惠而浦 (WHR) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Whirlpool Corporation First Quarter 2007 Earnings Release Conference Call.

Today's call is being recorded.

For opening remarks and introductions, I would now, like to turn the call over to the Vice President of Investor Relations, Larry Venturelli.

Please go ahead.

Thank you, good morning, and welcome to our first quarter earnings conference call.

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

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

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

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

Listeners are directed to slide 33 for additional disclosure regarding this item.

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

Good morning, and thank you for joining us today.

As you saw earlier this morning, we released our first quarter financial results.

As you have probably seen in our first quarter, we delivered $124 million of earnings from continuing operations, or $1.55 per share.

This compares to $118 million or $1.70 per share reported last year.

For the quarter, net sales reached $4.4 billion which increased 24% over the first quarter of 2006.

As you will see, this increase was driven by very strong international performance, continued global consumer preference for our branded innovations, as well as the acquisition of Maytag.

Excluding the impact of the Maytag acquisition and currency translations, overall our net sales increased by 2%.

Net earnings from continued operations of $124 million reflected continued very strong performance across our Company's international business.

Our earnings from continuing operations also benefited from acquisition efficiencies, very strong cost reduction actions, regional tax incentives, productivity, and cost based price adjustments.

Each of our international businesses reported strong sales growth and operating profit during the quarter.

Our first quarter results were negatively impacted as expected by significantly lower U.S.

industry appliance demand, higher material prices, and higher interest than expense.

During the first few months of this year we did complete the sales of the Hoover Floor Care and the Jade Products businesses.

These transactions impact purchase accounting and have no gain or loss associated with their sale.

We have now completed all previously communicated divestitures of non-core businesses associated with the Maytag acquisition.

The first quarter financial results for Hoover and Jade are included in discontinued operations.

Total net earnings for the first quarter, including discontinued operations came in at $117 million or $1.46 per diluted share.

Cash used in continuing operations activities for the quarter was a usage of $159 million, improving from usage of $202 million reported last year.

Overall, our Company's debts came in at $2.5 billion which declined by $500 million from last year's post acquisition level.

As you will see on slide four, we continue to expect our earnings guidance of $8.50 per share for the year for continuing operations, and free cash flow before dividends to be in the 600 to $650 million range.

You also saw today that we announced that we will resume our share repurchase program beginning this quarter.

We currently have $465 million remaining on our $500 million Board authorization.

With the exceptional material costs, which I will speak about in a moment, the assumptions imbedded in our 2007 guidance, and are again listed on slide five, have not changed since we last spoke in February.

Regarding material costs, we are seeing continued increases in base metals and corresponding then in component parts.

We now, expect material prices to increase to 450 to $500 million versus our previous forecasts of about $400 million.

To address these environmental factors, and to continue improving our operating results, we continue to place strong emphasis four areas of our business.

First is the continued realization of our Maytag efficiencies, which we will speak about and they are on track.

Secondly is to continue the acceleration of new product innovation globally.

Third is to continue to drive cost productivity and cost reduction programs in both our Whirlpool and the remaining Maytag facilities and further leverage the capabilities of our global operating platform.

Lastly, we continue to make great progress in managing our overall mix of brands and innovation, including cost-based price increases which were implemented earlier this year.

Overall we feel these actions will continue to enable us to improve our operating margins as we progress through the year.

Last month, we recently marked the one-year anniversary of the Maytag acquisition close.

In the timely acquisition, we talked about three fundamental challenges we saw which required us to fix the Maytag business.

They were higher product costs, a lack of innovation in their product pipeline, and insufficient brand investments.

These challenges were most pronounced in the Maytag's floor care area and laundry sections of the business.

And so, as we talked then and and as we execute now, our integration plan has been designed to address the business issues in three phases, although we're pursuing parts of them at the same time.

First and foremost was fixing existing cost structure.

Second is to invest in the business.

Third, to grow the business.

The fix in the cost structure, we exited the floor care business and began to immediately address issues in the Maytag laundry category.

We closed two out of three the laundry facilities, we transferred the volume to our two world class laundry facilities in Clyde and Marion, Ohio.

We will close the third Maytag facility in the fourth quarter of this year.

We have also combined all administrative areas, procurement, R&D and other supply chain functions.

By the end of 2007 we feel we will have significantly improved Maytag's overall cost competitiveness.

Now, I want to turn to the other part of Maytag story, which is the growth side.

What we're doing to position the Maytag brand for future growth.

We are utilizing our innovation pipeline to reinvigorate the brand and the product portfolio in the marketplace, and the first quarter was a big step forward.

The Maytag brand launched two new laundry products, the Bravos and Centennial Series washer and dryer.

By the end of the year we expect to have a very strong portfolio of Maytag branded products in the marketplace, driving growth in the second half of the year and beyond.

Dave Swift will cover our marketing efforts aimed at revitalizing the Maytag brands in just a few moments.

