惠而浦 (WHR) 2003 Q1 法說會逐字稿

Please stand by.

We're about to begin.

Good day, everyone.

Welcome to the Whirlpool Corporation first-quarter earnings release conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Tom Filstrup.

Please go ahead, sir.

Good morning.

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

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

This call and the slide presentation will also be archived on our web page for your convenience.

During the call, we will be making forward-looking statements to assist in your understanding of our company's future expectations.

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

We will also be making comparisons of this year's GAAP earnings to prior year core earnings, which exclude one-time charges related to adoption of FAS 142 and restructuring activities.

We believe this additional view of earnings provides shareholders with relevant information about our company's performance and more detailed information regarding the one-time charges.

A detailed reconciliation of last year's GAAP to core earnings is also available on our corporate website on the investor page.

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.

If you'd turn to Slide 2, this morning we did issue our first-quarter earnings performance and, in total, I believe that we delivered a solid quarter, given the environment that we're operating in throughout the world.

Revenues improved 5.5% to $2.7 billion and we're at record levels.

For comparability, excluding the revenues at Whirlpool Mexico, which was not consolidated in last year's first quarter, revenues were up 2%.

In total, we believe that on a global basis, whether in local or translated currency revenue, revenue and unit sales outpaced industry shipments and performance.

During our last call, we stated that for comparability and clarity, we would throughout this year compare 2003's quarterly performance to both last year's net GAAP earnings as well as to our core operating performance, so that you are better able to evaluate year-over-year business operating performance.

Accordingly, first-quarter 2003 net GAAP earnings per share totaled $1.32 cents a share.

And again, we also said at the beginning of the first quarter that we would no longer be issuing any pro formas, that we would take any one-time charges directly to the P&L and plan them in our business.

So, again, first-quarter 2003 net came in at $1.32.

This compares to the last year's loss of $7.63, and impacting last year's numbers was a charge of $8.84 per share attributed to the change in accounting rules pertaining to goodwill, as well as 11 cents per share associated with our restructuring activity.

Absent these one-time charges, underlying core operating earnings totaled also $1.32 a share, comparable to this year.

If you turn to Slide 3, as we also mentioned at the beginning of this first, we along with most industrial companies in North America would have to overcome significant increases in pension and in employee-related healthcare costs.

During the first quarter of 2003, these increases amounted to 27 cents per share over last-year levels.

We were able to offset most of these additional costs through continued aggressive focus on productivity, as well as the savings that we realized from our 2001 and 2002 restructuring activities.

In addition, as we look forward, we have a major project underway to reduce the sizable increases that we're incurring in the pension and employee-related healthcare costs.

We do expect to be able to reduce the rate of increase on these cost items.

Jeff Fettig will shortly give you a detailed review of our regional businesses and Steve Barrett will provide the same on our consolidated earnings and balance sheet statements.

If you'd turn to Slide 4, in our press release this morning, we highlighted several performance achievements, most notably record revenues in North America, with significantly higher profitability than our major U.S. competitors, earnings in our European operations that more than doubled from last year despite a very challenging industry and economic environment, and a solid year of year-over-year operating profit performance in Latin America despite an industry which declined an estimated 12% for the first quarter.

Over the course of the last few weeks, we have reevaluated our industry forecasts for each of our regional markets, and based upon current economic and related conditions, we have adjusted our outlook down in most cases.

And Jeff Fettig will provide you with the details of those adjustments.

If you could go to Slide 5, based on these adjustments, we are moderately adjusting our full-year earnings guidance.

At the beginning of this year, we projected full-year net GAAP earnings of between $6.20 a share and $6.40 a share, compared to a full year 2002 net GAAP loss of $5.68 and core operating earnings, excluding various one-time charges, of a positive $6.07 a share.

Based on our revised economic and industry outlook, we believe today that full-year earnings will be between $5.90 a share and $6.10 per share.

As all of you appreciate, I'm sure, these are not the easiest of times to do economic and appliance industry forecasting, given the uncertainty on both the geo-political and economic front and we are constantly monitoring all of the elements which drive industry demand.

If the forecast that Jeff will provide you today represents our very best judgment on the outlook for the remainder of this year.

We also believe that earnings in the $5.90 on cents to $6.10 per share range will represent solid performance in that environment.

Now let me turn this over to Jeff Fettig.

Good morning.

Turning to our regional business performance, beginning on Slide 6, I'll start with North America where we delivered record revenue levels while operating profit declined by $24 million.

This operating profit decline was completely attributable to the year-over-year change in our pension expense.

For the quarter, revenues and units in North America grew by 4.7%, and does include the addition of Whirlpool Mexico, which was acquired last July.

Without Mexico, our revenues grew about 2% in the industry on a T7 basis, total market shipments declined by 1.7%.

During the quarter, we saw continued strong and growing demand for our brands and new product innovation.

For example, sales of our Whirlpool branded Duet washer and dryer continue to grow very strongly.

And although there is significant competitive price pressure in the industry, particularly at the lower ends of the price spectrum, we've not seen any real consumer shift to lower price point purchases.

Rather, the opposite.

We continue to see growing demand for our new consumer-relevant product innovations across all product categories.

As I mentioned, operating margins declined, largely due to increases in pension and also healthcare costs.

These increases will be increasingly offset during the course of the year as the benefits of our productivity efforts and our restructuring savings ramp up throughout the course of the year.

Our sales performance in North America was well-balanced across all of our brands and distribution channels.

Our business with Sears improved as they continue to regain retail outlet share.

We estimate that Sears improved overall outlet share in Q1 versus both Q3 and Q4 of 2002.

We also continue to experience very strong growth at Lowe's and in our builder contract channels.

During the quarter, we continue to introduce new consumer relevant brand product innovations to the market as we've talked about on a continuous basis.

