Good morning, and welcome to Whirlpool Corporation's conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Korey Thomas.
Good morning. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial Officer. Our remarks today track with a presentation available on the investor section of our website at WhirlpoolCorp.com. Before we begin, I want to remind you that as we conduct this call, we'll be making forward-looking statements to assist you better in understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q, and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures. We believe these measures are important indicators of our operations, as they exclude items that may not be indicative of results from our ongoing business operations.
Listeners are directed to the appendix slides within today's presentation, posted on the investor relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. At this time, all participants are in a listen-only mode. Following our prepared remarks, the call will be open for analyst questions. With that, I'll turn the call over to Marc.
Thanks, Korey, and good morning, everyone. Now turning to slide 3. In April of this year, we shared with you our plans for major portfolio transformation of Whirlpool Corporation that focus on investing in high margin and high growth businesses. Today we made a major step towards accelerating this portfolio transformation. We've signed a definitive agreement to acquire InSinkErator from Emerson Electric Co. for $3 billion in an all-cash transaction. As you do know, our space is the kitchen and laundry room, and this is a truly unique asset in the kitchen space. InSinkErator is the world's largest manufacturer of food waste disposers and instant hot water dispensers, with more than 70% of the U.S. industry.
With its predominantly U.S.-based business and strong manufacturing base in the U.S., the acquisition of InSinkErator demonstrates our commitment to winning in the Americas and also our belief in the long-term growth potential of the U.S. housing industry. Our strong balance sheet position has provided flexibility for this unique value-creating opportunity, and we expect to close this transaction fairly swiftly. Turning to slide 4, I will share an overview of InSinkErator. InSinkErator is a structurally attractive and truly unique business. It has been demonstrating strong margin delivery, a free cash flow profile that has fueled reinvestment in the business, and a track record of accelerated growth. With advanced technology offerings alongside well-established relationships with trade customers, I'm really excited to add this business to our already strong portfolio of brands.
As a highly respected brand, InSinkErator has earned a reputation for quality and performance with over 80 years of experience in the industry. InSinkErator has established trusted relationships with consumers and built an install base approximately 5 times larger than the rest of the industry, driving recurring and predictable sales growth of approximately 4% over the last 20 years. Approximately 75% of InSinkErator's demand is replacement driven, with an average 8-year replacement cycle. Following the close of a transaction, InSinkErator is expected to operate as a separate business as part of Whirlpool's North America region, maintaining their headquarters in Mount Pleasant, Wisconsin. I'm looking forward to working with impressive and dedicated teams behind InSinkErator product leadership, who consistently demonstrate their commitment to providing high-quality solutions to consumers. Now turning to slide 5, I will provide an overview of InSinkErator's industry-leading product portfolio.
With offerings across both residential and commercial segments, InSinkErator is an innovation leader with a portfolio of 350 active patents. Residential disposers represent approximately 80% of sales, providing a trusted option across the value chain that has a strong end user tendency for like for like replacement. Residential water products and disposal accessories make up approximately 15% of sales and provides an opportunity to expand the penetration rate by growing the install base. Commercial products represent approximately 5% of sales, supporting restaurant, healthcare, education, government and hospitality sectors. We are excited to add these industry-leading products to our brand portfolio, providing our customers with the necessary products to continue improving life at home. Now turning to slide 6, Jim will discuss our value creation expectations associated with this acquisition.
Thanks, Marc, and good morning, everyone. The addition of InSinkErator is immediately accretive to Whirlpool Corporation and our North America region. On a full year basis, we expect incremental revenues of approximately $650 million, supported by, one, a strong replacement cycle. Two, the housing market remains structurally undersupplied, and we believe in the long-term U.S. housing growth opportunity. Three, the potential for significant expansion in the Americas and globally as adoption rates significantly lag the U.S. Four, the further expansion of the best brand portfolio in the industry.
Additionally, we expect our consolidated full-year EBITDA to increase by over $170 million and our consolidated EBIT margin to benefit by approximately 50 basis points as we leverage our leading scale and best cost position to drive synergies through sustained productivity, our already established procurement relationships and significant purchasing capabilities, and our continued commitment to product design and innovation. As a result, we expect incremental free cash flow of approximately $100 million. This acquisition creates value for our business, our consumers, and our shareholders. Again, we are excited about this unique opportunity to acquire an industry-leading brand. Expect InSinkErator will add approximately $1.25 of EPS accretion in 2023, and $2-$3 of EPS accretion post-debt pay down.
