惠而浦 (WHR) 2002 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen.

You're on line for this Whirlpool Corporation second quarter earnings release conference call.

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Please stand by, we're about to begin.

Good day everyone and welcome to the Whirlpool Corporation's second quarter earnings release conference call.

Today's call is being recorded.

Now for opening remarks and introduction, I'd like to turn the call over to the director of investor relations, Mr. Tom Filstrup.

Please go ahead, Tom.

Good morning.

I'd like to welcome all of you to our second quarter conference call.

Our opening remarks will refer to a slide presentation which is available on our investor Web page.

This call and this live presentation will also be archived on our Web page for your convenience.

During this call we'll be making forward-looking statements to assist you in your understanding of our company's future expectations.

Our actual results could differ materially from these expectations, due to many factors which can be found in our latest 10-Q.

Now, I'd like to turn the call over to our Chairman and Chief Executive Officer, David Whitwam, for his opening remarks.

David?

Good morning and thank you for joining us today.

Last evening we issued our second quarter press release in which we outlined a strong quarter of earnings as well as first - or full first half results.

For the quarter, net earnings were up about 17 percent, core earnings per share up 14 percent and revenues grew approximately six percent.

On balance, we believe this is a very solid performance.

I would also note that there was a five cents per share charge to earnings in the quarter related to an asset write-down required as we completed the purchase due diligence for Vitromatic and that acquisition.

Absent this event, related to that transaction, net earnings and core non-gap earnings per share would have been up 20 percent and 18 percent respectively.

Let me offer several broad observations about the quarter before Jeff Fettig, our President, and Mark Brown, our CFO, provide more detail.

First, we continue to provide you with a view of both net earnings as well as non-gap core earnings and we outline the detail of the adjustment from net to core earnings.

We believe that this approach provides you and all of our shareholders with the most relevant information on which to evaluate our company in total and the ongoing trends in our operating businesses.

Looking at our regional businesses, our North American operations continued their very strong industry-leading performance.

In addition, their performance momentum continues during this months of July.

In Europe, we continue to drive operating performance improvements with operating profit as a percent to sales up over three points as compared to both last year, as well as the first quarter of this year.

We will continue to deliver sequential, quarter by quarter improvement with our European business as we go through the rest of this year.

Our Asian business continued to pull solid performance improvements with operating profit up 36 percent over the second quarter of last year.

In Latin America, you have noted, I'm sure, that we had a significant decline in second quarter performance.

Let me spend a moment on this before Jeff drills down on the details of that business.

As most of you know, we have a very strong leadership position in Brazil, with the most sought-after consumer brands and nearly two-and-a-half times the market share of our closest competitor.

As this year has progressed and industry volumes dropped, we noted a buildup of inventories as well as heavily competitive pricing on the part of industry participants on the both the manufacturing side as well as the retail side.

This was leading to very unattractive market dynamics.

During the quarter, we took steps to deal with our own situation by significantly reducing our production rates, lowering our own as well as retailer inventories and taking sizable price increases to the market.

These steps have balanced supply and demand for our brands, improved our own cost position and will enhance margins going forward, beginning in this third quarter.

Again, Jeff will provide you with more detail in his comments.

During June, we closed on the Polar acquisition in Poland and on July 3 we close the Vitromatic acquisition in Mexico.

These transactions are very important to our global business.

First, they will immediately add, on an annualized basis, $500 million to our revenue base and they will go over earnings that are accretive.

When the full Vitromatic ownership position is in place, we will be the on question market leader throughout the Americas, with 35 to 40 percent market share from Canada to the United States, through Mexico and in Latin America.

The Vitromatic acquisition, which will now be named Whirlpool Mexico S.A. will give us both the platform to grown within that fast growing Mexican market as well as a very competitive cost base from which to export product to other markets.

The

acquisition provides us with clear market leadership in central Europe, as well as in Poland, which is the fifth largest market in total Europe.

It also provides us with a very competitive low-cost manufacturing base from which to export products to our western European markets.

So again, ladies and gentlemen, we view both of these acquisitions as having significant strategic and operational value to our company going forward.

