惠而浦 (WHR) 2010 Q2 法說會逐字稿

Good morning, and welcome to the Whirlpool Corporation's second 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.

Please go ahead.

Thank you, Tasha, and good morning, everyone.

Welcome to the Whirlpool Corporation's second quarter conference call.

Joining me today are Jeff Fettig, our Chairman and Chief Executive Officer, 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 Corporation's future expectations.

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

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

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

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

Listeners are directed to the appendix section of our presentation on slide 29 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

Our remarks today track with the presentation available on the Investors 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 as you saw earlier this morning, we released our second quarter financial results.

You can find these results on slide four.

Overall, we had another solid quarter of top line growth, with sales reaching $4.5 billion, which was a 9% increase versus last year.

Excluding the impact of foreign exchange, revenues increased by about 6%.

Our earnings per share were $2.64 per share compared with $1.04 in the prior year.

We're very happy to see strong improvement in operating performance in each of our regions during the quarter, which was primarily a result of the successful execution of our cost and productivity initiatives.

Our adjusted operating margin improved to 6.6% during the second quarter, making good progress towards our midterm target of 8%.

Overall, I feel very good about the progress we made in margin improvement during the first half of the year.

Also during the first half of the year, free cash flow improved by about $100 million.

This year-over-year improvement in free cash flow is a result of our continued focus on cash generation, which is being driven by earnings improvement and strong working capital management.

Turning now to slide five, I'd like to provide an update on our global and regional demand outlook for the year.

While overall our demand outlook is essentially unchanged from our previous outlook, I would like to highlight a few key trends we're seeing across the globe.

Overall for the quarter, we did see better than expected unit shipments on a global basis.

In many of our global regions, you'll note that we're expecting positive growth in the second half of the year, but at a lower rate than we had in the first half of the year.

In the US, you have to go back to 2004 to find three consecutive quarters of industry growth and a comparable growth rate to what we've seen over the last nine months.

There are several factors that impacted this industry growth that Marc Bitzer will cover in detail in a moment.

Overall, we continue to anticipate positive industry growth for the remainder of the year in the US.

We do expect a rate of growth to be in the 1% to 2% versus what we saw in the first half.

In Europe, we continue to expect conditions will remain relatively stable.

The industry produced a modest rate of growth through the first half of the year, and we continue to anticipate full year industry demand to be about equal to last year.

In Latin America, the underlying economic fundamentals remain strong, and we continue to see full year growth in the range of 10%.

And as we expected, we did see moderation in the Brazilian demand, as we're now comparing against significant unit gains that we saw a year ago.

We do expect industry growth there as well to remain positive as the year progresses, but our outlook does imply a slowing of growth as we comp against very strong results and demand reported in the second half of last year.

And finally, we continue to expect our markets in Asia to grow in the 5% to 8% range.

India continues to see the strongest growth rate, but we are experiencing growth in China as well.

Turning to slide six, you'll see the key drivers which are impacting our business for the year, really are unchanged.

We do expect our cost reduction and productivity initiatives will continue to drive improved earnings.

And while unit volumes will be positive, they'll be less of a contributor to margins in the second half of the year as they were in the first half of the year.

We continue to anticipate that currency impacts for the year will generally be neutral to our operating results.

And given some first half trends, we do expect price mix to have a flat to modestly unfavorable impact on our full year results.

Finally, we continue to see a lot of volatility in raw material costs.

And while we're encouraged by recent trends, we still expect material cost inflation to be in the range of $200 million to $300 million for the year.

Based on current market prices, we expect our full year costs will be about in the middle of this range, which is somewhat improved from our previous outlook at the high end of the range.

Given our first half performance and these economic indicators that we're forecasting, we've raised our guidance and we now expect earnings per share to be in the range of $9 to $9.50 per share, compared to our previous outlook of $8 to $8.50 a share.

We've also increased our free cash flow guidance for the year, which is now $550 million to $650 million, compared to our previous guidance of $500 million to $600 million.

Roy will go into more detail on this outlook later in the call, so at this point in time, I'd like to turn it over to Marc Bitzer for his review of our North America 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.

First half industry shipment volumes were stronger than expected.

Going forward, we see a moderating growth -- rate of growth for second half, driven by a number of elements.

Relatively more difficult comparisons, the end of the appliance stimulus program and a lack of inventory rebuilding we experienced in the retail channel during the first half.

Overall, we made good progress and strong progress towards profitability improvement in our North American business.

We successfully implemented a number of key operating initiatives to drive strong cost and productivity.

And we feel very good about the new innovations which we are bringing to the market across our entire product portfolio.

