惠而浦 (WHR) 2007 Q4 法說會逐字稿

Good morning and welcome to Whirlpool's fourth quarter and year end earnings call for 2007.

We will now turn the call over to Mr.

Roy Templin, Executive Vice-President and Chief Financial Officer.

Thank you, Curtis, and good morning, everyone.

Before we begin our opening remarks, I would like it take a minute and introduce our new Head of Investor Relations, Greg Fritz.

Greg comes to Whirlpool Corporation with both sale-side experience as well as corporate experience, with Greg's most recent role being with Stoneridge Incorporated, where Greg was the Director of Corporate Finance and Investor Relations.

I'd like to say that we are very excited to have Greg on our team and look forward to his contributions in our investor relations role over the coming years.

I would also just to take a moment to thank Larry Venturelli.

I think many of you know Larry has actually played dual roles here for a period of time, both as our Corporate Controller and as our Head of Investor Relations.

So we would like to thank Larry for all his extra work as well.

And at this point I'll turn the call over to Greg for our opening statements.

Greg?

Thank you, Roy, and good morning.

Welcome to the Whirlpool Corporation fourth quarter and year end conference call.

Joining me today are Jeff Fettig, our Chairman and CEO, Mike Todman, President of Whirlpool North America, and Roy Templin, our Chief Financial Officer.

Before we begin, let me remind you as we conduct this call we will be making forward-looking statements to assist you in understanding Whirlpool'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 pre-cash flow and non-GAAP measures.

Listeners are directed to slide 41 for additional disclosures regarding this item.

To begin today's call, Jeff will provide an overview of the quarter and the outlook for 2008; Mike will discuss our North American operations; Jeff will then cover our International operations; and Roy will review our financial performance and outlook.

Our remarks today track with a presentation available on the Investor Section of our website at Whirlpoolcorp .com.

With that, let me turn the call over to Jeff.

Good morning, everyone, and thank you for you joining us today.

As I'm sure you have seen earlier this morning, we did release our financial results for the fourth quarter and the full year.

For all of 2007 we announced that we delivered both record sales and earnings per share in what was, as we discussed throughout last year, a very challenging global economic environment.

The two major challenges that we faced all during the year were first, the North American - or the U.S.

appliance demand, where we saw year-over-year demand decline by almost 6%, which was the largest declines we have seen in over two decades.

And secondly, we had approximately $600 million in higher material and oil-related costs.

In fact, during the last three and a half years we continue to see unprecedented material cost inflation, which has increased our input cost since the middle of 2004 by nearly $2 billion.

During 2007, we did accomplish a very major milestone by completing the Maytag integration.

We achieved our cost efficiency goals a full year ahead of our plans when we first announced this.

We also improved our cost productivity performance across the globe, and generated more than $2.5 billion of revenue from our innovation pipeline.

So overall, we are pleased with our 2007 results, particularly given these economic challenges that we faced.

I'll now turn to the slide presentation and start with slide four, where you'll see that our annual revenues increased 7% to $19.4 billion, and our earnings from continuing operations came in at $8.10 per share, which was up 28% over 2006.

As we have seen over the last several years, one of the drivers of our financial performance and revenue growth has been our ability to generate higher average - global average selling prices, which you can see on slide five.

During 2007, our ASVs increased by more than 7%.

As I mentioned, we delivered over $2.5 billion from revenues from projects came out of our innovation pipeline.

As we exit 2007, our pipeline remains very strong and we estimate we have now about $4.5 billion of new product revenues from projects, and we anticipate continued innovation-driven growth as we go forward.

These innovations continue not only to fuel our growth but also improve our overall margins.

So we are very positive about our new products coming to market during 2008, especially our new Maytag launches, which Mike Todman will talk about in a moment.

Turning to our balance sheet, we made great progress in strengthening our overall balance sheet, and we reduced our debt by $243 million during 2007.

We also returned $502 million to our shareholders in the form of dividends and share repurchases.

On slide six we list the major trends which we expect to see in 2008, and these are the foundation for the key assumptions which we have built into our plans and guidance.

First, as we have seen throughout 2007, we expect to see generally weak and negative demand in our large mature economies that is, the United States and Europe.

We expect continued strong demand in our key emerging markets like Latin America, India and China.

We will see increased and continuing material and commodity inflation.

Finally, we continue to expect volatility and movement in our global currency markets.

Given this economic backdrop we show on slide seven, we believe that we are very well positioned to continue our strong performance in this economic environment in 2008.

We have been successful in navigating through some of these issues, due to several key variables which I would like to mention.

First of all, our business is very geographically diverse.

Secondly, we have almost 50% of our revenues now come outside the United States.

Our international markets are currently experiencing higher growth rates and expanding profit margins, which is helping to mitigate a weaker U.S.

market.

Secondly, we have industry-leading global consumer brands in most major market around the world, which we are continuing to [support] by increased consumer investment and very strong [gains] of innovation.

The third reason is our global cost flat platform and scale is unmatched in the appliance industry.

We believe we have very significant opportunities to generate continued productivity throughout our global supply chain and infrastructure.

Finally, I would say I - we feel very good.

We have a very experienced global management team in place that has successfully managed these conditions before and we expect that to continue.

So looking ahead to 2008, which is shown on slide eight, we expect to see the details of our estimates are the following.

First of all, we expect the U.S.

market will decline in 2008 from 3% to 5%.

We'll go through the details of that later.

We expect our international businesses in total to continue to grow, with positive demand trends.

In Latin America and Asia we expect to see demand in the 5% to 8% range, and 5% to 10% range respectively; while in Europe we expect overall demand to be flat versus 2007.

The general trends that we have seen during the last several months continue to point toward negative industry demand trends in the United States and Europe.

As such, we expect those markets could be down more in the first half of the year, with moderate recovery and growth in the latter part of the year.

Turning to our input costs, we estimate material and oil-related costs will increase by approximately $350 million in 2008.

