惠而浦 (WHR) 2010 Q3 法說會逐字稿

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

Today's call is being recorded.

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

Please go ahead.

Thank you, Tasha and good morning, everyone.

Welcome to the Whirlpool third 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 corporation 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.

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 base line for understanding trends in our underlying business.

Listeners are directed to the appendix section of our presentation on slide 28 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 third quarter financial results and you can find these results summarized on slide four.

During the quarter as we expected, we faced a challenging environment some markets which resulted in a slowing in sales growth compared to the first half of the year.

We were able to quickly adapt to these economic changes due to our ongoing focus on cost reductions, productivity and our innovative new product launches.

Revenues for the quarter came in at $4.5 billion, in essence flat versus last year.

On an adjusted basis, our EPS was $2.22 per share compared to $1.67 in the prior year.

Our productivity results were very positive during the quarter enabled us to many challenges related to volume in some markets, price mix and higher material costs.

On a year-to-date basis free cash flow was flat which was an improvement from a first half usage of $88 million.

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

In the US, we now expect our full year demand in shipments to be up approximately 3% versus the 5% that we had discussed earlier this year.

And we did see some softness in demand during the third quarter.

In spite of this weakening demand environment, over all we performed very well from a branded share perspective.

In Europe we continue to see industry growth improvement during the quarter.

We increased our full-year outlook to a demand growth of 1% to 3% as we have now seen demand growth for three consecutive quarters across the region.

In Latin America, we saw appliance demand rebound after some moderation in demand late in the second quarter.

As you may recall, we had some significant events in Brazil in the second quarter related to the expiration of the IPI tax holiday and the effects of the World Cup.

We see the underlying economic fundamentals there remaining very strong and we continue to see full-year growth in demand in the range of 10%.

Finally, we saw healthy growth again in Asia, our businesses there continue to grow at a strong double digit rate during the quarter, we have increased our full-year industry outlook for Asia to 8% to 10% for full year.

I'll now turn to slide six, where you see the key drivers which are impacting our business for the year.

We expect our cost reduction and productivity initiatives will continue to be the main driver behind our overall improvement as they have throughout the year.

We have managed our costs reduction efforts effectively and we expect to continue to benefit from these actions for the balance of this year.

As you know, we have seen foreign currency exchange become very volatile during the quarter but we have been able to continue to mitigate these risks and expect foreign currency impacts will be manageable at today's current levels.

And finally as we expected, we continue to see unfavorability in the area of material costs during the third quarter.

For the full year, we now see material costs trending towards the lower end of the $200 million to $300 million estimate that we gave you throughout the year.

Finally, given the trends that we saw in the third quarter, we now expect price mix to have an unfavorable impact on our full-year results.

And while we have had a very positive consumer receptions to our new product innovations launch during the third quarter, the overall price mix environment was more challenging than our previous expectations particularly North America.

So looking at all of these factors in total, we have been able to offset the negatives that we saw in the external environment with the internal actions that were driving so we continue to expect to generate our adjusted earnings per share for the year in the range of $9.56 to $10.06 per share.

And our free cash flow guidance remains unchanged for the year which is $550 million to $650 million.

At this point in time I would like to turn it over to Marc Bitzer for his review of the North America operation.

Thanks, Jeff and good morning, everyone.

Let me start by giving my perspective on North America's performance in the third quarter.

As shown on slide eight we saw strong branded share growth during the quarter driven by consumer relevant innovation and an improvement in some of the product availability issues we experienced during the second quarter.

Our key new product launches are well received by consumers.

But at the same time industry volumes and the pricing environment were more challenging than expected and we took actions to match some aggressive competitive pricing pressure.

On slide nine, we detail North America's performance in the third quarter.

Net sales decreased 3% to $2.4 billion driven by lower average sales values in the quarter.

I will touch on this momentarily, largely related to reductions in two major product categories.

Our North America unit shipments increased approximately 1% while US industry unit shipments of major T7 appliances decreased 3% during the third quarter.

And we had mentioned before a strong increase in branded share during the quarter.

Our operating margin was 4.7% compared with 5.9% in the prior year.

Overall the results are unfavorably impacted by lower price mix and higher material costs.

Favorable cost reductions and productivity initiatives partially offset the un-favorable items.

On slide 10, you can see some of our new products that we expect will continue to support our branded share growth.

The Maytag brands Ice20 easy access refrigerator which is the industry's most efficient four-door refrigerator, it features an external counter height refrigerator drawer that holds up to five bags groceries.

We also launched the Whirlpool's brand most premium front-load duet laundry pair this is the industry's most resource efficient washer and dryer.

