惠而浦 (WHR) 2009 Q1 法說會逐字稿

Good morning and welcome to Whirlpool Corporation's first quarter 2009 earnings call. Today's call is being recorded.

For opening remarks and introductions, I'd like to turn the call over to the Director of Investor Relations, Greg Fritz.

Thank you, Kevin, and good morning. Welcome to the Whirlpool Corporation first quarter conference call. Joining me 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 that as we conduct this call, we will be making forward-looking statements to assist you in understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K and 10-Q. During the call, we will be making comments on free cash flow, a non-GAAP measure. Listeners are directed to Slide 32 for additional disclosures regarding this item. 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.

Well, good morning everyone, and thank you for joining us today. I think you've seen earlier this morning we released our first quarter financial results and I'd like to give you an update and summary of where we are. For the first quarter, net sales came in at $3.6 billion which were down 23% over the first quarter of 2008. This decline was driven by unfavorable foreign currency translation and significantly lower unit sales volumes. At a constant exchange rate, revenues declined by about 14% due to lower demand. Our earnings per share came in at $0.91 per share compared with $1.22 that we reported last year, and while there are several moving parts in the quarter, we did see very strong year-over-year improvement in our North America and Asia businesses, where our overall operating margins improved. Margins remained strong in Latin America and declined in Europe. For the quarter, free cash flow improved by $73 million year-over-year despite sharply lower production volumes.

Overall, I believe we made very good progress in our cost reduction initiatives throughout the Company. We continue to execute our previously announced restructuring actions and made significant progress through all the key cost reduction areas that we've targeted.

If you'd turn to Slide 4, here we list the key factors impacting our business. These are the ones which we outlined on our last call, and today I want to provide you with an update on where we are today. On the positive side, we are on track to significantly reduce total product cost. We've taken swift and aggressive actions through product redesign and moving towards global standards for parts and components. We've also implemented productivity and quality improvements which are positively impacting our conversion rates and we're also realizing the restructuring benefits from what we've previously announced relating to manufacturing footprint relocations and overall job reductions.

The second area that we are aggressively attacking is non-product costs, primarily related to our SG&A levels. Our efforts during the quarter to reduce headcount and decrease spending in most areas are yielding very good results. In total, we reduced our first quarter SG&A cost by more than 25% in dollar terms and we also reduced levels as a percent to sales in what was we see one of the most challenges sales decline environments that we've seen.

The third area which is very much benefiting our business is through improved pricing and mix. During the first quarter, we realized a 3 point margin improvement as a result of favorable price mix. And while price mix will remain one of our key priorities for the year, we expect that the rate of increase that we've had will somewhat mitigate itself in the second quarter and rest of the year. There are several reasons for this. First, we see a somewhat more challenging demand environment than we previously expected. Secondly, in some markets around the world, we see that some consumers are trending down in mix, although we've had very good success with both our innovative products and our energy efficient products. And finally, we begin comping against a positive price mix numbers in the second quarter and beyond, so although you'll see our reduction in year-over-year percentages as the year progresses, overall we continue to expect that strong price mix management will be an important contributor to our margin expansion for the year.

The two other areas where we expect to see continued positive benefits are in cash generation, and they are working capital and capital spending. From a working capital standpoint, we made good progress in managing inventories down during the quarter. As a result, we were in line with our normal seasonal trend of working capital, and we continue to expect working capital to be a significant source of cash generation as we continue to progress throughout the year. On the capital side, we expect to reduce our capital spend by at least 10% for the full year and our plans remain on track to do this.

We have significantly reduced all non-product capital spend, but we're continuing our investments in new product innovations, including some very exciting new product launches in every major product category in all regions of the world throughout the year. Innovation does attract consumers to our global portfolio of leading brands and it generates higher margins. We're making continued but focused investments in innovation and our global innovation pipeline remains very strong.

We continue to see demand, material costs and currency having a negative impact on our business this year. There have been some pluses and minuses in each category since our last call, however. First, I would say that demand is slightly weaker than our previous expectations and I'll detail that in a moment. Secondly, we now expect material costs to be modestly better from our previous estimate. During the first quarter, we continued to experience higher material costs, but we see a downward trend in prices of some of our key inputs. There is a lot of volatility in many of these costs and we anticipate they will continue to mirror demand patterns in the global marketplace, but on balance I would say that things continue to move in the right direction. The third area that I will mention -- during the first quarter we saw a lower level of foreign exchange volatility compared to what we experienced in the fourth quarter, and while foreign currency translation remains unfavorable, rates have been by and large in line with our expectations. Overall, the factors affecting our business in 2009 remain largely unchanged and we remain focused on generating cash and reducing cost in every part of our business to align to minimize those factors which are having a negative impact on our business.

Now, I'd like to spend a moment on our regional unit demand outlooks which are shown on Slide 5. In the US and Europe, we're seeing some signs that demand is stabilizing at lower levels. We now expect industry volumes to decline by 10% to 12% in the US and in Europe we expect industry demand to decline by about 10%. In Latin America, based on our current economic outlook, we are confirming our previous expectation of appliance industry unit growth in the range of flat to down 5%, and in Asia also we expect to remain flat to 5%.

