惠而浦 (WHR) 2010 Q1 法說會逐字稿

Good morning and welcome to Whirlpool Corporation's first quarter 2010 earnings call.

Today's call is being recorded.

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

Thank you, Chris, and good morning.

Welcome to the Whirlpool Corporation first quarter conference call.

Joining me today are Jeff Fettig, our Chairman and CEO, Mike Todman, President of Whirlpool International, Marc Bitzer, 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'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.

Turning to slide two, we want to remind you that today's presentation includes non-GAAP measures.

As many of you will note, we have added some additional non-GAAP disclosures this quarter.

We believe that these measures are important indicators of our operations as they exclude items that may not be indicative of our core operating results.

We also think that the adjusted measures will provide you with a better baseline for analyzing trend in our underlying business.

Listeners are directed to the appendix section of our presentation beginning on slide 27 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

Our remarks today track with the 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.

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

These results are summarized and you can see them on slide four.

Overall, I believe we had a very strong quarter with sales reaching $4.3 billion, which represents a 20% increase versus last year.

If you exclude the impact of foreign exchange translation, revenues increased approximately 11%.

Our earnings per share was $2.13 per diluted share compared to $0.91 the prior year.

Overall, I think we saw strong operational performance in each of our regions and I'm very encouraged by the 18% increase in our global unit volumes that we had during the quarter.

Our adjusted operating margin improvement was 3.2 points over the same quarter last year.

Also for the quarter, free cash flow improved by approximately $300 million year-over-year.

Our overall results reflect our lower breakeven point, our continued investment in innovation, and our ability to expand our global product offerings.

By continuing to drive our operating priorities throughout the business, we have been able to expand our operating margins at the same time that we're accelerating growth.

Now, turning to slide five, I'd like to provide you with an update on our regional demand outlook revisions for 2010.

And while there is still some degree of uncertainty in many facets of the global economy, we continue to expect growth throughout this year in almost all the markets around the world.

In the United States, we saw much stronger demand in the first quarter and we now expect major appliance demand to increase between 3% and 5% versus the previous guidance of 2% to 4%.

Assuming this will occur, which we believe it will, this would mark the first full year of positive growth in consumer demand that we've seen in the US market in over four years.

In Europe we continue to expect conditions will remain relatively challenging compared to other parts of the world and while our overall demand appears now to be stabilizing, and we did post a modest increase in unit volume during the quarter, we continue to expect flat demand for the balance of the year.

In Latin America, the underlying fundamentals remain very strong and we're now forecasting industry growth of approximately 10% versus the previous estimate of 5% to 10%.

We expect industry growth to remain positive as the year progresses, though our outlook does imply a slowing of the rate of growth in the region over the balance of the year compared to what we saw in the first quarter.

And, of course, the year-over-year comps start to change after the first quarter as we saw growth in the latter part of last year.

Finally, we now expect our served markets in Asia to grow in the 5% to 8% range versus our previous guidance of 3% to 5%.

We continue to expect India to show strong growth trends during 2010, somewhat offset by lower growth rates in some of the other markets.

Turning to slide six, you'll see the key factors impacting our business for the year than which we showed previously.

We believe our cost reduction and productivity will continue to drive improved earnings, while higher unit volumes will contribute overall to both the improvement of our overall revenue growth and healthy expansion of our margins.

We continue to anticipate price mix and foreign currency impacts will generally be neutral to our operating results for the year.

And finally, we continue to expect material and oil related cost inflation will negatively impact our operating results during the year.

And while you've seen the recent trends in raw material prices, which have been higher, we expect material cost inflation to still fall within our $200 million to $300 million range that we previously provided, although now we see it towards the higher end of that range.

Given this backdrop, we now expect to generate earnings per share for the year in the range of $8 to $8.50 per share versus our previous guidance of $6.50 to $7 a share.

Our free cash flow guidance for the year is now $500 million to $600 million compared with our previous guidance of $400 million to $500 million.

Roy will go into more detail later on our outlook later in the call.

So at this time I'm going to turn it over to Marc Bitzer for his review of our North American operations.

Thanks, Jeff, and good morning, everyone.

Turning to slide eight I would like to briefly go over some of the highlights during the quarter.

We saw solid improvement in industry volumes.

We had a favorable impact during the quarter from healthy replacement demand and the cash for appliances program.

This was particularly visible in March and to date the industry remains robust.

From a full year perspective, we still see a modest positive contribution from the cash for appliances program and have incorporated this in our outlook.

As Jeff mentioned, we have raised our full year outlook slightly from 3% to 5%.

From a market share standpoint we delivered a strong increase in our share compared to last year.

This improvement was driven by significant improvement in our branded share growth and partially offset by an unfavorable impact from the expected lower OEM share in the quarter.