Turning now to slide nine, which reflects and lists our priorities for the year.

We plan to offset both weak industry demand and higher material and oil-related cost by, first of all, leveraging our strong portfolio brands, and building on positive market share momentum which we saw in the latter half of 2007.

Our plans include significantly higher investments and innovation and advertising.

We expect 2008 will be one of our strongest years ever for new product launches, which adds to our already strong consumer brand preference for our key brands.

Secondly, we will deliver, again, very strong global productivity as we continue to optimize the scale and the efficiency of our global offerings platform.

The third areas which I would mention, which is consistent with the recent announcements that we made, which include the closure of our Laverne, Tennessee, facility, Reynosa, Mexico and Newton, Iowa in North America, we will continue to adjust our cost structure and capacity to sufficiently address the demand environment that we are seeing going forward.

While these decisions are always difficult, optimizing our operating platform is critical to insuring our cost leadership position that we currently enjoy.

And finally, in response to the continued material and oil-related cost environment, we have announced and/or implemented cost-based price adjustments in most major markets around the world.

Given the unprecedented materials inflation we have seen over the last three and a half years, now going into the fourth year, we have taken the position that current inflation and costs must be passed through the marketplace and those are the plans that we are executing today.

So if you step back and put all this together, I would summarize our expectations in our 2008 performance as follows.

We expect moderate revenue growth.

We expect material cost increases, higher restructuring costs and increased brand investments will negatively impact our margins by a little over two points, which we expect to more than offset through very strong productivity, the benefits of the reduction and our cost structure from the announced manufacturing changes we've already made, positive brand and product mix driven by our innovation, and cost-based price adjustments.

The successful execution of our plans will lead to positive revenue growth, improve profitability and improve pre-cash flow.

With that, for 2008 we are giving our first guidance, where we have stated our earnings per share to be in the $8.50 to $9 range, and free cash flow to be between $600 million and $650 million.

With that, I will now turn the call over to Mike Todman, to discuss our North American business.

Thanks, Jeff, and good morning, everyone.

Let me start by giving my perspective on North America's performance during 2007.

Clearly, as Jeff mentioned, 2007 was a challenging year for our U.S.

business.

We completed the integration of the largest acquisition in company history, faced the toughest appliance demand environment in 25 years, and absorbed significantly higher material and oil-related costs.

Despite these challenges we exited the year with fourth quarter results which included operating profit of $175 million, which represented a 41% improvement over 2006, and our operating profit margin increased 1.7 points from the prior year.

Our market share improved significantly from third quarter levels, and all of our branded products, especially Maytag, increased share from the last quarter.

Our fourth quarter results benefited from strong acquisition efficiency realization, improved product mix and productivity improvements.

Results were partially offset by significantly higher material and oil-related costs, and lower industry demands.

Overall our fourth quarter industry appliance demand was down approximately 6%.

However, our North American sales declined by only 1%.

Our performance compared to the industry was positively impacted by favorable product mix.

Before providing our outlook to 2008, given the current demand environment, I would like to provide a little background on the U.S.

appliance industry, and the factors which impact demand.

As you can see on slide 13, it shows the progression of new housing-related demand in the United States.

As you can see over the past three decades, new housing construction continues to decline as a percentage of overall appliance demand.

During the 1980s, new housing construction represented approximately one quarter of all major appliance demand.

Since the 80s, the new housing portion of the industry demand has consistently declined, and now stands at approximately 15%.

In fact, since 1980, the other components of U.S.

[T7] alliance industry demand, such as replacement and discretionary, have grown at a compound annual rate of about 3%.

This is a notable trend as we look to the future.

On slide 14, you will note that during 2007, the combination of new and existing home sales represents approximately 30% of the total appliance industry demand.

More importantly, replacement demand represents just under 50% of U.S.

demand, with the balance of the markets tied to discretionary purchases, which tend to track with consumer confidence and the strength of new marketplace innovations.

Turning to our outlook, we are forcing U.S.

industry demand to decline by three to five percentage points in 2008.

On slide 15, we have broken out the components and our assumptions for 2008 U.S.

industry demands.

First, replacement demand has consistently added 1% to 2% to industry growth each year for the past three decades, and we fully expect this trend to continue in 2008.

Many of these purchases are related to the replacement of units that consumers are either unable, or find uneconomical, to repair.

Our forecast calls the new housing demand to reduce industry growth by three points in 2008, based upon a 20% decline in new home completions, and approximately a 25% decline in new housing starts.

We also expect the existing home component of demand to reduce industry growth by about two percentage points.

This expectation is based on a 13% decline in existing home sales.

Historically, a 6% change in new home completions, or existing home sales, has translated into a 1% decline in industry demand.

The purely discretionary component of demand is expected to reduce industry volumes by about one point.

Based on these current estimates of the key economic variables which impact the U.S.

appliance industry, as I stated before, we'd believe the industry will decline approximately 3% to 5% in 2008.

The current outlook points to a more challenging environment during the first half of the year.

Given the challenging demand environment, our 2008 priorities are follows.

1.

Accelerating growth of the Maytag brands; 2.

Successfully launching new product innovations supported by brand investments; 3.

Offsetting material and oil-related costs through cost-safe price increases and strong productivity; and 4.

Cost structure changes to balance structure and demand.

I will now briefly touch on this.

As you recall, as shown on slide 17 our initial plan for Maytag was first to complete the integration and improve the business's cost structure.

We have fully completed this phase of our plan.

During 2007, we began positioning Maytag's growth.

As I mentioned earlier, we had positive share trends exiting 2007.

We are now in the growth phase of our plan.

An example of this is shown on slide 18, in which we illustrate our brand revitalization with a front-load laundry category.

As you can see, 2008 provides significantly more innovation across more price points than Maytag has ever had historically, and we are supporting this and other launches with significant consumer advertising.

2.

We are accelerating new product innovations for all of our other brands, and continue to grow our brands through new product introductions.