If you look on Slide 7, this is an example of one of our latest launches for the Whirlpool brand which we call the Family Studio.

This innovative new concept has created very strong interest from home builders and remodelers, and they have confirmed that many of their customers are seeking an organized solution for their traditional laundry area.

On Slide 8 is our newly introduced KitchenAid outdoor kitchen launched last week at a kitchen and bath show in Orlando.

This offering includes an outdoor freestanding or built-in grill, a refrigerator and icemaker which will unable our KitchenAid customers to cook and entertain with the same convenience and results that they're accustomed to indoors.

Looking ahead in North America, we have revised downward our industry demand outlook from our previous forecast of 2% growth.

We now believe that demand will be flat for the year, given the current levels of consumer confidence and the overall sluggish economic growth.

In this environment, we in North America will continue to focus on building strong consumer-desired brands, bringing customer-relevant and frequent product innovation to the market, continuing to grow our partnerships with value-added trade distribution, and aggressively manage total cost productivity in every part of our business.

And with this, we do remain confident that we will, even in this type of environment, will continue to grow and deliver revenue growth and solid operating results.

I'm going to now turn to Slide 9 and turn to Europe, where we did deliver significant improvement in the first-quarter operating results in what was a very challenging environment.

As you can see, revenues were up about 19%, which is strong -- where we strongly benefited from the dollar/euro exchange changes.

In local currencies, revenues declined a little bit over 1% and unit volumes were flat.

Operating profits in the quarter more than doubled, as we benefited from strong productivity performance and we have been realizing results of our restructuring activities.

The external environment in Europe remains, as I said earlier, very challenging.

Appliance demand, we estimate to have declined by 3% in the first quarter.

Consumer confidence levels in most key markets are at their lowest levels in 9 years.

In-official forecasts for GEP growth has been revised downward to 1% in the euros' own countries.

The war in Iraq has also had an impact on retail March, particularly in the French and the UK markets, where we saw in the last two weeks of the month retail traffic drop by 15 to 20%.

So given this environment, we continue to see also significant marketplace price pressures throughout most of these European markets.

Based on these trends, we have lowered our full-year forecast for industry demand and we now expect demand for the year to decline by 2 or 3 percent.

Our focus in Europe continues to be on aggressive total cost productivity, and rapidly leveraging our global product innovation into all of our European markets.

And based on this, we do believe we can continue to deliver solid performance improvements year over year despite this very challenging and industry environment.

Turning now to Slide 10, where our Latin America business had a very good performance in a weak economic environment, industry demand for appliances in Brazil declined by 12% in the quarter.

This is their lowest level of demand in the first quarter in over 9 years.

This weakness has been driven by high interest rates, low consumer confidence, as well as consumer uncertainty around the policies of their new government.

For the quarter, our revenues declined by 8%, which was all currency translation driven.

In local currency, our revenues actually increased by over 20%, and total unit volume shipments rose by 6%.

Our operating margins expanded by 1.3 points to 8.7%.

This margin expansion was largely driven by productivity gains, increased production volumes, and price increases.

In the quarter, we did make excellent progress in leveraging the strength of our competitive Brazil manufacturing position.

During the quarter, almost 25% of our total production was exported to more than 30 different markets in the global Whirlpool distribution network.

This approach has been made possible by our growing number of global product platform designs to meet the needs of consumers in various countries.

These global products can be manufactured in our different facilities around the world.

We expect to continue this export growth from Brazil throughout the rest of the year.

Looking ahead, we do believe consumer demand are improve from the low levels we saw in the first quarter, but given the kind of decline that we did see in the first quarter, we're now planning our business based on an annual forecast for demand to decline for the full year by about 3 to 5 percent.

So in this challenging environment, we also will here continue to drive very strong total cost productivity we'll continue to grow our export volumes and continue to improve on our price realization.

And based on these actions, we believe here too, and Latin America, we're going to be able to record solid operating performance gains while overcoming both the very challenging economic environment and the elimination of the BCX tax credits which start in the second quarter.

Turning to Slide 11, in Asia, we posted a good revenue growth of 8%, with a modest deadline in operating profit.

In the region, we estimate that market demand grew by about 2 to 3 percent.

Here, too, we continue to see very significant price pressures across all the markets in this region.

In fact, when you combine the price declines with the market growth, we estimate that the overall appliance market revenues actually declined.

Our sales growth was driven really by new -- by 30 new different product introductions launched during the quarter.

We're increasingly able to bring product innovation faster to the market by leveraging our global product development capabilities.

The success of these launches have enabled us to continue to both grow our market share position in both China and India.

Operating profit did decline modestly, due to price pressures.

There were some cost spikes in steel and oil-related materials, and we also had a planned increase in consumer advertising.

Looking forward, we continue to forecast demand in Asia to grow modestly for the year.

No real change there.

We expect to outpace the market growth in operating margins will improve as our productivity benefits ramp up throughout the year.

Really to sum up our global operations, on Slide 12, our updated view of 2003 is that global appliance demand will be 1 to 2 percentage points lower than what we had previously forecasted.

Again, this is being driven by low levels of consumer confidence, due to the many uncertainties around the world, and by generally low economic growth.

We are planning our business with a view that these conditions will not materially change for the balance of the year.

We've already made adjustments in our business to deal with a lower demand scenario that we're seeing, and we continue to be confident that we are on track to deliver another record year of revenues along with very solid earnings and free cash flow improvements.

With that, I'll end and I'll turn it over to Steve Barrett, our CFO.

Steve?

Thanks, Jeff, and good morning.

If you will please move to Slide No. 13, I'll walk you through our performance from operating profit to net earnings.

Interest income and sundry expense, which is subject to swings on a period-to-period basis, primarily due to currency movement on balance sheet positions, was $11 million lower than year-ago levels.