During Q1, we have had numerous new home builder contracts, some of the notable wins include new business with Ashton Woods, Beazer Homes, Equity Residential, Shea Homes, [Cole Roberts].

We feel that we're making good progress in gaining a larger presence with the new home construction side.

As home construction returns, we believe we will be very well positioned to fully participate in the industry upturn.

On slide nine we detail first quarter results for North America.

Our net sales have increased 7% to $2.3 billion and excluding the impact of foreign currency exchange, sales improved 5%.

Our unit shipments increased 11%, while US industry demand for T7 appliances improved 6%.

On an adjusted base, our operating margin was 6.2% compared with 4.8% in the prior year.

A mid profit growth was driven by cost and productivity initiatives and higher volumes, partially offset by lower price and mix.

On slide ten, you can see some sample of some of the products we introduced during the quarter, including a Whirlpool brand pulse-up dishwasher for the value conscious consumer segment, which sold exceptionally well during the first quarter.

It holds up to 12 place settings, features a one hour wash cycle and is the most energy and water efficient in its class.

And you will see also the Whirlpool brand Cabrio high efficiency top-load washing machine, which features the largest capacity in the market and a low water wash system that use less water load, yet delivers better cleaning performance.

And lastly, in the middle, you see a KitchenAid brand French door refrigerator featuring a larger capacity, a full door LED screen that displays use and care information and offers a kitchen timer, access to suggested ingredient substitutions and a USB [supports].

In summary, we're off to a very good start.

We have a positive momentum as demand levels improve, our strong productivity throughout the business and we'll be launching a number of our new product innovations in the second half of the year.

Now I'd like to turn it over to Mike for his review of our international operations.

Thanks, Marc.

And let me begin with a general overview of the international operations on slide 12.

During the first quarter we saw continuation of the favorable trends in our key emerging market businesses.

Latin America and Asia reported strong results, as these regions continued to report solid economic growth, particularly in Brazil and India.

And more importantly for our business, consumers are increasingly benefiting from the quality of life improvement that our products provide.

European market conditions remained challenging during the quarter, however, we did begin to see moderate demand improvement in Western Europe during March.

As the region begins stabilizing, our focus remains on continuing to improve our cost structure.

Turning to slide 13, our European sales improved 6% year-over-year to $739 million in the quarter, with unit shipments increasing 1% from the prior year period.

In local currency, sales declined approximately 2% from the prior year.

The region reported an operating margin of 3.6%, as results were driven by cost and productivity initiatives.

First quarter results from Latin America are summarized on slide 14.

The region reported sales of $1.1 billion, a 65% increase from the $689 million reported in 2009, as appliance unit shipments increased 50%.

Excluding the impact from currency sales, sales increased approximately 40%.

The sales increase was driven by strong demand across most of our served markets in the region and favorable foreign currency exchange.

On an adjusted basis, operating profit reached $167 million compared to $83 million reported during the prior year period.

Our first quarter results in the Asia region are shown on slide 15.

Net sales increased 60% during the quarter to $192 million, up from $120 million in the prior year period.

Excluding the impact of currency, sales increased approximately 49%.

Unit shipments also increased 49% during the quarter.

Our increased unit shipments are being driven by continued strong growth in India, as well as growth from our expanded product offering and strong product sales in China.

Operating profit during the quarter was $11 million compared with $5 million reported in the prior year.

The operational improvement was primarily related to higher unit volumes.

These improvements were partially offset by lower price mix.

Our international businesses also produced a strong cadence of product introductions in the quarter.

On slide 16, you'll see just a few of our international product launches, including a line of built-in steam ovens in Europe, the first echo efficient refrigerators in India, with these premium frost-free refrigerators coming in both two door and three door models, and water purifiers in Latin America that can be both installed and maintained by consumers.

Our global innovation pipeline continues to be strong and we are meeting the needs of our consumers everywhere in the world in more ways than ever before.

In summary, for the international business we are seeing strong demand in the key emerging markets, which is supported by a strong product offering and increasing consumer demand, while productivity improvements are offsetting higher material costs in those markets, which is contributing to improved operating margin.

And we are seeing a stabilizing European market in which our cost focus is now contributing to improved operating earnings.

Now I'd like to turn the call over to Roy Templin for his financial review.

Thanks, Mike, and good morning, everyone.

Beginning on slide 18, I'll walk you through a summary of our first quarter performance.

Our net sales marked the second consecutive quarter of strong year-over-year increases, with our first quarter units increasing approximately 18% from the prior year.

Our revenue was also favorably impacted by foreign exchange translation, which accounted for approximately 8 points of the year-over-year increase.

The favorable impact was primarily related to a stronger Brazilian Real and the Euro compared with the prior year.

