expect to make another significant chunk within next year, and then by 2026, as I said, be back to the levels where we typically are. The other thing to think about within our debt portfolio is, if you look out in the future, over the next few years, we maybe have some of the larger tranches that we've had in recent years, but not large tranches for us, just larger than we've had in recent years coming due. But if you look out over a multi-year period of time, we have many years where we don't have any maturities coming due, which gives us a lot of opportunity from a debt ladder perspective.
As we look at something we may want to refinance and carry into the future, or as opportunities come up, we have a lot of windows of time out there that we can use, that we could place debt within. Obviously, in this type of environment right now, you continue to also look at interest rates. You know, right now, what I would say is we're hopeful, and we expect interest rates to begin to come down over time, which will get closer to in line with where our average borrowing rate is, but still probably be above it. Because our portfolio as a whole today is still around 3% from an average borrowing cost of borrowing that we have. And then a strong track record of share buybacks.
As I mentioned earlier, what you can see here is if you go back to 2014, and you just look over the last ten years, we did significant share buybacks. When we generated significant amounts of free cash flow, and we didn't see other strategic investments, we would return money to shareholders, whether it was via increasing our dividend or increasing the number of share buybacks that we do. We still have over $2.5 billion of authorization available under our current share buyback program. As we've talked to you about this year, we do, at a minimum, expect to buy back the dilution that some of our compensation programs create.
So, you know, last year was a year where we had put it on hold completely as we focused more on paying down our debt, but we plan to begin to restart the share buybacks this year. And then, you know, you look at here, and this is where I said M&A is not a priority in 2024, but it doesn't mean that we're not looking, and it doesn't mean that we're not out there assessing what might be available at some point in time that would be a good strategic fit with the businesses that we have, and especially the businesses that we talked to you about today. Marc talked earlier about the three strong pillars that we have within our business: the small appliances, the major appliances, the commercial appliances. And those are really the areas that we will look to invest in.
If you think about it, InSinkErator was a big investment in the major appliances business, and it's a big investment that we feel fits really well with our desire to win the kitchen space. And as we've mentioned, it sits right next to the dishwasher. It fits completely, so it's something that we thought was the right thing to do. Now, if you look at going forward, what are the criteria? And it met these criteria. That's the other thing I think I should highlight here. The criteria that we use, first off, does it have strong margins and free cash flow? So will it be accretive to our value-creating drivers from day one? And we talked about how InSinkErator met those type of criteria. I think when you look at things like small appliances, you can see based on our business, how those would meet our criteria.
Is it something we can generate over time, a high return on invested capital? Obviously, when you do any acquisition, initially, the return on invested capital will be lower. But as you generate synergies, as you grow the business, as you find different opportunities to expand, that will help you to generate a higher ROIC. As I mentioned, because we've made significant investments in the majors business, we're really focusing on small, domestic, and commercial appliances right now as we continue to look in the marketplace. But as I also said, in 2024, we're still gonna focus on bringing our debt levels down and continuing to pay our dividend.
So that's why I would say this is probably more a 2025, 2026, and beyond priority for us, but it doesn't mean that we're not constantly out there trying to evaluate what might be a good fit with our business and with the value-creating parts of our business. So maybe to bring this all home before we go to Q&A, and this kind of brings it, summarizes things that everybody has said this morning, starting with Marc and through the different areas we discussed. One, we are a very different portfolio of businesses, and we think there's a lot of value upside within these businesses today. As we talked about, we're really focusing now, rather than on a global portfolio, our regional and local businesses.
I think, you know, what you would have heard today as we talked about, especially Alessandro, is, listen, we see a lot of opportunities that will continue to come in the U.S., especially as the housing market begins to recover at some point in time, as existing homes sales begin to come back, as new housing construction begins to grow. We've positioned ourselves very well with the business and the investments that we've made to capitalize on that. You know, you talk about, you know, our organic value creation from our North America and our SDA businesses, and that's why we focused on those. I talked about the demand recovery we expect to see there. You heard Alessandro talk about the builder share and why we are so excited with new construction and that opportunity.
You heard a lot about the new products we're bringing to market, but I also told you about how we plan to continue to generate more free cash flow to continue to fund that portfolio of products. We talked to you about, you know, how margin attractive our SDA business. And so these are things we're very excited about because we look at now what we've shaped this company to be, and we do believe we have the ability now to focus on where are going to be higher growth and higher margin businesses. And then we also, when we step back and look at the section I just walked through, is we really believe that we have very achievable goals for the next few years.
As you look at it, and I mentioned this as I walked through the margin progression, the biggest driver in there of our margin improvement will be cost, and it will be cost that we control. And so while we look at the industry and we look at the businesses, and then we believe they will grow, we're also preparing ourselves just for the uncertainty we've seen over a multiyear period of time, whether it's been material cost, demand, or whatever. And we have confidence in our ability to expand margins despite what the market may do, because these are things we control. I think also what you would have saw there is our capital allocation priorities. That haven't changed, and we believe they're the right capital allocation priorities.
We believe they're very clear, and we believe that they focus in the right places so that we can continue to generate and create value for our shareholders. So with that, I think we'll bring this part to a close, and Korey will come back up, and then we'll move to Q&A soon.
Thank you. Thank you, Jim. Thank you, everyone, again, for coming in and joining us this morning. Just a reminder for Q&A, there is a QR code on your tables. Please scan that and add a question to the Q&A queue, and we'll read those off here in a little bit. And a reminder for those of you who joining us virtually, click the Submit a Question button on the top right portion of the screen, and we'll rejoin the session for Q&A at 10:15 A.M. We'll see you in a moment. ... Welcome back, everyone. Hopefully, you had a chance to refresh your beverages and think about Ludo's awesome espresso machine coming soon. So we're gonna start here with the Q&A, and our first question is from Sue McClary with Goldman Sachs.
How does your presence in the builder share factor into your target for share gains? How much of the increases will come from retail versus builders?
Susan, I can take it, and maybe, Alessandro, you add some comments. Obviously, I mean, the builder contracts, which we won over the many years, is essentially it's an investment for future. Because obviously, the current building activity, it's significantly less than it was like 10 or 15 years ago. So yes, our gains in the builder will help us disproportionately as the housing market recovers. Keep in mind, that's particularly for new homes. So the more, I mean, whatever, we're right now 1.46, it was in December, and I think January was 1.4. So the more you get into what we would call this steady state of 1.7, 1.9 million homes, that helps us disproportionately.