This improvement was largely the result of favorable foreign currency expense, primarily associated with Latin America.

For interest expense, costs were up only slightly, despite a higher level of debt-related to acquisitions.

Lower overall interest rates and improved cash flow versus 2002 levels helped to mitigate the acquisition impact.

As we discussed during the fourth-quarter conference call, our effective income tax rate is currently projected at 36 percent, up from 34-and-a-half percent reported this year.

The higher effective tax rate reflects a significant reduction in the utilization of Brazilian tax credits.

Slide 14 shows several key financial measures.

As a percentage of sales, working capital improved by 40 basis points to 13.9 percent versus year-ago levels.

This represents continued steady progress over the past several years, where we have improved cash utilization by working with customers and suppliers and managing to appropriate inventory levels.

As an aside, I would note that on inventories, we're showing a hundred-million-dollar increase quarter on quarter. $70 million of this is related to the consolidation of our Mexican business and about $60 million increase is attributable to stronger currencies, primarily the euro.

Debt levels are up 4 percent to 1.8 billion.

If you exclude last year's acquisitions of Vitromatic and Polar, debt declined by 274 million.

Strong operating cash flow has enabled us to absorb the impact of these acquisitions.

Our debt to capital ratio of 66.1 percent is up slightly from last year's 63.1 percent.

Due, primarily, from acquisitions.

The current debt to capital ratio is expected to decline throughout the year, as cash flow steadily improves.

Our interest coverage ratio is essentially equal with last year's strong levels.

Overall, our financial position remains strong, our debt rating remains triple B plus, and we anticipate strong year-over-year improvement in free cash flow.

Looking at the return on equity and return on total capital metrics, these data are presented on a comparable basis. 100 percent GAAP, of course, for Q1 2003, but backing out the restructuring costs in the year-ago quarter.

Both return on equity and return on total capital show improving trends, consistent with our expectations for the full year.

This improving trend holds, even after adjustments for some of the unusual items impacting our capital base over the past year.

I'd like to briefly comment on our outlook for fiscal 2003 on Slide 15.

During the fourth quarter, I indicated that our key assumptions for 2003 require a profitable revenue growth, driven by our innovations and brand-focused value creation strategies, continued improvements in total cost productivity, realization of savings associated with our restructuring initiatives, and strong cash flow.

I believe we have seen positive impact in all of these areas to date.

As Jeff mentioned previously, we have experienced weakness in industry trends and pricing during the first three months of the year, mainly attributable to a volatile and negative global economic environment.

While we anticipated a generally weak economy at the beginning of the year, low global consumer confidence levels, war, and health issues in Asia, have created additional uncertainty in the economies we operate in.

Currently, the external landscape remains uncertain.

We have, and will continue to operate our business with focus on our long-term strategies while balancing the challenges of the current economic environment and the implications to our short-term business results.

Based on conditions existing today, and our forecast of gradual improvement in industry and economic trends, we believe it's prudent to adjust earnings guidance to the $5.90 to $6.10 level for 2003.

As we discussed previously, you will see from the chart that this guidance includes $1.33 a share increase year-over-year for higher pension expense in the U.S. and the reduction of BCX tax credits in Brazil.

As discussed at the beginning of the year, we will overcome these increases through productivity and restructuring savings.

With that, I'll turn the call back to Dave.

Well, that's a very quick overview of each of the regional businesses' performance and as I said at the beginning, let me again say I think the first quarter represented very solid performance and in the kind of challenging environment that we found ourself around the world and it was a performance that we gave guidance to you at the beginning of this year and delivered on that guidance.

So with that, we'll turn it over to all of you for questions or comments.

Thank you.

If you do have a question today, please press the star key followed by the digit one on your touch-tone telephone.

Also, if you are using a speakerphone or your mute function is off, please make sure it is turned off so your signal will reach our equipment.

Again, that is star one for questions.

And we'll begin with Michael Regan with Credit Suisse First Boston.

Thanks.

First, for Steve.

Steve, am I correct in that inventory changes reported on the cash flow statement are neither impacted by consolidating Mexico nor by currency?

Yes, that is correct.

OK.

So inventory, on the cash flow statement, was up $97 million, so for Jeff, can you talk about that regionally, and if it -- it seems to suggest that you overproduced in the quarter, you know, made the number but, you know, a modest look at the number suggests that inventory might have contributed 20 to 30 cents, and then, of course, you're taking the people out for five to six weeks at your biggest facility in North America, so it looked like are reacting quickly to take that down.

Can you sort of give us your strategy around that?

Yeah.

Michael, first of all, I think you misunderstood Steve's comments.

The hundred million or actually 97 million year-over-year change is due to the addition of the Mexico inventory year-over-year and due to 60 million in euro currency translation.

On a like for like basis, we're actually down in our overall inventories.

No, Jeff, actually, for the -- for the balance sheet, that, but those two issues don't affect the inventory change on the cash flow statement, I don't believe.

Actually, in terms of Mexico, that did not show up on our balance sheet because we're in a minority position last year.

And on a ratio basis, the euro translation, there really has been no change in -- or actually been a small improvement in our inventories as a percent of sales because you get it in the revenue side as well.

So we can go through that in detail with you.

Let me go to the other side, which is the production side.

Overall working capital, even with those as a percent of sales, is within, I think, two-tenths of where we were a year ago.

We are not over-inventoried in any of our regions in terms of where we expected to be in our operating plan.

The comment you made about our largest production facility, actually it's -- I think what was reported was our dishwasher facility.

We -- it's just a normal course of action that we take anytime we start to see an imbalance in our inventories, and we generally take those in advance as opposed to after when we have built up those inventories.

So, you know, I guess to your question, we really are not in an out-of-inventory position.