And finally, the Kitchen Aid brand dishwasher featuring a modern version of a recessed handle found on models from past decades.

I would like to point out that all of these launches happened toward the end of the third quarter.

On slide 11, the chart depicts ASV or average sales value industry trends by category.

First thing you will note is that there was a generally wide distribution on a year-over-year basis with some categories up and others down.

You will also note that the overall reduction is mainly attributable to two categories, we elected to address some of our price points in these categories given the competitive environment and we saw subsequently a strong increase in our branded share performance.

It is also important to note that our new product innovations start to provide an overall ASV lift and we continue to focus on successfully launching our new products and continuing to generate a more new product in the future.

Overall I would sum the third quarter as challenging from a demanded pricing environment.

We continue to address this by bringing consumer relevant new product to market and keeping a strong focus of cost control and productivity.

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

Thanks, Marc.

And let me start with an overview of our international business.

Our international operating results continued to benefit from our ongoing cost reduction and productivity efforts and solid volume growth from our emerging markets.

During the third quarter we experienced improved market conditions in Brazil, slight improvement in Europe, while Asia unit volumes remained very strong.

Turning to slide 13, our European sales declined 8% year over year to $827 million in the quarter with units shipments increasing 6%.

Excluding the effects of currency, sales were essentially flat compared to the prior year.

The region reported an operating profit of $26 million during the third quarter compared to an operating profit of $14 million in the previous year.

The profitability improvement was driven by continued cost reductions and productivity improvements which were partially offset by higher material costs and lower price mix.

Slide 14 shows a summary of our Latin American third quarter results.

The region reported sales of $1.1 billion, a 13% increase from the prior year period as appliance unit shipments increased 9%.

Excluding the impact from currency, sales increased approximately 9%.

Operating profit reached $143 million compared to $93 million reported in the prior year.

The profitability improvement is primarily related to the increase in volume, cost reduction and productivity initiative and increase monetization of certain tax credits.

These favorable items were partially offset by higher material costs and lower price mix.

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

Net sales increased 21% during the quarter to $195 million, up from $162 million in the prior year period as unit shipments increased 18%.

Excluding the impact of currency, sales increased 16%.

On an adjusted basis, operating profit reached $5 million for the quarter versus the $5 million generated in the prior year period.

Favorable volume growth and productivity was offset by higher material and oil-related costs.

Turning to slide 16, you'll see just a few of our international product launches during the quarter including the Bauknecht brand cosmos built in coffee machine in Europe.

The machine makes coffee and froths milk at the press of a button and can make espresso, cafe latte or cappuccino.

The Brastemp Ativa washing machine in Latin America.

It features an wash basket for delicate clothes and a special option on the machine can reduce soap stains by premixing soap and water before it comes into contact with fabrics.

And the new Whirlpool brand ace semiautomatic washing machine in India which offers a built-in work surface and a handle and wheels for portability.

Turning to slide 17, I would like to summarize our international outlook for the remainder of 2010.

We see demand levels improvements slightly in Europe and expect to continue to see margin expansion as a result of our ongoing productivity efforts.

As we discussed on the previous call, in Latin America the slight negative growth rate in the second quarter recovered nicely in the third quarter despite more difficult comparisons and we expect continued growth in the region for the remainder of the year.

And in Asia we expect to continue to see positive growth through year-end.

In all the international regions we will continue to focus on productivity to offset continued cost increases.

In addition, the international organization is focused on continuing to bring consumer relevant innovation that will improve our price mix.

Our innovative new products continue to improve our price mix in the third quarter despite the overall degradation we experienced.

Going forward, we are focused on bringing more of these products to the market at a faster pace.

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 19, I would like to summarize our third quarter results.

For the quarter, our sales grew one half of a percentage point to $4.5 billion.

Appliance unit volumes increased 5% from the prior year.

While all of our regions reported unit volume increases during the quarter, the overall increase was largely driven by higher unit volumes in our international operations.

We continued to see a significant benefit from our productivity and cost reduction initiatives during the quarter.

In addition to this, we monetized $56 million of BEFIEX credits compared to $8 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, these favorable effects were partially offset by lower price mix and higher material cost.

Before we take a look at the income statement in detail, there is one item I would like to highlight.

During the quarter, we recorded a $93 million accrual related to Embraco settlement agreements.

This resulted in an unfavorable impact of $1.20 per diluted share on our third quarter results.

Turning to the income statement on slide 20, we reported net sales of just over $4.5 billion.

Our gross margin rose 50 basis points to 14.3%.

The most significant favorable impacts on our gross margin improvement related to our cost take-out and productivity actions and the higher BEFIEX credits which were partially offset by lower price mix and higher material costs.