The amount of benefit recognized in 2022 is dependent on the timing of the closing of the transaction, but will be fairly limited. Now turning to slide 7, I will discuss the acquisition details. The purchase price of $3 billion represents a 14x EBITDA multiple, net of synergies and $300 million of future tax benefits. The purchase will be initially funded from available liquidity through existing credit facilities. We will put new debt into place at a later date and expect to maintain a strong investment grade rating. After buybacks of approximately $900 million year-to-date, we are pausing share repurchases for the remainder of the year. The strength of our balance sheet and strong free cash flow delivery has allowed us to return over $5 billion in cash to shareholders in the last 5 years through share repurchases and dividends.
Our history of shareholder returns is a clear demonstration of the confidence we have in our ability to generate free cash flows and maintain financial flexibility to continue to deliver on our capital allocation priorities, including this value-creating acquisition. We expect this deal will close in the fourth quarter of 2022, subject to regulatory approvals. In closing, we are extremely excited about this unique value-creating acquisition and look forward to capitalizing on the significant growth opportunities ahead. Now we will end our formal remarks and open it up for questions.
At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. Your first question comes from the line of Sam Darkatsh from Raymond James. Your line is open.
Good morning, Marc. Good morning, Jim. Can you hear me okay?
Yeah, we can. Morning, Sam.
Good morning, congratulations. Terrific business, obviously, that you're acquiring. I've got a couple of questions, if I might. The first, it looks like at least based on what Emerson's saying for trailing twelve months and what you're saying for the year, that the growth profile of the InSinkErator business is fairly substantial this year. Can you help in terms of what you're expecting for their sales and EBITDA next year in 2023 to get to your $25 accretion, and then also on top of that, the $20-$25 million in synergies, what's the timing that you're assuming that you'll be able to achieve that?
Sam, good morning. It's Marc. Maybe I'll start and then Jim can add to this one. First of all, in the Emerson announcement, keep in mind they refer to the published numbers as of end of March. Our numbers take already into account what we saw pretty much until June or even July, and their overall revenue trend is actually a very solid one. I would expect that momentum to carry well also into 2023. Now, obviously, we all know there's a what we consider temporary slowdown in U.S. housing, but as we also indicated earlier, that business is highly replacement driven also, more so even than new housing. So I would expect a continued sustained healthy revenue growth trend. Jim, you wanna comment on the EPS?
Yeah. You know, Sam, from a overall EPS perspective, as I pointed out, we expect $1.25 this year, and then, you know, once we pay down the debt, which we expect to do in a relatively short period of time, it'll expand to $2-$3. I think, you know, on the cost synergy timing, you know, obviously that will take a short period of time, but we don't see a significant period of time that it'll take to begin to earn that because as we mentioned, a lot of that is driven more on the purchasing side, and also our ability to just, you know, reduce a minimal amount of SG&A.
My follow-up question to that, thank you, would be, I'm not sure how to phrase this one, but would the $3 billion price tag is obviously considerable. Is what you're seeing in the EMEA sale process emboldening you that this type of transaction is something that is easily digestible?
Yes. Sam, first of all, just the broad acquisition. I would, again, refer to what we said earlier. This is a unique asset, and these kind of opportunities don't come across every day. I mean, you, again, keep in mind our space is the kitchen, and this is a wonderful business in the kitchen sink, where we're kind of quote-unquote next door neighbors with a dishwasher. We see plenty opportunities also when it comes to product innovation, revenue growth over time. Again, these kind of unique opportunities don't come across every day. It was a competitive bidding process. I still believe the valuation is fair, given precedents in that space. Certainly you can probably argue a couple months ago, you probably would have had to pay more.
Anyhow, it's we do feel it is a truly unique asset and as such will create significant value. It's obviously too early to speculate about the outcome of the European strategic review. Even absent this one, as you all know, our balance sheet metrics are very, very strong ones from a debt leverage, from our overall cash position, and therefore the financing of this one does not create any headache or is not, certainly not contingent on the outcome of European review.
Sam, just to add to what Marc said, you know, on top of the balance sheet being strong, if you look at our free cash flow generation over the last few years, it puts us in a very good position, as I mentioned, to, you know, be able to pay down any debt related to this within a, you know, a medium-term period of time.