We're in a -- we're managing it every day, every week, every month, and we take -- we pulled the trigger pretty quickly on taking production levels down.

So your reduction in production levels is to meet your reduction in the global outlook for production as opposed to having too much inventory?

Again, Mike, this is Dave Whitwam.

The Findley division produces dishwashers.

I think you do understand that we have a large concentration of very big retailers today, and we forecast with them every single day a future outlook, so we're responding generally to what we see as sales trends, and that after we've got a warehouse full of goods.

We laid off for a period of several weeks a very small part of that workforce in Finland.

It's not our largest plant in North America by any means.

Okay.

Thank you.

Uh-huh.

We'll go next to Eric Bosshard of Midwest Research.

Good morning.

Good morning, Eric.

Two questions.

First of all, can you talk a little bit about the magnitude of the earnings revision relative to the magnitude of the market's growth reduction, and then also put that in light of the earnings comparison?

I guess, what I'm trying to get a handle on is your level of confidence in posting the earnings growth, excluding the Brazilian tax credit and pension to the 5.90/6.10 level in light of sort of the headwinds.

Talk about what's on the other side of that equation that gives you such confidence.

The headwinds haven't changed, Mike.

As you know, from the beginning of the year, we define and dimensioned those for you.

What has changed is a differing view on what industry demand will be in each of these markets, and so we go through and, you know, it's a modeling process that we go through, and we look at a different shipment level.

We have then reduced earnings levels.

And I think what you -- what you should expect is, this is largely driven by the reduced industry activity and then our corresponding reduction in shipments to retailers around the world.

Again, the cost actions that we put in place to overcome that $1.33 cents a share we showed you at the beginning of the year are still there, and are still going to deliver what we expected to do to offset that.

Secondly, within working capital, the receivables number was up I think a pretty decent amount.

Were there any moving parts within receivables as you explained within inventories as well that might explain why that behaved the way it did, especially with the momentum in the quarter not sounding like it was getting that much better in March?

Well, again, our working capital in total as a percent of sales was down, so we feel like every element of our working capital is in good control.

The absolute dollars -- I mean, we did have overall higher sales, as we talked about.

The mix of those sales, again, with the euro translation, they carry a higher receivables number of days in Europe, so the mix changed slightly.

We also saw some differences in our mix in customers in North America.

But in -- but in total, there's really been no big changes.

And again, what you have is the impact of putting the Mexican business onto the balance sheet, onto the P&L that wasn't there last year.

So we have revenues up some 5-and-a-half percent, consolidated across the globe.

We had our -- our inventories were up at 8%.

And again, we did not have that sizable piece of Mexican business in our numbers last year.

Okay.

And then lastly, can you talk about -- you -- I think Jeff or one of you indicated that margins or profits in North America struggled in the quarter, but should improve as we move through the year, based on cost progress.

Can you just give a little bit of definition to the cost savings or if there's something incremental going on in the U.S. to offset this?

I'm going to let Jeff answer that, but I don't think he said that they struggled.

We think we had a very respectable first-quarter performance in North America, and the decline year-over-year was almost totally attributable to that -- the difference in the pension charge, and I'll let Jeff take it from there on how that will look as we go through the year.

Yeah, there's really two pieces.

One is very specific, which is the timing of the restructuring savings.

We -- we know pretty well by quarter when those are going to fall.

The second is our productivity, which is very typical that as we go throughout the course of the year, our productivity gains generally ramp up throughout the year, particularly in North America and Europe, and that will be the case this year.

So we expect those savings to get larger and larger, as we go throughout the course of the year, and that really was why I mentioned that in terms of our ability to offset in North America those higher pension costs is because we also expect our productivity to ramp up this year, as it has done in the past.

So the opportunity to offset those will improve as we move through the year?

That's correct.

OK.

Great.

Thank you.

We'll go next to Sam Darkatsh of Raymond James.

Good morning, gentlemen.

I just wanted a couple questions but I first wanted to clarify one of the questions that Eric had, which was with respect to is the 30 cents that you're taking essentially your guidance down entirely as a result of your more tempered sales expectations?

And I'm -- I'm guessing should we look at this by just taking an ordinary, you know, 20% contribution margin off of a percent or two delta in your overall sales volume, which comes to about 30 cents a year?

Is that -- is that how we should look at this?

Yeah, pretty much, Sam.

You know, there's -- there's also -- as we go through our forecasting, it just -- we just don't do unit volumes.

We do price realization.

There's lots of things that go into it.

But I think dimensionally, you're correct in how you've looked at it.

There are lots of moving parts that we try to identify and put into our forecasting model.

OK.

We were -- we've been talking about Mexico and the impacts of it on your balance sheet.

I was wondering if we could talk about the income statement impacts.

It looks like the Mexican operations came in a little lighter, at least than what we were looking for.

Can you talk about what you're seeing -- business trends in that region at this point?

Yeah.

Sam, a couple things.

You know, right now our Mexico business has lower margins than our U.S. business, so over -- from a percentage basis, it would bring our margins down a few tenths.

One of the big issues right now in Mexico has been the movement of the peso.

We were negatively impacted by the tune of 4 or 5 million dollars in Q1 by changes in the peso.

Our business in Mexico, first of all the integration is going very well.

We have improved very significantly our market position, and we're now battling the peso situation and we expect to see continued improvement in those margins as we go throughout the course of the year.

OK.

Next question would be: You talked about T7 demand domestically, but I'm curious as to why you folks don't generally use T9 since you're very involved in microwaves and room air-conditioners?

If you took a look at it on a T9 basis instead of a T7 basis, do you still believe you gained share in dollars?

We -- we did not -- there was a couple big increases, and again you got to look into the numbers for microwaves and air-conditioners on the -- particularly the offshore shipments, so there was some growth there.