I would say in the total share gain, which Alessandro laid out, it's probably a third to half of the share gains coming from builders and the rest for new product introduction and other things.
All right. Thank you. The next question is from David MacGregor, from Longbow. Talk about the impact of portfolio transformation on the balance sheet. Would you scale for us the impact on the equity accounts, given the expected transitional gains and losses? And then how do you expect post-transformation return on invested capital to compare with invested levels?
Yeah. So maybe I'll start off with, here is, you've already seen... And I'm gonna break this into a couple pieces because there's the positive cash flow, but then there's just the impact to our balance sheet. You've already seen some of the impacts to the balance sheet when we made the agreement to sell the EMEA business because we had to record it as a held-for-sale asset, and so we wrote it down, and that took a significant amount of assets off of our balance sheet. With that, there was a significant loss that we realized. Now, as we closed the transaction, the good thing is we've been marking that remaining asset we have on our balance sheet close to where the value is that we'll realize.
So there won't be any more significant, there will be a small change that we've had on a quarterly basis from a gain or loss perspective on this, but there won't be anything significant like when we initially put it into the held-for-sale classification. What I would say is the bigger driver here to our balance sheet is our ability now to generate $200 million-$300 million more per year in free cash flow. Our ability to use that free cash flow to reduce our debt levels, to invest in, you know, potential M&A or to invest in share buybacks go forward, is really where the strength comes to our balance sheet, to our financials, through divesting of our EMEA business. From a post-transformation ROIC perspective, what I showed you for 2026 includes that.
So that's where, you know, we expect our, our ROIC to continue to improve, not just with earnings, but it'll also reflect the lower asset base. The other thing I talked about in there is that we, we will have a significant amount of tax assets, and we'll continue to realize those over time. So again, we have assets on our balance sheet that will remain, that we will realize and be able to monetize over a period of time. So it's all positive, from this point forward, and most of the negatives we've already recorded through, as we, you know, made the assets Held-for-Sale.
Yeah, maybe, David, just to add on this one. So again, to Jim's point, the big write-offs related to the portfolio transformation are behind us, but there's still some true ups as you close it, and working capital, and everything else. More related to restructuring, if you look back, and you know the story, the last 10, 20 years, historically, we would have had restructuring charges in the ballpark $150-$200 million every year, which kind of the last two or three years went down to in the ballpark of $50-$100 million. The big moving item were the big factory changes, in particular in Europe, but not only in Europe. Obviously, that part is behind us, and frankly, from the Americas, we don't expect big factory relocations or charges.
Will there be restructuring charges, and particularly as we address infrastructure and the overhang which comes with the infrastructure and simplifying the model? Yes, but they're much smaller than a manufacturing closure. But I think this year, we got to about $50 million restructuring. This year will be about $50 million plus, and next year maybe also, but there's not gonna be these $100-$200 million restructuring charges.
The next question is from Laura Champine, from Loop Capital. Can you tell us a little bit more about the net cost actions in 2024 and beyond, and in particular, how do they impact cost of goods sold and SG&A, and what are the key drivers?
Yeah. So maybe I'll start here, and then I'll have Marc add some additional context or color. And so if you take the $300 million-$400 million that we intend to take out this year, the first $100 million of it's already been executed. It's already been executed in 2023. And some of the bigger drivers we had within 2023 were, you know, we managed our head count down as a company via attrition, and we utilized just normal attrition within our business and not backfilling roles to improve our cost base. We also saw significant cost improvements in our logistics environment. Some as rates came down, but more even as we implemented improvements. We continued to make improvements within our factories that drive efficiencies. And then, as I talked about, we also continue to reduce complexity in our business.
Now, if you take 2024, the first 100 came from 2023 carryover. The next 100-200 within there are existing cost takeout programs that we execute on a regular basis. And these can be things such as that we change materials within our products. We look at different suppliers. We simplify some of our product architectures. We invest in automation within our factories. We look at our logistics networks and improvements we can make there. We improve our quality. All of that falls into that net cost bucket, and that's why I say that's a pretty large bucket, and it has a lot of pieces, but it's something we're very good at year after year after year, chasing down and reducing down those types of costs. And this year is no different than any other year.
Then that last $100 million that sits out there, we've talked about, this is due to, as we look to align our organization to the new operating model that we have and to the new structure that we have as a company and to the simplified portfolio that we have. It means we will move certain, you know, activities and things we do closer to the business units. It means that we will reduce a lot of the complexity that we had, especially in certain types of corporate processes and other areas that were just driven by our complex EMEA business. And so, you know, this is the next big bucket that we're executing right now, and we do believe that that'll have a benefit within 2024, but it's something that will also benefit us beyond that.
Because as we do begin to reduce some of this down and simplify, and align our organization to that simplified model, we will see significant benefits.
Yeah, maybe just to add in, and maybe beyond just the, the current guidance, that you know the numbers very well from the guidance. Going forward, and that's part of the horizon, the next 12-18 months, we do not expect major moves on the raw material. Part of that because we don't expect major market volatility, and second part is because particular steel contracts were pretty much locked for the next 12 months. So we're quasi-hedged even more. It's not a hedge contract, it's a direct contract. So we're stability from raw material, but also not tailwinds. So what is left, we still see product cost takeout opportunities. And a little bit back to Jim's earlier point of complexity, to give you a number which we, which we never really published.
So we typically, on the majors, we every year carry about 8-10,000 active SKUs, stock keeping units. Europe was about a third our business, but more than half of these SKUs, just because of the complexity, you have different plugs and all kind of stuff. So of course, once you have an SKU complexity, which is a fraction of what it was before, you do expect savings on engineering, savings on all parts of a business. That was, is a key driver. The other one, to Jim's point, is logistic cost. You know, over the last years, and I referred to this earlier, if you just go back 10 years ago, the biggest inflation driver in our value chain has been logistic cost over the last 10 years.