Your next question comes from the line of Susan Maklari from Goldman Sachs. Your line is open.
Thank you. Good morning, everyone.
Morning, Susan.
My first question is, you know, can you talk a little bit more about the synergies in terms of procurement inputs to the product relative to your core appliance business? In terms of the distribution side, can you talk about the go-to-market strategy here? Is that the same or different from the current business?
Yeah, Susan, it's Marc. I mean, again, there's two fundamentally different type of synergies. One is the cost side, the other one is more of a revenue go-to-market side. On the cost side, we do see opportunities on procurement. You know there's components in the product which we know very well, where I think we have a good procurement scale globally. And this business also, because of the growth in the past, runs into capacity constraints, and I think we have opportunities on the manufacturing side in terms of cost efficiency going forward also. On the go-to-market side, first of all, there's the long-term growth potential. That, again, comes back to product innovation. It's not just the InSinkErator and the garbage disposal, it's the entire system under the sink where we see a lot of opportunities.
You may remember we have been working on, like, composting solutions and other solutions. There's a lot of product innovation ideas which we can think about in that space. Two, there's the brand leverage. We do believe that with the strong brands in our company, we can add and expand the offering of InSinkErator, which gives the consumer more choice and the trade more choices. On the go-to-market side, yes, these are relationships with trade which we know very well. Having said that, and that comes back to what Scott said earlier, we would initially treat that as an independent business. So you should expect a different sales force going to the well-known trade customers out there, than from a Whirlpool appliance business.
Okay, that's helpful. Follow-up is, you know, can you talk a little bit more about the financing side of the business on how you expect to proceed with the debt offering? You know, you mentioned that you're gonna pause buybacks for the balance of this year, but can you give us any more color in terms of the down schedule you're anticipating and how to think about the return of those buybacks looking to 2023 or further out?
Yeah. Sue, this is Jim. I think first off, what you'd start with is our existing liquidity, cash on our balance sheet and credit facilities, you know, give us the capabilities to, you know, do this as an all-cash transaction. Once we get, you know, a little bit further down the road, and obviously by the end of the third quarter, we'll talk more about the specific financing that we have put in place, which we're already, you know, beginning to work on now. You know, as you look forward, what I would say is that, you know, for the remainder of the year, as we said, we'll stop share buybacks. As we look forward to future years, we've always talked about, you know, we buy back our dilution.
I would say until we make a significant, you know, paydown on this, which we do expect in the next 2 to 3 years, you should expect us to at least moderate our share repurchases, you know, in light of this. Additionally, you know, as we've said before, you know, what we plan to do is continue to look at other areas we wanna invest in from a capital allocation perspective. I think the other thing, just to remind everybody, is that over the last 5 years, we've returned $5 billion to shareholders, and over the last 2 years, it's gonna be pretty close to $2.5 billion. We have made significant returns, and now we're kind of focusing on another area of our capital allocation priorities.
Your next question comes from the line of Michael Rehaut from JP Morgan. Your line is open.
Thanks, appreciate it. First question, I just wanted to delve into some of the assumptions on the $25 if possible. What type of interest rate you're assuming on what type of incremental debt for next year? And also I think, you know, Jim, you just kind of said before, perhaps you're thinking about a debt paydown over a 2- to 3-year period. Just wanna make sure that I heard that right.
Yeah, Mike. I mean, I would say if you look at our free cash flow that we've been generating recently, that's why I'd say you would see a significant amount of paydown in that medium type term. In terms of, you know, interest rates that we've assumed, again, we're in the middle of the process right now, but I would say, you know, they're close to what the market is today and you know, we did a recent bond offering. But you know, we haven't given any guidance on that yet. We've just made very high level assumptions based on what the market is currently.
You know, as we've said, if you really wanna understand what the business contributes post that's why we gave the $2-$3 range, you know, which is very dependent on, again, factors of us generating the synergies and continuing to grow the business. We do believe that's a good point to start.
Appreciate that. At the same time, you did give the $1.25, so just making sure we understand what's going into that. It sounds like a 5% or so interest rate on, is it the entire $3 billion? Also, the synergies that you're talking about here, again, just wanna make sure we understand that right, that it's in the $20-$25 million range, and if you can kind of break down how that is achieved, like in terms of different buckets.
Mike, it's Marc. First of all, and as you well know, and then I'm glad you asked the question. On the 1.25, again, there's the pure earnings lift, which comes with the EBITDA from InSinkErator, which, you know, on a steady run rate is well above $2, actually more close to the $2.50 or even more.
