惠而浦 (WHR) 2004 Q1 法說會逐字稿

Good day, everyone and welcome to the Whirlpool Corporation first quarter earnings release conference call.

Today's call is being recorded.

For opening remarks, I would like to turn the conference 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 this call, we will be making forward-looking statements to assist you in understanding 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-K.

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

David?

Thank you for joining us.

This morning, we reported what I believe was a very solid first quarter of performance.

Let me review a few of the highlights from our earnings release and if you go to slide 1, they will be highlighted on that slide.

Revenues of $3 billion a record levels, up 10.7% from last year.

Excluding currency translation, revenues increased approximately 5% and also at record levels.

We reported first quarter earnings per share of $1.43, up 8% from last year, $1.32.

I would also note the effects of changes in foreign exchange rates negatively impacted net earnings by approximately 20% per share in the quarter.

Year over year cash flow improved by $104 million, driven by improved earnings and reduced working capital.

Working capital is a percent to sales was at 12.7%, down over a full point from last year.

Operating profit leverage was 32% on our North American revenue.

In Europe, also realized 34% leverage in local currency.

Operating profit was up 18% in North America and 51% with our European business.

While we have begun to see improving conditions with our Brazilian appliance business with revenues up 11%, excluding currency translation, operating income declined 18% due totally from the impact of the strengthening of the year over year basis of the Brazilian Reals.

Absent effects of currency, operating profit would have increased approximately 50%.

These unfavorable currency impact earnings should be behind us as we enter the second quarter.

During our year-end earnings conference call, we indicated we were putting in place a new trade management strategy in India, which would significantly reduce retail inventories as well as our own production for the first quarter and part of the second quarter.

These actions as expected have had a large negative effect on our first quarter Asian earnings.

Jeff Fettig will provide more detail in a few moments.

Stepping back and looking at the components of our first quarter performance and the drivers of our $1.43 a share, I believe again that it represents very solid performance.

If you turn slide 2, we entered the second quarter with solid momentum.

Globally, we have a record number of innovative product introductions either recently introduced or coming to market.

We today see industry shipment forecast rising above those levels that we projected at the beginning of this year.

Our global businesses are driving strong productivity improvements as we execute our global operating platform strategy.

Yes, there's no doubt there will be continuing challenges to deal with whether they be mature cost pressures or competitive pricing pressures.

However, our current view of the external in this three environment combined with our own plans and momentum lead to us continue to expect full-year earnings in the range of $6.20 to $6.35 per share.

Now, let me turn this over to Jeff Fettig to provide detail on the operating region.

Good morning.

I'll start with slide 5 with our North America operations, where we had a record level of revenues and operating profits for the first quarter.

Our revenues in North America grew by 5.4% to approximately $1.9 billion and operating margins expanded to 11.1%.

Overall, operating profits grew by 18%.

As Dave mentioned, we continue to see very strong consumer demand in the US during the first quarter.

T-7 shipments grew by 7.6%.

We had really strong demand for our Whirlpool and Kitchen Aid brands, which grew the revenues by over 10% and 16%respectively.

Our growth was offset by weakness in our Kenmore shipments due in part to an inventory reduction they had during the first quarter.

We also continue to drive revenue increases greater than our unit growth, which continues to indicate the strong consumer demand for our new brand of product innovations in the marketplace.

Our operating margin expansion was driven by this growth.

We had a positive brand of product mix and continuing strong levels of productivity, which more than offset some increases and raw material cost and an increase -- expected increased expenses in R&D.

Looking ahead to the second quarter, we expect our operating profits to continue to grow, but is what is typical with our second quarter North America as a percent to sales, this will be somewhat lower due to a stronger mix of air control and cooling products.

But based on current demand patterns that we've seen thus far this year, we now are increasing our full-year industry demand forecast for the industry in the US to grow by 4%.

I'm going to now turn to Europe on slide 6.

Our European operations had a strong quarter of growth with revenues being up 21% or a little bit over 5% if you exclude currency translation, which outpaced the market, which we estimated to have grown by 3%.

Our operating profits in Europe expanded by 51% and our margins improved by about one full point.

This performance here in Europe was driven also by strong demand for our Whirlpool brand and our new product innovations.

We saw particularly strong growth in the built-in segments of the market where our business grew by about 20%.

During the quarter we also continue to -- here, too, in Europe to drive record levels of productivity, which offset rise in material cost there as well and we continue to see a carry over of the general negative pricing environment that we saw last year.

Looking ahead, we continue to forecast full-year demand in Europe to grow by 3%.

And we will continue to outpace this industry growth.

Our margins will expand quarter by quarter during this year reflecting the normal seasonal increases of total revenues by quarter.

And the fact that our productivity will grow as we grow throughout the year.

We continue to be on track in Europe to deliver what we talked about in the beginning of the year, which is record market share, record revenues, very strong cash flow generation and to be even positive for the full year.

