惠而浦 (WHR) 2006 Q2 法說會逐字稿

Good day, everyone, and welcome to the Whirlpool Corporation second-quarter 2006 earnings release conference call.

Today's call is being recorded.

And for opening remarks and introductions, I would like to turn the call over to Vice President and Corporate Controller Mr. Larry Venturelli.

Please go ahead.

Thank you.

Good morning and welcome to our second-quarter earnings conference call.

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

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

Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K and 10-Q.

During the call, we will be making comments on free cash flow, a non-GAAP measure.

Listeners are directed to slide 28 for additional disclosure regarding this item.

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

Jeff?

Well, thank you, and good morning, everyone, and thank you for joining us here today.

This morning, we announced earlier that our net earnings from our continuing operations were $100 million or $1.26 per share compared to $96 million or $1.42 per share reported last year.

These results, which included the acquisition of Maytag, were driven by strong sales growth and productivity improvement.

They were partially offset by higher costs associated with purchase accounting, acquisition integration costs, significant commodity price increases, as well as new product introduction expenses and overall increased restructuring expenses.

Also during the quarter, as we previously announced, our intention to sell four businesses -- the Hoover floor care business, our Dixie-Narco vending systems, Amana commercial microwave and our Jade commercial products businesses.

And I would say today we have received very strong interest for these businesses and continue to expect these transactions to close by the end of this year.

The financial results from these businesses are included in discontinued operations, and these discontinued operations during the quarter had a $0.12 per share operating loss.

So therefore, overall earnings per share, including the operating results from discontinued operations, came in at $1.14 per share.

Overall for the quarter, revenues rose 33% to a record $4.7 billion, which reflects the acquisition of Maytag and I would say strong consumer demand for our innovative products around the world.

Excluding our recent acquisition of Maytag, our net sales increased by 5% and our global unit volume grew by about 4%.

For the quarter, our global operations delivered $134 million improvement in free cash flow in comparison to last year, and this did include $44 million of acquisition integration costs.

Overall, we made very good progress in working capital, and as a percent of sales this improved from 13.7 to 12% during the quarter.

So overall, we are pleased with both our second-quarter financial results, which are tracking in line with our previous annual guidance that we gave in May, and we are particularly pleased with the rapid progress we are making in integrating the overall Maytag business.

Overall, we remain confident in generating the three-year efficiencies that we discussed on our call on May 23, and you can see those estimates on slide number 5.

As we said then, these efficiencies will come from all areas of our value chain in this business, which includes manufacturing, logistics, procurement and general and administrative reductions.

And we expect they will exceed $400 million by 2008.

We are also tracking very well with the transition costs required to integrate the Maytag business, which, again, we reviewed in May and are shown on slide 6.

I am particularly pleased that during the quarter, all four of our regional businesses delivered strong performance and generated higher volume, higher sales, higher operating income performance during the quarter.

In addition, both our trade and consumer response to our new product innovation continues to be exceptional all around the world.

As we previously stated, we continued to expect up to $150 million of material and oil-related costs during 2006; the majority of this will be incurred during the second half of the year.

And based on this type of material cost environment that we're seeing and expect to see, we have announced cost-based price adjustments in many major markets around the world.

We are proceeding well with our productivity initiatives and cost controls to help offset this tightened cost environment.

Overall, global industry growth for the second quarter was in line with our expectation and consistent with our prior guidance.

As we previously communicated, we continued to expect flat to moderate growth during the second half of the year, and for the full year we expect global industry growth to be about 1 to 2% next year in 2007.

Despite what we have seen -- some softer near-term demand, we do believe the underlying industry fundamentals remain positive.

And within this environment, our focus really remains on five areas as we finish 2006.

The first is to continue to accelerate our new product innovation in the marketplace, which is driving revenue growth and margin improvement.

The second is to continue to drive positive total cost productivity by further leveraging our global operating platform.

The third is we continue to control spending and reduce overhead and infrastructure, while at the same time we are increasing our investments in launches and brand investment activities.

The fourth area we are focused on is managing our overall mix of business to improve our margins, which is greatly aided by our innovation.

And lastly and importantly, we continue to efficiently and effectively integrate the Maytag business into our overall business structure.

So joining me today for the call are Dave Swift, President of our North America business;

Mike Todman, President of our international business; and Roy Templin, our Chief Financial Officer.

At this point in time, I would like to turn it over to Dave Swift for his comments on North America.

Thanks, Jeff, and good morning.

Turning to slide 8, our North America operations delivered record second-quarter unit shipments and revenue.

Revenue of $3.3 billion increased about 50% compared to last year, reflecting the acquisition of Maytag, continued strong consumer preference for the Company's innovative product offering and increased demand for the region's new product innovations.