To put it differently, we spend as much on transporting goods as we spend on direct labor in the factory, direct labor. So it's a massive cost item. Historically, everybody was looking at direct labor in factory, no logistic cost. We do still believe there are quite a bit of opportunities. Obviously, logistic costs also help the number one player because it's a lot about regional scale and density. To give you one example, one of the things which we've done well in Europe, in Europe, our build to order share is in the 40%. In U.S., it's not. Of course, that's the most cost-efficient way to produce and transport goods. So there are still a number of opportunities which we see out there.
That, that's what we also communicate in the earnings call is, frankly, our structure, infrastructure, and that's partly SG&A, partly, but partially COGS. Going forward with a focused business portfolio, you don't need the same complexity of a matrix organizational structure as we had in the past. So again, there is a couple real opportunities which we have in front of us. Some of them are materialized in 2024 and some of them in 2025, but where we have a high degree of confidence we will get these costs out.
Thanks, Mark. Next question is from Tom Mahoney from Cleveland Research. Small domestic appliance margins at 16% in 2026, is that still below long-term potential, or is that the right place? And what are some of the drivers to take you from 16% to higher?
Louis Vuitton next to me would say, "That's just the beginning." No, but, but, you know, it's, it's... First of all, you need to understand the— If you look at the SDA industry, and some of you cover that also, the SDA industry has a much bigger spread of EBIT margins than major domestic appliances. So you players with zero, and you see players 15%-20%, but typically in the premium or similar space as we are. So we actually do believe, also, basically, if you go back multiple years of history... KitchenAid absolutely is a business where you should aim for more numbers close to 20% EBIT.
Now, that's not what we put in the 2026 horizon, and frankly, just from a pure value creation, right now, we would rather put the pressure on, we wanna grow the business. Once you have a 16% business, you want to grow it. So we're not trying to—the focus on this part of the business will be more growth as opposed to margin expansion, but certainly not margin dilution. But yes, over time, particularly, you get more and more scale also behind the D2C business, that could be more than the 16%, which we put right now out there.
Yeah, I would just add, product mix is a potential driver, channel mix is a potential driver, just volume leverage is a potential driver. I would just caution one thing, which is when you look at SDA relative to MDA, it's not nearly as capital intensive, which is another reason why we really like this, this business from a return on investment standpoint. So with that, you should expect a little less volume leverage than you would typically out of MDA.
Okay. Thanks, Lil. The next question is from Sam Darkatsh, from Raymond James. "There's new emphasis on North America market share gains going forward. It was margins and maintaining neutral price costs were more focused. What gives you comfort that both share gains, especially on a sustained basis, while maintaining neutral price costs, knowing the industry is still trying to figure out how low pricing has to go before promos start to actually drive incremental volumes?
Well, Sam, it's a 6-line question or 8-line question. I'm just trying to follow up here. So, you know, our, our standard answer is, it's margin and share. But let me give you a little bit of context. We all know, and you've been following us long enough, you know, you know, share doesn't make your P&L, but without share, you don't have a business, okay? And that's a reality. So it's, it's kind of... We absolutely, during COVID, with the supply chain constraints, we lost more than we wanted, and I'm very transparent about it. So I felt very, very good about regaining the market share, not only because we had a better supply chain last year, but we have strong product pipeline. But it, it's, it's about balancing where you are on a relative scale.
Right now, as we said in the earnings call, probably for the next 6-12 months, our focus is on margin expansion in North America. We still believe there's a couple share growth opportunity with some of the product categories coming, but it's not what we're right now pushing hard for. So we stabilized what we gained last year, and right now, our focus is on margin expansion. Over time, yes, we absolutely, we wanna get back to the 28%-30% market share, which I think is a very healthy sweet spot for our, from a, for us from a share position.
Thanks. The next question is from David McGregor. Mergers and acquisitions, given the relatively low multiple in the stock, talk about the willingness or ability to use equity as an acquisition currency.
I would say very low. No, it's, you know, but, I mean, equity at these valuations is not the right acquisition currency.
Yeah.
But first of all, put in context, to echo what Jim was saying, our priority from a capital allocation this year is debt pay down, dividend, and very limited share buybacks, okay? Do we always look at acquisitions? Yes, but frankly, either in the SDA space or commercial, the number of companies which could be attractive for us is very limited, because if you follow Ludo's story, we only look at premium players. I mean, to go mass, small domestic would not be attractive for us. But right now, it's not a priority, so I would not expect any major activity from us for the time being, until we get our balance sheet to the levels where we feel confident, and then we're not where target needs to be in the market.
But frankly, the last thing we would right now think about using equity, it just would be the wrong currency.
Fully aligned.
Thanks. Next question is from Eric Bosshard, from Cleveland Research. Lowe's was speaking to more aggressive appliance promotions today during their earnings call. Any change in expectation for price mix within 2024 guidance? And is the cadence for first half, second half any different?
Well, in all transparency, I only saw the Lowe's headline this morning. Remember, we're in our own presentations. I was not able to listen in to the earnings call. And as usual, we don't comment on individual trade partners, even though, as you all know, Lowe's is our biggest customer. What we see... So let me just beyond the Lowe's, let me just broader talk about promotions. You obviously, if you look back the last two and a half years, because everybody talks about pricing, it's really more about promotions. You come from an environment where you had zero promotions, then we had a supply chain constraint, which pretty much lasted to almost late 2022, in the ballpark, to now normalized promotion levels.
And if you right now, and some of you reported on this one, if you look at the promotion discount levels on Presidents' Day and Black Friday, we're not too dissimilar from pre-COVID. So right now, you saw, kind of within two years, a move from no promotions to basically back to where we were pre-COVID. What happened in Q4, and I was transparent on this one on earnings call, is you had a, what I would call a normal amount of promotion investments, dollar investments, chasing the demand, the discretionary demand, which was just limited. That gets back to the early comment of Alessandro, the discretionary demand is a weak side. So frankly, for us, our, the, the ROI on the investments we did in Q4, some of that worked, some of that didn't work.
We started correcting that in December and January, and we will be, as we always said, very focused on value creation also promotion. But the math in Q4, because the discretionary demand was limited, just did not make sense from an overall industry perspective. So what does it mean going forward? There is some carryover in promotion. I don't expect the promotions to quickly come back, but again, we will make our own decisions, in the perspective of creating value with our promotions and not just chasing market share.