Looking at our margins during the first quarter, the positive year-over-year increase was primarily from our productivity and cost reduction actions, as well as higher sales volumes.

These favorable impacts were partially offset by lower price mix.

Finally, before we take a look at the income statement in detail, there are a couple of items I would like to highlight that impacted our first quarter.

The first is a $75 million accrual for a supplier related quality issue.

Second, we recorded a $29 million curtailment gain related to a post retirement benefit plan.

And finally, we monetized $41 million of BEFIEX credits during the first quarter.

Turning to the income statement on slide 19, we reported net sales of just under $4.3 billion, an increase of 20% from the prior year.

Our gross margin rose 3/10th of a point to 15.0%.

As I mentioned previously, a most significant favorable impact on our gross margin improvement related to our cost and productivity actions, which were partially offset by lower price mix.

SG&A expense totaled $371 million.

Foreign currency translation and the non-recurrence of the prior year curtailment gain accounted for approximately 80% of the dollar variance compared with the prior year.

As a percentage of sales, SG&A declined to 8.7% from 9.2% in the prior year.

Restructuring expenses totaled $20 million during the quarter and were largely related to cost reduction actions in Europe and a previously announced facility closure.

We continue to expect to record restructuring expenses of approximately $100 million during 2010.

Finally, our operating margin expanded 1 point from the prior year to 5.6%.

On an adjusted basis, our operating margin was 6.7%.

Turning to slide 20, I wanted to briefly discuss interest and sundry expense.

The main favorable variances from the prior year's level relate to foreign exchange and higher interest income from our overall higher cash balance.

Turning to our tax rate, we recorded an income tax credit of $3 million during the quarter corresponding to an effective tax rate benefit of approximately 2%.

The first quarter credit was below our previous expectation, largely as a result of higher pretax income.

Given our revised earnings outlook, we are currently estimating our full year tax rate to approximate 0 plus or minus 5%.

Finally, we reported diluted earnings per share of $2.13 per share.

On an adjusted basis, our EPS totaled $2.51 per share.

Moving to our first quarter free cash flow results on slide 21 and, as Jeff mentioned earlier, we had a strong year-over-year improvement.

This improvement was driven by a year-over-year increase in cash earnings and a lower amount of working capital investment as we increased our production levels.

These items were partially offset by higher capital spending levels during the quarter.

Turning to slide 22, we summarize our net liquidity position.

As you can see from this table, our net liquidity position remained over $3 billion at the end of the quarter.

Our cash balance was just under $1.2 billion and we had full availability under our revolving credit facility.

Given our strong liquidity position, we are planning to repay our $325 million 8.6% coupon note, which is due on May 1st, to further improve our credit metrics and generate interest expense savings.

On slide 23, you can see a summary of our revised full year outlook.

We are now expecting to report earnings per share in the range of $8 and $8.50 per share.

This outlook includes approximately $0.10 of net expenses related to the $75 million accrual for a supplier related quality issue recorded in the first quarter and a $62 million gain related to the full year impact of an OPEB curtailment gain.

As Jeff reviewed previously, we expect to have a more favorable impact from increased global volumes, as well as our ongoing cost reduction and productivity initiatives.

From a headwind perspective, we continue to see cost inflation as our main challenge this year.

Given the recent trends in some raw material prices, we now see our material costs trending toward the higher end of the $200 million to $300 million range for the full year.

Turning to our cash flow outlook, we are projecting free cash flow between $500 million to $600 million, up from our previous expectation of $400 million to $500 million, due to higher cash earnings.

Now I'll turn the call back over to Jeff.

Thanks, Roy.

Let me summarize.

We are pleased with our progress and results so far in the first part of this year.

As you know, over the last two years we've been challenged with both significant volume and production declines due to lower consumer demand and, as we've discussed many times over this period of time, we've taken very strong steps to structurally align our cost structure and improve our asset utilization.

Slide 26 illustrates what we've done and, I think importantly, what we're continuing to do.

I believe our first quarter results reflect the impact of what some demand growth enables us to do with a very efficient cost structure.

Going forward, we are remaining very focused on cost reduction and cash generation, as we did last year.

And in addition, we will benefit from revenue growth due to both our strong new product innovations, which we are bringing to the marketplace throughout the course of this year, and improved demand levels.

I truly believe this combination will produce very strong operating results and we look forward to continuing these trends as we go forward.

I am going to end here now and I'd like to open this up for questions-and-answers.

(Operator Instructions) Our first question comes from Josh Pollard at Goldman Sachs.

Good morning.

Good morning, Josh.

It sounds like despite the improvement you've had in both the top-line and EBIT margins, you all still seem unsatisfied with the margin profile.

Can you talk in a little bit of detail about what percent of the $95 million or so in cost saves you projected for 2010 you've already captured here in the first quarter?