Turning to Latin America on slide 7, revenues for the quarter in US dollars were about 25% or 11% if you exclude the currency translation.

Again, versus the year earlier the Brazilian currency appreciated by 20%.

This had a negative impact on our export business, where today we export 30% of our appliance and over 80% of our compressor production.

This currency translation negatively impacted operating profit during the quarter for the region by $18 million.

In Brazil, economic conditions do continue to improve across most key indicators.

Interest rates have continued to decline.

And we did see a very strong improvement in consumer demand during the quarter, which grew by 16%.

For the year, we expect overall market growth demand to grow by 8 to 12%.

We also expect to continue to outpace the market in terms of growth.

Our operating profit here in the second quarter will not be as negatively impacted by currency given the year-over-year comparisons.

And we do remain on track in Latin America to deliver a solid year of improvement in terms of operating profits for the year.

I'm going to turn now to Asia where revenues declined by 5% and we had a $10million operating loss for the quarter.

These results were largely driven by changes we are making in our India market.

As I had mentioned on our last call, we had decided early this year to reduce structurally the terms and conditions with the trade in India and to reduce inventories in the trade by about 60 days.

This had a significant reduction on both sales and production for the quarter.

This process has gone very smoothly.

We expect to complete this by the middle of May.

And once this is completed, we will see revenue growth in the 7 to 10% range and improve margins in Asia.

During the quarter, we also increased our operating reserves in China, primarily to reflect increased bad debt expense as we exited a portion in the microwave oven market in that market.

Overall, market growth in the region is good as we're seeing about 5 to 8%demand growth across most key markets, where we do expect to return to profitability in the second quarter in Asia and then return to what we consider our running rates of 5 to 6% operating profit in the second half of the year.

In February, we provided a fairly detailed view on our key assumptions for our businesses for the year.

Since then we have seen a few changes.

As Dave mentioned earlier, in global market demand appears to be stronger in most key markets and we think now that overall global appliance demand will be in the 4% growth range versus our previous assumption of a 2 to 3% growth.

Raw materials continue to be a major concern for us, particularly in emerging markets.

We'll continue to offset these costs through productivity, using our global procurement leverage and continuing to improve our brand and product mix driven by our innovation that we're bringing in the markets.

And finally, on a global basis market price levels do appear to be stabilizing after what was a very big negative decline that we saw throughout last year.

So we believe that our focus on building strong brands, bringing continuous consumer relevant innovation to the market and driving efficient operations across our global business is enabling to us effectively deal with this environment.

And we do believe that we're on track to deliver our 6.20 to 6 35 per share earnings estimate and $300 million for cash flow for the year.

So with that, I'll turn over to Steve Barrett.

Thanks Jeff and good morning.

As Dave mentioned earlier, we delivered strong first quarter earnings of $1.43 per share representing an 8.3% improvement over 2003.

If you move to slide number 10, you'll note that we achieved these results while overcoming some significant financial challenges.

Foreign currency negatively impacted our results by approximately 20 cents per share.

This was primarily due to a 20% year-on-year strengthening of the Brazilian Reals versus the US dollar.

The strengthening of the Reals negatively impacted our US dollar exports out of Latin America.

We also incurred higher year over year restructuring and related costs of a nickel a share.

Share dilution negatively impacted earnings by 4 cents as additional shares under the company's benefit plans entered the calculation as a result of a higher company stock price.

Our effective tax rate increased from 36% to 37%, largely related to our international business.

The higher effective tax rate lowered earnings by 2 cents a share.

Finally, we were required to remeasure our post retirement liability due to additional employees adopting the retiree health savings account plan we introduced last year.

As a result of this change, we also were required to begin recognizing the benefits of the Medicare prescription drug act.

The recognition of the Medicare act contributed approximately 3 cents a share to the company's Q1 earnings.

Additionally, the company benefited 5 cents a share from overall lower interest expense, interest income and sundry.

In total, the net impact of these items lowered earnings by approximately 23 cents a share.

If you will move to slide 11, I'd like to briefly comment on our results below operating profit performance.

First, the combined impact of our interest expense and interest income sundry is $5 million lower than last year.

The improvement can be primarily attributed to lower interest expense that the company reduced its overall post acquisition debt levels with strong cash flow from operation.

As well as an overall lower interest rate environment and modestly higher international interest income.

Secondly, income taxes increased year on year by $9 million, due to the combined impact of higher pretax income and the higher overall effective tax rate of 37% versus 36% during 2003.

Finally, as mentioned earlier, share dilution reduced earnings by 4 cents a share.

Slide number 12 summarizes our cash flow performance.

Our first quarter free cash flow after dividends was a negative $206 million.

This represents $104 million improvement over 2003 results.