... Yeah, and I'd say, you know, when we came out with earnings earlier this year, we talked about, listen, the first half of the year, year-over-year, there will be a negative impact due to promotions, because what we really saw last year in 2023 was the promotions normalized in the back half of the year. So, you know, not surprised to hear that, you know, Lowe's mentioning something like this, because that's what we expected. The first half of 2024 was still going to have a negative comparison to last year, but then by the time you get to the back half of the year, we expect it to be relatively flat.
Thanks, Jim. The next question is from Sue McClary. Do you think the pandemic headwinds have changed consumer perceptions of your brands? If so, how do you restore it? How much of the decision-making process and periods of weak demand is driven by brand versus price? What are you doing to get your message to consumers?
Susan, we could spend a lot of time on that question. And by the way, if you have all these answers precisely, let me know, so I can just give you my limited perspective of 24 years in appliances. So on the first one, I think the consumer attitude and behavior around appliances has changed, with COVID and post-COVID. And again, Alessandro was alluding to this one earlier, COVID, despite all the bad things, brought a reorientation towards the home. The heart of the home is the kitchen. The appliance usage, and, you know, we have several hundred thousand of connected appliances, so we have a real data. So it is not research, it's real data which we have. During COVID, of course, spiked up dramatically, but we're not just cooking, also laundry.
And it did not come down to pre-COVID level. It actually stayed elevated. Of course, not the same like in Q2 2020 or Q3 2020, but it stayed elevated. And that comes back to, you know, and of course, I know there's all discussions about the... I think the average family probably spends one or two more days at home than before. And, you know, it's, if most companies go to three or four days at work and one flex day, that what it still means is one or two more days at home. One or two days more at home drives usage, it fundamentally drives usage, and subsequently, because appliance life is not driven by calendar years, by usage, shortens the life of an appliance in terms of calendar years.
So that's why we said earlier, yeah, historically, and you've been all monitoring this industry for many years, sure, you would have said appliance life is 8-12 years, and I think right now we're probably more talking about 8, if that usage level continues. But again, I mean, we're in 2024, and the usage levels are still higher. And it's, by the way, it's not only the stay at home, laundry is also higher because, you know, people, yeah, yeah, today I'm wearing a suit, but, you know, look at how most people are dressed also at work. It's more casual wear, and that is in the laundry. It's not necessarily a dry cleaner. So I think the fundamental attitude towards appliances has changed, and that indirectly also influences the fundamental attitude to, to appliance brands.
You know, all our brands, in particular, North America, they have an exceptionally strong awareness. I mean, it's hard to find families who wouldn't know our brands, okay? But of course, you know, you're competing with brands which are known across multiple electronics categories. I think our key strength, and, you know which competitors I'm talking about. Our key strength as a company is, we're an appliance specialist. I don't have to worry about cell phones or TVs. We do appliances. We only think about the kitchen and laundry room. Second of all, and that was what Alessandro was talking about, if you think about the builder business, most national builders today, they have actually five or six sub-brands. We can offer them a brand portfolio to play with respective sub-brands.
So I think in particular, for your number one player, having a portfolio of brands is maybe one of the most powerful tools you have, as opposed to single brand, and then you're trying to do a sub-brand, et cetera, et cetera. So I would argue, with the focus of a consumer more on the kitchen, we have a unique opportunity with our portfolio, and, and that's also why Jim showed earlier. We will invest more actually in our brands in engineering, because it's, it's one of our most important assets. Sorry about that. Trying to do a short answer to a complicated question.
Thanks, Mark. The next question is from Brian Callan, from Bank of America. Can you just discuss the sensitivity of the macro to delivering consistent margin and cash improvement if retailers stay lean with inventory, housing remains depressed, or consumers are unwilling to trade up into new innovation?
Yeah, I can start out, and then I'll invite Mark to kind of comment here.
Thank you for inviting.
What?
Thank you for inviting me.
I normally don't have to. You'll comment if you want. So, you know, here's how we look at it, is to begin with, the environment we're in right now is a very suppressed, discretionary demand environment. And so if you just take the starting point of where we are today, we're effectively in a trough right now. Alessandro talked about how what's happened is replacement has become the biggest part of our business, and that's... We did expect replacement to grow. We talked over and over, over recent years, how the replacement cycle would pick up based on the average life of appliances, the usage during COVID, et cetera. But right now, we're sitting in an environment where I think discretionary demand only has one direction to most likely go.
It's on a multi-year low in terms of when you look at existing home sales and the drivers of it. So I think as you look, if you look at that, to begin with, that's something that will give us a tailwind eventually, at some point. The other thing, look at material costs. And, you know, we talked about the cost takeout we plan to do, but if you go back and look at material costs and what they've done over a multi-year period of time recently, they're on a significantly high level also. So we're not anticipating a big increase in material costs, but we're also not anticipating a big decrease.
So that's why when I talked about what do we really think the margin drivers are for us over the next couple of years, that will really help improve our margins and drive signi-- or incremental free cash flow, it's focusing on costs that we control and that we know that we can action and that we can take down....and that's why I said, as we're anticipating, listen, the environment is not going to be-- give us strong tailwinds anytime here in the near future. So we've got to make sure we're doing the right things within our business to adjust accordingly. Doesn't mean, though, we're not going to invest. Doesn't mean that we don't intend to try and grow our share in this environment.
But it means also we're gonna have a very strong focus, at least between now and 2026, on the costs we can control, 'cause that's the best thing that prepares us for this environment. I think the other thing that was in that question was a little bit about inventory and retailer inventories and things like that. And again, that's something we deal with constantly, and we've dealt with as a company over an extended period of time. You had the transition away from Sears at one point in time that had a different operating model. You've had the growth of Home Depot and Lowe's. You know, we have Menards, who's a significant customer. All of them have different operating models that we work with today, and so as retailers adjust their operating models, we're very good at handling and dealing with that.
It's just making sure that we understand the impacts. Right now, I don't see that as having a significant impact, at least in the near future.