Excluding the acquisition impact, sales increased approximately 5% and exceeded volume growth, led by strong Whirlpool and KitchenAid performance.

Our OEM business continued to show year-over-year revenue improvement during the second quarter, and sales from our Maytag appliance businesses were essentially equal to last year.

For the quarter, our U.S. unit shipments of major appliances in the T7 area exceeded industry levels, which were up slightly.

I would like to make a couple comments on U.S. industry growth.

As you know, during the first quarter, T7 industry shipments grew by 6% and the industry experienced a flat second quarter.

Based on our analysis, we believe retail sell-through during the second quarter was up 2% and that second-quarter shipment trends reflected some retail inventory adjustments.

Based on our latest estimates, we now are forecasting industry demand to be essentially flat during the second half and improve by approximately 1 to 2% for the entire year.

Our North America business generated operating profit of $192 million during the quarter.

Included in our results are $26 million in purchase accounting-related expense; $24 million in acquisition integration costs, which were partially offset by $15 million in efficiencies; and approximately $10 million in new product launch costs.

These anticipated cost increases were mitigated by strong demand and productivity improvements.

Material prices continued to increase during the second quarter.

And as a result, we did announce cost-based price adjustments on selected products of approximately 6 to 12% that go into effect here in early August.

Whirlpool's cadence of innovation in North America continued in the second quarter.

As previously discussed, 2006 represents the largest new product launch in the Company's history with the introduction of a new laundry line.

As you will see on slide 9, during the second quarter, the Whirlpool brand began launching the Duet Sport, a smaller version of the popular Duet front-load pair, with a suspension system to reduce vibration and noise.

Like the traditional Duet pair, it uses less than half the water and energy of conventional top-loaders.

Demand for the Duet Sport has been strong, and we're encouraged by initial market response.

Our laundry launch continues with a completely stainless steel Pro Line Fabric Care System for the KitchenAid brand.

This beautiful laundry pair, as seen on slide 10, features the first class-encased touch sensor user interface controls offered in a laundry system.

Turning to slide 11 and following the successful first-quarter launch of the Maytag brand Ice20, the first French door refrigerator with ice and water on the door, the Amana brand launched the Ice & Easy French door refrigerator.

Bottom-out refrigerators are the fastest-growing segment of the refrigeration category, and we believe we are well-positioned to take advantage of the growth in that category.

Sales of the Maytag Ice20 had been very strong and we are selling the Ice20 refrigerators as fast as we can make them.

Because of the strong sales in this growing segment, we have recently announced the expansion of our Amana, Iowa, facility.

KitchenAid also launched the industry's most powerful premium slow cooker and premium blender line on the market, as seen on slide 12.

We continue to receive positive feedback daily from customers and consumers that our new product innovation lineup is unmatched in the industry.

Turning now to Maytag, I'd like to make a few comments regarding our integration efforts.

As Jeff mentioned, we remain on track to capture efficiencies of greater than $400 million on an annualized basis.

Each day that has passed since completing the acquisition, which has just been over 100 days, has provided further reinforcement that the levels of savings we are projecting from this business combination are reasonable and very achievable.

Also, we are in the process of executing plans to leverage our innovation pipeline and create additional growth opportunities from Maytag.

As we previously mentioned, many of our key integration decisions have already been communicated, which include virtually 100% of the staffing notifications; consolidation of the laundry manufacturing facilities; relocation of the Maytag administrative functions in the U.S., Canada and Mexico to eliminate duplicative work activities; rationalizing technology centers; aligning Maytag's logistics operations with Whirlpool's outsource operating model; aggressively implementing lean manufacturing processes in all legacy Maytag manufacturing facilities to improve productivity; the consolidation and optimization of call centers; establishing and leveraging a new functional management structure; clearly articulating the brand positions and creating a compelling brand portfolio unmatched in the industry; developing product and innovation plans to support the various brands; expansion of the Amana, Iowa, facility to increase production of bottom-out refrigerators; and announcing the sale of four adjacent businesses -- the Hoover, Amana commercial, Jade commercial and Dixie-Narco businesses.

These actions, once completed, represent approximately $300 million of annualized savings.

We continue to ready our Clyde and Marion, Ohio, laundry facilities, the largest and most efficient in the world, to absorb all of Maytag's top-load laundry production.

We will complete this with modest capital investment and begin production in record time following the acquisition.

The shift in production is on track and will begin in the fourth quarter of this year with the Herrin and Searcy facilities scheduled for closure by the end of the year and Newton closing during 2007.

In summary, we have great momentum, the execution of our integration plans are going extremely well, and our innovation pipeline is strong.

Now I'd like to turn the call over to Mike Todman, President of Whirlpool International.

Mike?

Thanks, Dave.

Our overall international business had a strong second quarter.

Sales increased approximately 10% and operating profit improved 57%.