Overall, our focus is to put the Maytag back into Maytag, by re-establishing the position of quality and dependability that are still synonymous with the Maytag brand.

We believe that our efforts to position the Maytag brand for growth will really begin to show in the second half of 2007 and beyond.

Joining me here today on the call are Dave Swift, President of our North American Business, Mike Todman, President of our International, and Roy Templin, Chief Financial Officer.

And at this time, I will turn it over to Dave Swift for his comments about North America.

Thank you and good morning, everyone.

As you will see on slide seven, first quarter revenue for Whirlpool North America reached $2.7 billion, an increase of 27% versus the year-ago period.

The acquisition of Maytag was the primary driver of the increase, while significantly lower industry demand, as expected, negatively impacted year over year comparisons.

Excluding the Maytag acquisition, sales declined by approximately 5% during the quarter.

First quarter operating profit margins improved 1.8 points in comparison to the fourth quarter.

On a year-over-year basis, operating profit of $159 million was unfavorably impacted by lower industry demand, significant increases in material cost for base metals, component parts and steel, as well as Maytag integration costs.

Partially offsetting these higher costs were acquisition efficiencies, positive mix from new innovative product offerings introduced over the past year and cost-based price adjustments.

Despite strong performance in Canada and Mexico during the quarter, U.S.

industry unit shipments of major appliances declined 9.5%.

We continue to anticipate that first half demand will be down approximately 5% and expect annual industry demand in the U.S.

to decline by approximately 2% to 3%, consistent with our previous guidance.

For 2007, the assumptions driving our demand forecasts, which are shown on slide eight, remain number one, a GDP growth of about 2.5%, two, stable mortgage rates averaging around 6.4%, three, housing starts down about 15%, four, existing home sales down in the low single digits, and five, unemployment rates just under 5%.

To mitigate the effects of the lower industry unit shipments we have made great efforts to enhance our product distribution.

In February we announced Lowes will carry carry Amana brand appliances.

The first products hit the floor in April and include the traditional series washers with anti-microbial component protection in accompanying dryers.

In May of this year, Maytag brand appliances will be back in all U.S.

Best Buy stores.

Best Buy will carry a full line of Maytag product offerings, including laundry, cooking, dishwasher, and refrigeration categories.

The reintroduction of Maytag and Amana brand appliances will bring Best Buy and Lowe's customers additional appliance options.

It is another example of our commitment to reinvigorate the Maytag brand that Jeff mentioned earlier.

The revitalization of the Maytag brand can already be seen in the products that were launched in the first quarter.

Maytag brand launched the Centennial top-load washer and dryer to celebrate the 100-year anniversary of its first washing machine.

Maytag brand also introduced the Bravos, high efficiency washer and dryer during the quarter.

Bravos can be seen on slide ten.

Another key piece of the Maytag brand revitalization efforts during the first quarter was the recasting of a pop culture icon, the Maytag Repairman.

During February and March, Maytag brand conducted casting calls in Los Angeles, Chicago, and New York, drawing more than 1000 candidates in person and another 500 by mail.

Golden's casting process garnered a great deal of media coverage including an Associated Press article that ran in several hundred newspapers throughout the country, major network coverage on ABC, CBS and NPR and a live interview on the FOX News Channel.

Video hostings of the auditions and other information on the captioning process can be seen on the nextMaytagrepairman.com website.

All this culminated in the naming of the new Maytag repairman, Clay Jackson, exclusively on the CBS Early Show on April 2nd.

New national advertising for the Maytag brand will debut this coming spring.

And the month of May will again be Maytag Month, featuring both trade customer and consumer promotions, sweepstakes, and special offers.

Other milestones that demonstrate the success of our innovation to marketplace will include the unveiling of Whirlpool brand's new Duet steam dryers in New York based media during a viewing in March.

The dryer, shown on slide 11, removes odors and relaxes wrinkles from clothing, and is set to launch in fall of this year.

As you will see on slide 12, a Whirlpool brand launched the Laundry One-Two-Three products to provide consumers with custom options to organize laundry rooms.

The work surface provides a place to sort, treat, and fold, and laundry towers provide drawers to store laundry supplies within easy reach.

Lastly, the Maytag brand website, Maytag.com, was completley redesigned and launched in March.

Going forward, as you can see on slide 13, our business focus for 2007 remains, realization of Maytag efficiency, revitalizing the Maytag brand, improvement in margin realization through mix and enacted cost-based price adjustments, introducing new product innovations to the market, delivering strong levels of productivity, and leveraging our asset base and increasing cash generation.

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

Thanks.

During the past two years we have made good progress in growing our international business has shown on slide 14.

In 2006, our international business generated $6 billion in revenue and made significant progress in margin expansion.

Following our strong performance in 2006, the momentum in our international business continued in the first quarter of 2007.

Total International operating profit doubled in the first quarter, and margins increased from 4.3% to 7.2%.

For our European business, showed on slide 15, revenue increased 15% during the quarter to $830 million, led by continued strong performance of the Company's Whirlpool brand and innovative new product offerings.