Lastly, let me spend a moment on our outlook for the remainder of 2002.

We continue to be comfortable with your full year consensus earnings forecast, which will require us to deliver core earnings improvement of 10 to 11 percent over 2001.

On balance, we believe appliance industry shipments around the world will provide us with the positive opportunity to drive performance improvements.

Yes, we do recognize that there is a fair amount of uncertainty in all of our markets, and we will continue to monitor conditions and trends very closely.

As we sit here today, our view is that the North American market will show continued growth over the second half of 2001 -- as compared to 2001, albeit it will be at lower growth rates than the industry experienced during the first half of this year.

In Latin America and Europe, second half industry shipments will show improvement over the first half of the year.

In Asia, we'll continue the positive industry growth rates that we experienced during the first half of the year.

Combining this projected environment with our continued aggressive approach to cost, productivity, restructuring, and innovative product introductions, we again believe we will lead to a second half earnings performance that's stronger than we delivered in the first half of this year.

Now, let me turn this over to Jeff Fettig.

Good morning.

Turning to slide three, I will begin with comments about our North American business, where we again delivered record results for the quarter for unit volumes, revenues, and operating profits.

Revenues grew by 11 percent in an industry where the core

products grew by 9.4 percent and

products grew by 9.8 percent.

Our operating profit grew by 20 percent, driven both by strong revenue growth and productivity improvements.

And this performance was strong across all brands, all channels of distribution, and was very positively impacted by consumer demand for innovative new products, such as our Duet front-load washer and dryer, our Calypso washer and dryer, our Conquest side by side refrigerators, and the whole KitchenAid Pro line of cooking products.

On slide four, you can see where our focus on bringing meaningful product innovation to customers through our brands is positively impacting our current sales, our mix, and our profitability.

We're also receiving very positive external recognition for these new products.

Whirlpool manufactured products have received the top ratings by a leading consumer publication in six categories in recent months.

Front load washers manufactured by Whirlpool had four out of the top five ratings, including the number one rating.

In top loaders, we're also rated number one, and also had four out of the top five ratings, as well as the top two ratings in dryers.

In fact, across the entire washer and dryer categories, Whirlpool manufactured products held 10 of the top 12 ratings, which is our strongest position ever.

Additionally, we received top ratings for side by side refrigerators, microwave oven over the range units, and our KitchenAid professional dual range.

Along with that, we received many other awards for design.

In fact, last week we received a very special honor from the Smithsonian Institute

Design Museum, held at the White House.

Whirlpool as a company received the corporate achievement award for our overall design capabilities.

The

committee sighted the

washer-dryer, the Personal Valet, the

range, and the

in-sink dishwasher as examples of our capabilities in design, and truly meeting consumer needs with innovative products.

Looking ahead in North America, we expect the market demand to grow by two to three percent in the second half of the year, and we are raising our full-year forecast to 6 to 7 percent, based on our expectation for growth in the second half.

Despite a lower--a slower rate of market growth in the second half, we do believe that, with our continuous flow of innovative new products, our strong consumer-desired brands, our focus on added-value distribution will still enable us to grow and deliver record operating results through the balance of this year.

Next, on slide five, I'll turn to Europe, where our revenues grew by five percent, and we delivered a significant improvement in operating margins, which came in at 4 percent, which is a 3.1 improvement over last year.

This performance was delivered in what we would call a relatively sluggish environment, where we estimate that market demand declined by 1 to 2 percent.

Our operating profit--performance improvement was driven by very strong productivity gains, and beginning to realize the benefits of our restructuring activity.

Looking ahead, we expect these improvements to continue, and margins to expand for the balance of the year.

We are forecasting in Europe a flat market demand in the second half, which will be a marked improvement from what we have seen in terms of first half industry conditions.

We also expect to have a positive impact on our business within the introduction of two new products, coming from our global innovation pipeline, and bringing them into the European market.

On slide six, you can see an example of two product innovations which had first been introduced in the U.S. with great success, and are now being introduced in Europe with the size, the dimensions and the performance requirements which are--we are confident will make them a success with European consumers.