Throughout the year, we will introduce a record level of innovation, shown on slide 19, under our leading brand names, including 72 new product launches.

These launches will be supported with significant consumer brand investments throughout the year.

3.

Our North American operations will continue to introducee cost-based price increases, and deliver strong productivity to offset material and oil-related cost increases.

And finally for as recently announced, we will make appropriate cost structure changes to better balance production and demand, as we continue to drive cost productivity throughout the organization.

With that, I will now turn the call back over to Jeff for his comments about our International operations.

During 2007 our International operations delivered another year of record revenue growth and operating profit.

For the full year revenues grew by 19% and our operating margins expanded by 2.3 points.

Slide 22 shows the revenue growth and profitability trends of our international businesses since 2004, and you'll note that all three regions have shown strong revenue growth combined with significant operating profit expansion over the last three years.

In fact, we have more than doubled our operating profit margin from approximately 4% in 2004 to nearly 9% this year.

Our international growth opportunities remained very significant.

Our results increasingly show that we are successful growing our innovative consumer products and brands throughout the globe.

For our European business, shown is on slide 23, we delivered a record full year and fourth quarter revenue and operating profit.

Revenues for the quarter reached $1.1 billion, an increase of 12% from the prior year.

Local currency revenues were approximately unchanged.

Industry unit shipments for the region declined 1% year-over-year in the fourth quarter.

Our improvement relative to the industry is led by our regions's top-selling Whirlpool brand, combined with the new innovative products offerings we that we brought during the latter part of last year.

Record fourth quarter operating profit totaled $73 million increasing 22% from last year, and the results reflect improved product mix and productivity.

Partially offsetting the improved operating profit performance was significantly higher material costs that we saw year-over- year during the quarter.

If Europe, our innovation cadence remains very strong and we continue to leverage our global operating platform and our global innovation pipeline.

On slide 24, I will turn to Latin American business, where we also reported record full-year and fourth quarter revenue and operating profits.

Revenue increased 30% to $1 billion during the quarter, excluding the impact of currency sales, increased by approximately 12%.

Industry unit shipment of appliances in the region grew by about 11% during the quarter, and for the full year our shipments exceeded industry growth.

Operating profit increased 73% to an all-time quarterly record of $156 million during the quarter, in margins expanded to almost 15% from the 11.2% reported last year.

Increased unit shipments, improved pricing, strong productivity, and asset sale gain of $15 million, were all positive tack forces during the quarter.

Results were negatively affected by higher material costs.

Our results in Latin America do reflect the strong market conditions throughout the region, but also and very importantly are very strong consumer brand positions which has been supported by innovation and a very advantaged cost structure.

Latin America, as we have previously communicated in the past, has been the fastest growing appliance region worldwide during the last five years, averaging about 13% annual growth.

These strong mixed fundamentals, combined about with low appliance penetration in many of our key product categories within Latin America bode well for what we expect to be strong future growth.

As with you know, we hold by far the number one consumer position throughout the region, particularly in Brazil and Argentina and we are rapidly growing our position throughout all 32 Latin American markets.

Today Brazil represents 60% of our Latin America revenues, with the rest of the markets also growing very rapidly, which provides us with a very balanced portfolio of markets throughout the region.

Our Asia region, which is shown on slide 25, reported quarterly sales of $155 million, up 26% from the previous year, and excluding currency sales increased by approximately 13%, and this was driven by our successful new innovation launches and improved mix within India, which is out fastest growing market in the region.

We reported a $4 million operating loss during the quarter as we continued to make significant growth investments, particularly in In India and China.

Overall our presence in Asia continues to grow.

We are a leader mong the Western brands in China, and we hold a strong number two position in India.

In 2008, we expect also to see a record level of international innovational in the marketplace.

As you can see, just a sampling of this on slide 26, throughout the international markets we'll launch 174 new products under our leading consumer-preferred brand names.

The global leverage from our innovation pipeline continues to accelerate our ability to bring great, new product innovations to all of our global consumers.

Faster better, and with less overall investment.

Now for the outlook, let me turn to slide 27.

In Europe we expect industry volume levels to be flat with 2007.

We are seeing some industry softness within western Europe markets, as a result of declining consumer confidence.

However, emerging Eastern European markets continue to remain positive, and should somewhat mitigate negative industry trends in the more mature markets.

And as we are seeing in North America, the near term conditions appear to be more challenging; as such we do expect to see declines in the first part of the year offset by modern improvements later in the year.

Turning to Latin America, based on our current economic outlooks, we anticipate for the entire region industry volume growth from the range of 5% to 8%.

The Latin American American economies remain strong, and our position in the market is very balance and strong throughout.

In Asia, we anticipate continued growth in the 5% to 10% range, as our India and China operations continue to expand their reach in product offerings.

We do expect, for all of our international businesses, to have higher material and oil costs in 2008, and here, too, we've implemented cost based price increases in selected markets.

We expect cost productivity and the impact of new innovative product offerings to offset these higher input costs.

Overall, I think we are well position today continue to deliver improved results in our international businesses in 2008, and at this time I'm going to turn it over the call to Roy Templin.

Thank you, Jeff.

Good morning, everyone.

For those months of you who know me I apologize.

I am fighting a cold.

I'm going to try to real hard to project as well as I can over the phone this morning.

Before I begin, and as a reminder, during the first quarter of 2007 the company adopted changes to its segment reporting consistent with realignments made to our regional business operations.

Regional results for 2006 have been reclassified to reflect these changes and are shown on slide 40.

Beginning on slides 29 and 30, I'll walk you through a summary of our fourth quarter performance.

During the quarter, we reported revenues of $5.3 billion, up 7% from the prior year, primarily driven by strong international performance, and favorable exchange rates.

Our fourth quarter results also reflect strong operating profit improvement, compared to the prior year.

Our gross margin expanded 1.7 points to 15.7% for the quarter.

The improvement in gross margin primarily resulted from strong productivity and Maytag efficiency gains, which combined added 3.5 points to our margin improvement.