Yeah, so maybe let me add a comment in. There's, on this macro question, there's a very short term, and there's a much more structural one. So the short term, the trade inventory, again, we said in our earnings call, the trade end of the year, there's light inventory overhang. That's what we expected. We'll be reducing Q1 and Q2. So, as such, the January number, and I know some of you commented on this one, didn't surprise us at all. What I can tell you is that the sell-through is stronger than the sell-in right now, which is a typical reflection. But yes, the trade inventories are slowly coming down, so that is not something which surprises at all. But of course, we have to factor that in, in terms of how we look at our Q1 and Q2.
The much more bigger question is, of course, the macro cycle of housing, okay? And as you know, and trying to repeat a little bit what Alessandro said, if you would look back at the... I'm talking about North America. The last 40 years of our business as a industry demand has a very high correlation with existing home sales, more so than with new home sales, and some of you reported on this one. And I know it looks a little bit harmless on the chart. Just 26 months ago, 25 months ago, existing home sales were at 6.4 million units, and in November, December, it dropped to 3.8. Go anywhere back in industry history, you haven't seen where in 2 years it dropped that much.
In the old days, we would have said the 3.8 million existing home sales, industry demand would have collapsed. What held it up was the strong replacement side. So you have... I mean, the, the existing home sales, all the discretionary, that really was soft. So the question is, yeah, you have a 30-year low on the existing home sales. Will it get worse? I don't think so. I would argue, but you'll be judge. But the weak housing market is in our share price. So the question is: do you wanna bet against the housing going forward? I mean, at one point, the housing will come back, and we can debate forever about will the Fed have 3 reductions of interest rates or not. At one point, interest rates will moderate.
But what I said yesterday on the TV, moderation doesn't mean half a point or quarter of a point. You got to keep in mind, I think of existing home sales, the average mortgage rate right now is locked in about 3.7%. So I think you would have to see in the ballpark mortgage rate of 5.5%, to really get it going. So at one point it will be there, and we can debate here forever, will it recover in one, two, well, maybe not in one, two, or three or four quarters? Doesn't matter, it will recover. But then also, more importantly, to Alessandro's earlier point, that's why we also have our product innovation pipeline, because we can't be just reliant on existing home sales or housing market. We also have a strong product pipeline.
Okay. The next question is from David McGregor, from Longbow Research. Tax has been an ongoing source of confusion. Jimmy said you expect that lower cash taxes. Can you give us more detail around this? Do you expect a continuing amount of volatility around the GAAP number?
Yeah. So I think one of the good things about as we, you know, go through the EMEA transaction, is our tax picture will simplify significantly on a go-forward basis. And, you know, that's been one of the things as you look at a business where we had lost money over the years, and you have to look at the deductibility of some of that.
Now, as we exit that business, and we do the restructuring around it, we are able to deduct a lot of those historical losses that we had, and that's what's giving us a big benefit within, you know, probably starting in 2022 all the way through 2024, of a reduced, at least, effective tax rate. Now, you'll start to see that normalize on a go-forward basis once we get, you know, out into 2025, 2026, let's say, which could be closer to a 20%-25% type of range from a, from an ETR perspective.
From a cash tax perspective, we'll still be probably in the 15%-20% range for an extended number of years, even beyond that, because of the benefits that we get from all of these tax assets that, that we had within EMEA tied to that business that we can now realize. And so that's when we talk about is it could be about a 5-10 point spread between what our effective tax rate is and our cash tax rate is, and that's going on for a multiple period of years. But that's also what it is. It's contingent on the, the profits that we make, especially within the U.S., as we deduct those losses against, you know, income that we have here.
So that's why I think, to begin with, it will become much less confusing because we're now in a state where we don't have... All of our businesses are value creating and generating income, and so they'll be relatively consistent in terms of how, you know, the, the tax impact upon that. And then also, as I said, we've got a set of assets that we'll realize over a period of time, but it'll be over a multi-year period of time. So you'll just see that benefit continuously flow through. And as I talked about earlier, on our free cash flow, between that and interest, that's about a $100 million improvement per year that we get, and that's kinda how we quantify those two together.
... Our next question is from Michael Rehaut. For the 2026 EBIT goals, why is there no contribution for operating leverage from the sales growth expected?
I can take it. Mike, you're accusing us of sandbagging? Let me first give you a little bit of context on the operating leverage. You know, in some of the prior earnings call, we sometimes said we refer to, whatever, 15 or 20 cents per dollar on operating leverage. That may be a good direction indication with a big caveat, because of course, it depends heavily in terms of where the respective factory is in the factory utilization. i.e., if you run a factory at 80%-85% and you load volume, there's no leverage. It actually costs you more because you would have a night shift to run, et cetera, et cetera. On the other hand, if you run a factory below 50%, there is a huge operating leverage because the fixed cost burden is significant.
So it depends on which factory, where you are on the utilization. So while the average may be direction correct, it's a big spread. Frankly, right now, in the 2026 numbers, which were given earlier, there is not that much volume growth embedded to make a really big difference. But yes, I mean, the fundamental is true, still true. You get your volumes, whatever, 10% up, there's a significant leverage. By the way, flip side is also, that's why we were guiding a little bit more carefully and cautiously for Q1, Q2, because we will not produce ahead of demand or sell in. So we keep our production right now pretty low, and of course, but that's embedded, and we knew that. That hurts you a little bit from operating leverage, but then will normalize.
Yeah, I mean, as we said, for 2024, we even intend to take down working capital, which means reduce our inventory slightly, which would say we produce less than we actually ship and sell. And so that's where we have to look at those production volumes and the leverage we get. You know, and that's why in 2024, we don't really see, you know, much leverage.
The next question is from Sam Darkash, from Raymond James. Since there's a focus on market share, and we've separated small domestic appliances, will you once again be reporting quarterly North America MDA volumes, so we can track your market share?
Of course, Mark passed that one off to me. And here's what I'd say is, no, we don't intend to go back to putting volumes in, and there's a couple reasons why. A large part of our business today within our major domestic appliance business is not... And it's growing, a bigger part of the growing part within there, is not necessarily selling appliances. It's selling consumables, such as water filters, such as you know, things used to clean washing machines. It's selling consumer services. It's selling extended warranties. You know, we've got so many different businesses that are now part of that, Gladiator Garage Works. I mean, I can just go through the continuous list, spare parts.