Early consumer acceptance of some of these have been very strong.

Going forward, we remain focused on the successful execution of these programs.

On slide nine, we detailed second quarter results for North America.

Our net sales increased 6% to $2.5 billion, excluding the impact of foreign currency exchange, sales improved 4%.

Our unit shipments increased 7%, while US industry demand for T7 appliance improved 12%.

As we noted on the last conference call, we did continue to experience availability issues on some of our key products during the quarter, which negatively impacted our overall share during the quarter compared to the prior year.

We did see higher branded share while our OEM share declined year-over-year.

Our operating margin on an adjusted base was 6.6% compared to 5.0% in the prior year.

Overall, our profit growth was driven by cost and productivity initiatives, and higher volume, partially offset by low product mix and higher material and oil related costs.

On slide ten you can see some of our new products that we've recently unveiled, including the Maytag brand Bravos X high efficiency laundry -- top load laundry pair that offers exceptional energy efficiency and powerful stain removal.

The Bravos X can realize more than 70% water and energy savings with its low water wash system.

You will see also the Kitchen Aid brand electric and gas downdraft cook top, which marks the first time Kitchen Aid has offered a gas downdraft cook top, and the Whirlpool brand side-by-side refrigerator featuring MicroEtched spill control shelves and 25% more usable shelf space than any Whirlpool side-by-side models.

On slide 11, the chart depicts some of the most recent demand trends in the US.

The yellow line depicts our current industry outlook of 5%.

You can see that first half industry demand was well in excess of this as a result of some of the impact from the cash for appliance program, the inventory rebuild in the retail channel, and higher replacement demand.

We expect replacement demand to drive the 1% to 2% industry growth, which we see in the second half of this year.

Let me just summarize here.

We had a very strong start of the year for our North American business.

We made good progress restoring our operating margin, and we are focused on successful execution of a number of significant new product innovations in the second half of the year.

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

Thanks, Marc.

Before I move to our European results, let me begin with a general overview of our international business.

While our international operations were mixed during the second quarter, we continued to benefit from our ongoing cost reduction and productivity efforts.

During the second quarter, we continued to see stabilizing market conditions in our Europe region, while our India and Brazil businesses were very strong.

Turning to slide 13, our European sales declined 6% year-over-year to $739 million in the quarter, with unit shipments increasing 5%.

In local currency, sales were essentially flat compared to the prior year.

The region reported an operating profit of $20 million during the second quarter compared to an operating loss of $12 million in the previous year.

The profitability improvement was driven by continued cost reductions and productivity improvements.

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

The region reported sales of $1 billion, a 24% increase from the $844 million reported in 2009.

And we saw a 2% decline in appliance unit shipments.

Excluding the impact from currency, sales increased approximately 13%.

On an adjusted basis, operating profit reached $165 million compared to $75 million reported during the prior year period.

The profitability improvement is primarily related to cost reduction and productivity initiatives, increased monetization of certain tax credits, and favorable price product mix.

While our Brazilian appliance business continued to have strong profitability, we also saw strong improvements in our served appliance markets outside of Brazil in our compressor business during the second quarter.

In Brazil, we did see reduced demand as a result of the expiration of the IPI tax reduction incentive program, and to a lesser extent, the World Cup, as retailers shifted their focus to brown goods from white goods during that period.

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

Net sales increased 43% during the quarter to $263 million, up from $184 million in the prior year period, as unit shipments increased 28%.

Excluding the impact of currency, sales increased approximately 34%.

Operating profit during the quarter was $15 million compared with $11 million reported in the prior year.

The operational improvement was primarily related to higher unit volumes.

These improvements were partially offset by higher material and oil related costs.

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

Through these launches and our ongoing consumer relevant product introductions, we continue to find ways to meet the needs of our consumers everywhere in the world.

On slide 16, you'll see just a few of our international product launches during the quarter, including a three door refrigerator in China featuring a middle door that can be used as a refrigerator or a freezer, the Whirlpool brand side-by-side refrigerator in Europe that features asymmetrical fully fleshed handles, glass panels and modern color options, and the EcoStyle dishwasher in Europe that features 24 rotating spray jets and green sensor technology to reduce energy and water consumption by up to 50%.

Turning to slide 17, I would like to summarize our international outlook.

Through the first half, we have reported improved operating results across all of our regions.

This improvement was due to a strong focus on cost reduction and driving strong productivity from improved volume levels.

Overall, we do expect moderating, yet positive demand in the second half, and are confident we can continue to generate strong results.

On slide 18, we show the year-over-year trends within our Latin American business.