In local currency, sales increased approximately 7%.

Year-over-year unit shipments for the region exceeded industry demand during the quarter which was estimated to have increased 3% to 4%.

First quarter operating profit of $38 million increased 16% over last year's comparable period.

Higher volumes, favorable mix, and strong cost controls offset higher material costs during the quarter.

Internationally, our innovation cadence remained strong and we continue to leverage our global operating platform and customer knowledge.

On slide 16, you see that we continue the introduction of KitchenAid brand appliances in Europe.

The leveraging of our Kitchenaid business outside the U.S.

features European styling coupled with leading-edge technology.

Kitchenaid brands major appliances are now available in France and Italy and they will be introduced in the United Kingdom later this year.

This important addition to our brand portfolio represents a key introduction into the premium segment of the market and further leverages our brands and innovation globally.

Whirlpool Europe also launched the Whirlpool brand Gallery collection shown on slide 17.

Gallery collection is a modern range of intelligent and easy-to-use appliances that fit together in a seamless design.

And yet another innovation by Whirlpool Europe is in the first quarter, is the fashion conscious Max microwave, a combination of technology, innovation and design.

As you can see on slide 18, there are four new microwaves being offered.

Based on current economic conditions the Company continues to expect full-year 2007 industry unit shipments to increase approximately 2% to 3%.

On slide 19 you will note that our European focus during 2007 includes continued improvement in the overall mix of our business to expand margins, manufacturing productivity and cost reduction initiatives, leveraging our global product innovation, and increasing cash generation.

Shifting to our business in Latin America, shown on slide 20, we reported record first quarter revenue in operating profit.

Sales improved 29% to $754 million during the quarter, reflecting robust industry growth, a favorable macro-economic environment in Brazil and strong consumer demand for the Company's innovative brand.

Excluding currency translations, sales increased approximately 24%.

During the quarter, appliance industry unit shipments are estimated to have increased 20%.

Record first quarter operating profits of $84 million, which included the impact of currency, increased significantly over the prior year period.

The region reported a strong first quarter operating profit margin of 11.1%.

Strong appliance demand, regional tax incentives, productivity improvements, and cost controls contributed to the improved performance versus a year ago.

In Brazil, the Brastemp brand launched three new range lines, the Queen range line, offering easy to use functionality, [Ative], a line featuring an electric grill, digital timers, and 6th Sense, technology, and as shown on slide 21, the Brastemp Touchline featuring a gas range, pre-programmed functions and an electronic control oven.

The region also introduced a complete portfolio of 6th Sense products in Argentina as shown on slide 22.

The 6th Sense technology provides intelligent appliances that sense the environment, adapt to different operating conditions, and control processes.

Under the Consul brand, two refrigerators were introduced that allow customers to draw and right on the door and both sides of the product, as shown on slide 23.

Based on the current economic environment in Brazil, the Company now expects full-year 2007 appliance industry shipments to increase between 15%, and 20%.

As indicated on slide 24, our focus in Latin America during 2007 is on strong cost productivity, margin realization and the acceleration of innovation launches.

On slide 25, Asia's first quarter sales of $116 million increased 20% from last year.

Currency did not have a material impact on results.

The region reported improved operating profit results during the quarter largely driven by strong growth in India.

The favorable impact from successful new product launches, productivity improvements, and a favorable product mix offset higher material costs during the quarter.

Based on current economic conditions, the Company continues to expect 2007 industry unit shipments to increase 5% to 10%.

Slide 26 shows our primary business focus in Asia during 2007 is to extend our product offerings and accelerate new product launches, expand distribution and leverage our global innovation, continued expansion of China procurement and technology, and improve our manufacturing cost position and productivity.

Now, I would like to turn it over to Roy Templin for his financial review.

Good morning, everyone.

As Jeff discussed in his opening comments we earned $124 million, or $1.55 per share, from continuing operations for the quarter compared to $118 million or $1.70 per share last year.

We experienced strong international performance, the reduced level of earnings was expected and reflects two primary drivers.

First, material and oil related prices were $150 million higher than a year-over-year basis than the recently completed quarter.

This represents a 3.5 point negative impact on gross margins.

Secondly, industry demand in the U.S.

was down by approximately 9.5% in the quarter and negatively impacted our U.S.

business.

We did benefit from acquisition efficiencies exceeding integration costs during the quarter.

Acquisition efficiencies realized, were $106 million, and integration costs were approximately $14 million.

Before I review the financials in more detail I would like to briefly comment on a couple changes we have made regarding our regional financials.

During the quarter the Company adopted changes to its segment reporting consistent with realignments made to our regional business operations.

The operating results of the respective segments, after incorporating these realignments, are consistent with the presentation used by Jeff, Dave, and Mike when they reviewed segment operating performance.

The Company previously included the financial results for its Caribbean operations and export of certain portable appliances to Europe within its North American business segment.

The results for these businesses are now being reported within the Latin American and European segments respectively.