We would have lost a little bit of market share on a T9 basis.

And this early in the year, Sam, that is largely driven by the air-conditioner side, and this time of the year, on a monthly-to-month or quarterly basis, it's impacted on when you ship your goods.

Not all -- you know, retailers take them at various different times around the country, so I think we really have to wait till you get through the shipping part of the air-conditioner season, which is in late May, really.

And my last question, I'm guessing your expectations for free cash flow this year are not changed, even though -- or shouldn't change a whole heck of a lot because of your lower working capital usage, irrespective of the net income impact.

Is that an unfair assumption?

Sam, our target for free cash flow for the year remains unchanged at 350 million, despite the fact that we over-delivered, as you know, 2002 and it's put a little bit more of a challenge.

We did so well on working capital in December, it was worth about an extra $70 million or so, but we're holding with the 350.

After dividends?

Yes.

OK.

Thank you.

We'll go next to Larry Robbins (ph), Glenview Capital.

Yes.

You mentioned that there was a $130 million difference in working capital as a result of both the M and A activity as well as currency translation.

If we're looking at inventory alone, which was up $215 million, could you just talk about the specific impact of those two items on inventory?

Well, I think I just -- you know, I mean I think that the -- you know, the answer is really the consolidation of the Mexican business.

As I said, I believe I said that was about 70 million.

And the fact that we have stronger currencies.

That -- if you look at point in time versus point in time, you know, that's really what's going on.

That's most of it.

Now --

But, again, I may be asking too specific of a question, but, you know, I think that you said that that was for all of working capital, including receivables, inventory and everything?

Oh, no, no, no.

Oh, that was just an inventory number?

Right.

Fine.

Thank you very much.

We'll go next to Larry Horan of Parker/Hunter.

Could you talk a little bit about the other pluses and minuses in the first quarter in North America?

It would seem that if you didn't have the increased healthcare costs and the pension costs, that your operating margin would have been about the same as last year.

What were the other pluses and minuses?

Larry, that's pretty much it in terms of the delta to, year over year.

You know, obviously there are some other inflationary costs that we offset through productivity.

Sales were flat to slightly above.

So -- and there wasn't really a dramatic mix in that.

We have had, and we do import some products from Europe which gave us a fairly negative cost impact, due to the currency change, but, again, offset by productivity.

The single thing difference is what you just mentioned.

It is the year-over-year pension.

You know, and I think another -- Larry, another important point, because we're hearing and reading a lot from various participants in the industry about a significant pricing decline.

You know, we've been talking with all of you about our ability to drive both mix and price realization with this innovation.

In our North American business in the first quarter, we did not have a price decline.

When we looked at unit -- I mean unit sales versus revenue basis.

And I think that's really important in this kind of environment where some of our competitors are reporting the opposite.

On a similar issue, in terms of your margin improvement in Latin America, since you export 25% of total production, as I remember, particularly in compressors, the compressors are sold in dollars, and therefore you would have, you know, benefited on a margin basis.

Is that true?

Or how much of that margin improvement is really related to the fact that you may be selling things in dollars but manufacturing them in reals or whatever?

It surely has a positive impact and I think we talked with all of you as we started this year that one of our real focuses was (INAUDIBLE) and (INAUDIBLE) does have a dollar denominated export business.

It is a natural hedge for us.

It's a very important piece of our strategy.

But we also have told you that on the major appliance side that we are focusing on significantly increasing the rate of exports.

And, you know, if you -- if you look at the last couple of years we've been in the 200 to 250,000 unit range.

This year, we think that will be closer to between 800,000 and a million units.

Again, Jeff talked about the enabler for this is our global platform design, our -- how we approach product design, and so as we -- as we design products to be manufactured in Brazil, they are designed to be compatible with other markets around the world.

We're having a significant rate of increase there.

It's part of our strategy.

Okay.

Thank you very much.

Uh-huh.

We'll go next to Laura Champine with Morgan Keegan.

Hi.

It's Laura Champine with Morgan Keegan.

Hi, Laura.

What was the net income of foreign currency translation on earnings in this first quarter?

Very small.

OK.

And were there any adjustments to restructuring accounts?

Any adjustments?

Well, you know, we -- you know, in terms of -- you know, we continue with the restructuring program, and as you know, you know, we had up on the balance sheet about another hundred, hundred $10 million worth in liabilities that had been accrued and we continue with that program.

I think we also said that on a going forward basis, we anticipated funding restructuring from within operating profit, and in fact, you know, the operating profit earnings were slightly negatively impacted by some new restructuring activity.

OK.

Thank you.

We'll go next to David MacGregor, Longbow Research.

Yes.

Good morning.

On that Latin American business, the 25% export flow, if that goes to 200, 250 million this year to 800 -- or 250 last year.

No.

Those were thousands of units.

I'm sorry, thousands of units.

At any rate, my question has to deal with: Where are they going?

I mean, can you give us a sense of the mix between, say, the European markets, the North American markets, Asian markets, perhaps, of the delta between those two numbers?

Yeah, David.

Probably 50, 60 percent goes to the U.S.

And the balance is probably 30 percent goes to Europe and 10 percent Asia.

And it's different products.

We produce -- we export air-conditioners and refrigerators to the U.S.

Every where else, it's largely refrigeration.

And what brand are those refrigeration products coming in under?

They're sold in the local brands.

Under Whirlpool.

In Europe they're a Whirlpool branded product.

OK.

The second question has to do with retail inventories.

I don't know if you addressed this in your remarks, if you did I missed it, but can you give us a sense of where you see your retail customer's inventories right now?

I know we had some disparate experience amongst the retailers in March.

Home improvement seems to have had a good month, Sears seems to have had a more of a disappointing month.