The picture on the left is the European version of the Duet washer, which will be the largest capacity washer in that marketplace, and conforms with European space dimensions, and has clear superior advantages in terms of both wash performance and energy requirements.

On the right is the

side-by-side refrigerator, which is the first ever side-by-side refrigerator designed precisely for the European market.

This product will meet counter-depth space requirements, it will offer A-class energy standards, as well as as having the very positive features we see in the U.S. marketplace, of in-door ice, water filtration and flexible space-management options.

We do believe both products will have great demand in the market, driving both revenues and margins in the second half of the year.

Turning to slide seven, as Dave mentioned earlier, we did have a challenging quarter in Latin America.

Revenues declined by 16 percent--that would be 12 percent if you took the currency devaluation--and operating margins came in at 4.4 percent, down from a 9 percent margins last year.

And as Dave mentioned, this reduction in margin largely stemmed from a decision that we took during the quarter at both the trade and the manufacturing level.

Weak demand for the last several quarters has caused retail trade inventories to grow.

Given this, retailers were demanding both price discounts, and extended terms from all manufacturers for new orders.

This was a very negative cycle, which we felt would not change unless we moved to take out this excess inventory out of the system.

So during the quarter, we took the decision to reduce our production by 30 percent, we shortened trade-receivable terms, and in June we raised prices across the board for our products by 10 to 15 percent.

Today, retail inventories have been reduced significantly, and in July we're now beginning to see what we consider a normal order flow at the new price levels and trade term levels.

Although this decision had a negative impact on our operating results for the quarter, we felt it was clearly required for us to change the industry dynamics towards a much more positive cycle.

For the second half of the year, we expect market demand to be relatively stable in the regions and our margins will return to more normal operating range of 8 to 9 percent, assuming there's no major changes in the external environment there.

Turning to slide eight, I'll talk about Asia, where our revenues grew 3 percent in a market which we estimated was flat across the region.

Operating margins expanded significantly to 7.3 percent, up 1.8 points versus last year.

Our operating margins improvement was driven by volume growth, productivity gain, and positive manufacturing

.

Within the region, India continued to expand our market-leading position.

Whirlpool, today, is the clear number one appliance brand in the market, with a leadership position in both refrigeration and washers.

We've had an excellent success to date just entering the fast-growing air conditioner and microwave oven markets.

And although we've just entered

this year, we've gained over 10 percent of the market in our first year of participating in these product segments.

In the second half of the year, we expect a modest improvement in market conditions.

We will continue to grow revenues and expand margins on a quarter by quarter basis in the balance of the year, and we feel we're making now considerable progress in expanding our overall presence throughout the Asian region.

To sum up, again, as Dave mentioned, we're seeing -- we see modestly improving global demand around the world for the balance of the year.

The US market growth is expected to slow, but I think it's -- we see it being a respectable growth rate of at least 2 to 3 percent in the second half of the year.

Overall, our global operations continue to perform very well.

Our focus has been and will continue to be on developing strong brands, bringing continuous and relevant product innovation to the market in all parts of the world, and continuing our relentless focus on driving productivity.

This focus will enable us to deliver both top line growth and expand our margins during the second half of 2002.

So with that, I'm going to turn it over to Mark Brown.

I'm on slide 10 now, and as you can see, that reflects the accounting line items from operating profits and net earnings.

As you can see, the interest income and

expense line was unfavorable by $5 million versus 2001, primarily due to the costs incurred to hedge the currencies in Brazil and Argentina.

This is more than offset by favorable interest expense generated by reduced debt levels and lower interest rates.

You should expect that the sum of interest income, interest expense, and sundry expenses will approximate $50 million per quarter for the balance of the year.

The effective tax rate is at 34.5 percent, same as last quarter, and in line with our guidance and expectations for the full year.

The equity on affiliated minority interest was $4 million unfavorable versus last year, primarily due to fixed asset write-offs accounted for during the

acquisition due diligence process, as Dave talked about previously.

Slide 11 now shows several other key financial metrics.

As you can see, working capital of 1,544 million is at 14.5 percent of sales, favorable by 90 basis points versus last year.

Debt levels are down over $120 million, again, versus last year, and EBIT interest coverage at 5.5 times is an improvement versus last year's four times.