As you can see, we are now comping against the strong volume growth we had in the final nine months of 2009.

Despite this, however, we are expecting to see a moderately positive growth rate in the second half, which equates to a full year demand increase of approximately 10%.

I would like to highlight for you that we continue to see solid economic indicators in Brazil, and remain very positive on the long-term economic prospects of that country.

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 20, I would like to summarize our second quarter results.

For the third consecutive quarter, our net sales showed a strong year-over-year improvement, with our net sales rising 9%.

Appliance unit volumes increased 6.3% from the prior year.

This performance was largely driven by increased unit volumes in our Asia and North America regions.

Our revenue was favorably impacted by foreign exchange translation, which accounted for approximately 2.5 points of the improvement.

This favorable impact was largely driven by movements in the Brazilian real, which appreciated approximately 15% against the dollar.

Much like the first quarter performance, our second quarter operating margins improved as a result of our productivity and cost reduction initiatives.

During the second quarter, we monetized $47 million of Befiex tax credits compared to $9 million in the prior year.

If you recall, in the prior year, we saw a significant reduction in our Befiex monetization due to the IPI tax reduction legislated by the Brazilian government, which expired on February 1.

Finally, as we had previously indicated, these favorable effects were partially offset by lower price mix as we comped against strong prior year results in this area.

Before we take a look at the income statement in detail, there are a few items I would like to highlight.

The first is a $53 million accrual for legal cost and contingencies related to a several decades old case pertaining to a collection dispute.

Second, we recorded a $33 million curtailment gain related to a post-retirement benefit plan.

Turning to the income statement on slide 21, we reported net sales of just over $4.5 billion.

Our gross margin rose 3.5 points to 16.8%.

The most significant favorable impact on our gross margin improvement related to our cost and productivity actions, which were partially offset by lower price mix and higher material cost.

SG&A expenses totaled $401 million.

Foreign currency translation accounted for approximately $6 million of the $11 million year-over-year increase.

Given the growth in the quarter, we saw a good SG&A leverage, as SG&A as a percentage of sales declined a half a point to 8.8% of net sales.

Restructuring expenses totaled $22 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 4.1 points from the prior year to 7.3%.

On an adjusted basis, our operating margin was 6.6%.

Turning to slide 22, I wanted to briefly discuss interest and sundry expense.

The $53 million legal accrual I noted previously accounted for nearly all of the $57 million year to year increase.

Turning to our tax rate, we recorded an income tax credit of $8 million during the quarter, corresponding to an effective tax rate benefit of approximately 4%.

The second quarter credit was in line with our previous expectation of a tax rate of approximately zero, plus or minus 5%.

For the full year, we are currently estimating our rate will be more towards the 5% credit end of the range versus the midpoint.

Finally, we reported diluted earnings per share of $2.64 per share.

On an adjusted basis, our EPS totaled $2.82 per share.

Moving to our free cash flow results on slide 23, as Jeff mentioned earlier, we had a $174 million improvement in our cash flow provided by operating activities.

This improvement was driven by a year-over-year improvement in our cash earnings.

This was partially offset by higher net working capital, predominantly related to higher inventory levels.

However, overall working capital levels were down significantly when compared to the prior year on both an absolute and relative basis.

Our capital spending has increased $38 million, largely as a result of new product launch spending in the North America region.

Turning to slide 24, I would like to highlight our continued progress in debt reduction.

During the second quarter, we repaid our $325 million 8.6% note, which reduced our total debt by approximately 11% from the March 31 level.

While our net debt levels increased slightly during the quarter, given our free cash flow outlook and lack of debt maturing over the balance of the year, we expect to continue to reduce our net debt balance by year end.

On slide 25, we summarize our net liquidity position.

As you can see from this table, our net liquidity position was over $2.7 billion at the end of the quarter.

Based on our new credit agreement that was signed last year, our revolving credit facility will downsize by approximately $522 million in December.

Even taking this into account, our liquidity will remain a very strong $2.2 billion at the end of the year.

On slide 26, you can see a summary of our revised full year outlook.

We are now expecting to report earnings per share in the range of $9 and $9.50 per share.

This outlook includes approximately $0.56 of net expenses related to our previous disclosed product recall, the legal accrual and the OPEB curtailment gain.

While we see material cost inflation more toward the midpoint of our $200 million to $300 million range, compared to the previous outlook of the high end of this range, it is important to note that the majority of these costs will be realized in the second half of the year when compared with the first.

Turning to our cash flow outlook, we are projecting free cash flow between $550 million to $650 million, up from our previous expectation of $500 million to $600 million, due predominantly to higher cash earnings.