Can you talk a little about the retail status?

Yes.

You know, with the top three partners across the industry, we track weekly retail inventories.

We finished the quarter, we think, in very good balance.

I think, during the quarter there was actually sell-through was slightly better than sell-in, meaning they burned off some inventory probably the first 20, 30 days of the year, and I think we saw that in the January shipments.

But, right now, as Dave mentioned earlier, we're always looking 30 to 60 days in advance with these key retailers.

We share inventory information and we adjust our production schedules based on these.

So we feel very good about retail inventories right now.

OK.

Thanks.

And then just a final question.

We haven't talked about this in a while but I believe you still have a share repurchase authorization outstanding.

I was wondering if you could just give us an update on just where that stands today.

Well, during the course of this year, if you look at our free cash flow, we're first going to focus on reduction of debt.

We have $300 million, roughly, outstanding on authorization from the board, and as we reach our targeted debt levels, we absolutely - if it does create value in our minds to repurchase more shares, we will do that.

I'm sorry, could you refresh me on the targeted debt levels?

Well, we want to be in the low 50 percent range by the end of this year.

So, we'll be 50 to 55 percent.

And that's something we will continually reevaluate going forward.

Thanks very much.

Good luck.

Thank you.

Thanks.

We'll go to Shane McGrath.

A.G. Edwards.

Thank you.

First off, could you guys talk about how much of your European profit was a result of foreign currency translation?

It really wasn't.

It was -- it was really all through productivity and restructuring savings.

It -- the translation itself, you know, we got both the dollar -- we -- on a corporate level, we probably got a million to a million-and-a-half dollars translated from euros to dollars, so from that standpoint, that's -- that's the order of magnitude, but within the European business itself, it was all productivity and restructuring savings.

OK.

In fact, I would say we were negatively impacted by inter-European currencies on -- from a European operating profit standpoint.

OK.

Secondly, I guess building on Laura's question, was there any reserve reversals in the quarter?

You know, maybe you reversed some restructuring reserves or anything like that?

None.

None?

Okay.

And then finally, I guess it sounds like you guys are still in the process of ramping up your Latin American exports.

As you get to like a more normalized run rate, what's that do on a dollar basis?

I guess I'm trying to figure out, you know, does that add, you know, 5 million to a quarter as you get more normalized?

Any kind of color you can give there?

Well, you know, I don't -- I don't know from a pure earnings standpoint.

We're looking.

I guess I'm looking at like on the revenue line.

For Latin -- you know, I guess the way to look at it would be the economic benefit of this is that in an environment where there's overcapacity, we're significantly better utilizing our assets, and at our current run rate, you know, I think in terms of that has improved our Latin American operating profit by the tune of 3 or 4 or $5 million in a quarter.

All right.

Thanks.

We'll go next to Blair Brumley (ph), American Express.

Good morning.

Good morning.

A couple questions, if I may.

You talk about adjusting production schedules in the dishwasher market, particularly by virtue of looks that you're getting forward from your retailing group but yet you're talking about the entire industry being less robust than you had anticipated coming into the year.

So why just dishwashers, excuse me?

Why are we not seeing more notable modifications in production across the board here?

We have.

I think the dishwasher one, for some reason, made the -- the news wires.

On any given period of time, I would say all of our factories, we've taken both -- in both the U.S. and Europe, we've taken additional down days.

We tend to schedule them around holidays and that sort of thing, from an employee standpoint, but it's an ongoing process that we manage all the time.

And we have taken virtually all of our divisions down a few days so far this year.

And that's just a normal part of operating the business.

I mean, if you look at our factories, both here and in Europe, that's one of the reasons we have a certain percentage of our workforce are temporary workers.

They're not full-time.

So we can continually adjust up and down.

And again, that's a -- in any kind of environment, that's a normal way we run our business.

All right.

Very fine.

Secondly, you -- you've made a reference in both your comments here and in the press release about movements that you're going to make in terms of mitigating pension and post-retirement costs headwinds on your business but you haven't put much flesh around that could you give us some indication as to how you intend to do that, please?

We've had an effort underway inside of our company for the last several months, a task force looking at lots of different alternatives and analyzing those alternatives, and that's why we are right now.

We do understand that we are going to be able to reduce the rate of increase in both the pension area as well as in the -- on the retiree medical as well as with our current employee base.

It's a matter of picking the right alternatives and then putting them in place and we're probably several weeks away from doing that.

When we do, we will make sure that you all understand the details of that.

Thank you very much.

And we'll go next to Chris Windham (ph) of SAC Capital.

Thanks.

Just want to reconcile a couple things on the cash flow statement.

Can you tell us what the $113 million other net number is?

Betty and Steve are looking at it right now.

OK.

And also the same thing on the inventories because kind of going back to Michael's first question, I think that the currency translation probably does not show up on the 199 use of cash that we see in the inventories., that's correct, right?

Yes, that's correct.

OK.

So what drives that $199 million increase?

In inventories?

We're -- they're poring over their books right now.

Right.

And then also while they're doing that, just for clarity, on the -- on the global market forecast, do the changes that you made there, is that just a function of incorporating kind of the first quarter being lower than expected, or was there also a reduced expectation for the remaining three quarters of the year?

We -- when we -- when we do an industry forecast, we have -- we have a model that includes all the drivers of demand.

Consumer confidence, housing starts, employment levels, income growth, et cetera, et cetera.

So when we -- when we redo a forecast, we -- we factor all of those things in.

That's what drives the industry forecast.

So it just wasn't the first quarter miss by any means.

Yeah, the --

So the remaining three quarters of the year are lower than what was previously in the forecast as well?

Marginally, yes.

OK.

The key difference in the first three quarters, you know, of this year, again, is the fact that we've got the Vitro, you know, acquisition in here, and -- Betty?