In addition, the Company has reallocated certain costs previously within corporate administrative expense to each of the respective regions.

These changes better position us to accelerate the growth and profitability within these businesses and improve overall cost efficiencies.

Regional results for 2006 have been reclassified to reflect these changes and are shown on slide 27.

If you will turn to slide 28, I'll make some additional on our consolidated earnings performance.

Interest income and sundry improved approximately $2 million from 2006, primarily due to higher international interest income.

Interest expense increased $21 million from the prior year, reflecting the cost of incremental and assumed debt related to the Maytag acquisition.

Our effective tax rate was 24% during the first quarter compared to 28.5% last year and reflects estimated global dispersion of income, tax planning, available tax credits and certain discrete items which impacted the first quarter rate.

As you know, a new accounting pronouncement went into effect this year that in all probability will create volatility in most companies's quarterly tax rates.

While we continue to evaluate and execute global tax strategies to realize an annual tax rate into the mid-20s, quarterly reported rates may vary significantly from the annual rate.

Finally, you will note that equity and affiliates and minority interests, which are associated with our Latin America Operations, and a European equity investment, negatively impacted year-over-year earnings by $6 million.

And the higher number of average shares outstanding this year, negatively impacted earnings by $0.23 per share.

Turning to slide 29, I will briefly comment on our cash flow performance.

Cash used in continuing operations of $159 million improved 21% from the $202 million reported last year.

Overall working capital levels as a percentage of sales ended the quarter at 12.4% versus last year's reported level of 17%.

The elevated percentage from last year is a result of the timing of our acquisition of Maytag.

Our overall inventory position at the end of the quarter increased approximately $100 million from the same period last year.

However, there are two items embedded in our inventory numbers that I should mention.

The year-over-year impact from currency increased inventories by $90 million due to appreciation in the Euro and Brazilian Riyadh, our balance sheet included $165 million of inventory related to businesses which we have subsequently sold.

As you know, once we made the decision to sell the adjacent businesses with Maytag, the assets and liabilities associated with those businesses were reclassified to assets and liabilities of discontinued operations.

So, excluding the inventory from adjacent businesses which were subsequently sold, year-over-year inventory levels increased approximately $185 million, or four days.

This was comprised of one to two days of safety stock associated with the transition of the two Maytag laundry facilities to our Clyde and Marion,Ohio locations and an additional two to three days related to lower than anticipated demand in the month of March.

Another item impacting free cash flow during the quarter was restructuring spending and the Maytag integration.

Free cash flow, which does not include proceeds from the sales of Hoover or Jade, was a negative $250 million, and represented about a $50 million improvement over last year.

We ended of the quarter was $2.5 billion in debt, down from our post acquisition debt levels of $3 billion.

We remain on track with the estimates for acquisition efficiencies and integration costs we shared with you during our last call and these are shown on slides 30 and 31.

As Jeff previously discussed, our earnings per share guidance remains $8 to $8.50 for 2007 and free cash flow is expected to be between $600, and $650 million.

Based on current post acquisition debt levels, and projected cash flow for 2007, we have decided to resume the $500 million share purchase program approved by our Board effective in the second quarter of this year.

In summary, are two primary challenges we have in 2007 continue to be rising material costs and demand trends in our U.S.

market.

Offsetting these challenges, our continued improvement in our international operations, significantly higher net Maytag efficiencies, strong productivity and cost controls, and benefits from our continued cadence of introducing innovative products within our global markets, including revitalized Maytag products over the first half of 2007.

We continue to expect operating margins to improve in 2007 and this improvement is reflected in our guidance.

I will now turn the call back over to Jeff Fettig.

As I mentioned previously, it's been a little over a year since our closing on the Maytag acquisition.

During the course of that year we have successfully completed a critical portion of our integration plans, divested the non-core businesses, executed plans to begin revitalizing Maytag's product offerings, and significantly reduced our post acquisition debt.

We remain very well positioned to realize the efficiencies we talked about in excess of $400 million and very confident in our ability to achieve this.

We are very encouraged, and in the fact our focus is increasingly on the growth side of business and we are very happy with the recently introduced and the future Maytag innovative product offering that we'll bring in the marketplace.

As I have stated it before, with great execution, the Maytag acquisition will significantly improve our overall value and capabilities and we remain on track to be able to do this.

We also mentioned about the external market.

We continue to address the current U.S.

industry demand trends and the heightened global material cost environment through our new product introduction, very strong levels of productivity and cost reductions throughout our global operations, we have been successfully and continue to focus on enhancing our mix of business with our brand and innovation, and where appropriate, to implement and realize the cost-based price adjustments that we announced earlier this year.

We do anticipate to benefit from acquisition efficiencies and Maytag new product introductions during 2007 and we expect strong performance that we see in our international businesses to continue throughout the year.

We had a very solid first quarter of results and remain on track to deliver our 2007.

This point I am going to stop and open this up for questions.