During the quarter, we also accelerated innovation to the market by introducing new product innovations to consumers in each of our international regions.

On slide 13, you will see the built-in oven Whirlpool Europe launched in France and Italy.

The oven comes with 15 preset recipes and a range of accessories, including a pizza tray, a silicon pie mold and an anti-stick baking tray.

In addition, on global operating platform and our knowledge of customers' needs and wants is enabling us to share and tailor innovations around the globe.

On slide 14, you will see two examples of this that we launched this quarter.

First, we launched a Brastemp-brand Duet in Brazil.

This has many of the same features we have in the popular front-load laundry pair we sell in North America and in Europe as the Bauknecht BIG.

In India, we launched the Jet Chef microwave.

This microwave is already available in Europe and has European styling.

In keeping with the need to tailor our innovations to meet customers' needs in each area the world, the Jet Chef also offers Micro Tawa, a technology that offers the ability to crisp, saute and shallow fry, making it ideally suited for the Indian-style cooking.

As you will see on slide 15, Whirlpool Latin America's Brastemp brand launched two products in the new Gourmand line, which is specially created for customers with a classic and refined lifestyle who value convenience, sophistication and functionality.

The first Gourmand product is a refrigerator with a wine rack and compartments for desserts and fine cheeses, and the second is a wine cooler that holds 40 bottles and features shock absorbers to protect the wine.

On slide 16 and 17 are two new products from Whirlpool Argentina.

The first is a front-load new washer that offers greater RPM power, a soft drying option and 14 washing programs.

The second is a 6th Sense no-frost bottom-freezer refrigerator that automatically varies temperatures according to the customers' needs.

Whirlpool India launched three new innovative products that can be found on slides 18 through 20.

The Delight frost-free refrigerator, India's first and only refrigerator with interior LED lighting, provides an evenly distributed white light that allows consumers to clearly see all of the refrigerator's contents, even when the refrigerator is full.

The Fusion Direct Cool refrigerator with 6th Sense frost control provides more than 17 hours of cooling retention during power outages compared to other refrigerators that offer only six hours of cooling retention.

And finally, the Whitemagic Splash fully automatic washing machine with the Aqua Shower feature enables water and detergent to be poured into the center of the washload, increasing the concentration and resulting in better wash performance.

Whirlpool innovation continues to be leveraged in all of our markets around the globe.

Turning to slide 21, I will comment on each of the regions' financial performance, starting with our European operations.

Whirlpool Europe reported record revenue of over $800 million and a record second-quarter operating profit of $45 million.

Revenue increase 5% from last year's levels, driven by Whirlpool-branded innovation.

And currency translations did not have a material impact during the quarter.

Company unit shipments, reflecting continued strong demand for the region's innovative product line, continued their positive trend during the quarter and exceeded estimated industry demand of 1 to 2%.

Strong sales performance, continued improvements in productivity and reductions of administrative costs led to a double-digit improvement in operating profit of 21%.

Year-over-year operating profit margins increased from 4.8% of sales to 5.6% during the period.

Based on current economic conditions, the Company continues to expect full-year industry unit shipments in 2006 to increase approximately 1 to 2%.

Turning to slide 22, Whirlpool Latin America's sales increased 17% from the prior-year period to $580 million, driven by strong appliance unit volume.

Excluding currency translations, sales increased approximately 13%.

Industry unit shipments of appliances are estimated to have increased approximately 11% during the quarter.

Record operating profit of $55 million improve 76% during the quarter and margins expanded from 6.3% to 9.4%.

Productivity improvements, currency and regional incentives more than offset higher material costs and increased brand investment.

Based on the current economic environment in Brazil, the Company continues to expect industry shipments in 2006 to increase 8 to 10%.

Moving to slide 23, Whirlpool Asia generated $1 million of positive operating profit for the second quarter compared to a 4 million loss in the prior year.

Sales of $133 million were up 8% from last year.

Excluding currency translations, sales increased approximately 11%.

The operating profit improvement reflects improved performance in India, the region's largest market, as well as the success of new product launches, productivity improvements and a favorable product mix.

Based on current economic conditions, the Company continues to expect full-year industry unit shipments to increase 5 to 7%.

In conclusion, we're pleased with our international performance during the quarter and for the first half of the year and expect to continue this strong performance momentum in the second half of the year.

Now I'd like to turn it over to Roy Templin, our CFO, for the financial review.

Roy?

Thanks, Mike, and good morning, everyone.

Let me begin by saying that we are pleased with our second-quarter and first-half financial results both from an earnings and cash flow perspective.

As you will recall, during our May 23 conference call, we provided you with guidance for 2006 earnings from continuing operations and free cash flow.

We also shared with you our three-year expectations for both acquisition efficiencies and costs and provided an outlook for 2007 earnings.