And then could you talk a little bit about by region what you guys are doing to drive even better profitability?

I think the US is clear what you're driving the price mix in the back half of the year but if you could dig in a little bit on the other regions it would be extremely helpful and I have a follow-up.

Yes, Josh, let me give you just kind of broad-based comments here, which is true for all parts of the world.

First and foremost, we continue to be very focused on cost reduction productivity initiatives and typically, and this year is what I would call so far a typical year, these ramp up throughout the course of the year as you execute projects and that sort of thing.

Obviously, increased volume and production is immediate because we see that in our conversion cost.

So that's really dependent upon it.

But I would expect we will continue to execute very well on productivity and if anything, probably accelerate the rate of productivity throughout the course of the year.

The flip side of that is of course material cost.

We've said that it's in the $200 million to $300 million range, probably the higher end of that range as we see it right now.

Those too will probably ramp up as we go throughout the course of the year.

Regarding volume, volume's positive to our margins so you saw the outlook.

We've increased that, so that should help.

And then PMR, or price mix, if you will, first of all, we're very pleased with the results we saw in Q1.

Year-over-year comparisons are tough because we had such a big increase Q1 of last year.

But sequentially from Q4, we actually improved our price mix.

We're seeing very strong mix in our business.

I think we have some very impactive product introductions throughout the course of the year which are high volume, which should have a positive impact on the mix.

That's why even with a negative first quarter comparison on price mix, we think for the full year it will be generally neutral.

So -- and again, I -- how we get there is slightly different per region, only because the strong environment is different.

But I would say in general, those are all the same characteristics we're focusing on everywhere.

And Josh, in reference to your $95 million, which I think you're talking about the program that we announced in 4Q, 2008, we continue to be on track with respect to that.

We still think we'll end up with a run rate of $275 million of benefits as a result of those actions.

To the second part of that question, we had just under $60 million of benefit in the first quarter and as we look forward to the next three quarters, we see $60 million to $65 million of benefit in each of the next three quarters as well.

Great.

My other question is on Latin America.

We continue to hear very positive things in Brazil via our [tenitex] there, even after the stimulus expiration and we recognized a 30 to 40 days that you have of additional time to use that.

What are you assuming happens in the back half of the year or in other regions within Latin America that gets you to only 10% full year growth in that region.

Well, Josh, this is Mike Todman.

Let me take that.

Let's go back to last year.

This is a stimulus program in Brazil and I'll focus on Brazil right now.

Through this IPI tax holiday, really began in late April.

That's when it was initially initiated.

So if you just think of the first quarter of last year, it was not impacted by the stimulus program.

So this is really a quarter, this quarter, this year, running through that and if you remember, it ended in January but there was inventory in the pipeline and so that inventory's kind of come through the system.

As we look forward, therefore, what we think is we're going to see some moderation in the growth because we're now at fairly high levels and so that's why we're saying the growth for the balance of the year is going to be more moderate, but think about it's more moderate on already pretty high levels as that stimulus program kicked in over the remainder of the year.

The last point that I'd like to make is just the underlying economics in Brazil and, frankly, for many of the other Latin American countries, is pretty strong and so we're seeing kind of positive momentum throughout those markets, although maybe at a slightly moderated rate.

That's helpful.

Thank you very much.

Thank you.

Next question.

Our next question comes from Eric Bosshard at Cleveland Research.

Good morning.

Good morning, Eric.

Good morning, Eric.

In North America I think you said that units were up 11 in an up six market, which was an even wider favorable gap than 4Q.

Can you talk about, and we know that the OEM, the Sears impact has sort of grown and now where it is, can you just talk about how you're accomplishing this and the sustainability of this and also speak to if there's any supply issues that are having any impact on that as well?

Eric, it's Marc Bitzer here.

You're right in your observation.

We picked up market share in Q1 on a year-over-year base.

And sequentially versus our very strong Q4 we're pretty much flat on a total share basis.

However, even sequentially we are on a branded share base quite a bit up versus Q4, which basically shows you that we, as we said before, fully mitigated any potential OEM losses, which are by now behind us.

So from a market share perspective, these OEM losses are pretty much a nonevent.

That is largely driven by increased floor space, pretty much across all retailers, in particular, now branded side.

So it's not one channel which we would point out.

There's a number of trade partners across all channels where we expanded our floor space.

So we feel overall very good about our share momentum coming out of Q4 into Q1, in particular the branded side, and yet as you have observed, that has led to some availability issues in some parts of the business.

It's been a consistent strong demand behind our products throughout Q4 and Q1 and we ran into some component availability issues which we expect to be fully recovered by the end of Q2.