On debt to cap, return on equity, and return on total capital, we have shown these including and excluding the impact of

accounting changes that I'll be talking about later.

And as you can see, return on equity and return on capital have both improved, while debt to total capital remains basically unchanged.

Along with the usual P&L and balance sheet in the press release this quarter, we have provided you with the cash flow detail which is in line with our expectations at a negative $319 million.

In addition to the seasonal working capital build, as we have discussed before, the first half cash flow was affected by the tax payment of $86 million, associated with the hedge that we realized and monetized last year, as well as the impact of the previously announced product recalls which were basically completed during the first half of this year.

And again, our expectations remain that, including all of the items mentioned above, we will generate free cash flow of approximately $200 million in 2002.

Line 12 points out some of the key points regarding the recent FAS 142 announcement.

As most of you are aware, the accounting rules for goodwill amortization as well as goodwill valuation changed with the issuance of FAS 142.

As we talked about before, the favorable impact of the discontinuation of the goodwill amortization is approximately eight cents favorable per quarter per share and is being offset by the reduced pension credits.

The changes in the goodwill valuation rules resulted in a non-cash, goodwill impairment charge of $613 million.

This charge is associated with businesses in Europe, Asia and Latin America acquired between 1989 and 1997.

Per the new rules, this change will recorded - this charge will be recorded as a change in accounting principles retroactive to January 1, 2002.

Also, as a result of a concurrent review of our business assets, we took a non-cash, after tax asset write-down of $22 million.

This write-down was brought about by the performance deterioration of a non-core European business that we acquired as part of the 1989 European appliance acquisition from Philips.

Both of these charges are non-cash, have been reviewed with the rating agencies and do not affect our credit ratings.

Slide 13 gives you an update on our restructuring initiative.

In the second quarter, we took a pretax, $26 million charge, mainly for costs associated with the previously announced initiatives.

This brings our total pretax charge to date to $250 million, with 5,600 positions eliminated to date.

Charges against this initiative will be completed by the fourth quarter of this year, will amount to charges of between 300 and 350 million, will have eliminated approximately 6,000 positions and will deliver in excess of 200 million in annualized cost reduction.

Now, back to Dave.

OK.

Well, we'd like to turn this back to all of you now for your questions and comments.

Thank you, gentlemen.

Today's question-and-answer session will be conducted electronically.

If you'd like to ask a question today, please press the star key, followed by the digit one, on your touch-tone phone.

Again, star, one, to ask a question.

We'll take you in the order that you signal and we'll pause just a moment to assemble the roster.

Again, star, one, for questions.

We'll go first to

,

.

Just a quick detail question.

You mentioned the consumer ratings early on in your discussion.

And I was wondering what the source of those ratings were.

Is that an independent third source or are those surveys you've done or what's the source of those?

That would be a ...

Well known.

It's the well ...

A very well known consumer reporting publication.

OK, but by a similar name.

Yes.

OK, thanks.

Which we can't publicize.

We'll go next to

,

.

Hi, good morning, everyone.

I was wondering if we could delve into the goodwill a little bit.

I mean, obviously this is non-cash, but this is a pretty massive charge, and you know, kind of obviously in hindsight reflects poorly on some of the acquisitions that you've done, and you know, and you just did two in the last month or two.

And, you know, I think it would be helpful to maybe talk about, you know, what has changed in your acquisition approach in terms of how you invest, what you pay, you know, how you intend to integrate these businesses so we don't run into similar problems.

I'm going to let Mark talk about the valuation, not the

requires.

And, you know, again, when you look at that methodology,

, you take the trends, the operating performance trends of the business, and we projected those forward.

And you can take a number of different approaches, conservative, aggressive, or whatever.

We chose to take a course that we felt was appropriate as we projected future performance.

It doesn't change our outlook of the value of these businesses and their ability to create value for Whirlpool.

And if you think about, again, I'll just use Latin America as an example.

I think all of you know, and I said to you before, Latin America -- we got the greatest cash on cash return from our Latin American business than anything we have in our portfolio.