Moving to Slide 6, we continue to expect for the year our earnings to be in the $3 to $4 per share range and we expect to generate positive free cash flow in the range of $300 million to $400 million. Of course our projections are based on our current economic assumptions and environment and the plans we have in place today, and while there is some volatility and uncertainty remaining in this economic outlook, our focus is firmly on taking all of the actions needed to ensure that we address this difficult economic environment. At this point, I'll turn the call over to Mike Todman to update you on North America.

Thanks, Jeff, and good morning everyone. I'll begin by reviewing North America's performance in the first quarter.

As shown on Slide 8, our net sales declined 20% during the quarter to $2.1 billion, with US industry demand for T7 appliances declining approximately 16%. Excluding the impact of foreign currency exchange, our sales decreased 17%. While our year-over-year volume declined substantially during the first quarter, we did experience a slowing of the decline as the quarter progressed. The volume decline was more than offset by favorable price mix and our ongoing cost reduction efforts, including reductions in overhead and SG&A costs. These areas benefited from reduced headcount and other cost reduction initiatives that aligned our capacity levels with demand. During the quarter, we realized an operating profit of $164 million compared to $44 million reported in the prior year quarter. The improvement in profit was due to favorable price mix, our ongoing cost reduction initiatives, and an $87 million gain related to the curtailment of our retiree health savings account. Results were partially offset by significantly lower production levels, higher material costs, and a $23 million expense related to a supplier related product recall. Excluding special items, our operating margin improved to 4.5% compared with 1.7% in the prior year.

Turning to Slide 9, I would like to take a moment to discuss the industry demand dynamics during the quarter. You'll see that we experienced the most acute US industry demand decline in the first two weeks of the first quarter, as many of our trade customers went through a significant destocking of inventory. During the balance of the quarter, we saw the rate of decline in industry demand decrease compared with the first two weeks. In fact, excluding the first two weeks, demand declined approximately 12% on a year-over-year basis versus the approximately 16% reported for the quarter.

Given the demand in the first quarter as shown on Slide 10 for the full year, we now expect US demand to be down in the 10% to 12% range. Looking at the components of demand, we now expect to see a 41% decline in new home completion. This is down approximately 6 points from our previous estimate. Our forecast for existing home sales remains unchanged at a 9% decline. In addition, we continue to expect discretionary spending to have a negative impact on overall results as high unemployment levels persist. Some consumers continue to delay replacement purchases, even for appliances that are beyond repair, due to the economic uncertainty; however, many of our products are considered basic necessities by consumers and any purchases that can be delayed ultimately will be replaced. As a result, we believe it is just a matter of time before these buyers return to the marketplace, and when economic concerns subside, we are better positioned than ever before with better products, a heightened focus on energy and water efficiency, and even more consumer relevant innovations.

We are seeing as evidenced on Slide 11 consumers are purchasing energy efficient appliances. Energy efficiency represents a great financial value to consumers, especially during these tough economic times. During the quarter, we were recognized with the 2009 Energy Star Sustained Excellence Award by the Environmental Protection Agency and the Department of Energy. This marks our tenth Energy Star award and our fourth consecutive Sustained Excellence win. Today, we offer the widest array of energy and water efficient appliances to the global marketplace.

Our priorities for 2009 in North America are shown on Slide 12 and we are executing to these priorities. During the quarter, demand levels were less than expected. We remain focused on appropriately adjusting our production levels and inventory to expected demand levels throughout the year. Our cost reduction efforts during the quarter were strong. We are acting with speed as we manage all costs across our business, including manufacturing and supply chain costs through focused lien activities, organizational and SG&A costs, and all other costs that do not impact making, selling, and distributing our appliances.

We continue to execute the previously announced restructuring plans in the areas of reduced labor and production capacity. Production ceased at the Oxford, Mississippi plant this month and the closure of our Jackson, Tennessee facility is scheduled for August. In addition, we continue to optimize our volumes and price mix in the marketplace by ensuring we strike the appropriate balance between volume and realizing our price mix. We are executing this by continuing to introduce new product innovations in our brands that our trade customers and consumers are benefiting from. Yet, despite this focus, given the demand environment, we have increased our promotional activity on selected products in the marketplace.

As a result, in the second quarter and for the balance of the year, we expect our price mix to be impacted by the lower demand levels and the fact that some consumers are choosing to trade down when it comes to appliances during this period of uncertainty. While we continue to balance our volume and price mix, beginning in the second quarter, year-over-year comparison will be against favorable price mix trends in the prior year. As such, while we expect to continue to see improvement in price mix, we do not expect to see the level of year-over-year improvement we posted during the first quarter.

Finally, with regard to our consumers and trade customers, we will continue to accelerate our disciplined and systematic approach to deliver the right product at the right value. This is particularly evident, as we have already discussed, in the area of providing consumers with the widest array of energy efficient products. We continue to execute our priorities and adjust our business to perform during this challenging economic period. With that, I will turn the call back over to Jeff for his comments on our international operations.

