KEY RATING DRIVERS
WHR's ratings reflect its position as the world's largest appliance manufacturer, with leading market positions in many regions. WHR's global operating platform, increased manufacturing efficiency, and well-recognized skills in innovation have enabled it to improve its cost structure, compete more effectively around the world, and adjust to escalating material costs. Risks include intense global competition, volatility of raw material costs, sensitivity to business cycles, and ongoing regulatory issues.
The Positive Outlook takes into account the company's improving credit metrics (and Fitch's expectation that WHR will sustain these metrics), solid liquidity position, and continued modest growth in global demand for appliances.
IMPROVING CREDIT METRICS
WHR's key credit metrics improved during 2012 and 2013 relative to 2011 levels. The company's leverage as measured by debt-to-EBITDA stood at 1.2x at the end of 2013 compared with 1.5x at the conclusion of 2012 and 1.7x at year-end 2011. Total adjusted debt-to-EBITDAR was 2.1x at the conclusion of 2013 compared with 2.5x at year-end 2012 and 2.8x at the end of 2011. Interest coverage improved to 11.2x in 2013 from 8.3x in 2012 and 7.0x in 2011.
For the latest-twelve-months (LTM) ending
Fitch expects WHR's credit metrics will remain relatively stable during 2014. Fitch expects debt-to-EBITDA will settle at 1.3x at year-end 2014 while adjusted debt-to-EBITDAR will be approximately 2.1x. Interest coverage is forecast to improve to 12.5x at the conclusion of 2014.
The near-term operating outlook for global appliance demand remains relatively stable despite weak growth in international markets. In the U.S., Fitch expects appliance demand will increase mid-single-digits during 2014. Fitch projects single-family housing starts will improve 15% to 710,000 and multifamily volume will grow about 9% to 335,000. Thus, total starts should top 1 million this year. New home sales are forecast to advance about 16% to 500,000, while existing home volume should be flat at 5.10 million, largely due to fewer distressed homes for sale. Internationally, Fitch expects appliance shipments will remain flat to slightly higher in 2014 compared with 2013 levels.
SOLID LIQUIDITY POSITION
WHR has solid liquidity with cash of
A majority of the company's cash is held in foreign countries (approximately 95% of cash as of
The company has significant debt maturing over the next four years, with roughly
FREE CASH FLOW GENERATION
The company generated
Management continues to be disciplined in the uses of its cash and cash flow and will deploy cash to: fund the business, manage debt and its pension obligations, return cash to shareholders and pursue M&A opportunities.
The company recently increased its quarterly dividend payment by 20%. (WHR also increased its quarterly dividend payment by 25% in
Fitch expects management will remain disciplined in prioritizing the uses of its cash and cash flow. Funding the business as well as pension contributions will be primary uses of cash and cash flow. Additionally, excess FCF may also be used to fund the announced acquisition of a 51% equity stake in Hefei Rongshida Sanyo Electric Co., Ltd. for
There are ongoing regulatory issues that could negatively affect the company's financial profile. WHR's Brazilian operations have received governmental assessments from
There are also antitrust investigations relating to WHR's compressor business. Government authorities in
An upgrade of the company's IDR to BBB+ may be considered in the next 6-12 months if the company performs in line with Fitch's expectations, particularly debt-to-EBITDA consistently situating within a range of 1x - 1.5x, interest coverage sustaining above 10x, and if WHR continues to maintain a solid liquidity position.
The Outlook could be stabilized if there is some deterioration in operating performance, leading to EBITDA margins below 10%, leverage consistently in the 1.5x - 2.0x level, and interest coverage between 6.0x - 10.0x.
On the other hand, negative rating actions may be considered if there is significant deterioration in global demand and consequently the company's operating performance, WHR undertakes shareholder friendly activities funded by debt, and/or there is material judgment against the company related to existing regulatory proceedings, leading to leverage levels consistently exceeding 2.5x and interest coverage falling below 5.5x.
Fitch has affirmed the following ratings with a Positive Outlook:
--Long-Term IDR at 'BBB';
--Short-Term IDR at 'F2';
--Commercial paper at 'F2';
--Senior unsecured notes at 'BBB';
--Bank revolving credit facility at 'BBB' (
--Long-Term IDR at 'BBB';
--Senior unsecured notes at 'BBB'.
--Short-Term IDR at 'F2';
--Commercial paper (CP) at 'F2'.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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