The improved performance resulted from our continued reductions in working capital, lower first quarter tax payments and lower overall restructuring spending primarily in Europe.

First quarter results also reflect the 26% dividend increase announced during our 2003 fourth quarter.

Additionally, during the first quarter the company repurchased 1 million of its shares in the open market under our existing share repurchase plan.

Turning to slide number 13, I'll speak briefly about working capital as well as some other balance sheet matrix.

Network capital at the end of the company's first quarter is $1.5 billion.

This is equivalent to 12.7% of sales and that is 120 basis points better than last year.

To give you some historical perspective, at the end of our 1999 first quarter, working capital percentage of sales was 18.3%.

You will also note that our overall debt levels had declined 1% to about $1.6 billion.

And our debt capital has decreased from 66% at the end of March of 2003 to about 53% in 2004.

We've been able to pay down our post acquisition debt and fund additional share repurchases with strong cash flow from operations.

We expect debt to capital to continue to decline and to close out the year at about 45%.

Our interest coverage ratio of 5.9 times reflects our strong operating results during 2004.

And it has improved from last year's levels of 5.2 times.

Return in equity and return on total capital remain at strong levels of 31% and 17% respectively.

I'd like to briefly comment on our outlook for fiscal 2004.

As Dave previously noted, we continue to expect 2004 earnings in the range of 6.20 to 6.35 per share.

As I mentioned during our fourth quarter conference call, embedded in this guidance is 40 to 45 cents per share of incremental restructuring and related costs, which he enables the evolution of our global operating platform and ongoing productivity improvement.

As also previously noted, we plan to invest approximately $500 million in capital this year with about 100 to 125 million of this related to global operating platform initiatives.

Finally and consistent with this level of capital spending, we still plan to deliver about 300 million in free cash flow during 2004.

This guidance assumes continued positive momentum within North America and Europe and gradual economic recovery throughout 2004 in Latin America.

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

Now let's turn to all of you and answer any questions that you might have.

[Operator Instructions] We'll go first with Sam Darkatsh from Raymond James.

Good morning.

A couple of questions.

First with respect to Kenmore.

You mentioned that - you didn't mention Sears, but you mention the customer would draw down - drew down the inventory during the quarter.

That customer also looks like their comps were well below the industry shipment total and noted that their March results weren't quite as strong.

How would you characterize the inventory levels now in that channel?

Are they still a little bit high?

And is that going to impair your North American share over the next quarter or two?

Sam, this is Jeff.

During the quarter, we mentioned reduction in weakness in Kenmore shipments.

They did have an inventory reduction going on.

We think that accounted for more than half of the decrease we had there which was about one point of market share there.

We do think that going into April, their inventories were in good shape.

And given their run rates in the business and everything else, we don't expect that to happen again.

OK.

Second question.

It looks like you lost a few points a share organically in Brazil, although that market obviously is improving.

Can you talk about what's happening there from a competitive standpoint?

Sam, this is Jeff again.

In Brazil, we actually, I am not sure how you got that calculation.

We actually increased our share in Brazil during the first quarter.

The growth rates were very mixed by product.

One of the big drivers of the growth was actually the new washer that we introduced into the market.

It's really drawn significant growth in the industry for the low end of the washing machine.

That's part of why the industry numbers are so strong.

It doesn't have the same revenue value as a big refrigerator, which has the lower growth rate.

And also, air control products net of all of that were down about 30% during the quarter.

But all in all we gained a couple of points per share in Brazil during the quarter.

You gained share in value and on the unit base, that is why - what I was getting at from is-your local currency sales were up 11 and the industry was up 16, that's units, so what you are saying is your value share was up in the quarter?

That includes the compressor business as well.

Our appliance business was up much more than 11%.

OK.

Steve, the tax rate going forward, how should we be modeling that?

Sam, we're planning on about a 37% rate for this entire fiscal year.

And last question.

Regarding the share repurchase.

You mentioned you repurchased a million shares in the quarter.

Do you have a sense of the average price for that, Steve?

It was approximately $75.

OK.

Thank you.

I'll let others ask.

Thanks much, gentlemen.

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

Good morning, everybody.

Just a follow-up on may be some of the mixed dynamics in the US.

You kind of stated what's going on with Kenmore very clearly.

But thinking of the strength you indicated at Whirlpool and Kitchen Aid.

Just wondering if there's any other dynamics in the mid to low end of the product range outside of the Kenmore franchise.

You know, share loss maybe voluntarily or involuntarily.

Jeff, as you see with the numbers, our revenue grew faster than our unit sales grew in North America, so we continued to sell a richer brand mix as well as a richer product mix.

And you made a comment about price getting better.

I just wonder if you could elaborate on that.

You know, I don't think you're raising price on like-for-like product.

May be you are.

But maybe just talk about the rate of price decline versus last year or what the dynamics are there?