I'll now turn to Slide 14, where we have an overview of our international operations, where our results were somewhat mixed during the first quarter. Results were unfavorably impacted by exchange rates, which lowered both sales and operating profit. We saw significantly lower demand levels in Latin America markets outside of Brazil and in Europe, while our Asia and Brazil businesses delivered very solid results during the first quarter.

Slide 15, you'll see our European business where our European revenue decreased by 26% in the quarter. In local currency, sales declined 12% from the previous year. Industry unit shipments declined by approximately 14% year-over-year. During the quarter we saw weakness across nearly all major markets. Eastern European countries remain the most challenging. Our European operating profit declined to breakeven levels compared to the $45 million earned in 2008, and again these results were significantly by unfavorable currency changes and sharply lower production rates. Unfavorable foreign currency accounted for approximately 30% of this decline and our ongoing cost reduction efforts partially offset these results.

Turning now to Slide 16 to review our Latin American business, where revenues declined by 26% during the quarter. Excluding the impact again from currency, sales decreased by about 9%. Appliance results reflect very strong results from Brazil and our performance outpaced the industry during the quarter. In contrast, we saw weak demand from most appliance markets outside of Brazil in the region, as well as in our global compressor business, which is feeling the effects of substantially lower demand levels in the US and Europe. Overall, operating profit fell to $57 million compared to $119 million last year. Our results were adversely impacted again by unfavorable foreign currency, lower unit volumes, higher material cost, and a $26 million expense related to an operating tax settlement which we recorded during the quarter. Partially offsetting these results were favorable productivity initiatives and other cost reduction efforts.

There are two additional topics I'd like to mention about our Latin American operations. First of all, recently the Brazilian government initiated a program aimed at stimulating appliance demand. This program reduces sales tax levied on products sold and is modeled on a similar program which they instituted earlier this year in the auto industry. We do expect positive demand benefits in Brazil from this program as a result of lower sales tax rates, and in fact we've seen some preliminary evidence of a positive impact and pickup in consumer demand. From a Whirlpool perspective, however, the temporary reduction in this sales tax rate will have an unfavorable impact on our ability to monetize Befiex tax credits during the quarter, and therefore this will likely have a net negative impact on earnings during the second quarter.

Secondly as we disclosed previously, in February we received a grand jury subpoena from the US Department of Justice requesting documents related to an anti-trust investigation of the global compressor industry. Whirlpool subsidiaries in Brazil, where our compressor business is headquartered, and Italy also received requests from authorities seeking similar information. As we stated then, we are fully cooperating with all governmental investigations and we've taken actions and will continue to take actions to minimize our potential exposure. As you all know, these matters are extremely complex and the timing of this is difficult to predict. We're dealing with the laws of several different jurisdictions around the world, each with its own process and procedures. The final outcome of these matters will depend on many factors and variables. Today, it's premature for us to speculate as to the potential outcomes at this time. And due to the nature of these ongoing investigations, we won't really make further comments on this matter at this time.

Let me now turn to Slide 17 and talk about the first quarter results in Asia. Net sales decreased 13% during the quarter. Excluding the impact of currency, sales increased 3% compared with the previous year. Our operating profit improved to $5 million versus $2 million last year and the year-over-year increase in operating profit is due primarily to productivity improvements and favorable product price mix. We did have unfavorable currency impacts which partially offset these favorable results. Now I'd like to turn it over to Roy Templin for the financial review.

Thank you, Jeff and good morning, everyone. Beginning on Slide 19, I'll walk you through a summary of our first quarter performance. From a top line perspective, we saw significant weakness across most major markets during the first quarter, with the exception of Brazil, India, and China, where demand was relatively stable. Industry declines in our largest markets, North America and Europe, were the steepest we have experienced since the beginning of the recession. In addition to the decline in global unit volume, as we previously communicated to you, we experienced a significant revenue decline as a result of unfavorable foreign currency exchange rates.

One of the notable bright spots within this challenging macroeconomic environment was price mix. From a margin perspective, we had positive impacts from our price mix and the enterprisewide cost reductions we previously communicated to you. Offsetting these substantial positives were sharply lower global unit production volumes, unfavorable foreign currency exchange, and higher material and ore related cost. Finally, we monetized $35 million of Befiex tax credits during the quarter and recorded several special items during the quarter which I will now discuss on Slide 20.

This schedule outlines the impact of special items during the quarter. On the favorable side, we recorded an $89 million benefit related to the indefinite suspension of the annual credit to retiree health savings accounts. In addition, we adopted the modified units of production depreciation method during the first quarter, which resulted in a favorable P&L impact of $8 million. For the full year, we expect this change will favorably impact our results by approximately $74 million based upon our current production forecast. We feel the units of production method better reflects the usage of assets with revenue generation from the assets and is a preferred method relative to the straight line method.