At this point, I'll turn the call back over to Jeff.

Well, thank you.

Let me summarize.

Overall, we're pleased with our performance in the first half of the year, with our revenues being up 14%, our earnings per share up 145%, and our free cash flow up $109 million.

For the balance of the year, we expect, as we did earlier in the year, that the global economic environment will remain fragile, but we do expect demand to be positive, albeit at a slower rate than in the first half of the year.

We feel good about our ability to continue to deliver strong performance by executing our key operating priorities, which we outlined earlier in the year.

And they are cost management, cash generation, marketplace execution and growth through innovation.

With that, we expect to deliver a record year of operating results and value creation for our shareholders.

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

Thank you.

(Operator Instructions) We'll take our first question from Eric Bosshard with Cleveland Research.

Please go ahead.

Good morning.

Hi, Eric.

Good morning, Eric.

Two things I was interested in hearing you talk about.

First of all, on the margin progress getting to 6.5%, the rate you did has been impressive.

Between 6.5% and your midterm target of 8%, can you talk about what needs to be accomplished for that to happen?

And then secondly, the disparity between the 7% unit growth in North America and the 12% market growth, can you just shed a little light on your thought on that and how you would expect the second half to shake out in terms of your growth relative to the industry?

Yes, sure, Eric.

Let me start with the margin progression.

We said for some time that our strong focus was to expand our operating margins in the business and that we would do that through driving product innovation which enables our ability to get price margin realization throughout the business and through continuing our global cost management program, which we made very good progress the last two years, and we expect this to continue in the future.

So what you see in margin expansion, I would say is still largely driven from that.

We did have some volume benefit in the first half of the year as it related to conversion productivity.

We have a lot of levers that we drive from new product design to procurement to lean manufacturing in our factories to lean in our supply chain and so on.

And so we get there in a different way throughout the year, but we still are very confident in our ability, certainly at positive demand levels, to drive very strong levels of cost productivity throughout our business.

So that will be a big driver.

Price margin realization has been a positive the last two years.

It's running -- we're running against some big comps this year, so it's negative in the first half of the year.

Underlying that, we're seeing some very positive mix trends.

We have very significant and impactful new product innovation, high volume, I would add, particularly in North America in the second half of this year.

So I expect that to continue as well.

So overall, our two big drivers are really margin realization through innovation and cost productivity are the big drivers to get us there.

Related to the growth rates in North America, let me -- I'll ask Marc Bitzer to answer that.

Eric, it's Marc Bitzer.

So your question with regard to 7% growth, industry growth 12%.

And we did have on a year-over-year base some decline in our share levels.

That's driven by lower OEM volumes.

It's important to highlight that our branded business is still growing, but it has not been able to fully offset our OEM losses.

A key driver behind this one was, and we indicated that in the last earnings call, we had availability issues on key components throughout the second quarter.

I would like to point out we're at the tail end of these availability issues.

So obviously, as we restore availability, we have a certain -- we feel comfortable about the ability to regain share.

In addition, and adding to what Jeff was saying, these product launches which we have are significant, and maybe the pictures don't do justice to explaining what it really mean to our core business.

For example, this top loader, that brings an entire team of high efficiency laundry which was previously on high end top loaders and front loaders to an entire mass market of top loaders, which is at the very core of our business.

We feel very comfortable and confident about these product launches as a key driver to bring the share levels back to very strong Q1 run rate.

Thank you.

Thank you.

(Operator Instruction) We'll take our next question from David MacGregor, Longbow Research.

Please go ahead.

Good morning, everyone.

Good morning, David.

Nice quarter, Jeff.

Thank you.

Couple questions.

First of all, in Latin America, how much favorable price mix came into play there?

If you mentioned and I missed, I'm sorry.

And then secondly on the Latin American business, could you talk a little bit on the compressor business?

It seems like you must have had a very strong compressor performance.

David, this is Mike Todman, I'll talk about the compressor business for a second.

We did and we have seen very strong growth in volumes in the compressor business and strong improvements in our overall earnings for that business.

So it has been a very strong business for us globally, actually, overall.

In terms of price mix, we did see positive price mix in our Latin American business and feel very good about kind of where it is.

Roy will talk about the specifics.

Yes David, a little over a point, your question was more specific, a little over a point of favorable price mix.

And for the international business broadly, about a half a point of favorable price mix year-over-year, David.

About a half a points on the international.

On the international, that's correct.

And then just -- my second question really pertains to North American channel inventory.

I guess Lowe's had talked a lot about having over accumulated inventory in the first quarter, and they indicated that that was done deliberately and it was opportunistic.