And so I still think today that when you try and look at that from a unit perspective and the fluctuations that you see in those, it creates things that aren't necessarily useful. So I don't know that we would go back to you know showing major domestic appliance volumes anytime soon. It's funny, Chris was smiling back there. Chris Conley, our former head of IR.
Next question is from Tom Mahoney with Cleveland Research. Talk about debt refinancing referenced yesterday. How urgent do you feel about spreading out maturities over the next few years to future periods?
You know, here's what I would say is that, you know, if you really look at, and I talked about this earlier, is that we're not counting on a big improvement in demand over the next period of years. What we're really focusing on is saying, listen, if the environment stays where it is, then this is how, you know, and we just grow at what I would say is more of a GDP type of rate, then this is where we see our margins to be. If you would see a significant recovery in the housing market out there, obviously that could give our business a tailwind. This is adding to a comment Mark made earlier, is we do expect at some time that will happen.
Aged housing stock, you know, levels of where existing home sales are, we do expect at some point that's going to contribute. Is that going to be in the next two years? I can't tell you exactly, but, you know, we want to prepare ourselves for the scenario that, that maybe discretionary demand doesn't come back as fast as we'd like it to. And that's why we'll focus on cost for now, but continue to invest in our product portfolio to make sure that we can capture that demand as it comes back. But I, I like the phrase you used earlier: Do you really want to bet on the, in the long term against the US housing market? And I think that's the question there, is I would say, no, I wouldn't bet against the US housing market over the long term.
Over the midterm, I want to be cautious and not bank on that all of our improvement is going to come just by an improvement in discretionary demand.
You now successfully answered two questions because we skipped the real one. I want to come back to the refinancing one, because that was kind of the one before. Again-
Yeah, sorry.
... Because it jumped here, so but you covered both questions. So, on refinancing, I just want to repeat what, what we said in the earnings call. We are planning to pay down debt this year, $500 million. And if you also look at our existing debt letter, that also means we refinance a small portion of the debt, roughly about $300 million-$400 million. If you look at all our refinancing the last couple of years, it was always significantly oversubscribed, which is good.
Yeah.
That shows you kind of there's good opportunities in the market. So, with what Jim alluded to earlier, selling our small equity stake in India, we have the funds to pay down the debt, so we're fine with this perspective. So then the question also you saw on the debt letter, of course, the acquisition-related financing, there's still something in 2025, which we have to pay down, which, by the way, is also a piece which came with slightly higher interest rates than the senior notes. So obviously, I mean, you're investors, I mean, it's question is, when is the right time to refinancing that? And particularly when you assume that the interest rates are coming down.
Of course, by definition, we will refinance a certain part of that, but, you know, without giving a guidance for 25, but I would expect us to pay a similar amount of debt or even more down next year and then refinance the rest. But it's again, it's as the interest rates are expected to come down, you probably want to wait a little bit.
Yeah, sorry, I'm reading the question off the teleprompter, which was different.
All right, the next question is from Susan Maklari, from Goldman Sachs.
I think I just answered.
You just answered.
I just answered that one.
Thank you. Next question is from Michael Rehaut. What has changed in the three pillar slide? So now major appliances is at 10% margin goal instead of the 12%.
Yeah, I think first of all, it's, to be very transparent, it's a little bit of resetting, yeah, because the last one or two years, we were not at mid-level. Okay? So and, and as you've seen before, North America, we clearly see being able to get to 11%-12%. Put that also in context, pre-COVID, we were consistently at 12% and above. And of course, during COVID, it went up higher. Latin America, frankly, will be more challenging to get to 10% or 10% plus, but we do see 8% or more going forward. Now, on the long term, should major appliances also get to maybe 11%-12% in total, not just North America? Absolutely. But the numbers which we're giving are right now 2026 numbers.
Okay. The next question is coming from, online submission. Can you break down small domestic appliance market by demand or market by demand, like you did with the U.S. MDA, and some key characteristics like replacement cycle, and what % of small domestic appliances is KitchenAid branded?
I can start, maybe Ludo can... First of all, and this is why we were a little bit cautious showing industry number for SDA, because SDA covers a huge spectrum of different products. But the market dynamics you would have on a stand mixer are completely different than drip coffee, than toasters. That's why... And on top of that, keep in mind, KitchenAid plays in the premium segment. So if you would look at the total industry for SDA, you would see a huge amount of volume with very different dynamics, but they may not be reflective of the value of that industry. So that's why, so I mean, theoretically, yeah, we could break down the stand mixer part in terms of discretionary versus replacement, but again, you get in so many sub-buckets that it may be more misleading.
I would say in general terms, but when the stand mixer is a more steady business, which is large replacement, but it's still also very seasonal business. It's basically more back half load of business, is around the holidays, but it's a more steady. If I would compare it, for example, with coffee, that has seen a completely different dynamic over the last couple of years, which is probably more discretionary. There's very little replacement on particular espresso side. So again, there's this breakdown on the MDA, it's almost impossible to make that in total for the small domestic appliance sector because we have so many different dynamics.
Yeah, I would agree with that. In general, it's more of a discretionary business. If you think about it-
In total.
In total.
Yeah.
There's substitution opportunities for a lot of the categories. If you don't want to buy a food processor, you still have a cutting knife and a board available to you. So it is generally more of a discretionary type of market, which ebbs and flows with the economy in general, not so much with drivers such as, you know, a pure replacement dynamic, let alone housing or anything like that.
Okay. Next question is from. Oh, you jumped. Next question is from David McGregor. Can you talk about the long-term direct-to-consumer opportunities for major appliances?
So, David, again, the D2C business, in particular for SDA, but also majors, is attractive channel, if you want to say so. I want to step back and first of all, D2C will never replace traditional retail, and so I see it more as a complement. The reason why we're passionate about in both majors and small domestic is a little bit to what Luke alluded to is, in terms we said it's not necessarily about the first sale, it's about the second sale. It's the loyalty business, the ongoing business, knowing our customers, knowing when they are back in the demand window, et cetera. That's why we care about it. Beyond the SDA business, where we have a very strong penetration already, particularly in South America, we have actually similar rates as we've seen on SDA.