I am pleased to report that we continue to reaffirm this guidance.

The integration of Maytag is proceeding well from a strategic, operational and financial perspective.

With about 100 days of the integration process behind us, we are quickly becoming one combined Company.

As a result, and as previously communicated, we will not be discussing our businesses separately today.

As Jeff mentioned earlier, during the second quarter, the Company announced its intention to sell the Hoover floor care, Dixie-Narco vending systems, Amana commercial microwave and Jade commercial products appliance business.

Buyer interest in these businesses has been robust and we are currently negotiating with both strategic and financial buyers.

Due to this decision, the financial results for these businesses are included in discontinued operations within the financial statements.

If you will turn to slide 24, I would like to provide some additional comments on our second-quarter financial performance.

Operating profit of $205 million increased 7% from last year's reported results of 191 million.

Included in the second-quarter operating profit is $35 million of Maytag purchase accounting and one-time integration costs net of the efficiencies, which I will discuss in more detail here in a couple of minutes; approximately $10 million of planned new product launch costs above the prior-year second-quarter level; higher restructuring expense of about $14 million; and a $10 million net benefit from regional tax credits in Brazil.

We currently expect to recognize some additional regional tax credits in both the third and fourth quarters.

Turning to the categories between operating profit and net earnings, you will note that interest income and sundry expense improved $5 million from last year's reported results.

The improvement is entirely due to higher interest income, which is primarily resulting from favorable tax settlements.

Interest expense increased $22 million and reflects the acquisition of Maytag.

As you know, during the second quarter, we issued three tranches of senior unsecured debt totaling $750 million.

These tranches include a three-year, $200 million floating rate note which matures on June 15, 2009.

Its coupon is a three-month LIBOR plus 0.5%, resetting each quarter.

Whirlpool has the option to call this bond at par anytime after 12 months.

There's also a second tranche which is a five year, $300 million, 6.125% fixed-rate note which matures on June 15, 2011.

And the third tranche is a 10-year, $250 million, 6.5% fixed-rate note which matures on June 15, 2016.

The proceeds from the issuance were used to reduce commercial paper which was outstanding and for general corporate purposes.

And the ratings were affirmed at BBB by Standard & Poor's and Fitch and at Baa2 by Moody's.

Our effective tax rate for the second quarter was 25.3% in comparison to 29.5% last year.

Our year-to-date and full-year estimated tax rate is 27%.

The decrease in the rate is driven largely by favorable tax strategy and tax credit recognition and an overall favorable global dispersion of income.

If you will turn to slide 25, I would like to comment on three elements of the Maytag acquisition which we discussed with you during our last conference call and that have impacted our second-quarter earnings per share.

First, as you will recall, the Maytag acquisition was 50% cash and 50% stock.

The stock portion of the transaction resulted in the issuance of additional shares for which the associated dilution reduced our second-quarter earnings by approximately $0.17 per share.

Because the cash portion of the transaction was financed, and we also assumed Maytag's existing debt, we now estimate roughly $0.25 per share of higher interest expense in the quarter due to the acquisition.

Secondly, as we previously discussed with you, the preliminary allocation of purchase price and adjustments of Maytag's assets and liabilities to their fair values for accounting purposes triggered perspective changes in depreciation, amortization and expense recognition.

These adjustments lowered earnings by $0.25 per share during the quarter.

The largest component of this was a one-time second-quarter cost step-up of Maytag's inventory of $0.18 per share.

Finally, the one-time integration costs in the second quarter were $0.23 per share, and initial efficiencies recognized in the second quarter improved our results by approximately $0.14 per share.

In total, these costs were approximately $0.76 per share.

As you will recall, we provided separate annual estimates for these transaction financing, purchase accounting and integration impacts on our May 23 conference call, and these annual estimates remain for the year.

If you will turn to slide 26, I will briefly comment on our cash flow performance.

Cash provided by continuing operating activities of $81 million, which again included $44 million of acquisition integration cash outflow, improved $190 million from last year, primarily due to improved receivables and payables.

Our overall working capital as a percent of sales was down 1.7 points to 12%.

Receivable days outstanding improved over nine days and as a percentage of sales was 13.9% versus 15.7% last year.

Payables, which were abnormally low due to production adjustments we made at the end of the second quarter in 2005, returned to more normalized levels in the current year, although still somewhat impacted by reduced production levels late in the current year's second quarter.

As for inventory, we finished the quarter with 58 days compared to 55 days last year.

As a result of the slowdown late in the second quarter, we ended the second quarter with roughly two extra days in our inventory.

We have already taken actions early in the third quarter to address this increase and continue to project we will lower overall inventory and inventory days in the second half of 2006.

The improvement in our cash provided by operations was driven largely by improvements in working capital.

This improvement was partially offset by use of cash in other areas driven, one, by changes in the timing of promotional accrual payments, and two, higher incentive compensation payments.