We had several unfavorable special items during the quarter that more than offset these favorable factors. First, we agreed to the settlement of a previously disclosed operating tax case in Brazil. This had a total pre-tax impact of $42 million during the quarter. As you will note from this chart, we recorded this amount in several line items, including $13 million in interest expense. Second, we incurred $24 million of restructuring charges during the quarter related to our previously announced programs. Third, we recorded a $23 million charge related to a product recall that we announced in March. And finally, we incurred $21 million of cost in our interest and sundry expense related to legal cost and a mark-to-market loss from a commodities derivative contract.

Turning to the income statement on Slide 21, during the quarter we reported revenues of $3.6 billion, down 23% from the previous year. The unfavorable impact from foreign currency translation accounted for 9 points of the decline and was predominantly related to the appreciation of the dollar against the Brazil real and the Euro. In addition to this weakness, however, we continue to see unfavorable effects across most of our major currencies.

Our gross margin increased 1.4 points to 14.7% for the quarter. Even excluding the special items noted previously, our gross margin improved on a year-over-year basis despite losing nearly 25% of our revenue base. This achievement was predominantly driven by significant improvements in our price mix and progress in our previously announced restructuring and cost reduction initiatives. These favorable items were partially offset by substantial declines in global unit production and shipments which resulted in significant unfavorable productivity variances. We also experienced substantial unfavorable variances in foreign exchange and material costs during the quarter.

SG&A expenses decreased $113 million to $327 million in the quarter. The variance was largely driven by lower SG&A expenses related to cost reduction initiatives. Foreign currency translation and the retiree medical plan change accounted for approximately $41 million of the improvement. Notably, our SG&A improved as a percentage of sales to 9.2% from 9.5% in the previous year despite the significant drop in revenues. During the quarter we recorded $24 million of restructuring charges related to our previously announced programs compared to $8 million in the previous year.

As a result of the items I've just discussed, operating profit totaled $166 million compared with $159 million in the prior year. Unfavorable foreign currency exchange rates resulted in an unfavorable impact of $34 million on our operating income during the quarter, which more than offset the $24 million of net benefits of special items during the quarter. We are pleased with this performance, given the sharp reduction in revenues during the quarter.

Turning to Slide 22, our other expense had an unfavorable impact of $47 million during the quarter related to foreign currency exchange, legal cost, higher mark-to-market losses on derivative instruments, and operating tax settlement and other items. As noted on the previous chart, approximately $24 million of these costs were related to special items recorded in the first quarter.

Moving to our tax rate. We reported an income tax benefit of $16 million during the quarter compared to an operating tax expense of $3 million in the prior year. The year-over-year benefit is predominantly related to lower year-over-year pretax income and the corresponding impact of various tax credits.

Slide 23 illustrates our working capital results for the quarter. Our working capital balance improved during the first quarter compared to the prior year on a total dollar basis. As a percentage of sales, however, it increased 2.3 points as sales declined substantially from the prior year.

Our inventory balance was down on both a sequential and year-over-year basis during a quarter where we traditionally build significant inventory. The most significant unfavorable variance was largely driven by accounts payable. As you know, we reduced our production levels significantly during the first quarter as we did in the fourth quarter. As such, we have significantly reduced our purchases. This has had a substantial impact on our first quarter payables balance. Going forward, as our production rates stabilize, we expect to see our payables balance return to normal and have a positive impact on our cash flow for the remainder of the year.

Now I'd like to take a moment to discuss our free cash flow performance on Slide 24. For the quarter, we reported free cash flow usage of $371 million compared to a usage of $444 million in the prior year. The favorable variance is largely attributable to lower outflows in other operating accounts, which is primarily related to lower promotional, warranty, and incentive compensation payments. During the quarter, we had a one-time payment of $26 million related to a global multi-year IT licensing agreement that will not recur for the remainder of the year. For the full year, our capital spending is expected to remain in the range of $450 million to $500 million.

On Slide 25, we look at our first quarter cash flow in the context of our five year average. As many of you know, we traditionally have our weakest free cash flow generation during the first quarter as working capital, promotion, and other payments represent a significant use of cash. As you can see, our first quarter cash flow was largely in line with our historical average. We traditionally generate a significant amount of cash flow in the remaining nine months of the year and our expectation for this year is no different. In fact, we feel with some of the unusual variances in our accounts payable due to our decision to have strong inventory controls, we believe we are in a good position to generate significant working capital benefits for the remainder of the year as production rates normalize. As such, our full year outlook for free cash flow is unchanged at $300 million to $400 million.

Turning to Slide 26, I would like to spend a moment on our liquidity position. We had $656 million outstanding under our $2.2 billion revolving credit facility and we are in full compliance with our covenants. From a long term debt perspective, we have only one significant maturity during 2009, which is our $200 million variable rate note which is due on June 15th. As we announced earlier, we successfully amended our credit facility during the first quarter. This amendment resulted in 0.5 turn improvement in both our leverage and interest coverage covenants, which now stand at 3.5 times and 1.5 times respectively. In addition, we gained additional relief from the exclusion of up to $100 million of cash restructuring cost from our income calculations and $200 million of derivative positions from our debt calculation.