Operator, let's proceed with a Q&A portion of the call.

[ OPERATOR INSTRUCTIONS ] We will go first to Michael Rehaut at JPMorgan.

Good morning.

First question was just on the SG&A line.

I think you kind of hit on some of this, that perhaps -- you had a nice improvement, 120 bit sequentially, versus where it was stable pretty much throughout '06.

Was part of that due to the fact that were the acquisition costs have kind of tailored off or can you walk through the strong improvement?

I assume a lot of this was in North America as well.

That is the first question.

This is Roy.

First of all, actually, the improvement was driven across our global businesses.

If you look at North America and each of our regions internationally, you find that there is contribution from all regions in terms of our SG&A improvement.

Let me help you a little bit, Michael, in terms of the components.

You talked about the Maytag efficiencies, and one time costs and the delta there.

If you look at the delta, let's call it a little over 1 point of improvement, whether you look Q4 to Q1, or Q1 to Q1, what you would you find is about .4 of that improvement is related to the delta and the Maytag efficiencies and one time costs, and the other .7 or .8 of the improvement is purely related to our cost controls/ Jeff talked about in his script, one of the actions we're taking in terms of material costs is to aggressively manage our costs and to drive productivity, and the SG&A contribution is what you see in our rates year over year and sequentially Q4 to Q1.

Do you think these levels or of this type of improvement year over year is sustainable and is it fully built into your 8 to $8.50 guidance?

The second part first, the improvement is built into our guidance.

As you will recall, we have some year over year improvement built into our SG&A, but we do plan to continue invest in our brands.

And so I wouldn't look for a sequential quarter to quarter improvement, because as Dave Swift mentioned we will be making brand investments are the course of the year.

But overall we are managing tightly and we are getting leverage from Maytag.

And you said material costs are expected to be -- I didn't catch that in the beginning.

450 to 500.

Second question is on the sales growth, I think organically, you did about down 5%.

Is that right?

Versus the industry, down 9.5% in North America?

That is correct.

I was wondering if you could give an update on the innovation pipeline.

You have walked through revenues and realized products and how that is obviously impacting results.

First, at the global level, let me speak about that.

At the global level we are pleased with the progress that we made in the first quarter.

We had somewhere in the neighborhood of 450 or over that, million revenues, coming from our innovation pipeline.

That is on track to deliver what we talked about earlier in February, approaching $2 billion of revenues coming out of our innovation pipe.

The pipeline has grown to over $4 billion.

We continue to monitor that, and execute that, throughout the year and throughout the world.

Probably the biggest change we've had is some of the growth we're seeing in international markets which are directly attributable to the innovation pipeline.

In the case of North America, I'll ask Dave Swift to comment on that.

The key to the success of the reinvigorating the Maytag brands clearly is innovation.

I mentioned in my remarks, Centennial and Bravos, as a couple of examples of products we are bringing out.

We estimate right now that over 10% of our revenue in 2007 will come from innovation.

As Jeff said, we are on track to do that based on the first quarter, so critical for our differentiation.

Thank you.

Other questions?

We go to Laura Champine of Morgan Keegan.

You mentioned that weaker demand in March that pushed inventory slightly higher than you expected and yet if I heard you correctly, then still looking for a 5% decline in industry shipments in North America in the first half, which would indicate substantial improvement in Q2.

Can you add some color to those comments?

Let me let Dave Swift answer.

A couple things.

First, as you know, from last year, the comps get a lot easier to go from Q1 to Q2, Q1 last year was up 6, and Q2 was basically flat.

There is the first piece.

As we went through Q1, some of the things that were encouraging signs, the sell through and sell in, were almost exactly spot on, so in terms of any concerns as to trade building inventory, we didn't see that.

And it appeared to us that somewhere around the middle of the first quarter, some of the effects we seeing because and housing markets beginning to stabilize, and we continue to hear from our customers, a more positive attitude as we head into the second quarter.

One small thing.

The equity and affiliate, which hurts the little bit in the quarter, what is that?

What kind of affiliate is that?

There are two things.

The equity and affiliates, and then the minority piece.

The equity and affiliates is, we have an equity investment in cabinet operation in Europe, and so you're seeing, there was a small loss in that operation.

That's our proportion of that loss.

Then of course on the minority interest, the delta there is just the stronger Brazil earnings.

Those two together were $6 million.

Thank you.

Other questions?

Next we'll go to David McGregor at Longbow Research.

Good morning gentlemen, and congratulations on a great quarter.

You talked about the factors behind the positive earnings performance, the acquisition efficiencies, strong cost reductions, and so on and so forth, but you also talked about cost-based price adjustments.

Just wondering how much more of this should we see in 2Q than what we saw in 1Q?

Globally, and we talked about this in February, given the state of material markets, that we have a number of items that we were doing to address those, including the announced price increases that we had in virtually every major market in the world.

It depends where you are in the world, the size and extent of that.

But I would say, based on where we have been in the first quarter, we were able to do that, as well as to achieve our productivity, and so on and so forth.