Capital spending of $233 million was $58 million higher than last year, as the Company increased its support behind product innovation efforts in laundry and the expansion of our global operating platform in Mexico.

Free cash flow before dividends, inclusive of the $44 million in net cash integration costs, increased $134 million and represented almost a 50% improvement from the prior year.

In closing, we have had a strong first half and believe we are well-prepared for the balance of the year and beyond.

We continue to effectively navigate through the heightened costs and moderate global industry growth environment.

Now I will turn the call back over to Jeff.

Thank you, Roy.

Well, overall, I'd like to make a couple of comments.

One is that we continue to make excellent progress executing the integration of Maytag.

We remain very confident in our ability to realize the value-creating opportunities of the business combination and truly believe the opportunities unique to this acquisition will positively change our structural performance capabilities in the years ahead.

The year is progressing as we previously expected.

And we are pleased where we are through the first half of the year.

WE do believe we have the best brands in the industry.

We have unmatched product innovation that we are bringing to the marketplace with a regular cadence.

And importantly, we have a very robust product pipeline of consumer-relevant value-creating innovation which will be coming in in the months and quarters and years ahead.

We have been addressing this increased material and oil-related cost environment by doing the things that have worked for us previously.

We are driving higher total cost productivity.

We have, as we have mentioned, in many of the major markets around the world introduced cost-based price adjustments.

We control our spending, and again, continuing to drive the innovation and consumer investment in the marketplace to keep our top-line trends moving in the right way.

We have seen that these have been successful for us over the last couple of years.

And we believe they're going to be very successful for us in this current economic environment.

Overall, based on our current assessment, we continue to expect our full-year 2006 earnings per diluted share from continuing operations to be between 6 to $6.25 per share and free cash flow for the year to be in the $200 to $300 million dollar range.

And again, we also reiterate the guidance we gave in May and we expect our 2007 full-year earnings per share to be at approximately $9 per share.

At this point in time, I will stop and we'll open this up for questions.

So operator, if you open that up, we will take questions.

(OPERATOR INSTRUCTIONS).

David MacGregor, Longbow Research.

Congratulations on all the progress.

Just a few questions -- first of all, in the third quarter, what will we see in terms of one-time costs, purchase accounting adjustments, so on and so forth?

David, this is Roy.

David, we are actually not going to provide quarterly guidance with respect to one-time costs or purchase accounting.

Again, to sort of reemphasize what I said my script, we continue to, first of all, keep the same annual estimates with respect to the full year.

And again, just as a reminder, what we experienced in the second quarter around purchase accounting was $0.25, the biggest piece of that, of course, being inventory. [multiple speakers] one-time costs, we were about $0.23.

Now, David, again, the one-time costs, if you think about the three major components of those, primarily, again, integration costs and consulting costs to assist us with the integration, technology costs, and then the third big piece is manufacturing inefficiencies and startup costs.

So as you might expect, there is a higher proportion of those, particularly around the manufacturing integration, that will come in both the third and fourth quarter.

It seems like you are getting excellent traction with the new product introduction efforts.

Can you break out for us or quantify just how much of the pricing benefit right now or the revenue growth benefit is derived from new products on the market?

Yes, David.

We have previously stated our goal and expectations that we would drive over $1 billion of revenue from our new product innovation pipeline.

We are tracking to that.

Halfway through the year -- in fact, exactly what we gave is 1.2 billion.

Halfway through the year, we are actually slightly ahead of our plan and tracking towards that.

In general, these do carry higher margins to them.

I don't have an exact breakout of margins or profits on that other than to say it is driving revenue.

It will be 1.2 billion or so for the year.

And halfway through the year, we are on track with that.

Fantastic.

And then just last question on these upcoming price increases.

I think you've cited 6 to 12%.

On what percentage of the overall offering do you feel that you will collect some sort of price increase?

And should we be using kind of the middle of that range as a good modeling number?

This is Dave Swift.

In terms of what we have communicated, the 6 to 12% is what we are targeting, and it is across all brands.

It is across all product categories.

And we believe it is warranted.

And that is why we're doing it.

We fully expect to be able to achieve that in the marketplace.

The key -- and our confidence also stems from the fact that we are launching the greatest amount of innovation we have ever had as a company.

And we go back to last year and looking at our success and attribute that continuation and acceleration of innovation as one of the things that gives us confidence for the balance of this year.

Congratulations on all the progress.

Nice quarter.

Sam Darkatsh, Raymond James.

A couple of questions.

I guess, first, the inventories being up on a year-over-year basis, Roy, how much of that was the value of the inventories versus units, if you could parse that out?

Sam, let me bifurcate it this way for you, which I think will help you put it in perspective.

If you look at the year-over-year growth, we're up about 240 million.