Yet you know that from the '97 period on when they went through a number of economic dislocations, that performance deteriorated, and we used that as the basis, the current and immediately historical performance we're projecting going forward.

There's no question in our mind that the business is going to create lots of value.

Our Asian businesses, you know, you understand all of you that were in on -- we're in much of a strategic start up phase even though we've been there for a number of years.

But, you know, we've driven that business now to a point that at seven points-plus operating margins, it's an

positive business.

So none of this has changed our view of the worth of those businesses in our global portfolio and our ability to create value with them going forward.

Mark, you might talk a bit about, you know, the allocation of corporate resources ...

Yes.

... or

on it and things like that that impact the valuation.

Yes,

, I guess that maybe I'd start by saying the change is in how you value goodwill, really are fairly substantial versus where they were last year at this time.

And I'd also say that if we were valuing this goodwill under the old rules, we wouldn't have an impairment charge here at all.

You do go through this, and you allocate corporate overhead, you allocate corporate assets to all of these entities.

You allocate your other income, other expense items to that, as well as taking a look at historical performance plus projected performance.

We've used a fairly aggressive cost of capital because there is -- there tends to be a delta in that region by region.

And when you discount all of those expectations, which is the real change is the discounting of all of those expectations, you see an impairment of those investments on goodwill.

To the

and the

acquisitions,

we acquired -- we bought it on our books in June.

It was accretive for the first month that it was on our inside of our operations.

We've told you before,

, again, all of you I think know we were a 49 percent owner of that business.

It was a business that had been performing well at the

10 percent plus margin, and a capital structure that just wasn't appropriate, nor were we able to utilize those assets as a aggressively as we wanted to from an export standpoint into the United States, and now we are going to be in a position to do that, so

I'm not sure that answers all of your questions, but, now that's our view.

The portfolio we have hasn't changed our view of its ability to create value going forward.

Yeah, I mean--I appreciate that, I just--those, the use of discounted cash flows now, instead of undiscounted cash flows is probably the economically correct way to do it, so, when put to an albeit tougher, but perhaps more realistic test, I guess really in hindsight, what you've paid for some of those things looks like it didn't really pan out.

I guess that's really kind of my issue.

And, you know, it's water under the bridge, but I'm just concerned that going forward, that much more attention is paid to deriving--deriving value from these deals.

Just some follow-on questions--I think you gave, Dave, the unit volume change in the U.S., or perhaps it was Jeff, but in your business--if you did, could you repeat it, if not, could you give us that color if you have it?

Revenues, Jeff, were up 11 percent.

Unit volumes were approximately in line with the market at 9.8 or 9.7 percent, so we had--we had a slight market share increase, and we continue to have some positive revenue unit change.

I think the important thing in the quarter, as was true in the first quarter and the last couple of quarters of last year, we are driving revenue improvements faster than uni- sales improvements, so we are getting average sales value expansion, selling a higher

.

And just one last thing, in light of the comment about--I don't know if you necessarily said retailers were in distress in Brazil, but there's gyrations going on down there--you know the reserve for doubtful accounts actually declined, although receivables are up quite a bit seasonally.

Any comment on that, and what you see as far as the health of your retailing population?

Yeah, you know that, to the retailers in Brazil--you all know who our competitors are there, it's General Electric, it's Electrolux, it's

, and it's ourselves

predominantly the market, and it's amazing how retailers in Brazil discovered that all big publicly held companies report quarterly, and what--they began to play a game with us about a year ago, which kind of led to, they'd wait until the end of the quarter, because they knew everybody needed volume, and then they'd pressure all of the participants for pricing.

I think all of you know that we have a high 30 percent market share, we got about 50 percent value share in Brazil, it is a leadership position, and clearly, the dynamics--we felt that we needed to change those dynamics in the marketplace.

By taking inventory out of the system, and again, given our branded consumer position, retailers have to have our brand, and by taking inventory out of the system, we I think removed their ability to use their own excess inventory as a buffer as they tried to negotiate for more aggressive price points.

So we think this was the right move for us, as Jeff indicated.

We took our production rates down about 30 percent.

We are now back to a more normal-- normalized order rate and shipment rate.