In North America, it's smaller. But it's certainly a business which we like. We like the margin profile. It has very different dynamics, because, of course, the first one or two points of balance of sale, they're very costly because we have a high customer acquisition cost. But once you have it, it's a very attractive business. Again, I don't see that in conflict to a traditional retail. It's complementary. There's just a certain consumer segment says, "Well, stand mix, I don't need to go to the store. I want to buy it from manufacturer directly." And that, that's basically what we're trying to cover. But again, it's to directly answer your question, similar majors, but maybe with different pace, in particular, but depending on the region.
Next question is from Sam Darkash, from Raymond James. Your cooking and dish volumes are 45% of North America major domestic appliance volumes, but are higher margin. What are the dollar contributions to North America major domestic appliance profits from cooking and dish, and are you expecting your market share gains to be overweight or underweight in those cooking and dish categories specifically?
Sam, that's a very detailed question for modeling and the spreadsheets. So directionally, cooking and dish are more profitable than particularly refrigeration and laundry. But again, there's subtle differences across the different brands. We have a very, very strong dishwasher business. I know Alessandro was earlier trying to sell you a third rack. That is really a first innovation market. I mean, it's two inches higher, it makes all the difference and has a separate spray arm, and that business is right now selling very well with very good margin. So dishwasher is one of our best businesses which we have. As a side note, it's also slightly even more attractive for ROIC profile because you have a little bit less fixed cost in this. Cooking, you got to differentiate between wall ovens and freestanding cooking. They have very different dynamics.
Wall ovens or any more sophisticated cooking is a lot more margin accretive than a freestanding cooking. So again, there's differences, but of course, yes, our key focus and where we have a lot of product innovations are against dishwashing, are against built-in cooking. So for example, what we actually announced yesterday is for JennAir and KitchenAid, is a downdraft induction cooktop together with BORA, which has been one of the pioneers in Europe. So that's where we invest, and that's where we see a disproportionate contribution from a margin perspective.
Next question is from Brian Callan from Bank of America. Deleveraging guidance appears to imply $500 million-$750 million of debt reduction FY 2025 and beyond, meaning you need to refi the term loan and gross lever stays at elevated at high 3x, 3 times. What will cause you to accelerate deleveraging, such as a low triple-B rating? And what is a comfortable level of cash on hand over the medium term?
Yeah. So I'd say, you know, first off is that what we did highlight is, listen, this year, we do intend to pay down $500 million-plus. And again, as we look at, you know, we successfully executed the transaction within India. We have some other things we're looking at right now, and then we look at our free cash flow. So we said that's the minimum we intend to. Then, as we look forward to the improved free cash flows over the next couple of years, we also intend to use a significant portion of that to pay down debt. And as we were talking about, if you look at that free cash flow that we forecast for 2026, so I think it is correct to say that, yes, more of our deleveraging comes in 2025 and beyond, in 2026.
But with that, it'll start to bring us much closer to where, you know, being a BBB rated, and then as we get to 2026, we expect to be closer to the BBB plus, B plus type category. So I think we're very comfortable with where we are in terms of the cash we have on hand. If you would have looked at the beginning of the year, we had about $1.5 billion, and that gives us the flexibility we, you know, we need. We also have a, you know, $3.5 billion of credit facility out there that we have the ability to, to utilize at times.
From an overall liquidity, a debt perspective, and the cash flow that we will generate and our ability to pay down debt, we are very comfortable with where we are.
As a side note, I'm not trying to correct the math; we're right now at 3.5x year-end. If you pay down roughly $1 billion debt, by definition, we're not staying on the high 3x. On top of that, it's not just the debt, it's also the EBITDA. So if you take, of course, the 2026 EBITDA in there, now you are in these numbers, which we've just shown earlier.
The next question is from Tom Mahoney from Cleveland Research. With price mix negative 100 basis points in the 2026 margin walk all in 2024, then neutral going forward, what's the confidence in the cadence of go forward price mix?
I mean, I, what Jim showed earlier is just basically a carryover, which we also showed in our earnings result. We are confident that price mix in overall will be stable. And by the way, again, it's a little bit reminder pre-COVID, despite intense competition and a promotion environment, we basically held our pricing stable for five or 10 years. But it's always a combination. You have to bring in new products, which allow you to work on mix. You know, there's a promotional environment, so I think we've demonstrated over many years we can manage all these sides of the equation very well. So yes, as we are right now in a kind of stabilized post-COVID environment, we absolutely do believe that the product mix, new product introduction, we can manage a market environment in a very competitive way.
The next question is from David McGregor from Longbow Research. We've talked for years about incremental margins of approximately 20%. Has this increased? What's an updated way to think about this?
I would say, though, today, I think the 20% still holds relatively constant. You know, obviously, if you see... You know, 'cause what Ludo would have talked about for the KitchenAid business is he's got higher margins, but he doesn't necessarily have the high fixed cost that comes, so you don't get as much leverage as you increase volume. I think if you look at, you know, historically, you know, we said that this is probably about a blended rate, but if you look at where our North America business is today, I still think this is relatively reflective of where our North America business is today. So I don't think it changes much from the 20% we've used historically.
Maybe it goes up slightly over time as we begin to focus more and more on high leverage or high-margin businesses that we can get the leverage off of, but no significant changes now.
Over to you.
Thank you.
Okay.
Next question from Tom Mahoney. Tom Mahoney from Cleveland Research. Comparing the 9% midterm margin with the 11%-12% long term, what's the path to that 11%-12%?
You know, good question. So first of all, let's get to 26. I mean, in all transparency, it's kind of, we also fully recognize, you know, the last one or two years, post-COVID, our margin came down. And we also, I think we absolutely first need to demonstrate in a credible and achievable way that we get to 26. We absolutely still believe these are the right long-term targets, if you refer to 11%-12%. But ultimately, you know, it's. You also saw from our earnings that I don't think when the housing recovers, I don't think you will talk about a one-year recovery of housing. Some people, not me, refer to at one point, where we will go in decade of housing, because housing has been undersupplied now for almost two decades, okay?