And right away, about 30 million of that is currency.

So you are left with a net of 210.

If you look at what we had built with respect to our planned builds around availability and the higher material cost content in our inventory, that is about $50 million.

So you are left with a net increase of 160 million.

Half of that, Sam, roughly, are the two extra days, and the other half of that, again, is planned build that we had to support our higher volume levels.

Got you.

Second question -- I know your overall pricing and mix is going to snap back beginning in the third quarter once your price hikes go into effect, but it would appear as though your organic business -- the pricing and mix combination was a favorable 1% versus -- it has been trending between 3 and 5%.

Was that in one or two particular geographies?

Or what would you attribute that pricing and mix -- the lower positive impact of pricing and mix to have occurred because?

Sam, you are right.

There have been periods where our value growth, revenue growth has spread between value and unit growth, has been larger.

I don't think there was any real fundamental change this quarter.

There are a lot of different moving parts, as you can imagine, with bringing the Maytag business in -- the weight and the rate of growth in some of our international markets increasing at a fast rate, currency -- I would say the best way for us to look at it is on a market-by-market basis.

And largely speaking, we're seeing the same trends in the second quarter as we have seen over the last probably six to eight quarters.

Jeff, I guess this is the major question that folks may have for the second half.

Given slightly slower industry growth expectations in the U.S., slightly higher inventory levels and the upcoming price hike of 6 to 12%, which some may deem pretty significant, what would give you that confidence that the operating results would be pretty much in line, based on those three variables that you are looking at?

Well, Sam, obviously for many months now, there has been a lot of concerns about the consumer economy, if you will.

As we take a look at our business globally, the way I would describe it is I first look at -- our Latin America business is -- economy is strong.

It is running well.

We expect that to continue through the balance of the year.

Asia is running well.

We expect that to continue for the balance of the year.

Europe is, although not big growth, it is in that 1 to 2% range -- that is where it has been for some time.

We are performing in that environment.

We expect to continue to perform there.

So we really, then, zero in on North America.

And I would start with we have adapted -- we have modestly adjusted our industry growth.

I think we went from 2 to 3 to 1 to 2.

We did see a slowdown at the end of June.

I would also say in July, we are actually, from what we have seen so far, we are actually running up a little bit in terms of the industry.

We think if you really dissect that U.S. marketplace, we saw a plus 6% first quarter.

We are expecting a 3 to 4% industry growth in the second quarter.

Total shipment industry was about flat.

I think if you look behind that, as Dave Swift talked about, actual retail sell-through was still positive in the second quarter.

We estimate it to be around 2%.

So we think there were some small trade adjustments during that period of time.

A lot of people look at the housing industry.

We do as well.

About 20% of our revenues are based on housing.

But we do have 12, nine to 12 months of visibility to our orders.

Based on the assumptions we have laid out earlier in the year, we really don't -- actually, the housing assumptions are tracking very much in line with the estimates we had had in our forecast for the beginning of the year.

So as I look at that, I believe that basically the year so far is playing out pretty much as we've planned and given guidance.

Regarding the price increases, our view there is that we are now in our third year of extraordinarily high material cost environment.

It continues to accelerate.

We are driving record levels of productivity in our business, and it's justified that the material -- raw material increases are passed through to the marketplace.

And we're seeing it everywhere in the world.

I don't think anybody is immune from that.

And so our view is it is important that we are able to continue to invest in this business.

We have to recapture that in the marketplace.

And then the last part is the Maytag integration is going extraordinarily well.

That is going to drive -- there's a lot of moving parts, certainly for the balance of this year, but it is moving in the right direction.

And we are seeing already some positive benefits.

So as we put all this together, that's basically why it gives us confidence that we've got a number of positive things that we are executing on in the marketplace.

And we are trying to offset a couple of negative things, and right now, we feel pretty good about that.

Excellent.

One final question -- Roy, the sequential -- sequentially looking at the pension and post-retirement line on the balance sheet, it is down about roughly $400 million or so.

Is that entirely the disc ops?

Or was there actions taken?

I didn't notice it on the cash flow, but were there any other actions taken from a financial perspective?

No, Sam, you're right.

If you look at what we reclassed for disc ops for those two line items, it's about 470 million in total.

So that is the driver.

Laura Champine, Morgan Keegan.

Actually, I am looking for a little more granularity on the unit growth in the quarter.

Can you parse that out by region and give us numbers?

I heard your qualitative statements on it and read those.

And also, is it fair to say that currency impact in North America was immaterial in the quarter?

Laura, let me start out with the first part of your question on units growth.

In North America, again, units in total were up 31%, but I know you are going to want this ex-acquisition, which is up about 3%.

Units in Europe, up about 5%, Latin America, up about 13.5%, and then in Asia, units are up about 2% year over year.