And again, that does wonderful things in your business from a cross standpoint rather than have everything bunched up the last 10 days of the month.

We think margins will rapidly return to the more normal 8 to 9 percent margin level that we delivered in the first quarter and the fourth quarter of last year, et cetera.

Thank you.

And we'll go next to

at

.

Good morning, guys.

I guess I was just wondering if you could comment a little bit on your relationship and/or discussions with Home Depot, particularly in light of the fact that GE is no longer doing their private label credit card and is also not the exclusive supplier of light bulbs.

How do negotiations with Home Depot -- I guess, how often do you have them, and what do you see the outlook there?

, we are not having any negotiations with Home Depot.

We're selling their

.

As we've said before, we are very pleased with the present distribution structure that we have.

OK.

And I guess, also, just to follow up on the

accounts.

If you look at it as a percentage of total, it certainly has ticked down, and I guess, with respect to kind of the outlook for consumer confidence, I'm just curious why it does continue to tick down as you look out over the next couple of months -- or the next six months to 12 months, how do you see that shaking out?

It's just -- I guess intuitively I'm not following it.

, this is Mark.

I'd first of all start by saying we're still very comfortable with our reserves.

As you know, as you look at that, the moving parts within those reserves is -- well, we took their usual provision this quarter, we had some currency impacts, which takes the value of that provision down, as well as when you write off, ultimately write off an accounts receivable, which is just a balance sheet movement between accounts receivable and the reserve itself, that explains the bulk of that change, is just the balance sheet write off of some of those doubtful accounts.

Can you give us the dollar numbers of those components?

Yes, the -- think of the provision in the $10-plus million as a charge against income.

And then I think we had somewhere between 15 and 20 combination of write-offs that basically removed the receivables from the books.

For some folks, the names of which these folks you wouldn't probably recognize the dealers,

, and the currency blowing through there was in excess of 5 million bucks.

OK, thank you.

And we'll go next to

at

.

Good morning.

One of your competitors mentioned this morning a substantial slow down in major appliance sales in late June.

Did Whirlpool experience similar trends?

We didn't see that in our shipments.

There was, I think, for two to three weeks in June, there seemed to be some slowing down in retail sell-through, but our shipments remained normal throughout the month.

And we've seen these ups and down patterns before, we had the same thing happen in April.

You know, having said that, the first two weeks of July have been extremely robust, so it's -- you know, I mean, there is a little bit of variation to this, but frankly, as of middle of July, we've really seen no change in the healthy level that we've seen the first half.

Again, when we talk about an industry that is going to be up, we think, 2 to 3 percent in the second half of this year, that will be at record levels.

It'll be a record level of industry shipments in North America, but it will be slower than the 9 to 10 percent that we've had in the first half of the year.

And secondly, margins remain strong in North America and I heard that you expect margins to expand in other regions.

But what would be a good target for consolidated operating margins, long-term and where do you - when do you think that you get to a stable level of operating margin?

You know, I think what you're seeing today is a growing level of operating margins.

And we've been expanding that for the last few quarters.

What you saw this morning in our earnings release was continuing expansion on the North American margins.

You saw a significant improvement on the European margins.

We've indicated to you all before that we believe we will exit the year at a seven percent going rate at the operating margin level in Europe.

That's the level that is necessary for us to create positive EBA.

So, you're going to continue to see positive improvement in Europe.

In Latin America, we had this one quarter deterioration.

We've said to you that we think it will return to that more normalized eight to nine percent.

So, in Asia, you know, the revenues, at this point, aren't large enough to dramatically impact the margins across business, but we are nicely profitable in Asia and have a very important strategic position.

So, you should expect that we will continue to expand these margins, not just this year, but as we go into next year.

Great.

Thanks.

And we'll go next to

,

.

Yeah.

I just had a couple of questions.

Did I understand correctly that a -- the five-cent Vitromatic charge through the core earnings as opposed to putting it in through the restructuring part?

We ran it through the net gap earnings.

No.

We ran it through the core earnings.

Core earnings.

Core earnings.

Core ...

So, why would you do - I mean, you've got all those other restructuring stuff.

Why would you take that one and run it through the core earnings?