And I'm just wondering to what extent this came into play in terms of your comps.

Hey David, it's Marc Bitzer.

Let me try to answer it.

First of all, on the full first half, there was some inventory rebuilding across multiple retail channels.

I'm not trying to get into retail specific ones.

During the second quarter, our assumption is and what we've seen right now is that the inventory in the trade was roughly balanced, ie, between coming into the quarter and ending the quarter with inventories roughly balanced by and large.

There was not a significant amount of rebuilding, nor do we not see any significant inventory overhang coming out of retail at the second quarter.

Okay.

We'll leave it at that.

Thanks very much.

Thank you.

Thank you.

Our next question will come from Laura Champine with Cowen and Company.

Please go ahead.

Good morning, guys.

Hoping we can talk a little bit more about Latin America.

I believe that your units declined a couple percentage points there.

Can you talk about share trends and give us a little more support to the assertion that you should see some growth in the back half of the year?

How's your share shaping up and what are some of the reasons you think that we can still see growth on very difficult comparisons in the back half?

Yes, Laura, this is Mike Todman.

From a share perspective, actually, our share evolution through the first half has been very good, and so we feel actually very comfortable where our share is and are confident that we can keep share momentum throughout the year.

In terms of the overall Latin American business, we saw very strong growth outside of Brazil.

So we've got many markets that we do business outside of Brazil, and we did see significant growth of those markets.

Obviously, in Brazil we did see demand reduce, but the reason why we're confident that going forward we will see a slightly positive increase is because the overall fundamentals in the Brazil economy are very strong.

We expect to continue to see strong growth outside of Brazil as well.

And we believe that even though we're comping kind of over very high levels, that those fundamentals will overlay, if you will, negative comps overall.

I did mention very briefly that we did see some declines in May and June, but they were probably more significant than normal, just because of retailers focusing more on brown goods than white goods, just during that period.

So we're actually fairly confident that we're going to see flat to slightly up growth in that market, those markets.

Great.

Thank you.

Thank you.

Our next question will come from Michael Rehaut with JPMorgan.

Please go ahead.

Thanks.

Good morning everyone.

Good morning, Michael.

First question, I was hoping maybe just a couple here regarding the US.

One, appreciate the greater level of detail, Marc, in terms of the difference between your unit volume growth and the sector's, and I was wondering, just to drill down a little bit further, with the availability with parts that you think will correct itself in the second half of the year, did that impact more of the OEM business, or did it just prevent the branded business from growing even better?

And what type of -- if you had a 5% differential relative to the industry, was that 2%?

Was that 4%?

How are you thinking about that?

Mike, it's Marc.

Let me at least try to answer your question.

First of all, the availability impacted our entire business.

I would even argue it impacted the branded business more than some of the OEM business.

And largely that's driven -- as you know, we had some very, very strong demand in our product in Q4 and Q1 and were running low on inventory.

We were impacted fairly early on availability, but (inaudible)gave us a chance to work on it fairly rapidly.

That's why we feel now we're at the tail end of availability issues.

And I would attribute a lot of the -- the vast majority of our share drop year-over-year to those availability issues.

Okay.

The majority of the share?

Yes.

Okay.

And if you could also hit on price mix for the quarter that -- I think through the numbers, it impacted the US by 3%, Europe looks like by 5%.

I was wondering if you could just kind of walk through if that's mostly mix or -- and what's going on the price side and how you see that playing out for the rest of the year and just any additional color on that.

Michael, this is Jeff.

Let me take the first kind of macro view.

When we talk about price margin realization, we're talking largely about the positive or negative impact on our operating margins.

And so that is different than what, for example, you were talking about in Europe where you saw a -- on a local currency basis, a 3% to 4% change in average selling price.

And just in Europe, we had a, I would say a very minor change in what we would consider price mix, on the margin level, very modestly -- modest change.

The average selling price difference was really, 32 countries, there's been wildly different demand levels in those 32 different countries, so the country mix really impacted the ASP.

You can shift back if the demand comes back in certain markets which sell higher average ASP products.

Not necessarily higher margin products.

So that's really the ASP issue.

Europe was just very mildly negative.

In the case of North America, we talked really for some time about two things.

One, we had substantial positive price mix realization a year ago in the first half of the year.

So we're comping against very tough numbers on that regard.

And the second, we also talked about the third quarter last year.

We did, based on competitive pressures, take some price adjustments on certain key models, high volume models, which turned that price mix negative, which has carried forward.

Underlying that, we haven't seen a lot of changes at all on prices since then, and I would say our mix actually continues to be positive and adding to that.