SG&A expense totaled $391 million, foreign currency translation accounted for approximately $5 million of the $9 million year-over-year decrease.

Despite our relatively flat sales results during the quarter, we continued to generate good SG&A leverage as SG&A as a percentage of sales declined 20 basis points to 8.7% of net sales.

Restructuring expenses totaled $16 million during the quarter and were largely related to cost reduction actions in North America.

Given our year-to-date restructuring spend and our fourth quarter outlook, we now expect to record restructuring expenses in the $75 million to $100 million range during 2010.

Finally, our operating margin expanded approximately one point from the prior year to 5.2%.

Turning to slide 21, I wanted to briefly discuss interest and sundry expense.

The $93 million of Embraco settlement expenses were recorded in this line during the third quarter.

In the prior year we recorded a $43 million expense related to the settlement agreement with a Brazilian competition commission.

Turning to our tax rate, we recorded an income tax credit of $7 million during the quarter corresponding to an effective tax benefit of approximately 9%.

For the full year, we continued to expect to record an effective tax benefit of approximately 5%.

Finally, on an adjusted basis, we reported diluted EPS of $2.22 per share compared with $1.67 per share in the prior year.

Moving to our free cash flow results on slide 22, through the first nine months we generated free cash use of $1 million compared with a $373 million free cash generation in the prior year.

The main variance from the prior year's record nine month results relates to higher working capital levels from the prior year end.

The current year free cash flow results include a tax refund of approximately $105 million.

The most significant driver of our increased working capital balances relates to inventory, the higher inventory cash usage is due to a multitude of factors including product transition inventory related to some of our high volume new product launches, a general rebuild from the low level of inventory at year end and some excess stock at the end of Q3 due primarily to slowing industry demand levels in North America.

We have specific plans in place to reduce these balances during the fourth quarter in addition to our typical seasonal drawdown.

On a year-to-date basis our capital spending has increased $39 million largely as a result of new product launch spending in the North America region.

We continue to expect full-year capital spending will be between $575 million and $625 million.

Turning to slide 23, I would like to highlight our progress in debt reduction.

On a year-to-date basis we have repaid $380 million of borrowings.

While our net debt levels increased slightly since December 31, we expect to bring our net debt balance below the prior year end levels based on our full year free cash flow outlook.

On slide 24, we summarize our net liquidity position.

As you can see from this table, our net liquidity position was over $2.7 billion as of September 30.

Based on the amended credit agreement that we entered into last year, our revolving credit facility is scheduled to downsize by $522 million in December.

Even with a facility stepdown, our cash balances and remaining $1.35 billion credit line availability provide us with significant liquidity.

On slide 25, you can see a summary of our full-year outlook.

We are now expecting to report GAAP earnings per share in the range of $7.80 and $8.30 per share.

On an adjusted basis, our outlook is for diluted earnings per share in the range of $9.56 to $10.06 per share.

As you might expect given the macro economic volatility we have been managing, there are several moving parts to our outlook.

The major unfavorable driver from our previous outlook is lower full-year price mix.

We now expect to see lower price mix for the full year given some of the recent trends we experienced in the third quarter.

We expect to offset lower price mix through continued productivity and cost reduction gains slightly lower material cost and higher BEFIEX monetization.

Turning to our cash flow outlook we continue to project free cash flow in the range of $550 million to $650 million.

As noted earlier, we are executing several actions to reduce our overall inventory levels in a somewhat volatile demand environment.

The level of volatility may impact our success in reducing overall inventory levels and therefore influence whether we hit the high or low end of our cash guidance.

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

Thanks, Roy.

Let me summarize.

Overall, I feel that we made strong progress this year executing against our key operational priorities.

Our successful cost reduction and productivity initiatives have enabled us to significantly expand our margins during 2010 despite some unfavorable trends and the macro economic environment and somewhat slow growth in demand in the developed markets in North America and Europe.

From a global unit demand standpoint, our expectation for moderating unit demand has largely unfolded as we have expected although I would say North America demand is a bit softer, and Europe is a bit better than we previously expected.

In some of our other markets in key emerging markets such as Brazil and India, we continue to see very strong growth and are creating significant value for our company there.

We remain bullish on the long-term prospects for these economies and believe we are very well positioned to capitalize on the economic growth potential in these markets going forward.

So for the full year, our key priorities are unchanged, our entire organization is very focused and aligned to executing against these priorities as we believe they are the keys to successfully navigating through a somewhat volatile global economic environment.

And in total, as we said through our guidance in July and reaffirming it today we expect to deliver a record year of operating results and value creation to our shareholders this year.