WHile e positive price mix could be distributed just sought south of 0.5 point.

Partially offsetting these gains were increased material and oil-related costs, which resulted in approximately $130 million or about 2.5 points in margin reduction.

We also improved SG&A as a percentage of sales by over 0.5 point during the quarter, primarily due to Maytag efficiency realization and cost control.

As a result of the items I just discussed, operating profit increased 74% during the quarter, and the corresponding margin expanded 2.4 points to 6.2%.

This operating profit margin market the highest level post-Maytag acquisition in the face of significant U.S.

macroeconomic challenges, as well as significant material in oil-related cost inflation.

As for Maytag, as you'll recall, our original goal was to achieve $400 million in acquisition-related efficiencies by 2008.

We have both exceeded the goal and the integration ahead of plan.

We realized $118 million in efficiencies in the fourth quarter.

And $460 million for the full year 2007.

With the integration now behind us, we will no longer break out Maytag-specific efficiencies.

Further optimization of the remaining Maytag infrastructure will be included in our normal productivity initiatives.

Turning back to our fourth quarter results, I would like to highlight two discreet items included within our financials.

First, we sold an idle, international facility, which resulted in a pre-tax gain of approximately $15 million.

This gain is included within our Latin America operating profit.

As part of our global operating platform optimization, we continuously evaluate our existing asset base.

We have migrated production over time to what we refer to as "best cost locations".

As a result, some facilities have become idle, and eventually monetized.

As you know, each year we incur restructuring expenditures and his monetizing idle facilities has helped offset a portion of these costs.

You will note on slide 31 that we experienced a large yeah-over-year increase within interest and sundry expense during the quarter.

The main component of our higher expense reflects an increase to legal reserves of approximately $17 million.

We also incurred higher non-income-based taxes during the quarter.

Moving to our tax rate, we reported an effective tax rate of 16% for the quarter, which was well above the prior year's rate of a 2% credit.

The increase in rate compared with the prior year is mainly due to two discrete items reported in the prior year pertaining to global audit settlements and legislative changes.

Our full-year effective tax rate was 14.5%, and was better than our previous expectations, due primarily due to the recognition of certain tax planning benefits that were triggered by foreign legislative changes and regulatory approvals.

In addition, given the market trends in the quarter, the rate benefited from higher earnings in foreign operations, which have a lower overall effective tax rate relative to our domestic operation.

Going forward into 2008, we expect our effective tax rate to be in the mid 20% range.

Finally, we incurred operating losses from an equity investment of approximately $8 million after tax during the quarter.

We do not anticipate recording further equity losses in 2008.

Slide 32 highlights our working capital performance during the quarter.

As you can see, we made strong progress in all areas of our working capital management, as working capital declined to 10.4% of sale,s compared to both the 13.2% reported in the third quarter and the prior year amount of 11.0%.

We made strong progress in reducing inventory from third quarter levels, although not to the extent originally planned, due primarily to weaker than expected industry demands within the U.S.

Our team remains focused on continuing to improve working capital performance during 2008.

Now I'd like to take a moment to discuss our 2007 free cash flow performance on slide 33.

For the year we generated $521 million in free cash flow.

While below our previous expectations, free cash flow improved to 22% from 20066, on a strength of higher earnings, improved overall working capital and lower global tax payments.

Cash flow was negatively impacted by current-year payments associated with the Maytag product recall announced last year.

Our capital expenditures totaled $536 million in 2007, down $40 million from the previous year, driven by continued global capital efficiency and initiatives, and lower acquisition integration spending during the current year.

We continue to improve our capital efficiency, as demonstrated by our fixed asset terms, which have improved approximately 28% over the past five years, ending 2007 at 6.0 terms.

We expect 2008 capital expenditures to be approximately $600 million.

Turning to slide 34, we summarized cash returned to our shareholders during 2007.

As you can see, we returned more than $500 million to shareholders in the form of dividends and share repurchases.

At the end of the year, we had $97 million remaining under our current share repurchase authorization.

I'll end my comments with our 2008 guidance, which is shown on slide 35.

Based on current economic and industry conditions, we anticipate full year 2008 EPS in a range of $8.50 to $9 per share.

Within this estimate, we expect up to $100 million in restructuring charges.

Additionally, we expect to convert these earnings into free cash throw in the range of 600 to $650 million.

I will now turn the call back over to Jeff.

Thanks, Roy.

Once again, I would say that overall we are pleased with our 2007 performance.

In a challenging economic environment, we delivered record results.

We believe this performance highlights the strength of our global business model.

We have a strong portfolio of consumer-preferred brands around the world.

We have a great team for innovation and a very strong global offering platform.

We will leverage each to drive the results in all of our businesses around the world.

Today our global position is number one in the global marketplace.

We are leveraging our leading consumer brands for growth.

We continue to effectively translate our innovation into profitable growth, and we continue to utilize our global operating platform to drive very strong levels of productivity worldwide.

With this, I believe our company has never been better positioned to succeed.

We have a strong platform for this today, which is why we expect to deliver a record-year performance in a challenging business environment in 2008.

I'm going to end here and I'll now open this up for questions.

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

(OPERATOR INSTRUCTIONS)

Our first question comes from Sam Darkatsh.

You line is now open.

Good morning, Jeff, Roy, Mike.

How are you?

Good morning, Sam.

Just a little more clarification on the earnings per share walk from '07 to '08.

I noticed you don't have much left under your existing share repurchase authorization.

Should I then assume, Roy, that the share count would remain flat, in your assumption, from Q-4 levels in fiscal year 2008?

So any share repurchase activity would, by definition, then be incremental?

Yeah, that's correct, Sam.

You know, I know, because of the averaging that goes on in the diluted earnings per share calculations, it's tough to track the pure share buy back versus the shares issues.

But if you were to look at the basic absolute levels of shares, we came out of the year, Sam, at about 78 million shares outstanding.