And then secondly, the comment on price mix negative for the last couple of quarters and the comment that you expect it to be neutral by year end, can you just talk about why it's been negative and what improves it and then also touch on the thinking related to pricing increases as your input costs can move higher?

Yes, Eric, let me -- this is Jeff.

I'll talk about that globally.

You probably recall first quarter last year we had a very positive price mix.

I think it was about 3 points.

So the starting point is we're comping against a very strong comparison.

We're down 2 points versus Q1, so 2 points versus that up 3 last year.

We're up about 1 point from Q4.

So sequentially, we're improving our price mix.

And if you may or may not recall, but in Q3 last year and a little bit in Q4, we did say that we had to, we did do some structural price repositioning and particularly in the North American marketplace on certain very competitively intense categories.

We did that.

You saw the momentum we got by doing that both in Q4 and Q1.

But at the same time we continue to drive mix and we had a very favorable, again, favorable mix period improvement over almost a full point versus even Q4.

So the trends are, I would say, pricing stable, mix growing, as we start comping against last year's numbers that's how we think we'll get to be neutral plus or minus a little.

In terms of pricing, all I can say is where we've done pricing and we talked about some markets like India where we've had very high material cost inflation, I believe we announced two price increases so far, one in December, one a month or so ago.

So some of the emerging markets have slightly different dynamics with both material costs and pricing and we're managing them appropriately.

But as you look at higher input cost as we move through the year and potentially into 2011 as you indicated, is pricing a alternative to help offset that a realistic alternative?

I can't talk about forward pricing plans, but I would just say we'll look at everything.

Okay.

Very good.

Thank you.

We'll take our next question from David MacGregor at Longbow Research.

Yes, good morning, everyone.

Congratulations on a great quarter.

Good morning, David.

Great execution, Jeff.

I guess just a couple questions on costs.

The steel mills are now talking about passing through their 75% to 100% raw material cost increases to their contract customers through raw material surcharges.

And some of them even talking about that on their first quarter calls.

I guess to what extent have you anticipated this in your guidance and what gives you some assurance that you might be able to deal with this from a competitive standpoint or from a sort of a balance of negotiating power in the channel standpoint better than you were able to in 2008?

Well, David, first of all, steel is still largely a regional market.

Let me kind of go to Asia and Latin America we basically negotiate daily, weekly, monthly, so that's already reflected.

And I think, again -- and by the way, so was last year.

So that's -- we managed that through a combination of all the things that we do and negotiation through cost take-out, through pricing, et cetera, as, again, as we've shown to date.

So then you have North America and Europe.

As we talked in the past, the large majority of our needs we typically contract with multiple suppliers.

We pretty much know the range of outcomes, certainly for the balance of this year.

And we're comfortable those are well represented in our guidance.

I don't -- the surcharge and all that talk, I don't really have anything, any comments about that.

Okay but there are no surcharges anticipated in your guidance at this point?

Well, where we have contracts we expect contracts to be fulfilled.

Okay.

Second question, just it seems like with the numbers that are coming out, which are pretty impressive, you've got to be running at a pretty high level of efficiency within your organization right now.

In other words, at what extent or to what extent do we, should we soon anticipate plants coming back online, people being rehired, adding new shifts?

Already happened.

I'm sorry?

It's already happened.

So can you give us some sort of quantitative guidance on the extent to which we should be modeling that in?

It's a little bit hard because it's by product, by factory, by market.

And I would just say literally, we've added shifts.

We've got some facilities now in both Latin America and North America running 24/7.

We're very, I would say, aggressive about assuring our supply.

We've had some availability issues in certain products.

That has not been an assembly issue.

It's been a component supplier issues, which we're working our way through and hopefully we'll have that behind us.

So, overall, given the demand levels in the case of the United States was down 35% from 2005 to 2009, we've had a nice step back up, 7% or so, so I mean, we've got plenty of capacity.

And we're adding back folks as we need them.

Last question, just on the stimulus program.

11% volume improvement in the quarter is pretty good.

How much of that do you think was related to the stimulus program versus how much was just good underlying recovery in demand.

Dave, it's Marc Bitzer again.

I think it's a combination of both.

It's difficult to quantify exactly what portion each aspect adds.

I would overall say that the stimulus program drove more traffic into the stores when they were originally anticipated by the retailers and us.

Despite the fragmentation across different states but it drove quite a bit of attention.

And I think what is most encouraging that in the states where the stimulus program is now past, the demand levels have stayed on a fairly elevated level.

So there is good sell-through, good inventory moves, and that all added into a overall strong demand in the first quarter, which we see also still maintaining.

And, David, as you know, some of these state by state, but some lasted for hours.

Right.

Some lasted for days.

But to Marc's point, I don't think it was actually that which has been a positive impact.

I guess as we kind of see it as a broad level, it was bringing consumers back to the marketplace, which was probably the biggest positive impact.