Finally, I'd like to turn to our outlook summary on Slide 27. As Jeff mentioned, based on current economic conditions and our plans, we expect to earn $3 to $4 per share during 2009. As you might expect, there have been several moving parts to our underlying assumptions as the quarter progressed. On the positive side, we have three effects I'd like to discuss. First, as I mentioned earlier, we have adopted the modified units of production depreciation method, which results in a favorable $74 million impact for the full year. Second, we now expect a full year tax benefit of approximately 15% to 25%. As you know, given our lower levels of pretax income, the various credits we record significantly impact our rates from quarter to quarter. Finally, we are seeing some improvement in our expected material cost for the full year.

Some unfavorable items I would like to highlight are as follows. As Jeff mentioned earlier, we lowered our full year outlook for demand in North America and Europe. In addition to the volume adjustment, we expect to realize slightly lower price mix than our previous expectation for the balance of the year, as Mike discussed earlier. As we previously disclosed, we amended our credit agreement, which resulted in higher borrowing cost and fees. And recently the Brazilian government enacted an appliance sales tax program that significantly reduces our payment on these items during the next three months. While we expect this to have a positive impact on demand in Brazil, it will significantly reduce the amount of Befiex credits that we will monetize in the second quarter. We expect to recognize only a nominal amount of Befiex credits in the quarter compared with the $35 million that we recognized in the first quarter. If this program expires in July as currently legislated, we expect to begin to return to more normal utilization level in the third and fourth quarter. And finally, based on our current outlook for global mix of business, we expect unfavorable foreign currency impact to be at the high end of our previously announced range of $100 million to $150 million. On balance, we expect the previous items to offset, and we are leaving our outlook unchanged at $3 to $4 per share. At this point, I'll turn the call back over to Jeff.

Thanks, Roy. Let me sum up our comments today. Overall, the global economic situation is largely playing out in line with the expectation that we've had. Clearly, this is a unique period where we've seen significant declines in global consumer demand for the last eight months and rapid volatility in exchange rates. Overall, I feel quite positive that we moved quickly to readjust our business to these economic realities and as I mentioned we have a very strong focus on three things -- one, significant cost reduction across the business. Secondly, market execution which is driving the right economic balance between volume and price and mix. And third, driving strong cash generation. To date, I believe we're on track on all these and I believe this has been reflected in our first quarter results. Short-term, we don't expect the economic environment to significantly improve, although we're now seeing some stabilization in most markets -- and by stabilization, I mean that the rain of decline in consumer demand is lessening and that global currencies are trading in a much narrower range.

Our overall view remains the same. The first half of 2009 has been and will continue to be a very challenging market from a demand decline perspective. We do still believe the second half demand levels will improve, although still be negative, but much less so than we are seeing in the first half of the year. We will continue to take very strong actions required to significantly reduce our cost, lower our breakeven levels, invest in winning consumer innovation, and generating cash. These priorities will ensure our financial strength and position us very well for value creation as demand levels normalize over time. I'd like to end my comments here and we'll now open up the call for questions.

Thank you, sir. (Operator Instructions). We'll take our first question from the site of David MacGregor from Longbow Research. Your line is open.

Yes, good morning everyone.

Good morning David.

Can you just talk in hopefully quantitative terms about the impact of I guess future cost savings from restructurings that have occurred to date but are not yet reflected in the first quarter results?

David, this is Roy. Good morning. As you look at the benefits from the restructuring, we had $25 million of benefit as you know in the fourth quarter of last year. In 2009, David, we are estimating that we'll have a total of $165 million of benefit from those actions. I want to be clear here, the $165 million is not incremental to the $25 million. It's the cumulative reductions through the end of this year. And then through the end of 2010, we think that number will total $230 million of benefit, and that will be our run rate going forward, David.

Okay, thanks for covering that. Just with respect to these cost savings, which are pretty impressive, I guess what are the elements here beyond depreciation? I mean, can you talk a little bit about the extent to which it's being generated from labor versus headcount reductions versus plant closing and just break it open for us a little bit?

Yes, David. Thinking again going back to what we talked about, think about two parts, product and non-product. And in the product area, we are getting material productivity from the things I talked about including cost design changes, eliminating material from the product cost, moving to global standards, and commonizing parts and components and getting more scale from the volume we have. Those are the primary drivers of material productivity. In our factories in terms of conversion, not only our lean manufacturing activities but quality improvements are improving our conversion rates, which are greatly challenged by the volume reductions that we have. We also are looking at significant improvements in our freight warehousing, logistics costs, and that sort of thing. So really, every piece of the business we have under a microscope and we're managing both fixed and variable costs to drive savings. In SG&A, again it's a number of items. As we've talked about, we have reduced both jobs and benefits. It's a very difficult decision, but appropriate for this environment. Spending is also under a microscope and we're spending only where it's important to run today's business and invest in the marketplace today. So we have a cost management system we've been building over the last two or three years deployed around the world. And we measure every week, every month, every quarter our cost savings in every part of the business. And we are running it at a very strong rate now that we expect to sustain throughout the course of the year.

Do any of these cost savings put market share at risk?