So, if that helps you with the model.

Again, I understand, with all of the averaging going on, it's hard to see those numbers.

Okay, and then I understand that you are not going to be breaking out efficiency costs from Maytag's perspective.

But what were the integration costs in fiscal year 2007?

And I'm guessing that the vast majority of that will not repeat in 2008.

Could you remind us what that was in '07?

Yes I can, Sam.

The one-time costs in the current year were $37 million versus the $89 million we had a year ago.

And that will not repeat in '08?

Well, if you remember, Sam, the chart that we, you know, published May 23rd, and we have actually published it going forward, we have always estimated that there would be a small amount of P&L charge in 2008.

I think the estimate is $5 million of P&L.

But again, nothing significant.

Okay.

And then productivity expectations, Jeff in 08?

Normally it's what?

About 2 to 3% of cogs?

Is that within the realm of expectations?

Or with the lower volume, would productivity come off a little bit or how should we look at that?

Sam, in terms of breaking out all the parts, I would say we expect to drive, compared to historical standards, a very strong level of productivity.

Two points.

I would say one, we have factored in the lower demand in that estimate, in the U.S.

Secondly, to Roy's point, in any residual benefit from Maytag is included now in that productivity number.

But you know, I would say that it would be at the higher end of your historical range.

And the final question, and then I'll defer to others, I noticed that that there wasn't a whole lot of share repurchase activity in Q4, despite the fact that it was a fairly prodigious free cash flow generating quarter.

Keeping dry powder, perhaps, for acquisitions?

Or could you help us as to why you might be a little reticent right now in terms of buying the stock back at current levels?

Sam this is Jeff.

I'll answer that.

First of all, you know, we were very consistent I think throughout the year, second quarter, third quarter, fourth quarter, in terms of our purchases, all - over $100 million in purchases.

You know as we said, we are - share repurchase has been, as we talked about last April, remains a very high priority for us.

We have $97 million of authorization still available to us, and you should expect that to continue to be a high priority for us.

Regarding use of cash, perhaps it is the other way to ask that question.

Our priorities that we look at on an ongoing basis are the same.

First is to fund the business to deliver the operating results and cash.

We have given you those numbers.

There is nothing abnormal there.

We feel that is fully included in our guidance.

Second is, you know, as we talked about the past, is repay debt and our pension obligations.

We have gotten our debt levels down to basically near or close to pre-Maytag levels.

We did a good job.

In fact, we are a year ahead of our plans in terms of debt reduction, and we fully funded our pensions, and any additional pension contributions are included in our forecast.

Third, is return to shareholders, which is share repurchase and dividends.

That remains a very high priority, particularly given current share evaluation levels.

And then fourth is looking at strategic opportunities.

Again, I would say that as we have talked about in the past, we are always looking at three or four or five things around the world, some of them pan out some of tell don't, so we will have those in a one-on-one basis, but we don't see that as the, you know, there is -- we don't see huge transactions.

These are more things that fit into our global operating structure.

So that is pretty much how we see it and how we prioritize, and again those things I mentioned are already built into our guidance.

Thank you much.

Keep it up.

Next question comes from David McGregor.

Your line is now open.

Good morning, everyone.

Jeff, you mentioned pricing initiatives.

I think Mike mentioned pricing initiatives as well.

I was just wondering if you could give us a sense of where you are so far in the year.

Do you see competition following along?

Where, around the world, are you pursuing pricing initiatives?

And does a negative volume expectation for the year temper your expectations on these price initiatives?

Yeah, David.

Let me talk about international markets.

Talk about North America.

You know internationally, where I tend break it down into three regions, Latin America, I think we have been doing all along a very good job of both driving strong productivity and, you know, our ability to pass -appropriately pass-through these price adjustments.

We continue to do that and I think that's one of the reasons why, you know, our ability to do that in those markets has gone very well.

In Europe it's a little bit of a mixed picture, depending on markets and market positions.

You know, I would say as you exit in 2007, it's probably more the price declines that we had seen there for many years had lessened.

I think there are some markets where price increases, and certainly positive mix improvements, are taking place, and we expect to do both in 2008, based on what we have announced.

In Asia, it is a market by market situation.

India is a big market for us there, where again we would have price increases [announced] and improvement in mix.

China is more of an improvement in mix, as we basically overhauled our whole product line for that marketplace.

So you know, there is a number of ways to improve margins.

Cost based price increases are just one of many.

But I'm sure - so that's kind of the picture internationally, and I feel very good where we are today in terms of pursuing those and implementing those and achieving those.

I'm sure - let me turn it over to Mike, I'm sure he wants to reference the U.S.

market.

Yeah, David, let me kind of give you two perspectives on these cost-based price increases.

First of all, we have announced cost-based price increases, and we clearly expect that they will hold in the market.

You know what we've done and what we continue to do is just make sure that the brands carry the right value.

But secondly, the way we get prices is through new product introductions and innovations, and as I mentioned in my opening remarks, you know, we've got 72 product launches that we have scheduled throughout the year.

Both those factors, we feel pretty confident that we will be able to realize the cost-based price increases that we have taken to the marketplace.

You know, the last thing I would point out here is, again I go back to globally we have seen over $2 billion in input costs in the last three and half years that will increase another $350 million this year.

We have seen through the whole supply chain adjustments being made.

A big part of our material cost increases this year is components, as we have suppliers who could no longer also to - absorb these increases, and frankly in some cases risk losing a supply base you need to continue the business.

But the same is, as it moves through the supply chain, is true as at a manufacturer and marketer level.

Our view is that is where we are.

Our margins are very low compared to where they were four years ago.

We have done a good job with productivity and other activities and offset about three-fourths of this, but you know, we're kind of the point where this continued commodity inflation - you know our view, and we communicated it publicly, is we expect to have some [screw] to the marketplace, in order for us to continue to invest in innovation and the things that consumers really want in our business business.

Is it your sense that your competition is of a similar mind?