Great.

Thanks very much.

Nice job.

We'll go next to Jeff Sprague at Vertical Research Partners.

Thank you.

Good morning.

Jeff, I think in your earlier response to a question about price mix, you were answering it on a global basis, the negative 2% year-over-year and plus 1 quarter to quarter.

Can you just give us that read in North America?

Jeff, it's Marc Bitzer.

I can give you that for North America.

The Q1 impact has been a negative on the price mix.

That is largely as we expected.

And very simply because where last year in Q1 kind of a peak of our price increases, post the August '08 and January '09 price increase.

So some of that we expected.

On a sequential basis also North America our Q1 our price mix is up, in particular driven by the mix components.

So kind of on a sequential base, we're actually pretty comfortable about the pricing (inaudible).

Year-over-year, that is what we expected in the first quarter.

Just understanding the difference between 11% unit growth and 5% sales growth, technically 6%, but you got Mexico and Canada and a bunch of other stuff in there so I'm just -- is 6% the negative price mix in North America year-over-year or is it a different number than that?

Jeff, actually, on the top-line you're correct.

But obviously from a margin perspective it's much lower than that, to Marc's point.

Jeff, Marc, and in addition to that 6% is the T7 growth for US.

Obviously on 11% we have all other product in it as well, which remember we saw pretty strong growth and it's Mexico and Canada as well.

So it is not a full apples to apples.

The 11 includes Mexico and Canada, which were higher, and some non-T7product categories that grew much more rapidly.

And then, Jeff, you mentioned conversion on volume and you gave kind of the directional chart on how to think about breakeven, but just trying to normalize this quarter, I mean, your year-over-year incremental margins in North America were, I think, 27% or so, stripping out the pluses and minuses.

Obviously, price, mix, materials, all that sort of stuff is going to swirl around that, but is that the right type of ballpark for us to think about now with what you've done to the cost structure on how incremental revenues might convert through the P&L?

Yes, I -- Jeff, to your point, there's pluses and minuses in both, but yes, I think the kind of leverage we saw in Q1 is not unexpected, given both the conversion, but I'd also like to add our continued focus on driving our breakeven points down, which would mean, again, more good progress in Q1 which we will continue.

And can you characterize how much lower your breakeven is?

The difficulty of that, Jeff, is it varies by product, by factory, by market.

But I would just say it's fair to say that if you look at our margin expansion, our adjusted margin expansion and understand what price mix was, that kind is a good proxy for how we've been able to expand our margins, is largely due to lower breakeven.

And then, Roy, just finally, can you give us a ballpark number on BEFIEX utilization for the year.

Yes, Jeff, I said in the guidance that we provided earlier in the year about $100 million and then in my script today you heard me say $41 million.

First of all let me be real clear.

The $41 million should not be assumed to be sort of a run rate going forward.

As you know, we only had the two months for which to earn BEFIEX on a lot of the products, but keep in mind what Mike said in terms of exceptionally high demand.

We also had a very rich mix.

And so as I look at BEFIEX, we would now expect it to be up from the 100 and I'd say probably 20% to 25% above that number is what we would estimate now for the full year, Jeff.

Okay, thank you.

We'll take our next question from Laura Champine at Cowen & Company.

Hi, guys.

Just to talk about your share gain, I mean, you addressed the price mix in North America was a bigger impact on top versus bottom, so it doesn't seem like you're driving share through pricing actions.

How much do you think your overexposure to the Energy Star program helps you and what are some other things driving, is there any specific product categories driving your branded growth.

Laura, it's Marc Bitzer.

Yes, I would say the Energy Star exposure and us being one of the leaders in the Energy Star program helped significantly through the tax rebate, but it's not only that.

As I said before, our demand has kept up pretty strongly even post the stimulus program.

So it's pretty much across all product categories.

We're right now particular also pleased with the cooking progress, but it's pretty much widespread across most categories.

I wouldn't point out one specific category or one specific retailer.

It's pretty broad based.

Got it.

Thank you.

We'll go next to Michael Rehaut at JPMorgan.

Thanks.

Good morning, everyone.

Thank you.

Michael.

First question, I was wondering if you could go into a little bit more detail if possible, I know you started to talk about it, I'm referring to the cash for appliances program and I know obviously every state is a little bit on a different timetable, but generally speaking I was wondering if you can share your best sense of where we are in the program and if you do expect any type of falloff following the program.

I mean, obviously March was up 9% in AHAM shipments and you're expecting 3% to 5% for the year.

So it's kind of a question on where we are and how it affects demand on a shifting type basis.

Hi, Mike, it's Marc Bitzer again.

First of all, in terms of where we are in the overall program, I would say at the end of the first quarter reporting period we were pretty much through 60%, 65% of a national program.