I think what Jeff said is we're seeing moderation in the price pressures that the industry in north America as well as Europe has seen a little over the last couple of years.

So we're not seeing the same intensity of price pressures as we've seen over the last eight or 10 quarters.

And you've made - you know, a number of comments that you're in a comfortable dealing with raw materials pressures.

Could you give us some sense of kind of what you need to overcome in 2004, what the escalation looks like on a year-over-year basis?

Jeff, it varies a lot by parts of the world for us.

I would say that our emerging markets, Latin America and Asia, the ability to have forward contract rates and things like that is much less much more exposed to spot rates in those markets and Europe and North America we have a structured approach to contracts and that sort of thing.

Having said that, our - we knew this coming into the year.

We have had some increases in material costs, raw materials.

Coming into the year, there are pressures throughout in the marketplace.

We're dealing with them basically three ways.

One is through increasing our productivity efforts.

Two is using global procurement level to ensure that we're getting the most competitive costs.

And three, we have in different parts of the world passed through price increases, which had been announced previously in some markets around the world.

So kind of that's the balance we're keeping on all of this.

We're working both on the marketplace side and on the cost side.

I guess just finally, around the currency dynamics.

It was just unclear to me the way a few things were settled, written in the press release.

Is the 20-cent head wind you took in the quarter solely translation or are you kind of factoring in - I don't know, share erosion or some other disruptions just due to the kind of change in the currency exchange.

No.

In fact it's primarily transactional at this point in time.

First quarter effect, as we said was largely related to the Brazilian real, which was from 350 or so in Q1 last year to about 290.

The net effect does incorporate the translation.

But in this particular quarter, it was largely transaction.

I'll also say that this was a bit of an extraordinary quarter.

I think Jeff mentioned, we had expect going forward to not see anywhere near this level of quarter-on-quarter impact.

As a recall the second quarter of last year was in that low 2.90 range.

So, it's pretty consistent over the currency as today.

The $18 million you noted for Latin, I'm assuming that's pretax if I --that's like 16 cents.

So it implies you had four cents in negative currency elsewhere.

I know there's some intra European currency issues.

That's exactly -- yes, Jeff.

That's exactly what it is.

Intra European issues.

And, of course, at the net line we also have interest expense, which is impacted by a stronger euro and so forth.

So it's those things.

OK.

Great.

Thanks a lot.

The next, David McGregor at Longbow Research.

Good morning.

Good morning.

I guess on Europe, you talked about the fact Jeff that productivity increases had more than offset higher raw material prices.

That's obviously a positive.

But you deliver 4.6% EBIT margin.

Thinking back, I guess about a year, the thought was that you could conclude 2003 at about 6% EBIT margin at the end of the year about 5.5.

I get people waiting to see in the first quarter.

Seems like we're moving back rather than forward.

Could you bring us up to date on what you need to do to get your arms around the European business now you talked - I think the fact that pricing was a little more competitive there as well.

Jeff, you and I have had that conversation before about pricing in Europe.

Maybe you could bring me up to date on that as well, thanks.

David, first of all, the first quarter operating profit percentage was in line with our plans.

The comment I made there was given - if you look at the seasonal weight of revenues by quarter, it really does build throughout the year.

The first quarter is our weakest just because of seasonal demand and mix.

It's our weakest quarter.

So even though it dropped from the fourth quarter, it's very much in line with the direction we gave for the full year.

The second thing is the revenue weight does increase every quarter.

So our ability to spread the cost, to leverage SG&A will improve throughout the year.

And third, the timing of our productivity actions will grow as we go throughout the year.

So I do believe in fact, the guidance we talked about for the full year, the improvement in Europe for the full year, and the 30% to 40% range were exactly where we expected to be.

In terms of the marketplace pricing, last year was the worst year in memory.

Marketplace price declines in Europe.

There is a carry-over effect from the second half the year pricing, year over year first quarter.

We have out performed the market in terms of that pricing.

And so that really leaves my comments.

We do think a moderation in that decline has really -- we have begin go in see that in the marketplace.

So again, back to the first quarter, it was exactly where we thought we were going to be.

You're going to see it improve again next quarter and the quarter after that.

Just so we can be clear, where do you anticipate exiting 2004 in terms of EBIT margins in Europe?

Well to get to where we need to be, we need to be in the 7% range.

And that's where we expect to be.

So that's the goal, 7%?

Right.

OK.

Just a couple of other topics while I've got you, the builders market in North America, what are you seeing in terms of order patterns there?

Are they slowing?

Are they fairly stable?

We see no slowing at all.

No slowing at all?

No.

That's business that you contract well out ahead.

We've got a good part of the business for the year already booked.

We're getting new orders at a rate that's consistent with what has been over the last several months.

OK, no cancellation?

None.

Couple of quick questions here.