So I think part of it's the comp, the trends actually have been positive, and we said all along first half of the year would be negative because of the weight of the comparison on North America.

And Michael, just some specifics with respect to your question on the sales rights, just to give you the broad pieces.

From a consolidated perspective, consolidated volumes were up 6, 3, FX was 2.5 points.

We did get about nine-tenths of a point growth from the higher BEFIEX.

And in the overall price mix, which was sort of the source of your question, was negative nine-tenths of a point.

Now Michael, the interesting thing that you have to put in perspective here is the international business grew relative to the total Whirlpool business, and the ASVs in our international business are obviously lower than North America.

And so a big chunk of that, roughly two-thirds of that nine-tenths of a point was due to our interregional sales mix shift year-over-year.

Okay, I appreciate that.

One last question, if I could.

Wondering if you could kind of just circle back on the tax rate and what you're expecting 2011 to shape up as?

I know that there are a lot of moving parts so if it's possible to kind of just -- if you have any initial thoughts on what -- there's certain tax credits I think that are ending by the end of this year and maybe just try and give us an update in terms of how you continue to think about what might change for 2011.

Yes, first of all, Michael, I really can't predict 2011 at this point.

We'll do that next February.

But I can certainly give you some perspective in color with respect to your question.

First of all, as I said in my script, we still maintain the range that we share with you last quarter, albeit we think we'll be at the more the credit end of the range versus the debit.

You probably saw that fairly intuitively.

We had a couple of point credit in the first quarter, four point credit the second quarter, so we're right about 3% credit at the mid year.

We see that sort of trending in the future as well.

To the second part of your question, though, which is next year, again, I would take you back to, if you look at Whirlpool Corporation and you look at the dispersion of our earnings sort of year in and year out, and I'm not getting specific yet on 2011, Michael, because I'm just not ready yet.

But if you sort of look at this blended trend line, you would expect to see our tax rate in the high 20% to 30% in terms of an expense as a tax rate on an ongoing run rate basis.

You are correct that based upon current legislation, the energy tax credits would go away, and so I would expect to see that tax rate go back in that mid-20s kind of range or upper 20s kind of range.

Again, absent having any specificity on 2011 earnings dispersion.

Thank you.

We'll take our next question from Joshua Pollard with Goldman Sachs.

Please go ahead.

Hey, thanks for taking the call.

First question, can you quantify the growth in your compressor business and maybe talk about what you would expect there, given your outlook for slower growth pretty much globally?

Let me take that.

I'm not going to quantify specifically.

I can at tell you that it was high double-digit growth in the compressor business, and what we are seeing is increased demand.

If you think about the business and where they support, in markets like China, there is significant demand growth that we are seeing.

We're also seeing growth in other emerging markets around the world, and we are seeing and we are picking up share, if you will, in that business.

So we're also experiencing growth in the other markets around the world.

So we're feeling pretty good about our position with that compressor business.

And Josh, it's Roy.

We just -- we don't talk externally in terms of bifurcating the business.

That's why Mike can't give you the specificity there.

No, understood.

My other question was around the BEFIEX tax credit.

To date, year-to-date you guys have put through almost 90, guidance of 120.

Is there something that we should be implying as far as a slowdown in the BEFIEX in the way it's being monetized, or should we expect that to be a higher number?

Yes Josh, that's a good question.

I guided last time, I think I said -- I gave relative terms, but basically guide you to 120 to 125.

If you asked me today, we would take that number up to 165.

And again, an integral part of the change is the mix of our product or the mix of our sales within Brazil.

And as you know, you get a much higher IPI tax and ultimately, BEFIEX credit on laundry and refrigeration relative to the other product categories.

And so as we look forward, we see a richer mix and therefore, we would increase the full year expectation there.

And then my last quick one is on the component shortages.

You said that we're at the tail end.

Could you sort of quantify if it's a -- is it July, August?

Is it something that you think will bleed through the rest of the year, but at a slower rate?

When do you expect the final conclusion on this issue?

The -- there were a number of issues as, particularly in North America, as things ramped up very quickly from a demand standpoint.

And so it wasn't just one thing, although there were a couple key components that were a major source.

Some of these had lead time.

We addressed these early in the year, but it's taken some time to work through them.

We largely think we will be out of the component availability issues.

As Marc said, we're at the tail end now, but we really, I think by the end of this month, we'll be completely through them.

We had some other issues.

They were good issues where we had a very positive mix change in certain product categories where we have had to readjust some of our assembly lines and some of our factories which we -- some required some capital investments.

We've made those and those -- between -- they've already been happening, but between now and September, those will be readjusted.