We fully expect that to carry over because we have implemented them.

We saw them in the first quarter.

There is no let up in material costs.

The major change between what we saw in February and now has really been, again, in the base metals market.

You look at items like copper, zinc, nickel, all very important to appliance products, are actually setting new highs consistently.

I will give you a perspective on is that.

Since the material cost environment dramatically changed in 2004, the price of steel is over 2X from what it was then.

Oil and oil related products are over 2X of what it was then.

base metals, copper I think now is 4X, nickel is 5X, zinc is 4X.

The point is, both in the base metals and in the value chain, those costs have to be dealt with.

Our value chain as we addressed it first and foremost with productivity, second, obviously they have compressed margins which we are improving.

Third is, we had to deal with this also with price increases.

As long as that materials market stays at these elevated levels, we think that is one of the appropriate responses to this environment.

I am just wondering if you got partial traction on the fourth quarter initiatives as is typically the case and you might be looking for further traction in 2Q.

All I can say is we implemented these in the first quarter and we have achieved what we expected.

We can't forecast any changes.

The other question had to do with market share.

Nice to see you back in at Lowe's and also at Best Buy.

There has been some concern in the investment community about your market share and the fact that combining these companies would result in net net less market share.

I was wondering if you could share your experience to date and if there's any way you could share what Stevenson Data is saying about total imports recently.

Couple things.

As we went from queue Q4 into Q1, we , we expected to see some share losses as relates to Maytag.

As you know, we are in the process of really revitalizing that brand as we speak.

We just began launching the Centennial products in the last month or so.

The things I disclosed in my remarks about both Best Buy and Amana, those really kick in this quarter, the second quarter, so we fully expect to be able to gain back that share.

nd frankly, the reason we are back in Best Buy is they saw the innovation in our products and felt it was important to have us on the floor.

I should also point out that the 18 new SKUs that we got on the floor of Best Buy, in the Maytag brand, did not replace any of the SKUs that we already had.

That is what we think we can do when we have the right innovation in our

Is it possible that if you're successful in executing the Maytag revitalization strategy that you might actually pick up market share as opposed to sacrifice share?

That is our intent, and those are certainly the goals that I have from Jeff.

We fully expect to be able to, with the right innovation, garner share, and just as a point of reference, even with some of the challenges that I just indicated with Maytag brands, on a Q4 to Q1 perspective, we did have an opportunity to pick up some base share in our historical brands, we expect that's a reflection of our innovation strategy.

The other perspective I would provide is that although we don't get into the details, some of the products sold under the Maytag brands, when we took over that business, were in very bad shape, not being relevant in the marketplace or financially being a drain on the business.

So we absolutely expected during this transition that we would lose market share in those areas.

Our view has been very simple: fix the business first, then grow.

As I mentioned, we think we have hit our milestones to fix the business and we're really, beginning of this quarter, beginning to focus on growth in the right way, with the right products, supported by the right investments.

So we're very optimistic about the growth of the Maytag, not only the Maytag brand business, but Maytag, Jenn-Air, and Amana.

Finally, on the imports, if you could address that part, just philosophically, how do you think about imported brands right now as a threat?

Are they encroaching on your business?

And if so, at what rate, and how do you respond?

If you could just talk about that I'd appreciate it.

We think it is a fact of life, part of the global competitive set.

This market is completely open to every competitor in the world.

Our view is very simple.

The best brands in the marketplace, that make our trade partners the best returns, are going to win in the marketplace.

Our view is as long as we do what we know how to do well, we clearly have an outstanding portfolio of leading preferred brands, we're really pleased and excited with the innovation we have and our view is that you have to earn the business every day.

That is our job.

That is what we are going to do.

Everyone else is going to try to get ours and everyone else's business.

That is just the nature of the environment we are in.

It has always been that way, it's just now on global levels.

I think this is the appliance business.

This is how we expect to compete, and we expect to win in that environment.

Thanks, guys, great execution.

Keep it up.

We will move next to Sam Darkath at Raymond James.

Good morning.

How are you?

Good morning, Sam.

A couple quick questions.

You don't give quarterly guidance per se.

You talked a little bit about how to Q1 progressed.

What do you find about the Q1 results versus your own internal expectations prior to the quarter?

What were the puts and takes that surprised you both positively and negatively?

Overall I would say that we had good, solid execution around the world.

Every part of our business delivered.

They hit or meet to our own internal targets.

And we were able to offset -- We had talked about material costs and demand in the U.S.

Both came in slightly worse than we expected.

We just have enough things going on that the capacity of the business was able to deal with those things.

Simply put, I would say it was the consistency of the business around the world that enabled us to get off to a pretty good start.

So then, going along with that, talking about how sustainable the international results might be on a go forward basis particularly in North America perhaps if it recovers and a more sluggish pace than you are anticipating, you say your top line expectations are generally maintained if not accelerated in the case of Brazil, but in terms of margins, productivity, is there anything that you see that would give some pause to folks concerned about the sustainability of International businesses, particularly the Brazilian margins?