You announced price increases earlier this quarter for April shipments in North America.

Are you collecting those price increases?

Yeah, we implemented them April 1.

Right.

Are you collecting them?

Yes, we are.

Are you getting the whole price increase?

I can't really talk in detail about the data.

We have executed what we announced.

And then finally, just on the premium laundry, it just seems as though there's a growing sort of level of competition that's based -- at least a lot of announcements of people intending to position product there.

I just wonder if you could talk a little about what you're see from a competitive standpoint on a premium laundry is a pretty important part of the model.

Are your market shares holding operating, you are seeing any deterioration there?

David, the data we have right now is slicing it down that level it takes a little bit of time to collect that.

There have clearly been more entries.

There's at least three or four major competitors, who have either brought out or are bringing out some offerings in what we would call the premium high efficiency segment.

All we can for sure say right now is that we continue to grow year over year significantly our shipments in that category.

So, you know, I would say that we probably, as a percentage basis, is prior lost a little share.

But in growth, we're expanding the market quite significantly and we still have more than a majority, a significant majority that markets right now.

And as I visit with major retailers, there's no evidence that we've lost any balance of sale when it comes to that premium.

OK, are you seeing any change in the terms of the rate of growth in that category?

Very strong.

Remains strong.

You're not seeing a slow up at all?

No.

OK, great.

Thanks very much.

We'll take our next question from Eric Bosshard at Midwest Research.

Good morning.

Wanted to better understand, it seems like the outlook is really positive in a lot of places in terms of increasing unit assumptions in the US market and the global market.

Better pricing, better mix.

Yet within this the earnings guidance is the same as it was when those factors were less positive.

Can you help us understand what is not allowing the better market news to get the better earnings guidance?

I just think Eric is -- it's early in the year.

And it's that simple?

There's sort of nothing beyond that?

Right.

Is there any offset?

Is our steals materials a greater offset?

Is there concern about what second half unit comparisons look like?

I guess I just don't understand.

Again, Eric, I just say it's early in the year.

There's not some big new $40 million number that's offsetting the improvement that we expect to see in the revenue side.

It's just a matter of we have to see how all of these things play out.

We got a view of the industry today that's better than it was 90 days ago.

And we've got a lot of momentum in our businesses.

But at this point in the year we still are comfortable with this 620 to 635.

OK.

And then lastly, at the beginning of the discussion you talked about new product initiatives.

Can you talk about it?

Are there any more significant new product efforts or categories that we should keep an eye on in 2004?

Eric, we have begun to preview some of those at our shows.

In fact, we're going have a very thorough review in May about all of our new innovation.

That is as I go around the world, you know, we have had significant innovation already announced which you have seen.

That is really driving a lot of revenues.

As we go around the world in Brazil, we just introduce what we call my ace refrigerator.

It is a global product.

It is having a huge impact in the Latin America market.

We are selling a significant amount of this type of product in Europe and Asia.

We've had tremendous success recently by introducing the new mini built-in microwave oven in Europe.

That has gone from virtually a very small percentage to a very significant part of our business.

We have new washer introductions in both Latin America and China for the new pebble washer.

And then, of course, the innovation you have seen in the US market that we've introduced in our shows and I think I previewed in February.

That's all we've announced.

But I will tell you there is more coming and we're going to preview that later in May and talk about the second half of the year introductions.

Let me just maybe piggyback on what Jeff said.

I think we noted in our press release that this innovation process that we have, we have today over 500 innovation projects in our innovation pipeline.

We've got 84 of those that are in some stage of commercialization.

They won't all hit this year.

But again, we have announced and are inviting all of you to be with us in New York City on May 25th.

We will bring together all of the regional Executive Vice Presidents who have these major businesses.

We'll have our technology leader.

We're going to preview our business strategies as well as the innovation strategy.

And give you a look at a broad cross section of the leadership of the company as well as the strategies and product introduction that we'll be having.

So it's the afternoon of May 25th and you all -- we invite all of you to attend to get a hold of Tom Filstrup and he can give you all the details.

Great.

Thank you.

We'll go next to Michael Regan at JP Morgan.

Yeah, Hi, good morning.

Just a couple of questions, on the margin improvement in North America, it's pretty impressive and you mentioned in the press release, I guess is driven by product mix and productivity.

Wondering if you could give us an idea, which one was the bigger driver and also -- what type of year-over-year margin improvement you're looking for over the next couple of quarters.

Yeah.

I would say that in terms of the improvement, North America, we had-- if you think about what I talked about with KitchenAid growing by 16%.

KitchenAid is a very not only high average selling price product; it's very profitable for us.

Whirlpool brand grew by over 10% and we increased our average selling prices there.

So I would say it was roughly 50/50.

The improved price, brand-product mix was about half and the productivity was actually, although good, it was at a lower level in the first quarter than it will be later in the year.