So at this point in time I will end and I'll open this up for questions from our callers.

Thank you.

(Operator Instructions)

We will take our first question from Eric Bosshard with Cleveland Research.

Please go ahead.

Good morning.

Eric, good morning, Eric.

The North American margin you had shown good progress for a number of quarters in a row and you've explained or given us some color that incremental price promotion, these other factors contributed to the decline this quarter.

Can you give us a sense of your outlook and confidence in the trend as we look in 4Q and as we look into 2011, where and why the margins go from here?

Yes.

Let me ask Marc Bitzer to answer that.

Yes, and Eric, obviously we don't give a region forecast for guidance for the fourth quarter.

Let me talk about the price margin impact in the third quarter.

First of all as we expected and to some extent talked in Q2 already about it, and we did see some degradation of industry price mix during the quarter and we felt the impact as well.

In particular we observed some pretty aggressive competitor moves in two critical product categories already during Q2 and given our leadership position in these categories we decided to meet with new competitive price points.

As a result of that, we saw some immediate market share gains in these distinct categories.

Obviously our job is to balance that price mix as we did in the past going forward.

What gives us confidence is, some of the products which we highlighted in the presentation, we just launched towards the end of the third quarter.

That should give us momentum.

At the same time we do expect the promotion environment around us is sustained and we will continue to manage the costs side very aggressively to mitigate that.

Eric the only thing I would add is in the third quarter in North America we saw a fairly sharp change in demand which we expected to a certain degree.

Higher material costs and then we made a conscious decision to make price adjustment in a couple of key product categories.

So having said that, in terms of our expectations for margins in North America this was an adjustment.

We expect to improve from here and we think we have the tools to be able to do that.

And when you say and I guess I'm interested in your perspective on this, Jeff, you said you've made an adjustment, you expect to improve from here and again I'm not trying to pin you down to the fourth quarter margin.

What I'm trying to figure out is this margin going to continue to work its way towards 8% or have we seen a structural change in price points in this business that is going to flatten the rate of improvement or margin recovery in this business back towards what you've talked as a medium or longer-term goal of something moving back towards whatever, 8% or 10%?

Again, as you said, if you go back to the third quarter last year we made kind of four quarters of progressive improvement.

I see this as an adjustment but not a change in direction where we want to go.

Okay.

And then secondly, I guess a similar question in Latin America.

Excluding BEFIEX, the volumes were good, the margins flattened out and the margins in the first half had shown nice year-over-year improvement sequentially, exBEFIEX the margins in Latin American eased.

Can you give a little bit of color and perspective in terms of where that goes from this point?

Yes, sure, Eric.

It's Mike Todman.

Just sequentially there are kind of three things that impacted our margins in Latin America in the third quarter.

The first is there is a normal seasonality of business that happens, kind of from the second quarter when you go into the third quarter.

We didn't see it last year because of the IPI tax holiday.

So that had an impact.

The second is we did experience higher material and oil-related costs in the third quarter of this year than we did in the second quarter.

And -- and the third reason was that we ended the second quarter with higher inventories because if you'll remember, we saw a slight reduction in demand.

And so we took actions to reduce production in the third quarter and that had an impact overall on the margins.

I can tell you that I feel very confident that we will see margin expansion in Latin America in the fourth quarter.

Great.

Thank you.

We will take our next question from Sam Darkatsh with Raymond James.

Please go ahead.

Good morning, Jeff, Mike, Mark, Roy, how are you?

Good Sam, how are you?

A few couple quick questions here.

First off the energy tax credits that are set to expire I guess at the end of this year included in your guidance are -- is there an assumption that you will hit the limit as to what you're able to recognize or is there still some wiggle room on your behalf to maximize those credits in Q4?

Sam, this Roy.

In our guidance we do assume that we would hit limit by the end of the year and a lot of that, Sam, is based upon what Mark talked about which is the success rate with the new product introductions coming out in North America.

On a related topic, you mentioned that you want to work the inventories down a little bit sequentially.

Help us -- if you could put a little color on that in terms of where we should quantify inventories by year end.

Yes, Sam.

Again, it's Roy.

Let me start and give you a little bit of perspective in terms of the inventory build and then I'll talk specifically about what we are going to do and actually Marc may jump in here as well.

If you look at year over year, Sam, we are up roughly 12 days in inventories.

Now, the first thing to sort of put in perspective is that we came into this year with inventories much lower than where we normally are in December.

If you remember, in December of 2008 we were at $2.2 billion.

If you look at sort of our normal traditional exit rate in December, we are more like $2.5 billion, and we saw some impacts of that, Marc talked about that and we talked about it in Latin America in terms of availability because of lower inventory levels we had coming out of the year.

