(Bloomberg) -- Whirlpool Corp., the company behind KitchenAid mixers and Maytag washing machines, will double down on debt reduction this year as US interest rates remain high. 

The Benton Harbor, Michigan-based company has $2.5 billion in term loans it raised for its $3 billion acquisition of the InSinkErator garbage disposal business in 2022. Chief Financial Officer Jim Peters said that $1 billion of that will be paid down now, up from $500 million in debt reduction for 2024 that Whirlpool projected during its earnings release last month.

Whirlpool raised $300 million in the US investment-grade bond market on Feb. 22 to refinance a 2024 maturity. It has $350 million coming due in 2025, followed by roughly half a billion euros ($542 million) in 2026, according to data compiled by Bloomberg.

Peters, who spoke with Bloomberg ahead of an investor event on Tuesday, said that while everybody expects interest rates will fall, recent Federal Reserve comments suggest that this could take longer than some foresaw after higher-than-expected inflation data in January.

“There is less certainty on when rates will come down,” he said. 

Whirlpool’s leverage, measured as the ratio of net debt to earnings before interest, taxes, depreciation and amortization, stood at 3.6 times at the end of 2023, primarily driven by the acquisition of InSinkErator. That ratio is supposed to come down to 2.0 times by 2026.

“The recent debt increase has been a concern as most of the company’s free cash flow would be needed to pay the dividend. Asset sales will be a key component of deleveraging but this will likely take time,” said Drew Reading, US homebuilding analyst at Bloomberg Intelligence. Changes to simplify the portfolio should be beneficial to Whirlpool’s business in the long run, he said.

The manufacturer is targeting cost savings of $300 million to $400 million this year. Additional savings will be generated by reducing the number of components in Whirlpool products, simplifying the business and other measures, Peters said. 

“Previous cost savings would have looked at doing the same things more cheaply. Now, we are revisiting how we are organizing the business,” Peters said, pointing to the company’s move to create a new small domestic appliances segment for KitchenAid products.

“That will help us demonstrate to shareholders how strong this business is,” he said, adding that over time, the simplified business model will require fewer people. 

Peters declined to provide specific numbers on how many jobs could be lost. Last month, the company said it was planning to reduce its corporate headcount this year. 

Whirlpool isn’t planning to sell its KitchenAid small appliance business that it is breaking out as a separate segment, Peters said. “It will allow us to grow the business better,” he said.

Mortgage Headwinds

With existing home sales at the lowest in more than 25 years, Whirlpool and other white-goods makers are suffering as shoppers forgo appliance upgrades. Its so-called discretionary business, which is driven by existing home sales, has been particularly weak in North America, which makes up more than half of the company’s revenue.

“I am in a business that is really connected to housing,” Peters said. 

Sales of previously owned US homes rose by the most in nearly a year in January as buyers took advantage of a dip in mortgage rates. Contract closings increased 3.1% from December to an annualized rate of four million, according to the National Association of Realtors. Still, sales slipped 1.7% compared with January 2023. Thirty-year mortgages this month are back at about 7%, according to data compiled by Bloomberg.

“We think that if rates were to stabilize — which is a big ‘if’ given such volatility — we could start to see a rebound in home sales late in 2024, with a stronger improvement in 2025, which would certainly create a more favorable backdrop for appliances,” BI’s Reading said. 

--With assistance from Leslie Patton.

©2024 Bloomberg L.P.