Because it was, you know, this is an asset that's on our books ...

OK.

... part of the due diligence process that we found.

And it's the appropriate treatment of it.

OK.

And - did also - did you say you took some receivable write-downs in the quarter?

Just write-offs.

Right.

In other words, they've been on the balance sheet we would have reserved for them in a prior period.

It appears that they are clearly uncollectable, so the accounting treatment is you remove them from your books as well as the reserve that you would have had on your books for them.

So, there would be no income statement impact.

Is that correct?

Absolutely no impact to the P&L.

OK.

Just balance sheet movement.

Thank you.

That's all the questions I have.

Again, ladies and gentlemen, just a reminder.

Star, one, to ask your questions.

We'll go now to

at Midwest Research.

Actually, it's

this morning, speaking for

.

I was wondering if you could comment on the restructuring in Europe - what the plans may be on it or what they may be changing due to the fact that it's a very, I guess, tepid market environment over there, doing a lot of, I guess, surveys of retailers each month.

And it just seems that things aren't looking up for them and they're really not expecting too much growth going forward.

Thank you.

You know, a number of things.

I think, to date, and as we indicated throughout the restructuring plans, our overall global restructuring, I would say, will be - has been and will continue to be most impactive in Europe.

As you look at the headcount reductions as well as some of the physical changes of product flow that we're making.

For example, we have already announced we're moving our countertop microwave oven production from Sweden to China.

We have announced and we're in the process of the discussions with unions to move our top-load washing production from France to Slovakia, and now with our new

asset, you should expect that we will take more production, or any increase in production, and that capacity will go to low cost manufacturing locations.

At the same time, we continue to reduce significantly the structural head count in our SG&A.

As we go through Q3 and Q4, we will announce additional plans in Europe, in line with the total restructuring charges.

But I would say that that is where we're being most aggressive in terms of structuring and reducing cost and changing our footprint in Europe.

At the same time, I'd only add that our productivity levels outside of restructuring are also very aggressive.

We're averaging close, or we think we're on track to averaging, close to 4 percent net TCP in Europe, which, you know, the combination of those two are driving margin improvements, and typically we see much more in the second half than we do the first half.

And

, we're -- you commented on the retail environment in Europe.

And, I mean, there is no one retail environment.

There's no question that Germany continues to be depressed from a consumer spending standpoint, the most significant market in Europe that's depressed.

On the other hand, you've got a UK that's up, and other markets that are flat.

So it's, you know, we really have to look market by market to evaluate retail activity.

And again, we are not looking for robust growth.

Jeff indicated to you, we think the industry shipments in the second half will be flat to up 1 percent.

And we think sell out to consumers will be in the same range.

OK.

Additionally, now that you I guess have control of

, I was just wondering if you could possibly talk a little bit more about your plans with that and possible accretion.

And also, just due to the fact that it is going to be combined with the North American operations, are you going to provide, I guess, restatement going forward just to kind of -- so we can balance everything out looking at historical comparisons?

Let me first start with the plans.

You know, as we've discussed when we first brought this, we've really felt several significant benefits with this acquisition and integration into our business.

First of all, Mexico's high growth market, we've got a very strong market share position which we think we can expand and grow.

Second of all, and very impactive, is becoming part of our North and, I would say, South America manufacturing footprint.

As a minority holder, I would say we weren't overly aggressive in adding new capacity down there as we would be as completely in control of that business.

So as we see new growth and production developed throughout the region, this -- these assets down there will become a larger and larger part of our manufacturing footprint.

At the same time, the export opportunities beyond the US and Canada really include the whole Central America, Caribbean, where we have a very substantial business, as well as Latin America and possibly other parts of the world.

So we see this is as a great improvement to the competitiveness of our manufacturing footprint.

So we expect to gain benefits from all those things.

In regard to your question on, giving it ability to reconcile it.

You know, during these time periods where it's in one period and not in the other, we'll provide you with the information to make it helpful for you to do the comparison.

So we'll break it out of the North American business.

OK, thank you.

And we'll go next to

at

.

Good morning, gentlemen.

Two quick questions, a number of my questions have already been asked.