Versus March of last year, we have the Vitro acquisition in March of '03.

Versus December, of course, it was in both pieces.

But we do typically have a build in the first quarter associated with both refrigeration and air-conditioning, particularly in the North American region.

The $113 million other net number?

That's a combination of all the other balance sheet accounts that we haven't pulled out separately here for you.

So that would include prepaid expenses, it would include employee compensation, changes in different liabilities, other liabilities other than accounts payable.

Can you kind of give us some more detail on what the big pieces are, 'cause it's a pretty significant number.

Well, we tend to pay out, as an example -- we tend to pay out bonuses in the first quarter, so that tends to have a negative cash --

Again, I -- you know, we can provide you with more details.

Getting down to the -- to the -- that other category on the balance sheet will take more time than we have right here.

That does swing quarter to quarter, and what I suggest you do is give Tom Filstrup a call and he can walk you through that particular account on the balance sheet.

OK.

Great.

Thank you.

We'll go next to Nicole Parent of Banc of America.

Good morning, guys.

I guess just to the last question, I think it would be useful for us all to get that information.

Following up again on the last question, I'm trying to understand the biggest moving pieces of the interest and other income line.

The difference between the 9 million negative and the 20 million negative last year, I think you cited favorable for an exchange expense.

How should we think about that line for the full year, as it was a big beneficiary and contributor to earnings in the quarter?

And also, what are the biggest movers -- I think every quarter, there are a lot of different moving pieces that go into that line, and I realize it's difficult to forecast, but could you give us some sense as to the biggest contributors this quarter and how we should look at it for the full year?

Yeah.

I think, you know, on this one, it's exceptionally volatile and it's all related -- well, it's primarily related to Latin America right now.

In the year-ago period, there was a significant balance sheet loss attributable to the balance sheet change in Argentina that was related to the currency, the negative currency impact.

You know, we also can get, because of, you know -- so that was one item.

In Brazil, where we have a very high level -- 40, 50 million, sometimes up to $70 million -- of US dollar receivables, then one quarter to the next you're continually revaluing those.

And as -- you know, for example, I believe in -- in July/September, you know, we had a positive as the Brazilian Reais devalued.

Then as the currency revalues, it goes the other way.

Now, we've been able to mitigate the net loss in this quarter versus year-ago by, you know, more active management of some of these balance sheet positions, using callers and so forth.

But it's a very -- it's just a very, very difficult one to predict, and I think -- I think on the year, though, net-net on the year, we're not expecting a worsening in that item.

In fact, you know, I think we're anticipating a rather small, you know, improvement year-on-year.

OK.

And I guess also just following up on Blair Brumley's earlier question on timing of restructuring, I think you alluded earlier that you do have specific goals and forecasts, and I'm just wondering: Can you help us, in terms of quarterly impact, how we should think about this as it rolls out through the year?

Are you -- what are you -- are you speaking of reserves or --

No.

The restructuring actions that in an earlier question you said you -- you've modeled in specific actions that you're taking, and I guess I'm just wondering if you could enlighten us or share with us what the timing of those might be on a quarterly basis and how we should think about the timing of restructuring actions and the benefits that you're going to receive as we -- you know, certainly you're not realizing it as much as you'd like in the first quarter, but obviously hopefully as we move throughout the year, it increases.

For the full year, we had indicated to all of you that we'd have between 40 and $45 million of incremental cost savings year over year because of the restructuring.

In the first quarter, that amounted to about $9 million.

In the first quarter, we also had -- one of the questions was did we have any new restructuring activity that we're now taking to the P&L, and yes we did.

It was about $2 million in the first quarter.

So how should we think about that for the remainder of the year, and what do you think the total incremental cost savings that you're going to get from the additional actions you're taking?

Well, again, you should think of the restructuring that -- charges with that we completed by the end of 2002 will incrementally take 43 or $44 million worth of costs out of this year's operations.

I suspect that they're probably going to be fairly even from a quarter-by-quarter basis.

There will be some buildup as we go forward.

Again, you should expect the largest portion of that to be attributable to our European business.

The new restructuring, again we've got $2 million in costs this year.

That will be a small annual savings that will flow to this year.

Great.

And then I guess just also on product category, could you give us a sense by product category how you did, in terms of share gains or losses, and just key drivers within the categories?

Yeah.

We generally don't do that.

We think it's -- it's a bit of competitive information that we need to keep inside the house.

But, again, if you look at the North American business, you know, absent Mexico within the old North America, we had revenue improvement to record levels.

You can't do that if you have any one of your product categories off significantly.

Thank you.

We'll go next to George Noble of Noble Partners.

Yeah.

Hi.

Sorry to follow -- belabor this question about the cash flow or whatever but I'm just a little bit confused here.

I appreciate there's a big seasonal variation, fourth quarter to first quarter, as there's a lot of reversals of reserves and whatnot but if I look at things on a year-on-year basis, maybe I'm not reading this correctly but it shows your accrued were up 2 percent, 591 million against 577 the year before, and the revenues were up 6, and I'm just kind of curious, are there any, you know, factors which would justify why your accrued expenses are only up 2 percent when sales are up 6 and you mentioned, you know, the foreign exchange, the euro was stronger, so I expect the accrued expenses would go up for that reason.

Also you had acquisitions.

So could you explain a little bit why the accrued expenses were only up 2% on a year-on-year basis?

You know, again, the accrued expenses don't go hand in hand, directly proportionally to the revenue side.

There are costs in there that are not related to the revenue piece.

And I -- again, I think what you all need to do with these balance sheet questions is call Tom Filstrup.

We'll provide you with as much detail as you need to better understand those.

I think this is -- I think, again, just to repeat what the earlier caller said, that we would all really appreciate this information.