Of course, the assumption is how much do you finance with cash and how much do you finance with additional debt? Depending on the timing of closing, we will take a certain portion of cash, probably ballpark of about $500 million of cash, and the rest will be a debt offering, with percentages that you directed, correct. But we also intend to pay down that debt fairly quickly. This is not meant to be a 5- or 10-year debt, so we plan to pay that down in a fairly short time horizon. Now, on your question on the synergies, the $20 million-$25 million is purely the cost synergies which we factored in. We have not factored in any revenue synergies or any EBITDA growth which comes with additional revenue synergies.
This is a pure cost synergies. Given that it's largely procurement driven, I think it's very fair to assume you get that within the first 12-18 months.
Your next question comes from the line of Eric Bosshard from Cleveland Research. Your line is open.
Thank you. Good morning. Two things. First of all, I just wanted to follow up, Marc, you commented that linking this to the EMEA, it was that you're too early in the strategic review of that. Remind us of the timing of the conclusion of the strategic review that you proposed for the EMEA assets.
Yeah. Eric, nothing has fundamentally changed from what we announced in April. We plan to have kind of a directional outcome of strategic group Europe review end of Q3, i.e., we would communicate in the October earnings call kind of the direction of the decision which we're taking. Nothing has changed from that perspective, and we're in the middle of that process. Again, this acquisition is explicitly not linked to the outcome of a European strategic review. It's all part of a broader portfolio transformation, which we talked about in April, but the financing of this acquisition is certainly not contingent on any European outcome.
Secondly, in terms of the growth rate going forward for this business, what is the assumption? I know within that focus, the portfolio transformation strategy, profitability and growth were the two areas of focus. You talked about profitability of the business, but the go forward growth targets or expectations, what should we expect from this business?
Eric, I wanna point to what we had also in the presentation. Multi-year growth rate is about 4%. Now obviously as everybody experienced in the last three years, it's been first we had a COVID hit and by now a significant acceleration of the growth. I would right now still assume a long-term growth rate of this one to be mid-single-digit growth rates. That's what we've seen over an extended time period. Now obviously the next 12-15 months, it could be a little bit slower, but not a whole lot because you still have the benefits of the price increase. Then I think it will follow the long-term U.S. housing trends.
Your final question comes from the line of Michael Dahl from RBC Capital Markets. Your line is open.
Thanks for squeezing me in. Marc, Jim, I just wanna follow up, sorry, one more time on the math around the 125 next year, because if I look at the EBITDA of $170, I mean, making reasonable D&A assumptions, maybe that means like, ballpark $150 in EBIT. If you finance $2.5 billion, 5%, that's $125 million of interest expense annually. I guess I'm still struggling to get the math on the buck 125. Maybe if there's a little more detail you could give us on breaking that down.
Yeah. You know, Mike, to get to the 125, part of that is what you know, Mark alluded to earlier on the numbers that we gave is our expectation for 2022. Again, if you add some growth in for 2023 on top of this, add in the synergies that we expect to generate, and then you also have a benefit, a tax benefit that comes that we talked about as you know, part of what we included in the purchase price, but additional amortization from a tax perspective. All of that added together gets us to the 125. There's a lot of moving parts there, but those are the components.
Okay. Then my follow-up, Jim, is on that tax benefit side. I guess what your comment there, so are some of the tax benefits then included in the accretion number? Maybe you can just help us understand kind of the timing of those tax benefits. Is it all just the amortization effect or was there something?
Yes, it's an amortization effect and approximately over, let's just say, give or take 15 years, that you have incremental amortization that you deduct from it, and it comes from your step-up in basis due to the acquisition. You know, overall, over a long-term period of time, it effectively helps your tax rate by, let's just say, you know, during this period of time for the total company, 1% or so. That benefit does add obviously to the bottom line to EPS and does generate cash for us, you know, over that period of time.
Thanks, Jim. With that, I think that was pretty much my last question. Thanks again for joining us at such short notice. Obviously, as you hopefully could tell, we're very excited about this acquisition. It is a truly unique asset. It will strengthen our kitchen business, it will strengthen our North America business, and it will further accelerate our long-term portfolio transformation. We're very excited and thanks for joining us today.
Ladies and gentlemen, that concludes today's conference call. You may now disconnect.