So when and if the housing recovers, it will not be one year. And frankly, if you want to simplify, but maybe also gets back to Sam's earlier question is, even the 25, 26 horizon, we're not producing and selling to the volumes levels of pre-COVID, because the market is still soft, and we lost some market share. So, there is, and the big lever is when, yeah, industry growth coupled with innovation, beyond 2026. But again, let's first get to 2026, in that right way.
Okay. On small domestic appliances, how much of the $55 billion total available market would you consider premium, and where would you wanna play?
Yeah, so $55 billion is sort of the current assessment of the electric, small domestic appliance, specifically kitchen electric business, around the world. It's probably a little bit, in my opinion, understated, based on the information that we have regarding our own sales. But, I would say, generally speaking, as we think about the brand as a premium slash mass premium, brand, you would think about the top quartile, at the very least, as being the place where you wanna play, and that's accessible, to you and strategically the right place to go focus. It probably expands a little bit beyond that to cover maybe up to 30%-40% of the market from a dollar standpoint, not from a unit distribution perspective.
I'll put it different, David. I would say, again, it's a question is always, if you, what premium et cetera you look at. I think it's fair to say in the premium or mass premium, it's probably addressable market of $15 billion-$20 billion overall, I see it.
On top of that, there's non-electric.
Yeah.
All right, the next question is from Michael Reheart. InSinkErator, at the time of acquisition, was described as having a 70%+ share in waste disposers, which also represented 80% of sales. Today, it's shown as having a 65%-70% shares, and 90% of the business has changed. What has changed since the time of the acquisition?
I mean, Michael, not a whole lot, but let me just give you a little bit perspective. The industry data for disposer is very limited. Essentially, very limited, on the other hand, somewhat easy to do. InSinkErator is the only producer of disposers in the U.S., period. So you basically have our production, and then you look at the import statistics. The import statistics, which come from China or Cambodia, presumably. And you basically add these two numbers, and that gives you direction market share. This industry, the swing comes from, at times, there were massive imports, and then, all of a sudden, no imports. So that is, of course, not reflective of sellout, et cetera. But in particular, in Q4, there was a massive load of imports. You could almost argue some questionable ways.
But anyhow, there was a pretty load on of imports which impacted market share. The sellout is pretty stable, and by the way, that's volume. You know, value share InSinkErator is probably well above 80% because all the imports are largely permanent magnet motors, not induction motors as InSinkErator, so it's a different product, not the same performance, not the same quality, so it's playing more by the wind and private label. But again, the import volume is just driving some pretty big swings, always.
Next question is from Trip Plum. Can you talk about how you spent money in Europe, how it's been a cash drag for so long, and the benefits that the business conferred to the rest of the company that drove to continued investment there?
First of all, Trip, we made the decision to change that, and that decision was made 2 or 3 years ago. Let me also step back a little bit. I mean, it's- and I was, at one point, also running the European business, so I, I think I know it fairly well. Europe historically was a business where if you look at the big competitors, you could make 6%-7% EBIT margins, okay? We also at times did it, okay? But the European marketplace has changed, okay? And so historically, yeah, these were achievable numbers, maybe not the 10%-12% what you can achieve in North America, but historically, that was a market that you could extract these kind of margins.
By the way, again, you look at most competitors, you would say, "Yep, certainly we're number one and number two players achieve this kind of margin." What has changed is, first of all, there's been a pretty big growth of Chinese competition in Europe. Logistics costs into Europe are lower than into North America. The fragmentation inherently makes it less attractive. And then, for us, what particular changed is the number one market for us in Europe was Russia, number two, UK, and number three, Italy.
With Russia, basically forced to sell and U.K. goes Brexit, once you know these core markets are just not available, either not available at all or not the same way as before, then you're just stepping back and say: Well, if these number one markets, which were so critical for Whirlpool Europe, are just not accessible to us or not in the same way, does it make sense going forward? So again, it's a combination of a changing competitive environment in inherently already very fragmented markets, coupled with, well, our core markets, are not the same as they used to be. That ultimately led us to a decision also with the board in terms of should we try to fix it, invest more restructuring, or should we, quote, unquote, "move on?" And that ultimately led to the decision.
Then I think as Market highlighted, too, that it's a multi-year process to actually then execute a transaction like that. It's not a simple type of arrangement, and so, you know, this is something that we did start a while ago and is now coming to completion, but that's also part of, you know, it takes close to a year and a half to execute a transaction like that.
All right, and our last question comes from Daniel Escalante, from Insigence. We talked about that 25% sales from repeat customers and 17% direct-to-consumer rate on KitchenAid small appliances. Could you provide some more color on the demand drivers of this business, specifically, as well as the distribution centers? Who are the main distributors?
Yeah, so the distribution profile of KitchenAid small appliances is fairly similar around the world, even though the mix of the different classes of retailers will change from one place to another. You've got historically department stores, which was a big force and still is in a number of regions, much less so in the U.S., as we've seen that business decline. Then you have specialty retailers, electronic superstores, and then typically, you'll see pure play distribution as well, pure play e-commerce distribution. So the mix of those retailers changes from one region to another, but that's effectively who we're dealing with as customers and where shoppers will tend to show up.
Maybe just to also clarify the numbers which are in my question. First of all, the 17% D2C rate, that meant the balance of sale, i.e., 17% of our KitchenAid business was a direct-to-consumer business. The repeat customers, as we measure internally, as a customer who buys now, haven't bought anything in the last two years and sometimes longer. So that's what we simply define it. And I'm not quite sure, but the question may have been related particularly to the distribution on D2C. The nature of a D2C, how we define it, we own the customer, we do the invoicing, own, i.e., we have an address, we do the invoicing, and we also do the distribution. So that's basically a system.
Now, sometimes we have fulfillment partner distribution, because we have a also major a fairly good home delivery system. But the physical distribution is basically also in our control, quote, unquote.
Yeah, and sorry, I might have misunderstood the question. It's basically a parcel delivery-
Yeah
... business, differently from the major side of the business, of course. So yeah, we use traditional distributors for that.
Well, I guess even though we probably have still a lot more questions to answer, first of all, I wanna thank you all for coming here. I'm not gonna repeat everything which we said before, but I really appreciate you being here, and showing your interest and commitment as to Whirlpool. So really, thanks a lot for coming here, and have a wonderful day. Thanks a lot.
Thank you, everyone, and this concludes our webcast.