It makes it very hard for us to analyze what's really going on, without this information.

We'll absolutely provide that to you.

Are there other questions.

We'll go next to Francis Hoyer of Sheve (ph) Row.

Hi, good morning.

I was wondering if you could tell me how materials prices affected the change in EBIT margin in the U.S. or North American and European divisions.

Yeah.

Overall material costs, number of factors.

One is the prices for commodities.

Two are the activities from a design standpoint that we take and so on.

Actually, I -- in U.S. and Europe, we have driven our overall material costs down year-over-year as part of our productivity activities.

The two regions where we were negatively impacted by material costs were Asia and Latin America.

Latin America is because of the currency cycle there.

And Asia because of the size of our position.

We're more exposed, let's say, to the spot markets in oil and steel.

So net-net, year-over-year again as part of our productivity, our -- our material costs were down in the first quarter.

OK.

And you mentioned your performance in the U.S. with various retailers.

I believe you mentioned Sears, Lowe's, and builder merchants.

Could you say how you did with independent dealers?

Overall, I would say that they performed at the market levels, and we had no big change in our position with them.

Okay.

Thank you.

We'll go next to Jeff Sprague, Smith Barney.

Hi.

Just to follow up on the pension and post-retirement efforts, I just want to be clear.

Your new guidance does not assume any curtailment in these costs for '03, correct?

No, at this point, because we haven't made the decisions on which of our alternatives we're going with.

And the actions that you may take at some point in the next couple weeks, will they be able to impact the '03 costs, or is it more of an issue of kind of putting a cap on it for '04 and looking out further?

They'll be able to impact all three costs.

And could you update us also on any pension contributions you might be making this year?

Yeah.

We've currently planned about $15 million in our cash flow, you know, to keep that at 90% of the -- of the obligation.

That was 15?

One five?

15 million, yes.

Thank you.

We'll take a follow-up from Michael Regan, Credit Suisse First Boston.

Thanks.

Again, I want to just get back to the inventory issue.

We started out, it was an issue about currency and consolidating Vitromatic, but then the comment was made that, you know, seasonally you build inventory for refrigeration and for -- or refrigerators and for air-conditioners at this time of year.

If I go back over the last couple of years, this is still biggest year-over-year change in inventory on the cash flow statement in the past five years, so I just want to get some clarification.

Incrementally, are you expecting the refrigeration and the air-conditioner businesses to be better than the overall appliances, or what's the sort of reconciliation of that?

No, we're not -- they're not going to be better than what they historically have been.

Again, when we manage working capital, and specifically the inventory area, we have very, very aggressive days outstanding in the inventory area.

We are down as a percent of sales.

That's how we -- that's how we manage the businesses individually.

You will see an overall drop, quarter-by-quarter, as we go through working capital.

We have a goal this year to take out between another half a point and a point of working capital.

We think our working capital in total -- and that's what you really manage -- is at the best levels in this industry for a global player.

OK.

I mean, I think the issue, Dave, is just simply from the balance sheet, there are lots of moving pieces -- currency and consolidations and all kinds of things -- but to the cash flow statement, that's unaffected by those, and the essential doubling in the amount of inventory that was put on the balance sheet as per the cash flow statement seems pretty high, given -- just given the -- where we are and what your outlook is.

Well, let us get into it and provide you all -- and again, I'd invite every one of you to call Tom.

I think there's some -- there seems to be some view that we built inventories to get greater contribution to the manufacturing side to our earnings.

That did not happen.

And again, what we'll do is we'll provide you with all of the details.

We think we've got great disciplines in place to manage inventory receivables and payables in our business, and we -- we don't build inventory to have more cost coverage in our manufacturing facility.

That's not how we run our business.

Yeah, I think, Michael, one of the key, you know, complexities in this is if you compare period to period, end March '03 versus end March '02, and that was the 100 million dollars, that's a period to period.

In that time, we have added the Vitromatic business, okay?

And we've added Polar.

But the key piece is the Vitromatic business, which added 70 million, okay?

We also had currency effects which are in the balance sheet positions.

When you look at cash flow, which is what one of the earlier questions was, it's versus the end December position, and that's where you get -- and of course at end December, 2002, you know, we had Vitromatic in.

But you get into start points versus endpoints, and we had very, very low working capital at the end of December.

No, but the inventory change from the cash flow statement is period to period, first quarter to first quarter.

Not from year end.

The cash flow statement.

At least as it's described in your press release for the three months ended March 31st, 2003 and 2002.

Right.

And we do build inventory in the first quarter, and we built a couple of hundred million.

That's -- that's -- I mean that's the reality.

OK.

But the point, again, is just simply in an environment where you're expecting the outlook to be less robust than you have, you built inventory more than you have in the last five quarters.

It's -- you know, I know there's a lot of moving pieces.

We're just trying to get some sense of why you built inventory when your outlook for overall industry shipment volumes is lower than it has been.

We built -- always build inventory in this part of the year and we have -- there is no -- we have not built an excess inventory for any other reason than that's how we're projecting demand.

There is no other reason.

OK.

Thank you.

Uh-huh.

At this time, there are no further questions.

Gentlemen, I'll turn the call back to you for any additional or closing remarks.

OK.

Well, again, we appreciate all of your questions this morning.

I'll reiterate I think our businesses had very solid first quarter in the kind of environment we're in.

The environment is not terrible out there.

I mean, we are seeing some weaknesses in consumer activity.

None of us can project when those are going to turn positive.

Yet we do believe we're taking the steps inside of our business to make sure we're dealing with the realities of the marketplace that we're in, and can continue to deliver on the commitment that we have with all of you.

So we thank you, and we look forward to reviewing this business with you at the end of the second quarter.

And this does conclude today's conference call.

Thank you for your participation.

You may disconnect at this time.