I can't really common on their actions, David.

I would just say everybody buys material, so everybody's probably got a problem.

Yeah, I'm just wondering if you are hearing back from your sales and marketing organization that your competitors have also pursued pricing initiatives?

It varies per market and you know, to me the best way to look and see you know what are MSRP selling at, and you can tell from the retail date - I don't think you can take much stock if day-to-day rumblings from the marketplace.

Okay.

Great.

Thanks very much, gentlemen.

Our next question from Michael Rehaut.

Your line is now open.

Good morning, everyone.

Just a question on the raw materials.

You had mentioned that you are expecting about $30 million for 08.

I was wondering if you could break that down if possible by you know, steel, energy, and maybe plastics or resing, plastics and resins.

Michael, in our business I just kind of go in order of [size] purchase.

Steel is by far number one.

Oil and resins number two; base metals, number three; and then strategic components make up the number four.

I would say we are looking at modest increases in steel.

Base metals, we're basically - you know if you look at the second half average, we basically hedged base metals so we're always kind of the middle of the market.

But clearly year- over-year first half we'll have a continued - but nothing like we saw last year.

But we are expecting an increase there.

Oil, we are assuming $90-barrel for the year.

That drives resin and also hits freight and warehousing.

Probably, again it's been a little bit different every year, depending on which thing takes off, but this year the biggest impact what I mentioned, is the component value chain, where you know, the - our suppliers, which use copper and steel and so on and so forth, you know, also have been squeezed to the point where we've had to - or they have had to take pricing, and we have needed the supply.

So we are seeing readjustment in that part of our value chain.

So that is probably actually the biggest driver this year.

All right.

Also, just taking a bigger picture and looking at certainly you've had some success in the past couple of years with cost-based price increases.

At the same time, the demand side has you know, weakened, pretty consistently over the last 18 months.

you noted in your outlook, '08, that doesn't seem to - will be a change in that trend.

I was wondering if you could kind of comment on the level ,you know, promotional activity that's out there?

I think kind of commented in the third quarter this was maybe an area of surprise or a negative impact.

You know, how you see from some of the competitors that are out there gaining share or trying to gain share, rather, affecting that balance as demand continues to fall?

I would ask Mike to make his comments as well, but in terms of the U.S., Mike, which I think you're primarily referring to, is, you know, we did really see some substantial pick up in the fourth quarter, certainly versus the tired quarter.

Everything for us moving in the right direction.

You know, there has been some discussion about increased promotions, and so on.

You know, that's -- there is a lot of you know, in a challenging marketplace, I guess a lot of noise out there, in terms of our level of promotions and so on, there was nothing abnormal in the fourth quarter.

As we go into 2008, frankly, we have shifted a significant part of our focus to the product innovation launches that Mike has talked about, which are substantial., number one.

And number two, shifted a lot of promotion to consumer draw advertising, to really make these innovations well-known and frankly, create demand in the marketplace.

You know, given where we are, given the Maytag integration is over, given that we are getting our integration across all of our brands, this is the right time for us to do that.

So you know we expect to win market share and compete by being the best brands the best products and making sure consumers know about them, as opposed to just price promoting in the marketplace.

Mike is there any?

No, Mike, I think Jeff really said it.

You know, we didn't have any abnormal activity in the fourth quarter.

As we have come into the year, we really have shifted, a lot of it's been to consumer-directed, if you will, advertising to draw them into the marketplace.

And if you look at our results, we actually had a very positive price mix in the fourth quarter, while we, you know, recovered and had significant improvement in our market share from the third quarter to the fourth quarter.

So, you know, we feel pretty good about that.

We think that we can continue the trend as we go through 2008.

Just to build on Mike's point, I think if you look at the company, I talk about my script, the favorable price mix in the fourth quarter globally.

Mike's correct, he had about half a point within to North America.

If we step back more the macro.

As a company for 2007, we had just a little over a half point of favorable price mix as well.

Just to help you calibrate the success we had in 2007.

Okay.

Last question, if I could.

You know, now with the Maytag cost savings cycle essentially achieved, I think you had said you were kind of going back to, you know, general productivity, expectations, and that you are not going to necessarily break out Maytag, apart from your overall productivity gains.

I was wondering if you could just kind of give us also kind of conceptually, you know, now with that much of a bigger footprint and market share, is there still - where would you say you are in terms of you know, historically you kind of said even 3 to 5% per year productivity gains?

This might be a little repetitive of Sam's question, but net/net do you still feel that there is a bigger platform from which to get productivity gains, or how do you see that?

That answer's yes.

You know, particularly compared it pre-Maytag, I think our - I'll just go down that number of dimensions, one our larger size of scale provides a bigger platform.

Two, although we made a tremendous number of changes during the Maytag integration, it is still far from optimized.

As you think about every new product we bring out is completely on the Whirlpool cost structure, versus a Maytag cost structure, and that will continue for some time until 100% of the product line is [comfortably] turned over.

We do have some facilities, and you saw one of them in Mexico, that was not include in kind of the first round of integration that's subsequent to that.

We do have some continued manufacturing optimization to do.

And then on top of that, I would say you know, stronger than ever is the global standardization, commonization of some of our product designs and component parts and that sort of thing.

So you know, I think there are a certain number of enhanced opportunities we have because of the size, scale and scope of Maytag.

The other side is still the globalization lever, which still has a lot that we think we can benefit of.

And then the third area I would say is our ongoing relentless improvement on things like lean manufacturing and internal skills, in order to drive - and I would also add in the whole freight and warehousing and logistics into that, that we are finding new ways of productivity.

So my expectations actually would be that we have more opportunity today than certainly we did pre-Maytag.

Thank you.

Our next question comes from Eric Bosshard.

Your line is now open.

Good morning.

Good morning.

A couple of things.

First of all, can you give me a sense that $8.50 to $9 of guidance, there is obviously head winds from the tax rate and less asset gains I'm assuming from those numbers, but can you give me what - the conviction in that improvement in case of the demand head wind -- demand head wind and other factors?