So it's a few things, but for the most part, as we complete this month, we'll largely be out of what we consider our unique availability issues.

Okay.

Thank you.

We'll take our next question from Jeff Sprague with Vertical Research.

Please go ahead.

Hi, thank you.

Just a couple cleanup questions.

First, on the stimulus in the US, was that designed in any particular way that it would have benefited directly US manufacturing versus the foreign manufacturers?

And I guess the gist of my question is it looks like domestic incumbents, some of which ties to your availability issues, but it looks like the domestic incumbents just generally lost share in the quarter.

Which seemed odd against the backdrop of the incentives that were in the marketplace.

The incentives were not related to where you manufacture.

They were related to -- well, they were related to the state standards, all 50 states, but in different standards and are basically related to varying forms of energy efficiency, regardless of where they're manufactured.

And Roy, just the FX impact on operating profit, should we assume that 2.5 points or so of revenue impact is dropping through at roughly the corporate operating margin rate of six and change?

No, actually, Jeff, it was -- the impact in the second quarter was just shy of $10 million on the operating profit.

You had a little bit of translation, so you had positive in Brazil, but of course negative in Europe.

And we had just over five in transaction for the quarter year-over-year.

And just on the idea of regaining share on availability, I guess the question is, look, once it's lost, is it lost?

Somebody filled the void.

What do you do to actually recover that share?

Well, Jeff, there's -- first of all, the magnitude of share was not that large.

Second of all, we -- in the first quarter we had a great share quarter.

And offset all of the OEM business with branded business and so on, and the momentum was somewhat hurt by the availability issues.

And as availability comes back online we will sell more and coupled with our new product innovation, we're getting very strong positive foreign commitments from the trade.

So I don't -- I mean, a few points of market share going back and forth is not a big hurdle, if you will, if you're executing your business well and bringing new products to the marketplace.

Jeff, it's Marc Bitzer.

Would also like to add, to keep things in perspective, our branded share is still growing.

It is not growing at the rapid pace which we had in Q1, and we're basically -- we will continue to do what we've done in Q1 to have branded growth even stronger than we had in Q2, but then our branded business in particular, Whirlpool brand, Maytag brand, Kitchen Aid is very strong.

We've generally heard, as you probably know, I cover a lot of industrial companies too, but a lot of shortages in electrical distribution, electronics and other places.

Wouldn't you think that some of your competitors had similar availability issues in the quarter and net-net, that all kind of washes out?

I can't speak for them.

Just given that we're the biggest in the marketplace, we would have the biggest problem if everybody was equal.

And then just finally, your cash flow is always really very back end loaded, so this is always kind of a question at the halfway mark.

But the positive change in free cash flow was actually about half the positive change in earnings through the first half.

You got some working capital build, but you're characterizing working capital as still being fairly lean, but it sounds like you really think you're going to hit the turns substantially in the back half.

Is there some additional program going on, or is it just the normal seasonal swing to get to that cash number?

Jeff, I would say it's predominantly the normal swing.

In fact, if you look at where we were at the mid year, we're probably just over $100 million favorable to where this Company would trend on a normal five year run rate in terms of the mid-year point.

So your perspective and point on working capital is true.

We do anticipate staying lean with working capital.

We've said that in our guidance early in the year.

As I mentioned in my script, Jeff, that we continue to maintain low working capital levels relative to historical levels or run rate levels, but then we have the earnings piece as well as the continued improvement in working capital in the back half of the year.

We're also front half of the year, as you know, loaded in terms of compensation disbursements, some of our marketing program disbursements.

So you tend to see that cash disbursement come out very quickly in the first part of the year, and then of course, you build accruals in the back part of the year,which are non-cash.

So that's the important seasonality that's at play here.

Thank you very much.

Thank you.

Thank you.

Our next question will come from Sam Darkatsh with Raymond James.

Please go ahead.

Good morning, gentlemen, how are you?

Good morning, Sam.

Most of my questions have been asked and answered.

The -- I have a couple housekeeping ones.

Roy, where do you peg year end inventories at on a dollar basis, generally speaking?

Sam, I'm not -- again, we don't forecast or put an outlook with respect to individual working capital line items.

What I would tell you is we continue to expect our working capital to be roughly the same levels at where we were at the end of last year as a percent to sales.

As you know, that was a record.

It was 8.1%.

So you ought to think of our blended capital being roughly 8.1%.

We don't do specific line items.

Okay, year-to-date raw material inflation on a year on year basis, where do you have that right now?

Year-to-date it's -- we were 17 favorable in the first quarter and about 53 negative year-over-year in the second quarter.