And I think that proportion of improvement will shift as we go throughout the year that we'll see more coming from productivity than we saw in the first quarter.

I think, you understand, these productivity projects don't all start on January 1.

As Jeff indicated, as we go through the quarter, some of them are taking investments and resources so that productivity improvement will build quarter by quarter in every part of the world.

In terms of margin progression, North America, as I indicated, the second quarter is typically -- although we will grow our operating profits, it's typically a lower percent of sales, 3 to 5 tens of a point due to the weight of air control and cooling products.

That's it, if you look at our historical seasonal pattern, that's generally how that happens.

As I indicated the beginning of the year, with North America we expected to drive operating margins in the 11% range for the full year.

OK, great.

And just a couple points of clarification, Tim said the Kenmore inventory reduction issue.

So far in April that inventory reduction, has as far as you can see, worked itself through?

It really worked itself through by the middle of March.

We have very strong shipping last half of March.

So today it's not an issue with the Kenmore business.

And how would you say that that impacted sales growth by a percent or two?

Yes.

About 2% for the quarter.

OK, and lastly, on the raw materials, not to beat a dead horse or anything, but what would you estimate that in terms of dollars that for the first quarter that it affected you year over year?

In the quarter and for the full year -- I've said this to you all before.

Net-net after productivity we will not have a cost increase on our manufacturer product.

Our productivity well offsets material cost price increases that we experience.

OK.

OK.

Thanks.

We'll take our next question from Laura Champine from Morgan Keegan.

Good morning.

Good morning.

You mentioned that the - you mentioned your industry shipment growth expectations for this year by region and talked about an improving price environment.

Can you quantify your expectations for price industry price movements by region?

It's really early in the year for us to be able to do that.

There's all kinds of dynamics going on in the marketplace.

Material cost pressures and competitors, etc.

I think it's tough for us to sit here today and say here's what we expect for the full year of 2004.

What we're seeing is behavior in the marketplace, which has moderated from a price pressure standpoint.

OK.

Can we look just at the North American market and forecast that or even talk about where you think industry price trends were in the first quarter?

And how that's changing?

Our view is that industry price trends were about flat in the first quarter, from the fourth quarter of 2003.

Now, they were below the first quarter of 2003.

So sequentially there was a negative price impact, from the first quarter to the first quarter.

Got it.

And do you expect continued year-over-year deflation?

I know you're not seeing it, but in the industry in the US?

Again, I think it's too early in the year.

I think there's a number of dynamics happening in this industry in the US.

This year for the first quarter, that weren't there for last year.

I am sure that material cost pressures are one of those.

So I think it's really tough for us to project competitors behavior.

Got it, OK.

Thank you.

The next, Lemont Richardson from Peg Capital Management.

Mr. Richardson, your line is open.

Can you check your mute button?

Good morning.

Good morning.

My question pertains to material costs.

I listened to an electrical equipment manufacturer's conference call yesterday.

And they said that there was quite a bit of buying by their distributors, etc., and in anticipation of price increases, particularly those items that contain a lot of steel.

Has that happened in your business this year, particularly in North America?

I'm sure there's a lot of steel in a washing machine and in a refrigerator.

You know, as we've mentioned, the raw material environment is very volatile right now.

Whether it's steel, stainless steel, copier, and oil-based products.

We talked about how we're managing them.

You can look at the time paper every day and see what the issues are in the market place.

I certainly don't believe there is any forward buying from a trade standpoint of appliances due to that.

Generally our trade inventories are low and they reflect sell through, so we didn't see any of that in our business.

What about your own inventories raw materials, will those show up in the P&L stage or unavailable -- your known-

We're unable to hear you, sir.

Sorry.

Can you hear me now?

Yes, I can.

OK.

What about your inventories of raw materials when they show up that are shipped?

Won't that have some-

We work on literally just the time inventories, our plans, we will have five to six hours of steel on the floor.

That's continuously delivered.

We're not building inventories.

We don't have piles of inventory at one price versus another.

We won't change how we manage raw material inventories because of this.

We have to run these plants as efficiently and effectively as we can from a working capital standpoint.

In other words, just in time.

Just in time.

Next question?

We'll move next to a follow-up from David McGregor at Longbow Research.

Just, on the April 1 price increase, do you expect any sort of buy forward by your retail customers in advance of that price increase to produce any distortion in your second quarter shipments?

Our first quarter North American price increase was on stainless steel products.

David, I can't hear you.

I said our first price increase was on stainless steel products that contain stainless steel.

The retailers are sophisticated as we are in managing their working capital.

And they're not building inventories because of this.

You know, again, I've mentioned in the past inventory management in whole chain today is far different than it was or better than it was three years ago or four years ago or five years ago.

We're dealing with very sophisticated retailers.

Generally the inventory in the system is pretty much balanced to what's being sold out at the retail level.