So first of all, 62 days a year ago, roughly 200 million, Sam, or five days of the increase from where we were at a year ago is basically just what we call sort of the normal build to get our inventories back to where we wanted inventories to be so that takes you to 67 days.

We have got about a day for seasonality coming out of Asia to Bali this year, as in the fourth quarter versus the third quarter, and we have got about a day here in North America with respect to some of the build for the fourth quarter so there's two days there that we would call seasonal build.

That gets you to 69, Sam.

Then we have -- we have about four days of excess inventory that I referenced in my script that we are going to work to get out by the end of the year and as I said in my script, Sam, that's mostly all in North America and then we have got one incremental day which is transitioned inventory in North America as we transition our products.

But Sam, I think that one day will still be there at the end of the year on a sequential perspective so the sequential piece is really taking out this excess inventory and the action that Marc Bitzer and his team have already taken in North America.

Sam it's Marc Bitzer.

Let me also allude a little bit to this one.

North America has, right now, flat to high inventory levels so it's above what we consider optimal.

And that's basically twofold, one is yes there's quite a bit of Q4 prebuild around trade commitments and the other piece, we saw the market slow down in particularly during the second part of the third quarter and obviously it takes a little while to take that out of inventory.

We have taken measures to work the end of September particularly in October, November to run down production to what we would consider appropriate levels of inventory which given the somewhat choppy demand environment will be slightly higher because we have got to be able to respond to the change in demand trend.

What I would like to point out is also the energy tax credits in the inventory are two independent issues.

Okay.

Actually if you would just peel back the onion on our energy tax credit units, actually we run lower inventories than the rest of the average, quite a bit lower.

In particular in some of the new products which qualify we run very low inventory so these two things are fairly unrelated to each other.

Yes, and I think you know, Sam, that we actually, we do not recognize energy tax credits based upon production under the accounting rules.

You actually amortize the total expected annual demand based upon EBT.

So there's not a direct to direct relationship between production and the amount of credits that you recognize.

Very helpful.

Last question, you're guiding for US shipments flat to down 4%, I guess, if my math holds in order to get to the year of 3%, which suggests that you're looking at essentially similar demand patterns on a year on year basis in Q4 versus Q3.

But the comparison gets much more onerous and so I guess on a two-year stack basis it would seem as though you're expectations or that things improved meaningfully sequentially.

What are you seeing that gives you that -- the confidence to look at it in that respect?

Sam it's Marc again.

I mean, I would concur with your first statement, yes, mathematically if you take off 3% that's where you would end up with a zero to minus four, minus five.

I wouldn't conclude from this sequentially significant improvement.

Actually we do see them and that's what we expect in fourth quarter, a somewhat volatile market environment that's what we've seen in the first couple weeks in October and that's pretty much what we expect for Q4 but it's obviously this is a promotional environment so you will have quite a bit of volatility in the demands but right now that's why we forecast 3% for full year, or zero to minus four on the fourth quarter.

Okay.

Thank you, gentlemen.

Yes.

Thanks.

Thank you, we will take our next question from Joshua Pollard with Goldman Sachs.

Please go ahead.

Good morning to you all.

Good morning, Josh.

Josh.

Can you give us a quick update on the commodity hit that you guys have taken in the third quarter through the first three quarters of the year and what your new expectation is for the full year?

Yes, Josh, this is Roy.

Let me start and then Jeff may wish to add a couple of comments.

The first part of your question, if you remember in the first quarter we actually had favorable material costs year over year and then in the second quarter we had a little over $50 million impact.

So what we have said, and what we said on the second quarter call, and Josh it still holds true today is we only incurred about 15% of what we were projecting for material costs increases in the first half of the year and we have about 85% or for us roughly $190 million of impact that will impact us in the second part of the year.

For the quarter, the second part, we estimate it was right about $80 million of impact, Josh, and that was 1.8 points of hit on our gross margin.

So you heard Mike and Marc and Jeff all comment on that in their scripts but it all came back to just under 2 points of negative impact on gross margins.

But we are still in that, you know, we have been guiding all year 200 to 300, we are still in that range but we would now tell you Josh we see it at the low end of that range.

You would see it at the low end?

Is it right to assume that there's a slightly higher impact, negative impact in the fourth quarter coming?

Yes, a small, just if you do the math that Roy gave that but again it's pretty much fixed at this point in time and we've only got 2.5 months or a little over two months left, and we know what it's going to be and that's pretty much where it's at.

I guess my other question is just around taxes.