Let me give you some at a high level, and Roy can give you a little bit of color.

I would break it down to three parts.

One is revenue.

And you know, if you take the demand in the U.S.

and what we expect we can do with products and brands and market share and so on, and kind of put all the pieces in the world together, we do expect moderate, positive revenue growth globally for the year.

Secondly is kind of the negative hits to margin, as I said our material costs, restructuring and kind of increased brand investment, although a lot of that brand investment we are funding from other infrastructure cost changes.

So there is a decline against an increase.

But overall, that is a little over two points of negative hit to margin.

The flip side, and how we expect to offset it, you know, are the things that I mentioned.

Number one is very strong productivity.

I believe net of materials this will be the strongest year of share productivity we ever had, for all the reasons I just mentioned.

Number two, through both cost-based pricing and product mix, we do expect to recoup and improve our margins, at least the levels that we've done in the past if not better this year.

And that's true around the world.

And then third, I would say, you know, continue, perhaps a little bit slower but still very positive international growth.

Those things we think will more than offset a little over 2 points of negative hit.

There is a lot of other things in our income statement, and let me give it to Roy to kind of give you a little bit more granularity.

Eric, first of all you are correct.

In terms of conviction, let me start with the low operating costs that you touched upon tax rate where we think will go to the mid 20s.

Second item, as you'll notice, is other income, other expense was higher this year, so we normalized that back to our typical run rates.

So you really come back to the operating profit.

And if you normalize the operating profit, you take out the two asset gains that we have talked about this year, and then you step back from this, you really have two things that are going on within operating profit.

One is what Jeff talked about in his script.

You had the negative 2.1 points coming off materials for instruct during and SG&A.

And then the second side, Eric, is the positive side.

What is embedded in our guidance is in essence three points of improvement from productivity, from price mix and from the incremental run rate on Maytag for those efficiencies that we actually realized over the course of 2007.

Now a little bit of baseline, Eric, in terms of well, what gives you conviction, which was the first part of your question.

Productivity in 2007 for the company was two points of productivity, is what we achieved in 2007.

Price mix, I mentioned earlier with Michael, was half a point.

Maytag is trickier, again, as you know we had strong year-over-year efficiency realization and obviously we wouldn't refute that.

But we do have embedded in our guidance some incremental benefit from our Maytag efficiency.

Those three combined are totaling three points, which gets you to our operating profit walk forward that enables you to get to the mid-point of our guidance.

You know the last perhaps perspective I would put on this is if you look at 2007, and 2008 has a lot of similar characteristics.

In the guidance that we gave at the beginning of the year, frankly for most of the year, we had two big changes in our assumptions, which drove our guidance.

And that ,you know, we earlier in the year, we really thought the materials were going to be in the $400 million range and they were in the $600 million range.

You know, that's #200 million dollars, that is a full one point of operating margin.

And the second miss we had was that we called the first part of the year right on industry demand in U.S.

being down about 5% was down 5.1%.

What we missed, and I think the world missed, was the impact of the financial credit crunch in crisis.

You know originally we thought the second half would be up 1 to 2%, and in reality was down almost 6%.

So that big swing in demand, coupled with a $200 million cost increase, is what challenged us in the back half of the year.

Having said that, we have made adjustments throughout the year to deal with that, and still largely deliver within the guidance that we gave.

I think 2008, you know, was similar.

We have kind of laid out what our assumptions are.

Those are our [claiming] assumptions.

They can change.

But we also manage our business and try to take the actions throughout the course of the year to also make sure that we are changing with our environment still delivering our guidance.

So you know, Eric, I guess from that perspective, I think we've got a number of things that we are continuing work on that if these environmental assumption do in fact, three months or six months down the road, change, that we are working on enough things to adapt our business fairly quickly to try deal with it.

Can you give us any quantification of how much Maytag cost save carry-over there is going into '08?

You know, what you have not annualized at this point?

Eric, I would estimate 50 to $100 million.

Then the other question is you talked a lot in '07 about the cash flow 600 to 650, and you ended up it looked like from cash from operations $200 million short in 4Q.

It seemed like the inventories may explain some of that can, but you explain a bit the $200 million deviation from guidance in cash flow operations in the fourth quarter?

I'm not sure I follow your question, Eric, in terms of the delta from your guidance.

I think you had be guiding to 1100 or 1150 of cash from operations for the year, and the reported number ended up being 927.

That's what I was trying to find out, what explains that deviation in the quarter relative to the guidance?

I'm thinking Eric we were $100 million off in terms of what we guided in terms of cash from operations, and that was primarily driven by inventories.

And again for the most part, that was inventories here in the U.S., where we did take a number of down days, but as the market shrank over the course of the quarter, we just ended up with about two excess days of inventory on hand that we had not planned.

And then, David, we had about one day of inventory that we consciously built to support our global footprint transitions.

And I would only add that it was really the fairly sharp fall off we saw late November and December by then it was really too late to make any more adjustments in our inventory.

So that really was frankly the entire miss.

That was the miss.

Thank you.

Our next question comes from Laura Champine.

Your line is now open.

Good morning, Jeff.

Hi, Laura.

I noted from your boiler plate, if I'm doing my math right, your business with Sears declined about 8%, though your business in North America was up a percentage point for the year.

If you can, can you drill into how you gained share in the fourth quarter despite a pretty widely-publicized decline in conned share loss at your biggest customer?

And then as a follow on, what will you do in 2008 to try to become more channel neutral and diversify away from that weak link in the retail environment?

Okay, Laura this is Mike Todman.

Maybe just let me give you a - step back a bit and look at our overall business.

I think we had said throughout the year, and really as we executed in the fourth quarter, that we wanted to make sure that our brands, one, were in the distribution where consumers shop and that we don't specifically pick where consumers shop.

So if we are there and we have the right products with the right innovations, then we will you know, enjoy kind of the market share that [audio interference].