I don't think so. We talk about having a balanced approach to the marketplace. As I look around the world in the first quarter, our North American market share was roughly equivalent to fourth quarter, so sequentially it was flat with strong [BMR]. I think we gained some market share in Latin America. We gained a few tenths of a point in Europe. So we are not taking away investment where it counts for this kind of period.

Great. Thanks very much.

We'll take our next question from the site of Laura Champine from Cowen and Company. Your line is open.

Good morning. Just a couple of things. If you could give the consolidated EBIT impact from foreign exchange? And then if you could comment on what's left in the Befiex bucket? I realize you'll be recognizing very little in Q2, but if I could get a sense of what's left over the long term, that would be great.

Sure, Laura. Good morning. It's Roy. On Befiex, you'll see when we file our Q this afternoon we have $518 million remaining in terms of the balance of Befiex that you'll see later today. Let me talk a little bit about currency, which was the first part of your question, and I think we probably captured this a couple places in the script. But let me pull it all together. For the quarter, Laura, we had $44 million of impact at the EBIT level. We had $34 million negative in operating profit and we had another $10 million negative in other income and other expense. The bulk of the impact on operating profit is coming from translation. As you know, Laura, we really have two buckets that we get impacted from. The first is just as a result of our global footprint where we produce in currencies that is different from the currencies that we might actually have the revenues generated from, we obviously have translation. And then of course we just have the translation of results. The bulk of the operating impact in the quarter was coming from translation versus transaction. And then in OIOE, we had about $10 million, which is again the net reduction year-over-year as a result of balance sheet positions that we hold across the globe in currencies other than that local currency or local functional currency for the operation.

And just as a quick follow on, Roy, what was the total consolidated impact of currency on your earnings a year ago, Q1 2008?

Let's see, Laura. If I look at 2008, I don't know if I have that separate here. Again I'm giving you the year-over-year changes here. The other income, other expenses $10 million different, and it was a nominal amount in operating profit, Laura. I think if I remember actually through the three quarters last year, it was only $6 million. So in the first quarter, the operating profit impact had to be a very immaterial number.

Got it. Thank you.

You're welcome.

And the next in queue is Sam Darkatsh from Raymond James. Your line is open.

Good morning, folks, how are you?

Good, Sam.

A couple questions if I might. First off, a clarification question. Roy, the depreciation is going down by $74 million, which unless I'm misunderstanding something with the accounting standards, your CapEx guidance of $450 million to $500 million, does that mean you're now spending depreciation in terms of CapEx because your overall depreciation levels are going down?

Roughly speaking, Sam, that is correct, yes.

Why wouldn't you be underspending depreciation meaningfully in this type of environment?

Well, again, let me talk a little bit about what we're spending in CapEx, because if you look at the first quarter on the surface -- and I made this comment in my script, Sam, but it may not be clear. If you look at what we traditionally spend in a first quarter year in and year out, we typically spend about $85 million in fixed capital in the first quarter. The number is obviously higher this year Q1 and Sam, that increase is coming almost entirely from the technology investment that I referenced in my script. This is a global multi-year investment that we made in technology. It actually enables us to improve the efficiency of our technology across the globe. Again, we have the one-time payment multi-year contract, but it's distorting what otherwise would be the fixed capital trends that we have in the first quarter. But we still expect, Sam, for the full year to be in that $450 million to $500 million range.

And Sam, the other thing I would add is that the capital we are spending, which is fairly significantly below last year, and recent run rates in the last three or four years, is focused on very significant new products that are coming to the marketplace which are not only very innovative, they come with substantial cost reductions and quality improvements. The last piece of it is a fairly substantial portion of our capital that's not being spent on new products is being spent on redesign products that I mentioned earlier and therefore is driving our cost reduction. So we think this capital is very well being focused on those things which drive results this year and next year.

Two more quick questions if I might. The first one would be what are your new assumptions now, Jeff, for price mix versus material inflation, specifically? And then the second question would be -- Slide 9 was very helpful in terms of the weekly trend in North America for wholesale shipments. Would we look at something very similarly if you showed us sell-through versus sell in? How did those trends look and how much of it did the retailers take out of inventory?

On materials, Sam, material prices, if you will -- we indicated at the beginning of the year around $200 million. That is better and it could be as much as $50 million better. But having said that, I would note that as Roy pointed out we do have a negative currency. The currency is at the high end, so that somewhat offsets each other, a net gain though overall. Price mix, we talked about around 2% for the year. We were 3% in the first quarter, so off to a good start. That 3% rate -- we don't think we will continue at that rate. Probably under 2% for the year, somewhat given some of the mix changes, would probably be an appropriate estimate at this point in time. I'll ask Mike to talk about the consumer trends.

Sam, if we look at sell-through for the quarter, it actually would have been at about the rate of demand, if you take out those first couple of weeks. So it was about even with around that 12%, maybe slightly lower. And what we did see is a continued progression of better consumer purchases over the course of the quarter.

Thank you.

We'll take our next question from the site of Jeff Sprague from Citi Investment Research.