As we think about it and we think about 2011 versus 2010, you guys have pretty significant net operating loss carry forwards in the US and also in Europe, so I would expect the tax rate in those regions to be zero.

You sort of -- whatever the total benefit will ultimately be for the energy tax credits in the US, that will go away and then you guys are sort of looking at somewhat standard tax rates on your pretax income in Asia and Latin America.

Is that the way to be thinking about your taxes for 2011 versus 2010, or should we be thinking about it some other way?

Josh, you -- you referenced a number of variables there and you talked about the effective tax rate and cash taxes as well but let me say it as simply as I can.

I think we have said -- we typically don't get into 2011 guidance at this point in time but I understand the reason for the question and it's an important question because we have had the energy tax credits which have basically taken us to a negative rate.

I think I said on the last call and it's still true that you take the energy tax credits out and you're correct they are currently set to expire at the end of this year, don't know whether they will be any action with respect to future energy tax credits or not but you're right they are set to expire.

Once they expire, if you look at 2011 and you take that out of the picture, you go back to that rate that I've been referencing for some time which is that high 20% tax rate for the global business and that rate does include the benefits of BEFIEX.

I know there have been some questions whether BEFIEX was in or out of that number and so when I step back, Josh, and look at sort of the run rate tax rate for this enterprise looking at our current dispersion of earnings, to the second part of your question I see it in the high 20% to 30%.

Operator can we go to the next question, please.

Yes.

We will take our next question from Laura Champine with Cowen and Company.

Please go ahead.

Good morning.

Just a clarification on the inventory line.

Are units up about the same as dollars or would given the rising raw material environment are units not up as much as dollars year on year?

Well, you know, Laura, let me answer it this way.

If you look at -- because I referenced to Sam the days.

We do have some year-over-year benefit.

For Whirlpool a day of inventory is $42 million this year.

That's probably $4 million higher than it was this time a year ago.

So there is some benefit from a day's perspective there, but beyond that, no, I don't think there's any significant shift between units and dollars.

Okay.

And then on the slide that you have on page 11 that talks about the average selling value focused on a few categories, what are those categories and what drove those categories down?

Laura, it's Marc Bitzer.

Obviously the reason why we didn't put up the categories is because we didn't want to publish it.

Let me put it this way.

One of the very right side is the one which has been public is front loaders.

The others are T6, T7 categories but it also shows you yes on washing machines there's an exposed prize competition out there but it's not across all T6 or T7 categories.

Was Whirlpool a leader in price competition in Q3 and is that what drove your units much better than the industry?

I wouldn't say that, no.

Laura, this is Jeff.

Look, there's a couple of product categories that certain competitors have been extremely aggressive for some time.

Now in the third quarter that we are in a position to launch new product innovation both of these categories, we decided it was appropriate that we come back to where others were establishing market prices.

So we absolutely have not been driving the leaders in driving that down but what we found which we knew that at a comparable value for great products with our brands that we would have a very positive impact in share and we did.

And at the same time, though, on top of that very importantly we're establishing new products in the marketplace which I think over time will actually raise the mix back up.

Got it.

Thank you.

Thank you our next question will come from David MacGregor with Longbow Research.

Please go ahead.

Yes, good morning, everyone.

David.

Good morning, David.

Just a few questions for the model if I could.

The BEFIEX run rate going forward, $56 million on the quarter should we be thinking about that as the run rate -- quarterly run rate going forward or just help us think through that?

David, look, I think for the year now -- last call I said we thought it would be roughly $165 million, given the run rate in the third quarter and what we have seen in the fourth quarter I think it will be more like $195 million now for the year so if I remember right it was $41 million and $47 million in the first two quarters and then $56 million this quarter and obviously that leaves $51 million left in the fourth quarter.

So for 2011, I realize you don't want to talk a lot about 2011 at this point but --

David, as you know, it depends on sales levels and depends on the mix of products within that so there's really not a basis and we're -- we really can't give you guidance yet.

Okay.

For 2011 again, forgive me for trying to reach forward here a little bit but pension and OPEB costs, if rates were to remain how do those change year over year?

Again, David, I don't really want to go into -- first of all, I can't go into 2011 pension costs because I don't know all the variables yet and so I just -- I wouldn't be able to do that.

If you look at sort of all up pension and OPEB costs this year it's because we have the OPEB credit in there, it's about $80 million so if you look pension, 401(k), OPED, all as a bundle, it's $80 million.

Take the OPEB credits out it's $140 million and that's basically flat lined with what it was last year but again, depending upon where discount rates David particularly in this environment I can't speculate on what that's going to be next year.

Probably the one point I can make to you, though is with respect to cash and funding of pensions as you know, we have roughly $1.3 billion unfunded status in our defined benefit plans, of course they are frozen now.

