The very same principle is the reason why we adopted ESG policies more than 50 years ago. To illustrate this, I would like to share a quote from Elisha Gray in his annual letter to shareholders from 1969:
“1969 saw continuation of determined efforts on the part of Whirlpool and its subsidiaries to make meaningful contributions to the improvement of the social climate in the communities where our facilities are located. We have long held that no business can separate itself from the affairs and problems of the society of which it is a part and hope to grow and prosper.”
The current debate was brought about by the Business Roundtable statement on company purpose that was signed by nearly 200 U.S. CEOs, including myself. This public commitment to lead our respective companies for the benefit of all stakeholders—our customers, employees, suppliers, communities and shareholders—includes the following tenets:
To our consumers, we commit to meeting or exceeding consumer expectations.
To our employees, we commit to fair compensation, benefits, training/development, and to provide a work environment that fosters inclusion and diversity, dignity and respect.
To our trade customers, we commit to innovative, quality products.
To our suppliers, we commit to a fair and ethical working relationship.
To our communities, we commit to respecting all people and protecting the environment.
And finally to our shareholders, those who help our company invest, grow and innovate: we commit to generating long-term value, transparency and effective engagement.
Turning to 2019, I’m very pleased to confirm that we are indeed generating long-term value for all those investing in Whirlpool Corporation and remain true to our mission of earning trust and creating demand for our brands. Let me share a few highlights of the year and our outlook for the future.
2019 in review
In short, our employees delivered yet another all-time record earnings per share and achieved a TSR which was well ahead of the broader market.
The business environment we faced during 2019 was unique compared to the prior year, presenting us with both positives and negatives. On the plus side, we saw a slowdown of the broader inflationary pressures which burdened us for the past two years. Raw materials have started to moderate and tariffs, while still being a headwind for us, have stabilized. At the same time, consumer demand remained subdued in most major markets throughout the world with the notable exception of India and Brazil during the latter half of the year.
From a regional perspective North America had another very strong year with EBIT margins of close to 13%, while we finally saw the signs of a successful turnaround in Europe during the back half of the year. Both India and Brazil demonstrated strong performance in a positive demand environment, while our China business was challenged with a market decline and the increased brand investments to facilitate the growth of the Whirlpool brand.
Despite softness in the demand environment, we remained focused on our operational priorities, executed our price increases and started to successfully reduce our cost base. All while increasing investments in our brands and products. The rigor in our operational execution throughout our global operations allowed us to deliver yet another all-time record year—both from a GAAP earnings per share of $18.45 and from an ongoing earnings per share of $16.00(c). This strong performance also showed up in Free Cash Flow of $912M (~7% improvement versus prior year).
Long-term shareholder value creation in 2020
In May of 2019 we had the opportunity to present our plans for long-term shareholder creation to the investor community. Our long-term goals include:
~3% annual organic net sales growth
~10% EBIT margin
6%+ free cash flow as a percent of net sales
12-14% return on invested capital
As evidenced during last year, we are getting close to driving the organic sales growth and the levels of free cash flow we had committed to. We improved our ongoing EBIT margin 60 basis points and made progress toward our long-term margin targets, however, we still have work ahead of us to reach our 10% EBIT target. It’s important to reiterate that Whirlpool Corporation is structurally able to deliver our 10% EBIT target for two reasons: our unique structural position and our long-term globally aligned strategic imperatives. These factors give us a competitive advantage over every competitor in our industry.