Thank you, good morning everyone.

Good morning, Jeff.

Just a handful of questions. First, Roy, just trying to work to an earnings bridge here -- how do we think of the tax effect on the change in depreciation? Should we use a normalized tax rate as we kind of think about what that adds to your earnings profile here?

I think that's fair, Jeff.

And then on price mix, I believe all the discussion we've been having and the numbers that have gone round on the call have really been on the profit side of the equation. Can you give us a little color on what price mix did on the top line and whether it's biased one way or the other? Is it really a price driven thing or is it more on the mix side?

Jeff, I'll take that. It's Roy. If you look at the total net sales for the quarter, as you know, our sales were down right at 23% and about 16% of that was the volume reduction. Price mix, Jeff, was a favorable 2% and foreign currency was an unfavorable 9%.

Okay. And as you're looking at the I guess somewhat erosion of price mix over the balance of the year, it sounds like it's mostly on mix that you see shifting down this consumer preference issue? Or do you think there's downward bias on price also?

No, Jeff, first of all, it's lessening of the increase is the way I would describe it that compared to what we had in the first quarter, and it's I would say a combination of two things. One is some -- and again I emphasize some markets around the world are showing a lower product mix, if you will, and I would say promotional activities are probably consistent with what we've seen to date. So I don't see a big change there, but I would say it's much more of a mix than anything else.

Roy, could you give us that same walk you just gave on North America? Those are the total Whirlpool numbers but if I look at North America down 20%, how that breaks out?

I sure can, yes. For North America specifically, Jeff, volume down 22%, FX was again a negative 3%, and then for North America, price mix was a favorable 4% for a net delta of minus 21%.

And then I guess finally for me around the whole Befiex question, was this adverse settlement of $26 million in anyhow related to the issue of contesting how Befiex is used or does it relate to Befiex at all or is it a separate matter?

No, Jeff, it's a five or six year old matter in Brazil. It has nothing to do with Befiex. There's over 800 companies that -- where the government basically had a favorable ruling on IPI. It has nothing to do with Befiex, and IPI abatement if you will. And then they reversed themselves two years ago and that's what created the liability. And then it's still being disputed in the courts, but there was a settlement offer to all companies at the end of the first quarter, and we chose to take that settlement.

And I'm sorry, just one follow on on Befiex. The fact that you can't use it in Q2, so is the Brazilian government essentially decided to pay for this tax reduction -- consumer tax reduction by disallowing Befiex?

No, not at all. Let me break it in two parts. Our Befiex tax credit has not changed, and as you'll see, it's well over $500 million and the validity of that credit has not changed. The vehicle by which we monetized it on a monthly and quarterly basis was a credit of the -- we call it IPI but it's really sales tax, and we credit against that on all sales. Well, given that the government has temporarily suspended that sales tax credit, we therefore have nothing to monetize against during the quarter, and it has nothing to do with the credit. It has to do with our ability to monetize.

Great. Got it. Thank you.

We'll go next to the site of Eric Bosshard with Cleveland Research. Your line is open.

Thank you. Two questions. First of all, the tax rate now is guided to a full year 15% to 25% benefit, and I think previously that had been sort of a 5% or 10% expense -- is that right?

That's correct, Eric.

And what changed to drive that swing?

That's a fair question. Eric, two things I should mention. One is, at these EVT levels, given that we have the energy tax credits that we have in our overall basic taxable income, our effective tax rate is very volatile and moves up and down the scale very quickly. The short answer to your question in terms of what happened or what's different is we have more favorability coming off of the assumptions we had made with respect to tax planning coming into the year versus where we now think we'll end up for the year, and that's the key driver of the change. But again, I only pause and say that I want everyone to be careful of that. It's a very volatile rate right now just because of the overall EVT is so low and the credits that we have are so high. And this thing really moves quickly up and down. But that's the short answer, Eric. It's more effective planning strategies than what we had assumed coming into the year.

Okay, and then secondly, the original $3 to $4 guidance contemplated the higher tax rate, and I don't think it contemplated the $74 million swing in depreciation. What are the big items on the other side of the equation that are negating those, or should we view this $3 to $4 guidance as extremely conservative?

A couple of things here, Eric. In terms of the big items, and basically all these will sort of link back to Jeff, Mike, and my comments and our scripts. But taking the global volume from 8% to 10% obviously had a negative impact. Jeff referenced slightly lower price mix. We do and we have of course assumed higher revolver interest from our revolver amendment that we did in the first quarter. Currency is now more negative as we move to that high endpoint on the overall currency guidance. And then lower Befiex coming off of this IPI change that Jeff just referenced earlier. And those are the big offsets, Eric.

Okay, and then the other question I wanted to ask is the North American units I think you just indicated were down 22% in a market that was down 16%. Can you talk about what's going on that's driving this underperformance of units relative to the market and how you see that comparison playing out and why through the rest of the year?