As of today, we're pretty much through 85% if you take the volume weighted average.

What we've seen pretty much, as we indicated before, obviously with different degree, but it was very successful in most states.

But as I said before, the demand stayed up pretty high in most states.

People came back into the stores, brought quite a bit of traffic.

We've also seeing that the retailers came a little bit -- they came very, very low on their inventory levels into the first quarter, but it's now more balanced.

So you had a couple of elements coming into this Q1, which we so far see also maintaining throughout Q2.

So we basic see an elevated demand coming out of the stimulus program.

Okay.

Thanks, Marc.

And just second question, some line items.

I was wondering if you could, Roy, perhaps give guidance on interest and sundry expense for the year and perhaps next year and also with the tax rate with some of the energy credits running out, what that -- you said that you expect a 0% tax rate for this year, plus or minus.

All else equal, what would that be without the energy tax credits that I believe are set to expire at the end of this year?

Sure, Michael.

First of all, with respect to the first question you had on interest and sundry, I think I said earlier in the year $50 million to $60 million in total and then I think I mentioned, it might have been Laura that asked the question the last call, that you might build another $20 million or so in there with respect to the compressor legal cost in terms of the full year.

I would say there's basically no change to that overall outlook with respect to interest and sundry for the year.

On the second part of your question with respect to the tax rate, I'll try to be as clear as I can.

There's actually 18 points of benefit in the current year tax rate as a result of the energy tax credits, and you are correct, based on the current legislation they're set to expire and that 18 point benefit would go away next year.

Thanks, Roy.

And then just one last one, if I could.

The raw materials you mentioned that you expect to be at the higher end of the range, given the changes over the last few months.

Is it possible to share with us what you're assuming, then, for steel prices in that closer to $300 million?

Michael, this is Jeff.

Not really, because as I said, we buy open market in Latin America and Asia and Europe.

We obviously can't talk about our steel contracts.

But so the delta, let's say, is oil and oil related.

It's been the one assumption you take on base metals.

Of course, we hedge a large portion of those, but if the trend is going down, we trend down.

If the trend is going up, we trend up.

So it's largely oil and oil related and base metal trends that are probably different.

Great.

Thanks.

Thank you.

Sam Darkatsh at Raymond James, your, line is open.

Good morning, gentlemen, how are you.

Good morning, Sam.

Most of my questions have been asked and answered.

I'll hopefully be mercifully quick here.

The -- first of all, excellent quarter and terrific execution.

The $8 to $8.50 versus the prior guidance is a raise of $1.50.

How much of that $1.50 is due to enhanced first half versus second half expectations?

Are you taking your second half expectations higher up, higher as well?

We don't see that kind of visibility because you don't give guidance on a quarterly basis.

Just directionally, if you could help out.

Well, I mean, Sam, of course our business has a little bit of seasonality in it normally and you know what that is.

In the real variables, as we see it, I mean, as I said, materials probably will get progressively worse.

Our seasonality is generally progressively better.

The flow of our internal action, I think, and PMR, actually, I think will get progressively better, so the real wild card is demand.

And we're not taking Q1 demand levels and as we said, we're assuming they continue to be positive but not at the rate as in Q1.

So that's probably the biggest wild card out there right now.

I was getting at incrementally versus your prior expectations.

Have you taken your second half internal expectations higher from where you were perhaps three months ago?

Well, yes, I'd say, I mean, everything's a little bit higher than it was three months ago, but I'm not going to give a quarterly breakout.

But, yes, compared to what we thought in the beginning of February, I'd say every quarter's higher.

Okay.

That was my question.

Thank you much.

Yes.

We'll go next to Todd Schwartzman at Sidoti & Company.

Hi, good morning, everyone.

Good morning, Todd.

How much of that 18 points of energy tax credit benefits, what impact -- that go away, what does that do to -- how should we think about the 2011 tax rate?

Well, I mean, think of it this way.

There's, I said, basically 0% tax rate for the year and you can think of it as simply as 18 points of benefit would go away and so that would take you -- that particular item, isolated, would take you to an 18 point higher tax rate for next year, isolating the energy tax credits.

And relative to a normal 30, 30 to 40, mid-30 rate, how does that impact?

Well, again, Todd, I've said a couple of times in the past, if you look at the fundamental underlying tax rate at Whirlpool Corporation on a blended basis, given aspects of dispersion around the world, we would traditionally have 28% to 30% as sort of our standard tax rate.

Now, you say, well, how do you get to zero this year and the math is it's a little bigger than energy credits, because you have energy tax credits at about 18 points.

Recall that the BEFIEX credits are not taxable.

That's about a 6 point benefit on our overall tax rate and then we get roughly 4 points of benefit from global R&D credits that we earn around the world.