The second quarter, the first quarter was up -- negative, meaning higher, inflation, you mean?

No, second quarter -- first quarter was actually a positive number, Sam, it was about 17 positive.

Oh, okay.

I got you.

I got you.

So you're looking at -- if you took the midpoint of the range, 15% in the first half and 85% in the back half in terms of the impact year-over-year.

Got you.

And then my last question, you I don't usually try and look at the industry in such a granular fashion, but since July really would be the first true month in the United States of a cash for appliances hangover, what types of POS trends are you seeing, Jeff, at retail right now as the second half begins?

Well, Sam, there's really -- since there's no reported public numbers yet, there's really nothing we can talk about yet.

I guess there's nothing overly surprising.

But we don't have any July numbers to talk about yet.

What's your sense based on what you're looking into as a sell-in perspective, as to how recent trends -- only reason why I'm asking is it would seem to me or to many that the second half expectations of favorable growth in the United States, based on many of the items that Marc mentioned before, might seem optimistic.

And if there would be an indication that you're seeing those sorts of trends now, where it would maybe be at its most difficult point right after the cash for appliances was over might be helpful for people to feel comfortable about that view.

Sam, it's Marc.

First, we're not going to get into specific on July.

Obviously, July, if at all, more impacted by post July 4 promotion period as opposed to (inaudible).

That's long over and forgotten almost in the retail environment.

I think what we see in the second half is what we indicated before, is we do see growth rates in the industry in the 1% to 2% range which we right now feel very comfortable about what we hear and what we see in the marketplace overall.

We need to bear in mind in this context is the housing side effect.

Growth is still very depressed, and you all see the housing start number, and that pretty much defines what we see from (inaudible).

That also means on the retail side, we see moderate but solid growth in the seconds half.

Thank you much.

Thank you.

Thank you.

Our next question will come from Todd Schwartzman with Sidoti & Company.

Please go ahead.

Hi, good morning, folks.

Good morning.

I realize the importance of replacement sales, but just curious, what assumptions do you make now in your revised guidance with respect to housing starts and completions and sales as well versus the previous guidance?

Todd, it's Marc Bitzer.

First of all, you all see the housing starts number.

The housing starts number are still very low.

We talk still about in the 600 range, which also means (inaudible), and that pretty much defines what you get out of this market because you typically have a six to nine month lead between housing starts and completions, and the completions obviously impacts our appliance sales.

So we're not counting on any uplift on the housing side in our forecast right now.

That's why I said overall a 1% to 2%.

If housing sales would pick up, yes, then we would see more, stronger market growth, and the overall housing part of the demand is probably on a decade low level.

Got it.

And on price mix, it sounds as though from your previous comments the comps turn a little bit more favorable perhaps this quarter.

Is that correct?

If not, how should we think about the --it going forward when you start to see a little more favorable turn?

Yes, on a comp basis, it is -- absolutely, the comp basis it is.

Yes Todd, we have favorable price mix numbers in the first half of the year last year and in both the third and fourth quarter, those numbers were actually negative, so the comps do get easier in the back half of the year relative to a year ago.

Okay.

And Sears business, could you quantify the year-over-year change in the second quarter?

Todd, it's Marc.

As you know, we don't get into details of trade partner by trade partner.

However, what I can say is that the OEM side of the business roughly remained the same like in Q1, so we don't have any further losses versus Q1.

Year-over-year, yes, it is a drop of our OEM business.

And the OEM business in total year-over-year delta was what?

It's down.

Okay.

The midterm operating margin target of 8%, what is the horizon there, the time horizon?

We haven't put a fixed time horizon.

We talked about the -- in terms of the investments we're making, the focus that we have, the way we compensate our senior executives is based on operating margin improvement as one of the key factors.

We're making very good progress this year, and I can't, again, give a forecast on something like that that's outside of this year's guidance.

But we're narrowing the gap very quickly.

So you bill it, you deem it midterm just to differentiate from current year, I guess?

More long term.

More long term.

Right.

Got it.

Last question, Mike, what is the percentage of Latin America sales ex-Brazil?

Oh Todd, I'm not going to break up those total sales.

It's a relatively significant portion of our total Latin American sales, but I'm not going to split it up by market or by region.

So Brazil is not all that meaningful?

Brazil is very meaningful.

I'm just trying to strip it out and say ex-Brazil or conversely, what portion of Latin America does Brazil represent?

Brazil is about half of our Latin America.

Great, okay.

Thanks, guys.

Thank you.

And at this time, this does conclude our question-and-answer session.

I would like to thank everyone for participating in today's call.

And you may have a great day.