This is Mike. To be honest, we actually feel -- and we've talked about this in the fourth quarter coming in or on the fourth quarter call -- which is that we were going to balance our market share with appropriate price mix, and we continued to do that in the first quarter. Actually, sequentially, we picked up a little bit of market share and we felt good about that. What we expect to do is over the course of the year sequentially begin to improve our market share position, but we're going to continually keep the balance of getting price mix and market share in front of us. And so in the first quarter, just to put in context, we were able to improve our margins by 5 points based on this price mix. So it had a substantial positive impact on our business.

And then one last question. Inventories were down year-over-year, but I think down half of the rate of sales, down 12% versus the overall sales down 23%, and I know both had an impact from currency. But is there a point at which we should reduce production levels -- you should reduce production levels to match inventory to sales or how are you thinking about managing the inventories to get back in line with sales?

Eric, you're absolutely right. In fact we've done that in both the fourth quarter and the first quarter where our production has reductions, particularly in the case of North America and Europe are well below our sales decline levels. And historically, we always have a seasonal inventory build in Q1 and Q2. We have an inventory decline this year by a couple hundred million dollars. So we are tracking pretty much spot on where we want to be at this point in time of the year. Sequentially, even with negative demand trends, we have a seasonal increase in revenues Q2 to Q1, Q3 to Q2. So we're pretty much where we want to be. I think we'll cross over some time in the second quarter based on the assumptions we've laid out. But we're pretty fixed on keeping inventories lower and the path we've been on really for the last six months is getting us there.

Eric, it's Roy. Just to quantify Jeff's comments a little bit, if you look year-over-year production units in North America were down 25% year-over-year and in Europe were down 20%. So to Jeff's point, pretty substantial reductions with respect to production takeout.

Okay, thank you very much.

We'll take our last question from the site of Michael Rehaut from JPMorgan. Your line is open.

Hi, thanks, good morning everyone.

Good morning, Michael.

First question just on the changes in the different inputs to the full year guidance. I appreciate all of the detail. Hopefully I can press my luck and get a little bit more. In terms of you went through different line items but on an EBIT basis, and that would just basically be before the interest in sundry and the interest expense -- perhaps I can walk through this with you later, but what is the net delta in terms of what your thinking was three months ago versus today?

Well, Michael, I may go back to my comments. This is a very unique environment. There's volatility literally across every part of the business, and the ability to forecast line item details is very as you can imagine is very difficult in this period. So I guess at a macro level, we tried to outline the things that were positively affecting us and the things negatively affecting us and in balance with pushes and takes on each. I guess as I look at today on the positive side, we've gotten more cost take out than we originally expected, and we're off to a good start in pricing mix. So those are the two positives. Our inventories are pretty much where we thought, although the timing of the payables -- and though that is not yet fully reflected in cash flow, it will be. The demand is somewhat worse than we had expected, although as we've talked about I think a lot of that was the beginning of the year, the holiday hangover effect if you will and the fact that retailers like everyone are managing liquidity. So they really, retailers around the world have taken inventories down to levels not seen before. But that has been a negative. Materials are mildly more positive and currencies are more negative. So in total, and that's why I feel very good that our overall assumptions aren't largely changed, but the makeup of them are changing every day.

Okay. I appreciate that. The higher interest expense was one of the things you mentioned, Roy. Can you give us a sense of what that's going to be for the full year?

On the revolver, Michael, it's going to be about $30 million roughly.

In terms of a net increase year-over-year?

That's correct.

Okay. Lastly, I was wondering if you could just walk through some ideas in terms of the changes in share in North America. Jeff, I think in your prepared comments you said you believe North American share was flat sequentially but your overall units or volume was down 22% for the quarter. The industry shipments were down 16%. So I was wondering if you could maybe reconcile that and give us Whirlpool branded, Maytag brand, OEM, what's going on in the different buckets?

Well, I'll just give you the total. I'm not going to break out the individual brands, Michael, but -- and we talked about this the last couple calls. In the third quarter last year, we took a fairly major price increase across our [hardware] US business, and also that was a time when share costs were skyrocketing and so on. And we balanced a price increase and volume during that period of time, and we lost a lot of share between Q3 and Q2. We expected that, and we actually sequentially increased share in Q4 versus Q3. And we're flat to slightly up Q1 to Q4. But if you look on the year-over-year basis, yes, we lost share because actually first quarter last year was our highest share quarter of the year. But look, we've got to get appropriately, we have to have appropriate economics in the marketplace. We're gaining our share through the strength of our brands and innovative new products. That's the way we're going to earn share every day. And I think economically if you look at our results, it's been the right balance to strike during this period of time.

Any update in terms of Sears? I know there's always chatter quarter to quarter and year to year, but if you can give us any sense of how you're doing with Sears in terms of Kenmore and Whirlpool branded product?

Michael, this is Mike Todman. We actually feel very good about our business with Sears, both on a quarter to quarter basis as well as sequentially, both in terms of the Kenmore product as well as our branded sales. They continue to be at the levels we expect and we feel very good about it.

Okay. Thank you.

Well, listen, everyone, thank you for joining us again today and we look forward to talking to you in July. Thank you.

And this concludes today's teleconference. Have a great day. You may disconnect your lines at any time.