With respect to the second part of your question, currency in North America net-net was not significant.

We did have favorable currency on our gross margins, but unfortunately, that was offset by unfavorable currency, which came through as a result of our balance sheet position.

So net-net, it was not a significant item in North America.

And then secondly, what increase in average selling price is inherent -- with all the new product development that you've got this year, is there a built-in blended expectation for an increase in average selling price?

Laura, I guess our current trend -- I mean, we are seeing a continuation of higher average selling price per unit in total.

And I guess that we have no reason to believe that that won't continue, given the innovation we have just introduced, which, by the way, I would say in the second quarter of this year was, in terms of overall impact, and again, it is still rolling out, but the North America laundry or fabric care launch is probably, in terms of scale and scope, the biggest launch we've ever done.

And that is still just beginning to ramp up.

So we expect those kind of things will continue to drive our average selling price upward.

Michael Rehaut, JPMorgan.

This is Jennifer Consoli on the line for Mike.

Good morning.

Just a couple of questions.

As far as the Latin American margins, can you let us know what that would have been, excluding the currency impact?

Yes.

Let me just first of all just talk about the currency impact.

In fact, as I think you may know, the way I appreciate it, and we have U.S. contracts, and in fact we would have seen losses.

But we do have a hedging policy in place.

And that has more than offset, if you will, the negative currency losses that we would have had to take.

So we actually feel good about the overall run rate of our Latin American margins.

So can you give any color on what the margin would have been ex that benefit?

The margins would have been down very slightly.

So really not significant.

And as far as the sales growth during the quarter, can you give us a little bit of color as far as the brand segmentation strategy, how the Maytag brand performed specifically, and if you feel that any of your brands may have lost share in the market?

Yes, this is Dave Swift.

I am assuming you're talking just about the U.S. market?

Yes.

A couple of comments.

First of all, as you heard from Roy, our unit growth outpaced the industry growth.

And obviously, revenue was above that.

So we had net, we think, an increase in our position as a company.

If you look at the data by brand, we don't disclose specific numbers.

We manage a portfolio.

And at this point, we feel we are on a good trajectory.

We think that's largely being fueled by innovation.

Eric Bosshard, Cleveland Research Company.

A couple of questions, first of all on price increases, and then secondly on volume.

The price increase, can you just repeat -- the expectation is -- or the effort is a 6 to 12% across-the-board price increase on the entire North American portfolio -- did I say that right?

This is Dave, Eric.

It is a selective increase of 6 to 12% on brands and all product categories.

And it is going to be a little bit different based on the particular product category.

But that is the average for the total.

So when you say -- does it bubble up or get to the bottom line -- I don't know how to say it -- that it is 6 to 12% in total that you as a corporation expect to realize, or is it 6 to 12 on a percentage of the portfolio?

I guess what I am trying to figure out is what should we look at in terms of our models of the 6 to 12% contributing in the second half of the year and then into 2007?

Yes, I think probably the right way to look at that, Eric, is -- I mean, this is being driven based on cost-based pricing on the materials, and the view that we have is this is going to offset our materials costs, and that is probably the best way to model it.

Yes, Eric, I would add to that.

You ought to look at our price -- the price increases are designed to offset the ongoing material costs that we have.

Future margin improvement we will yield through productivity and innovation margins.

The second question related to that, the material costs -- can you give us a sense of what you are dealing with on a quarterly basis or what it was in the second quarter in terms of the material cost pressure in total you are seeing?

Eric, for the full year, as we've said, we estimate that total material will be up $150 million.

If you look at material and oil-related cost impact on our margins in Q2, it hurt our margins by about a point.

So I guess what I am trying to figure out is if it is 150 million for the year, which is 1% of the total Company sales, is that the total price increase effort, then, is 1% to offset that 150 million?

No, Eric, I am not sure -- if your question is how much of this pricing will increase our margins--?

No, that's not what I am trying to get at .

I guess what I'm trying to understand is -- I guess just go to the end -- the cost increase for the year is expected to be 150 million.

You are going to attempt to get price increases for the year to offset that 150 million?

That is correct, and also put in place to begin to anticipate what our expectation is for 2007.

Great.

That helps.

Secondly, the price increases, it sounds like from what we have heard in the market, were announced July/August timeframe.

Did you see any -- I guess historically in this industry, 2005 price increases, we saw a volume buy-in ahead of those price increases.

Based on your comments, it doesn't sound like June ended in great shape and it sounded like July may be a little bit -- have you seen the buy-in in front of this price increase like we saw in the past?

Or is the environment different now?

Help me understand that, if you could, please.

This is Dave.

I think we are in an environment that we have been living through since the middle of 2004.

And I think back to 2005, it was the first time we had really seen that kind of a step-function change.

I think this is just the way that we operate the business today.