Two things.

One, we talked about the ramp-up of our business this year, and that the first half was really tough comparisons and we can accelerate that in the second half.

We still expect that is how we will perform this year.

Secondly, around the world, every -- all four regions around the world, we are tracking very well to our internal plans.

Third, as we said in the comments, we expect this momentum in our international markets will continue and we expect there to improve margins through the balance of the year.

So, that piece of our business is moving along nicely.

Then of course there's the North American peace, there are three pieces of that.

One is the demand level.

We really haven't changed our view about the progression of demand in the U.S.

Secondly, is offsetting these material costs, and we've talked about that.

Third, of course, is the Maytag efficiencies, which we're completely on track on.

They will accelerate as we go up through the year.

Again, tough environment but the way I would describe it is we feel good about the number of things we have going around the world, how we are doing, and the consistency of our execution.

Last question, regarding the share repurchase plan, you generally turn cash flow positive in the second half of the fiscal year.

Would that influence how aggressive you might be in the near term with share repurchases or has no bearing?

As a corollary to that question would be, what share counts are you assuming for your 8 to $8.50 guidance?

First of all, back to the quarterly guidance, you are correct in your assumption that we become cash positive in the second half of the year.

We are not going to talk today in terms of what we plan to repurchase in each of the respective three quarters remaining this year.

However, you know, just to be clear that we plan to begin to repurchase this quarter when our blackout ends today.

With respect to how many shares are we assuming, I would say I would assume what is outstanding right now, and then adjust that as we go forward with respect to our share repurchases.

I can't provide guidance and specificity around that.

My question would be, is there a certain level of share repurchase activity inherent within the guidance?

Would share repurchase be, I guess in theory at least, incremental to the guidance, all else equal?

The way I talk about it is, share repurchase is embedded in our guidance, one of the many things we're doing that Jeff talked about in terms of balancing what we're seeing with respect to material costs and monitoring this North American environment, one of the three or four things Jeff mentioned that really begin to offset those negatives.

That is how I think about it, in terms of overall guidance.

Very good.

Very nice execution, thanks.

Other questions?

We go next to Eric Bosshard at Cleveland Research Company

This is Mark stepping in in for Eric.

On the Maytag piece of the business.

It looks like down roughly 25% or more, year over year, based on what you gave us at the time of the acquisition.

Is that due to share losses or has there been some lost listings?

How should we think about that year over year growth number progressing through the rest of the year?

I can't comment on first quarter last year, because we didn't own them at that time, but what I can just emphasize on Q4 and Q1, as Jeff mentioned, and I mentioned briefly, we did expect that we would have some share loss which we did and now what we are doing is focusing on the revitalization, getting back what we should be getting in terms of a floor spots.

Frankly, the Best Buy move, and the Amana at Lowes, are two things that I think are strong indicators that the trade is ready, and we're ready to bring business there.

I would only add to that.

As you look at what we've talked about around Maytag, we have been very open with our trade customers about what was coming with Maytag.

As early as January, we talked about the very strong responses we have had.

We don't think it is as much of an issue as getting floor spots as just getting the new products out and getting velocity to sales that we're fairly confident they're going to command.

Was there any benefit in the first quarter from shipment on either of those new incremental businesses?

It was negative because of the transition.

Can you quantify what the incremental business would be at Best Buy or Lowe's?

We're not going to do that at this time.

Last question.

On the core Whirlpool being down 5%, can you break up between price mix and units?

I don't have that in front of me.

With the business being down 5%, partly was the industry.

We did have, as we said, the Maytag part of our business was down, our OEM business, our legacy brands were up.

We did had a positive price mix based on both -- and cost base price increases and innovation in brand names.

I don't have those exact splits.

Thanks, gentlemen.

We go next to a Jeffrey Sprague at Citigroup.

The first question, if we could get into understanding the SG&A a little bit more.

Roy, your answer was clear but just to understand a little bit more the drivers and sustainability of it.

There is a drop, for example, in promotion and comp and things on the balance sheet.

I assume those accrued through SG&A.

I am also just wondering, if I look at SG&A historically, although the dollar has changed through the year with the sales base, the percentage of sales historically has been fairly constant over the course of any given year.

If you can just explain a little bit more the mechanics of why SG&A dropped and in fact, can we expect to see roughly 8.5% of sales going forward over the balance of the year?

Roy's description was the specifics of it, but I would put it this way.

Overall, with the fully integrated Maytag business, we should somewhere say in the neighborhood of have a point leverage, just from that, you are seeing it in SG&A.

That is part of the efficiencies coming through.

Secondly, coming into this year, we are faced with a 400, now $500 million material costs increase and we have been very focused, very aggressive on cost reduction, not only product cost reductions but SG&A reductions.

We have been managing and we will continue to manage very closely our SG&A spending.

Third, there is timing to our SG&A.