What I would say, therefore, in the fourth quarter is we saw a fairly good increase in our branded market share.

So you know, outside of Sears particularly, and that's just based on kind of the product launches that I talked about in the third quarter call, that we executed in the fourth quarter.

You know, the other aspect of it, and as we continue to go forward, you know what we again have said all along is if we look at all these product launches that we are taking to all of our brands, our intent is just to be - to have the right product at the right value, the right innovation in our brands wherever consumers shop.

So if it's at Sears with Kenmore, we'll have the right product offering there.

If it's outside of Sears, in any of the other distribution points, we are making sure that we have the right product offering in our brands in those environments.

And that's what we intend to continue to do as we go throughout the year.

Can you comment on Q4 whether your share gains were weighted toward the Whirlpool brand or the Maytag brand?

And also, how are your high-end brands doing relative to those core market brands?

It was both Whirlpool and Maytag, and I will tell you we had very strong performance in our high-end brands.

And as we introduced you know new products in the Kitchen Aid brand, we saw consumers were buying those brands.

So frankly, we had it's cross all the brand, all of those.

Thank you.

We have time for one more question from Jeff Sprague.

Your line is now open.

Thank you, good morning.

Roy, you had a couple of comments about price and mix.

I think that was about operating profit not revenues.

Just so I have it and we all have it square, could you just, the revenue composition in North America in Q4, how it shakes out for Whirlpool volume price mix?

Okay.

You are right.

I'm going to go back now to - I'm going to reconcile revenue for you, okay, because you are right.

Earlier I was talking about margin impact in my discussions with Eric and Michael.

If you look at - I'll start with consolidated, Jeff.

Consolidated Whirlpool, our sales were up 7%.

If you look at currency, the currency impact of that, foreign currency was 6.5 points improvement.

We had about a point and a half favorability of price mix.

We had minus .5 for volume, and that gets you to 7.5 for consolidated.

For North America, specifically, is you had about 3.5 points of favorable price mix in the fourth quarter, about 1.5 of rate and volume was about 5.5 negative, just to get you at minus half a point.

Great.

Then could you just walk us through kind of the mechanics of why tax rate would go back up?

It would seem like some of the geographic forces that drove it down in '07 would still be in place in '08?.

Yeah, Jeff.

That is a good question.

Let me talk a little bit about that.

It's sort of a loaded question.

I'm going to give you a little bit of perspective and then I'll come back to your direct question.

I think it is important to preface with two points, Jeff.

One is, and we have talked about I guess now the last company of years, that we have been implementing an attack strategy plan to get our tax base globally more efficient with respect to our operations.

The second preface point is that, as you know, under the current accounting rules, there are really two impacts, Jeff, when you execute - typically when you execute a tax strategy.

And that is under the accounting rules, for those things that involve the current period operations or future operations, you recognize the benefit of those strategies over periods of time, as part of your operating tax rate.

The second important distinction though, Jeff, is when you execute tax strategies, for those pieces or components that relate to prior periods, and let me give you an example of what's specific to Whirlpool.

If you execute a tax strategy, that now enables you to utilize NOLs that were previously not able to be utilized, the component of that relates to prior periods is rammed through the rate in the quarter that you execute the tax strategy, so you get this much larger impact on individual quarters than you would get over a blended period of time.

For Whirlpool Corporation, if you look at our normalized tax rate, take into effect our rates around the world, we'd have a normalized rate, Jeff, of about 40%.

If you look at the rate versus this year, we had about 15 points of benefit, coming off of the tax strategy things that we did, that related to prior period positions that we now had new information on, and therefore lowered our rate.

So that's the delta between our normalized rate of 30 and roughly 14 and a half.

Now let's walk it forward to your specific question.

If you look at the things that we execute in our strategy, and you look at the benefit that it will have on the rate going into 2008, you get about five points of benefit that we expected to achieve in 2008, and that takes you to this normalized rate back through the mid 20s.

The things that we have executed are real from a cash tax perspective.

These things that we've executed are real from a cash tax perspective.

We do not just book accounting entries, these are truly a lowering of our cash taxes that we pay around the globe.

Actually, that was going to be a second part of my question, actually.

If you could give us a sense of what cash taxes did '07 and what you would expect in '08.

You do have a pretty substantial, call it 25% operating cash flow improvement baked in for '08.

I'm wondering if you can kind of give us some color.

Is it cash tax?

Ist it working capital?

What it is that would actually drive that strong of an improvement?

Jeff, the simple answer is we did have lower cash taxes paid in 2007.

Part of that was from our tax strategy, part of that was related to refunds we had on a global scale.

We don't expect significant change in that going into 2008.

Okay.

So the cash flow improvement in '08 is more a function of working capital?

Yeah.

It's really coming off of a few components, Jeff.

One is working capital, which is the single greatest component, and again if you think about my comments with respect to inventory and where we ended the year, that is a big driver there.

It is a little bit on higher earnings.

A third piece that's very important is the Maytag recall.

We did expend $72 million of cash in 2007 related to that recall.

You'll recall, Jeff, that we estimated 82 total, so obviously a lot less cash coming out next year, and then the final point that Jeff referenced is we do expect $25 million more in pension contribution next year than we had in 2007.

Then just one final one, if I could.

I think a prior questioner kind of assumed there wouldn't be asset sales gains that worked as potential offsets to restructuring.

Would you, in fact, as you're selling some of these facilities you are closing, in fact have some offsets?

You know, Jeff, if you look at the chart in the back of the press release, you'll note that I think we have 50 to $100 million assumed in terms of proceeds from asset sales.

That is related to your point.

In terms of the gain on asset sales, again we don't forecast those gains, but if you look at our run rate over the last three years, you would find that we have about $15 million as the typical run rate of gains on asset sales.

Great.

Thanks a lot.

You are welcome.

Thank you.

And everyone thank you for joining us today, and we will look forward to talking to you in the future.

Thank you very much.