And I think we communicate to our trade the situation, and they understand the dynamics we are faced.

And this is just the way we will operate the business.

So we are not anticipating that you're going to see sudden movements based on announcement because this is how we operate the business today.

And then lastly, in terms of volume, you commented in your release that you've seen some recent signs of (inaudible) but the underlying fundamentals of the market are good.

Can you just help us understand a little bit more what you're seeing in terms of demand trends that has you comfortable with your second-half industry growth assumptions, as well as what you're thinking about for '07?

Yes, just a couple of data points -- number one, we do get sell-through data.

And as we looked at Q2, even though the sell-in data or shipment data was flat, sell-through data was a healthy 2%.

And we do think that that was some correction by the retailers.

We now have a third, almost a third of Q3 done, and July has been a good performance in terms of shipments in the industry.

So we see that the growth is there.

We have visibility to the builder business for the balance of this year.

And we continue to see robust performance there.

It is spot-on with the information we communicated back on our May 23 call.

And as we look at other indicators we have specific to Whirlpool, this is the biggest launch of new products we have ever had as a company.

And as we've shared with you guys before, it is about a 60% turnover of our business.

And we think that is being demanded by consumers.

And we are very confident that consumers will continue to buy those products at an accelerated rate.

And then last follow-up -- the sell-through data you talked about, up 2% in the second quarter -- do you know what that number was in the first quarter?

I don't know off the top of my head.

We'd have to go back and find that for you, Eric.

Jeffrey Sprague, Citigroup.

I am real late, so if any of this is covered, I apologize.

But I think it was not.

Just on Maytag, Jeff or Roy, we don't know exactly what the disc op number was for Maytag in Q2 of '05, but actually, taking a shot at it by my math and going with your 5% organic in North America for Whirlpool, I'm actually coming up with Maytag down 8 or 9% in revenues in the quarter.

I don't know if you can address that a little bit more specifically.

Perhaps I've got some assumptions wrong.

But can you give us a little more color there?

Yes, Jeff.

That's not how we would see it.

If we just take out their appliance business, again, we are not breaking that out separately, but I would say quarter over quarter, our Maytag brands had flat share growth or share performance.

I think you can assume that there hasn't been any big deterioration in their overall revenue.

So I'm not sure how you got those numbers, but that would not agree with what we've got.

I am just taking the disc ops-related revenues from the May 23 slide -- I think it was about 725 million for Maytag.

A quarter of that is 181.

Apply that to last year's Q2 and then kind of back into the delta implied for Maytag based on Whirlpool core being up 5.

Jeff, I think a couple of things.

One, your estimate -- first of all, your estimate of the discontinued op revenue stream of about 180 is very close.

But I think combining -- again, we are not separately reporting Maytag from Whirlpool.

And so I think there must be an issue with your math in terms of the overall core change because your numbers are much different than what we have experienced in the business, to Jeff's point.

But your estimate on disc op is very close.

I will circle back around, then, after the call.

Can you also give us a little color on what you expect for pension going into '07?

I know it may be [technical difficulty], but Roy, I know you guys went to cash balance I believe it was a year or two ago.

There's a meaningful liability at Maytag that maybe can be addressed in a more favorable way, plus discount rates are going to be going up.

Is there any early color on what to expect on pension as we go into '07?

Well, we haven't any color yet, Jeff, on '07.

Again, from an '06 perspective, we still estimate our [technical difficulty] will be 105 million.

By the way, all of those are voluntary contributions -- about 55 on what was the old Whirlpool and 50 from Maytag.

As we look at '07. it's just too soon for us to tell.

As you know, all the elements of what goes into the contribution expense changing are pretty dynamic.

Plus we are also watching, of course, with pending legislative changes that might have an effect on what we would fund as well.

So it is just too premature for us to comment on that at this point.

And then just a follow-up [technical difficulty] to that question just a moment ago -- so as was pointed out, the implied cost increase you are taking across the fleet of your entire revenues only require about a point of price.

But Jeff, you talked about kind of anticipating '07.

Can you give us a little bit of color on what you expect for '07 cost inflation?

I don't know if you're thinking about it annualizing off of current rates or you have some other visibility into the cost picture for next year, but what type of further escalation in cost is embedded in your outlook?

Jeff, there are two, other than what we gave in the May call, and basically we said the guidance there was based on approximately the same cost levels that we were seeing through the balance of this year.

It is too early for us to give a cost estimate for '07.

The part of our business that we can lock up with certainty will be done in the balance of the year, late in the year.

So it is just too early for us.

But I would again just say that our intention with the cost base price increase is to recover raw material and those other type of cost increases in the marketplace.

Well, again, thank you, everyone, for joining us, and we do look forward to talking to you next time.

Thank you, everyone.

And this concludes today's call.

You may now disconnect.