And so that's how you get from sort of the blended rate back down to zero and you can think of those as you look forward as well.

Okay.

Regarding the first quarter demand in the US, how would you characterize demand at retail versus sales to home builders?

Hi, Todd, it's Marc Bitzer.

I think you can attribute the entire growth to the retail side, the replacement side.

The home builder side and the home construction side, we still see that being depressed.

Obviously, we saw a spike as everybody knows the existing home sales in Q4, but the new construction remains very sluggish, probably will remain for a large part of this year as well.

So right now it's entirely driven by the retail replacement side and the construction side is not yet picking up.

And on the builder side sequentially from Q4?

Todd, it's Marc Bitzer again.

Obviously, on the new construction side, Q4 and Q1, it's always difficult to make a sequential comparison because of extreme seasonality.

I think if you take annualized adjusted rate, basically, you would see by and large flat, by and large, but with some fairly significant regional differences.

But seasonally adjusted flat?

Yes.

Okay.

Thank you.

We'll take a follow-up question from Josh Pollard at Goldman Sachs.

Thanks a lot.

The shift from OEM to branded and Sears, was there a margin benefit in the first quarter as a result of that?

Josh, it's Marc Bitzer.

To be consistent of the previous earnings releases and calls, we don't give margin breakdown by channel or by branded.

So I can't get into these details.

I guess in that same vein, I'll thank you guys for the details on the tax.

It's extremely helpful.

I do have one more additional follow-up, which was on your pension can you guys talk about some of the longer term pension options?

I know this year you don't have to fund just because of some of the actions you made last year.

But could you talk about what you guys are thinking this year on a voluntary basis and then what some of the longer term options the Company is exploring?

Thanks a lot.

Josh, it's Roy.

From a current year perspective -- let me sort of back up.

As you'll recall in Q4 last year, we made a voluntary $74 million contribution to the pension plan, which was really the required minimum that we would have had in 2010, but we obviously prefunded that early.

We're now estimating for US pension plans that we'll continue to on a voluntary basis probably fund about $35 million into the US plan this year.

With respect to options, again, we typically -- we don't talk a lot about particular options, as you know, this is something that we continually monitor.

It's part of our overall capital structure analysis as we look in terms of utilization of cash.

We are $1.3 billion unfunded at the end of last year and roughly that same level at the end of the first quarter and we continue to chisel away at that as we make voluntary cash contributions.

Okay, great.

My last quick follow-up is for Mike.

Mike, what do you think your share is in Latin America today?

We, Josh, don't give that exact share, but we have the market leadership in Latin America and, frankly, what we are very convinced of is that we're taking share in just about every category right now, down specifically in Brazil and so we're feeling good about that.

Great.

Thank you, guys, for the time.

Thank you.

Our last question is a follow-up from Michael Rehaut at JPMorgan Securities.

Thanks very much.

Just a couple of hopefully quick questions here to round it out.

First, the BEFIEX, I was wondering if you could share with us the remaining balance of credits that you have and if you could give us that number in both Real and US dollars.

Well, Michael, I can give it to you in US dollars.

$645 million is the remaining balance.

You'll see that when we file our 10-Q this afternoon.

Okay.

And lastly, I think this was talked about before but I just want to make sure I understand.

The slowdown that you're assuming in terms of your full year growth relative to what you saw in the first quarter, it looks particularly striking in Europe and Latin America, in that the comps get a little bit tougher in the second and third quarters, 4Q '09 is certainly a different story.

But if you're putting out anywhere close to the growth in the first quarter, it would seem that the guidance, the full year guidance is a little bit conservative.

So just wanted any color on that, any thoughts around that type of statement and if there's something we're missing here or you're just being a little conservative?

Well, Michael, this is Jeff.

I would just say we're up 20% in revenues in Q1.

We're not forecasting that for the balance of the year.

Some of the comps, like for example in Latin America, they're not -- they are pretty significant comparisons because the market really took off after April and continued strong throughout the year.

We had good growth in North America in the fourth quarter last year, so I mean, we do start having some comp differences.

And as I said, as you look at the variables, if you will, we still think it is a fragile economy.

We're not -- four months into the year, we're not completely convinced that the growth trends are stable enough to say that they're going to continue at these rates.

It's early and I think as I said earlier, the biggest variable is really demand.

If demand is better, we'll do better.

If demand is worse, then we'll have to find ways to make it up.

So I think the demand, you'll have to be the judge of our -- of whether it's conservative or aggressive, but that, I would agree with you, is the variable.

Great, thank you.

Thank you.

Listen, everyone, we appreciate you joining us today and we look forward to talking to you again in July.

Thank you very much.

This concludes today's Whirlpool Corporation's first quarter 2010 earnings conference call.

Have a great day.