So no opportunistic buying ahead of the price increases.

No.

OK, do you have any labor agreements coming due this summer or over the next two to three quarters?

We do not.

OK.

And then on the exports from low cost geographies, I know this has been a growing part of your model.

Can you give us a sense of what we should expect for 2004 over 2003?

In terms of incremental benefits of P&L?

David, we split this up before by region.

I don't have those numbers in front of me.

Other than I would say certainly if I take Europe, for example, we have made some announcements and continue to ramp up our production in both Slovakia and Poland.

We have four different product categories.

We will exceed probably another 5% of our production in Europe or more will come from those markets.

We now have all of our countertop microwave ovens coming out of China.

We've increased our Brazilian exports to over 30% of the production there, which go to multiple numbers.

We're expanding our production in Mexico.

So all in all, we are getting productivity gains from that.

But it's not - you know, it's just part of our annual productivity improvements.

So I can't really quantify exactly what those increases are doing for us.

Can you talk about the percentage of your unit volume that's being exported at a low cost right now?

It's probably in the 10% range right now.

Globally.

But David, and anyone else that's interested, let's get you a more exact number.

And last question with your fixed cost structure.

I know over the course of the past three or four years, you've been rationalizing a lot of productions.

It's been a key driver behind your productivity gains.

Are you through there?

Are there more plants to be closed?

I realize you can't discuss specifics.

But if there are, can you give us a sense to the extent of which there's more work to be done on the fixed cost?

What we have indicated to all of you is every year we believe this operating platform that we have; we will restructure it every single year in the $45 million, $50 million range.

That will involve move something products to various new locations.

So, you know, really at this point that's as much I think we can say.

But a $12 billion global business, if you're planning to stay on top of productivity, stay world class competitive, it will be a continuous stream of making these operations more efficient.

Good.

Thanks very much.

Another follow-up from Michael Regan at JP Morgan.

Hello, I know this might be difficult.

I think we hit on this before but just in terms of your comments regarding improved pricing or moderation of negative price, rather.

In North America, if could you give us any numbers with what you guys saw with pricing in the fourth quarter and what you saw in the first quarter.

From an industry standpoint we can't do that yet.

From a company standpoint.

From our brand standpoint - let me just give you the first quarter data.

We improved our average selling values for our Whirlpool Kitchen Aid brands probably in the 1% to 3% range.

In terms of overall sales value going up versus a comparable period, and that's both brand and product mix in new innovation.

OK.

Are you able to discuss the Kenmore volume at all, what the pricing was for that?

No.

Other than what they would talk about their business, where they can continue to see good mix, particularly in our high efficiency laundry products.

OK.

And what was that if you look at comparing to the fourth quarter?

I don't have that readily Handley.

But we can get that for you.

But we again increased our average sales value.

As we have, I think, nine or 10 quarters out of the last 12.

OK.

Thanks.

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

Just to kind of follow-up on the whole sourcing question.

And capital deployment question.

I think you've addressed this to some degree in the past.

To what degree are you looking at sourcing from non-Whirlpool facilities?

You're building a new plant in Poland, for example that you talk about in this press release, $500 million in capital expenditures for 2004.

You're kind of being forced to throw a lot of capital at the business and kind of a price down type industry.

Just thinking about the business from a return on capital standpoint and how best to place the bets, should we expect some more outside sourcing as we look forward over the next couple of years?

Jeff, what you should expect -- again, we've talked a lot about our innovation process.

We are driving significant levels in most product categories in most parts of the world, kind of unique offerings to consumers.

And those can be in some cases sourced from someone else.

We don't think from competitors, necessarily.

But they can be sourced.

That's a good part of the innovation you see coming in some categories.

We are outsourcing, you think about the full range of products on our proline Kitchen Aid small appliances.

A good number of those, we outsource.

You think of the gladiator GarageWorks.

With the exception of appliances that go in that, that is outsourced.

So we are looking at - all the time at that as an alternative.

Yet again, when our fundamental strategy is based on a very unique solutions to consumers and when it comes to major appliances, by definition then, they largely will be built in our facility.

I think if we look at our return on capital performance over the last several years, it has improved significantly.

We're running in that 17% to 18% total return on capital.

So we think we're efficiently and effectively spending the capital of the company to create value for our shareholders.

The other dimension I would add to that is that we are very rapidly using our global manufacturing facilities for multiple markets.

And so as part of this, we're actually improving our fixed asset terms.

We have specific goals on that to significantly improve that.

So we're very comfortable with where the capital levels are today.

And then just one follow-up, unrelated question.

Just back to raw materials.

We had a few CEO's over the last couple of months, you know, actually sounding a little more concerned about availability than price and obviously, you seem to have the price under control with your cost reduction.

You did make the comment about running very lean plants.