But we see the minimum funding requirements given current pension rules to be roughly $200 million in 2011 and that's an important point from a cash perspective.

I just can't speculate yet, David, on the expense side.

Okay.

Thanks, Roy.

And then I guess thinking about the competitive environment right now, you've got Samsung and LG that have been very aggressive in the US market.

We have been talking a lot on this call about the third quarter.

You're certainly a formidable target for them.

You're a big player in the North American market and it's easy to see why they would focus on you from a targeting standpoint but if we talk about Latin America for a moment, you're even more formidable at presence in that market and our sense is that LG and Samsung are dialing up the gas down there as well.

Can you just talk about what you're seeing in terms of the changing competitive environment in Latin America and sort of talk if you can about how that plays out in the next 12 to 18 months?

Yes, David it's Mike.

Frankly, I don't think we are seeing today significant change in terms of competitive environment and frankly, we feel pretty good about our position there.

We continue to actually grow our market position.

We feel good about the brands and what we are offering in that marketplace and so, we think we are very competitive and that we will continue to grow and expand our margins and our business in Latin America so --

In North America markets these two competitors seem to be motivated more by share grab than by profitability.

Is it your sense that the same situation down there?

I don't know that we can, David, speculate on others' intentions.

What we do know is for, as part of our business we know that we have very competitive cost structure vis-a-vis anyone in the world.

We know our brands in the markets we serve are preferred brands and what others do is up to them but as long as we continue offering good values in the marketplace, bringing the latest innovation and continuing to manage our costs structure I feel very confident we can compete with anybody in the world.

Okay.

Last question in North America, the Black Friday channel fill seems like the independents are going to get in this year whereas they weren't last year so it would seem more product going into the channel.

I was wondering if you could just talk about how the channel fills this year compared with last year?

It's Marc Bitzer.

I would right now say from an overall perspective we are in a promotion environment but I don't expect that to play out very different from the previous years so we see the typical Channel moves, the typical exposure of different channels to different degree.

Independent retail tends to be less exposed to Black Friday than other retailers but they are still some-what participating.

That's what we would expect for Q4 as well.

Thanks very much, everyone.

Thank you.

We will take our next question from Michael Rehaut with JPMorgan Securities.

Please go ahead.

Thanks good morning, everyone.

Good morning, Michael.

First question, you had mentioned Roy I guess that you're targeting some reduction in inventory about four days worth due to the maybe slightly softer than expected demand in North America.

Depending on the success of that inventory reduction, is that how we are to think about whether or not you're going to hit the -- let's say if you fully get rid of that inventory that you could hit the lower end of EPS?

I know you kind of talked about cash flow as well, but from an EPS perspective, is that kind of the main driver in the remaining range from an EPS perspective?

No.

I -- my comments, Michael, were more with regards to the high end or the low end of the cash guidance.

But not from an EPS perspective.

So I mean, but in the guidance, if you do have that inventory reduction and your facilities are running at a lower rate, wouldn't that impact margins as well?

Yes, I mean, if your question is do we have some overhead in that excess inventory, the answer is certainly we do.

We think that's a few tenths of a point at the end of the third quarter but you're correct, there is definitely overhead sitting on the balance sheet associated with that excess inventory, yes.

And the expectation of the impact is clearly in the guidance.

Yes, absolutely.

Okay.

So that's built in there.

Also, looking at Europe kind of tracking at this 3% plus or minus for the full year, demand has come in a little bit better than expected but can you talk about -- obviously at earlier points you were at, you know, 5%, 6% type of range for -- from like let's say 2003, 2004 to 2007.

How do you see getting back to that?

I mean, is that something that given some of the improvements you can see over a 12 month basis or is it more of a 24 to 36 month basis?

Well, Michael, let me just give you a perspective.

I mean, as you can see, every quarter we kind of are making progress in terms of expanding our margins in Europe.

We're focused very much, and I talked about this before, of insuring that we drive the right cost productivity so that as volumes begin to come back, we can absolutely see that our margins are going to continue to expand at a pretty strong rate.

So, I'm pretty confident that we will get back to our previous operating margin levels.

I'm not going to give you an exact time frame on that but I certainly think it's well within our reach.

Okay.

Last question if I could.

The litigation and the settlement with regards to the DOJ, one, just want to make sure, is that kind of the end of your -- end of the road in terms of the -- this path in the US, are we completely kind of through this issue in the US and if you have any update if there's any action going on from a European union perspective.