But North American revenues were up, I guess sequentially from the first quarter, about 7 percent, yet operating margins were actual down 50 basis points sequentially.

Is that largely the result of, I'm guessing, the seasonal mix, or is there something else that transpired?

, it's season.

If you look at our history, it's seasonal

, and specifically, we have a much heavier weight of air conditioners in the second quarter than--and we have virtually none in the first quarter, so this is--this is following what, if you historically, is a very similar pattern in our business.

Right, okay.

And, second question I would have, you mentioned, at least in the release, that when you reduced the production rate in Latin America, and the inventory levels, that contributed to a 4.7 point decline in operating margins, does that mean that you would have been in excess of 9 percent had those business decisions not taken place, or how am I to--what I'm just trying to get at is, what the impact of those--of cutting the production, had actually on operating margins.

It's--it's pretty--all of the margin reduction pretty much is explained by the lack of fixed cost coverage that runs with those plans when we reduced the production rates.

Okay.

All right, thank you gentlemen.

And a reminder, * 1 to ask your questions.

We'll go next to

at

.

Mr.

, your line is open.

Sorry, it was muted.

Yeah, first question of two questions here, is regarding your margin expansion in North America.

Do you expect that to be mostly driven by improved gross profits due to better mix, or higher price points, or volume growth, I mean, the ability to reduce--to cover your fixed costs, or a combination of those, if you could just give me some indication of some of your thought processes there.

And secondly, I think I missed the basis you have for being a little bit more optimistic in the second half of this year in terms of Europe and Latin America please.

Okay, the first question, in North America, I mean, really, the drivers of our margins have been, and will continue to be really three things: one is volume growth, two is positive price mix due to the produce innovations, and three is productivity.

In any given quarter, the relationship can change, but we don't see those three factors changing very much.

We will get benefits out of all three of those for North America.

The basis for--I would say modest improvement in Europe and Latin America, let me first start with Europe, is that first of all, as you know, we had a very negative first quarter.

We had a less negative second quarter,

if you look at the year-over-year comparisons, if you look at the market performance, and so on, you know, I think we're relatively comfortable going from a minus 4 percent first quarter to minus 1 to 2 percent second quarter to a flat second half.

So that's really just based on the way we see, particularly the last couple months, markets developing in Europe.

Germany is a little bit less negative.

It was a huge part of the first half decline.

So we don't see that dramatically different, just less negative that what we've seen in the last two quarters.

In Latin America, there, again, a lot of it is dependent upon the--both the political and economic development in the second half of the year, but having said that, given what took place in the industry in the second quarter with the reduction of inventory and so on, that ultimately led to some slow down to retail promotions, driving consumer demand and so on.

So our view is that, that being removed, that we will see a slightly better environment, again with the caveat as -- there is still economic uncertainty in the region.

Just to follow on this first question, gross profit.

gave us an idea of how much you've improved that in, let's say, in the last four to six quarters, we don't need to be specific, just to have an idea.

I have to go back and look

-- we -- you got that, Tom?

We can get it ...

We can get it for him.

Yes, we'll get it for you.

It's a couple of points of margin improvement over the last four to six quarters.

OK, on the gross profit, here.

Thanks.

And gentlemen, we have no other questions at this time.

I'll turn it back to you for additional or closing remarks.

OK, well, we thank all of you for joining us.

We are cautiously optimistic about the second half of this year as we look at these markets around the world.

As I said earlier, we are watching closely the trends that are developing.

We're watching retail activity very close in every single marketplace.

When we look at our inventories today at the retail -- on the retail side of the business, in all of our markets, we don't think there's issues of inventory buildup at retail.

Again, North America has returned to a really strong momentum here in July.

, our European business had its best revenue month in June in the history of the 12 years we've owned it.

So there's some things that say to us out there that things aren't all bad.

But we're managing tightly on the cost side.

We're bringing lots of innovation to the marketplace, and again, we think we can deliver the consensus forecast that you all have for us for this year in total.

So thank you very much.

Ladies and gentlemen, we thank you for joining us today for the Whirlpool Corporation conference call.

This does conclude the call for today and you may disconnect at this time.