Are you seeing any extension in lead times or anything anywhere that gives you a little bit of pause about possible disruptions just due to availability and the scramble that is going on out there?

We have no interruptions in supply at all, I don't think - we are not seeing trends that indicate that we should expect them either.

We're the largest procurer of what goes into our products than anybody in the world.

We have long-term supply agreements with people that want to continue business with us long term.

So we're finding - the partnerships we have on the supply side are absolutely not causing us any problems from availability standpoint.

Thank you.

We'll go next to Brad Brumley (ph), American Express Financial Advisors.

Thank you.

Good morning, gentlemen.

A couple things, if I may.

With respect to Europe, if I have done the calculations correctly and adjusted for currency on both lines, it looks like your incremental margin there was recently healthy about 32%, 39% if I did the numbers right.

Which is fine.

I'm not poking holes at the number.

But you've talked about your productivity moves there being a big part of the equation going forward.

And I guess early on in the process you would expect the incremental margins to perhaps even be a little stronger, unless I don't have the timing of the trajectory of the benefits.

Correct?

So, could you just remind me, if you don't mind -- you were talking about continued benefit through the course of the year.

But where does the second derivative start to flatten in and out that respect?

First of all, your first calculation is largely correct.

I think we had 34% leverage on revenues, profitability in the first quarter in Europe.

Two dimensions.

One is, you know, again, we typically see and will see this year in our total margins.

Our SG&A will go down significantly as our seasonal sales per quarter goes up, so that's a big kick to quarter -by-quarter improvement.

Second of all, as we mentioned earlier, the productivity timing does vary based on the number of major products going on, particularly in Europe where we have a number of them going on.

So we'll see - we had very good productivity in the first quarter.

We'll see improvements in the future quarters.

So, we both will see margin expansion and SG&A reduction as a percentage as we go forward quarter by quarter in the year.

With respect to Latin America.

You mentioned here that you expect a more normalized experience in Brazil with respect to currency.

And you've noted how much of a problem that was for you in this quarter.

The Brazilian currency has strengthened on a relative basis.

Are you hoping to get this thing kind of lined up again from the Brazilian side or from the other side?

Our forecast for the currency for the full year isn't far off from where itis today.

If you think about the last four quarters excluding the first quarter of 2003, the Brazilian currency has been amazingly consistent.

It's traded in a very narrow band.

Again so on a currency side, besides the second quarter, we really should not have a negative impact.

As Jeff indicated in his comments, we are seeing improving conditions in the quarter.

Now, you know, the 16% increase in the industry in the first quarter, you have to go back and look at last year.

First quarter was down 14%.

So on a relative basis we're kind of gaining ground back to where we were.

But a number of you traveled to our Brazilian operations in March.

I hope - I think you saw an operation that is very lean on the cost side.

We are clearly the market leader from a consumer standpoint.

As this industry grows, and it will - it is and it will, we'll leverage that cost base significantly.

OK.

With respect to Asia, taking a trip around the world here, you noted that your new trade strategy, particularly around India, had an impact on the first quarter.

And some of that had to deal with tightening of terms and your expectations on credit experience going forward.

But how does that sort of experience stay isolated to one quarter?

Why does that not continue to impact the results further out into the year?

Actually, we started in January.

We will not complete it until mid May.

What we're doing in effect is taking 60 days of inventory out of the trade.

We have that 60 -- actually, the sell-through market to the consumer is very robust.

But we do have a reduction in shipments and also production.

We will have some second quarter impact.

And as I mentioned, he will - we do believe we will return profitability in the quarter.

But it will be impacted nevertheless by this for about half a quarter.

We won't hit what we call more normal run rates until Q3 and Q4 in Asia.

And the issue is not related to the India de-stocking of the trade.

It was to get more velocity and introduce products more quickly.

It's an emerging market.

The trade dynamics have changed.

We needed to do this.

The credit side, where we improved our reserves was largely in China.

It was largely related to microwave oven products that were built and sold a couple of years ago.

It was an adjustment to reflect the changing dynamics at retail as it relates to the microwave product.

So we're still buying microwaves on time in China?

We have a very large microwave manufacturing facility in China.

We built a couple million microwaves a year.

They are largely almost all are exported to Europe and the US for resale under our brands.

OK.

And lastly, difficult question, I understand probably, anecdotal in nature, but have you had any indication that there has been any particular benefit to your North American sales by virtue of the tax refund season and how that's played out so far?

I think it's too early to tell.

I think most retailers believe it will be positive but not hugely so.

Fair enough.

Thank you so much.

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

I'd like to turn the conference back to you for any additional or closing remarks.

OK, well, again we appreciate you taking the time.

Again, I remind you of our major event in New York City on May 25.

Do get a hold of Tom Filstrup and get registered for that.

We'd love to see you to give you an opportunity to interface with our leadership from around the world.

Thank you very much.