Well, Michael, as we've disclosed for some time now that we are cooperating with several jurisdictions, we've settled the two we have talked about which is in Brazil and US, we're still -- other jurisdictions we're still obviously in discussions with and cooperating on but there's still really nothing new we can say about that.

Okay.

All right.

Thought I would try.

Thank you.

Thank you.

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

Please go ahead.

Thank you.

Good morning everyone.

Good morning, Jeff.

Jeff.

A lot of ground covered.

Just a couple of other things, we kind of hit on this inventory issue quite a bit but how does what is currently in your excess stock kind of line up with where the market is?

In other words, is the stock in laundry?

Is it at the wrong price points?

Is that why it actually backed up or is it kind of just a more generic demand issue?

Yes, Jeff.

I think it's pretty simple actually.

It's -- the demand in North America was slower than we expected going into the quarter, big part of the slowdown started by the middle of the quarter.

We decided to start making adjustments and but in terms of the mix of inventory and everything like that, again, we are talking about four or five days.

That's not an unmanageable amount for our kind of business.

I mean, Roy you went through that in pretty good detail but I was going back and looking at an inventory to sales Q4 the last several years and it's been about 50% plus or minus which would say $2.4 billion is where you would want to end the year on a normalized basis and you're actually $600 million above that right now.

Yes.

I was actually computing $2.5 billion but we are in the same relevant range.

Yes.

But you only really see a couple hundred million needing to come -- so you're going to be above $2.5 billion but you wouldn't view that as abnormal given the seasonality and product transition that you were talking about?

No.

I think, again, I think that the point I was trying to make, Jeff, is that we came into the year -- I mean, we came into the year with low inventory levels and we talked about that in the first couple of quarters so we had the intention of building a couple hundred million dollars of inventory from where we ended the year last year.

In the third quarter, that's typically a quarter if you sort of look at us year in and year out where we use about $100 million in terms of incremental inventory build.

This year that incremental inventory build was $300 million and that 200 delta was my point with respect to this excess inventory from sort of traditionally where we're at in the normal inventory builds and seasonality.

So I'm not trying to imply that we have now lifted a new level with respect to what's normal.

I'm just trying to isolate how much of this is what we intended to do, how much of this is seasonality based builds, which are two days and then this excess of four days that we have.

We do have as I said, Jeff, earlier, we do have this one day in transition but Marc and I would both tell you that's going to be with us for a while until we get through these production transitions.

Okay.

And just trying to reconcile the comment on negative mix versus branded share being strong so there's mix erosion within the branded business but you're shifting more towards branded overall?

Is that the correct way to think about it?

Jeff, it's Marc Bitzer.

I mean for North America, yes, we have a significant mix growth towards our branded business.

We had in your overall mix which is obviously a combination of brand mix, trade partner mix, product mix, we have in the third quarter, we had a slightly negative mix which is different from the first half.

There's a lot of new product innovations coming in.

We expect to stabilize mix going forward.

And then finally, Roy, could you true us up on where the BEFIEX balance is at the end of the quarter given all the currency machinations and everything that's gone on?

Ending BEFIEX balance will be in the 10-Q this afternoon, $590 million.

I'll tell you what, I'll look that up Jeff and if I'm wrong I'll come back and clarify it on the call okay, but I believe it's going to be $590 million.

Terrific.

Thank you very much.

And our last question comes from Robert Kelly with Sidoti & Company.

Please go ahead.

Good morning, thank you.

Good morning.

You talked about the slowdown hitting you in the second part of 3Q and making some adjustments with your inventory.

What is your sense of your kind of key customers' inventory?

Did they have to make adjustments as well and how does that play into your expectations of price mix for the coming quarter in North America?

Robert, it's Marc again.

And again for North America, I mean as you know, there's a few reliable data points which give you good statistics on customer inventory levels.

On an overall level, the two ends which we have is one if we compare overall sell in from the industry, the data points which we have sell-through the industry actually sell-through is even softer than the sell-in, so you would expect that the inventory are what I would say balanced to slightly elevated.

The opposite appears to be our through our branded business.

Actually, our sell-through data for the third quarter is better than when the sell-in data so and on this data we have also trade partners reliable data on their inventory levels.

I would describe our branded inventory levels with trade partners fairly balanced.

So your expectation is price mix stable or slightly better in 4Q in North America?

We are working on mix initiative, yes, and we have a lot of new product which would support this one.

Be careful when you compare sequential versus year over year because you have a promotion period in the fourth quarter.

Right.

Thank you.

We have no further questions at this time.

I'd like to turn it back over to the floor for any closing comments.

Well, listen, everyone.

Thank you for joining us today.

We appreciate your attendance and comments, and we look forward to talking to you next time.

Thank you very much.