Everywhere in the world, we typically will have a low level of brand investments in the first part of the year, natural seasonality.

That's usually when the trade shows are going on, and so on and so forth.

So brand investment certainly this year will be higher in later parts of the year than it was at the beginning.

Also, we talked about Maytag launching in the U.S.

in May, the new products coming out, certainly we're aligning our brand investments to big launches like that, not only in the U.S.

The short answer you shouldn't anticipate the total leverage, the total amount for the full year, you should anticipate we will have good SG&A leverage, but it won't be the same things it was first quarter.

Also, how you get at that, one way I looked at that, this is for illustrative purposes, but it looks like normally the seasonal decline in SG&A, Q4 to Q1 is about 8%.

Your SG&A in the quarter is $66 million lower than that would imply.

You gave the reasons, but it would seem to get that much SG&A out on productivity, there would be restructuring.

We would have seen legacy Whirlpool headcount reductions or something that would fit restructuring.

In fact, there is no notable pickup in restructuring in the core.

Is that just belt-tightening?

That is a lot of cost squeezing.

Let me address a couple pieces of your question.

Let me go back and address, you talked about the balance sheet changes from Q4 to Q1.

If you go back and look at the Company's Q4 to Q1 promotional accruals, you would find they go down every year from Q4 to Q1 just by nature of the timing of the accruals over the course of the year and then frankly, the payment cycle in the first part of the year.

This year, Q1 is really not all whole lot unlike last year, although to your point, we had more cash outflow with respect to promotional accruals in the first quarter of this year than we did a year ago.

That, coupled with some changes in our [VAT] and some changes in warranty accruals is what you see in the other section of the cash flow statement.

Let me come back to your question you just asked.

Does it make sense, do the absolute dollars really make sense in terms of this delta in SG&A?

The answer is yes.

I think, Jeff, the thing you have to do is think about -- Jeff gave you some relative measures with respect to Maytag efficiencies as well as I gave some relative measures earlier with respect to true cost reduction when you look at infrastructure and/or brand investment.

If you run those absolutes, that math does in fact work between the deltas whether you go Q4 to Q1 or Q1 to Q1year over year.

I only say that because I spend a fair amount of time in that math myself.

Also, just to understand how purchase accounting works from here, do you still have full ability to capitalize under purchase accounting, Maytag costs, is there any restriction beyond the passing of the calendar year, everything that you showed us in that slide that you're capitalizing in '07, does that, is that capitalization to goodwill?

It's never coming back through the P&L on an amortized basis?

Let me address a couple points there, Jeff.

From an accounting perspective, first quarter, we closed Maytag, we made our best estimate of purchase accounting.

But as was true with our acquisition and most acquisitions, you refine that over the coming quarters.

But the accounting rules require that you finalize all purchase accounting activity within 1 year of acquisition.

That part of your question, the simple answer is, there will be no further purchase accounting adjustments going forward.

The second part that you asked is the 170 that you see on the slide that we included in the presentation.

From an acquisition cost to integrate, that 170 is cash that we expect to flow out of the company this year with respect to integrating Maytag, and as you know, 55 of that will come through the P&L.

The remainder of that cash will be cash outflow that relates to accruals we have made to eliminate SG&A redundancies and close the manufacturing operations And again, as you've heard me say before, we accrued about $240 million in regards to those efforts and we're paying the cash down on that accrual.

One final question from me.

On Latin America, the tax credits you referenced, is that the underlying [B Fee X] credits that you had historically?

Can you give us a sense of the amount and how to play out from here?

There have obviously been issues in the past of whether you could use them and the timing of using them, just an update of where we are with all of that and the ability to tap into those credits?

This is Mike Todman.

Let me try to answer that question.

Essentially, I think what you've seen over the last four quarters is that B Fee X has become a normal part of our operating performance.

If you will recall, in the fourth quarter, we monetized about $23 million.

We monetize these credits as we are able to based on two factors.

One is sales, and the other is just a mix of those sales that are exported outside of Brazil.

Our expectation is we will be able to continue to monetize these credits as we are able again, based on the sales volume that we have.

It will continue for many years.

It really is a normal part of our operating revenues.

Q4 was $23 million.

How much was Q1?

That is against nothing in Q1 last year.

Q1 this year was $30 million.

We have another individual on the line here.

I can follow up with you after.

Thank you.

We have time for one more question.

We'll take our last question is from Michael Rehaut at JPMorgan.

Thanks.

Just a follow-up.

I am sorry if I missed this before.

There was an asset sales gain in the European earnings?

Can you break that out?

This is Mike Todman.

Briefly, it was $5 million.

It was not significant to the total earnings.

It's a normal part of our asset monetization.

As you know, we're doing global footprint moves as an ongoing part of our business, and this just relates to warehouse that was going to become redundant under our global footprint transition.

Okay, listen, we appreciate your joining us today.

We will look forward to talking to you next time.

That does conclude today's conference.

Thank you for your participation.