惠而浦 (WHR) 2010 Q4 法說會逐字稿

Good morning, and welcome to Whirlpool Corporation's fourth-quarter year-end 2010 earnings release 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.

Go ahead, sir.

Thank you, Ty, and good morning, everyone.

Welcome to the Whirlpool fourth-quarter and year-end 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 Corporation's future expectations.

Our results could differ materially from these statements, due to the 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 they may not be indicative or 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, beginning on slide 28, for a 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 www.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 fourth-quarter and year-end financial results.

These results you can see on slide four.

For the full year, sales came in at $18.4 billion, which were up $1.4 billion versus last year.

On an adjusted basis, EPS was $9.65 per share compared to [$5.01] in 2009.

We generated free cash flow of $502 million during 2010, and overall, we are pleased with the progress that we made towards all of our value-creating objectives last year.

Slide five summarizes the highlights of the year.

We saw a return to growth with our net sales rising about 7.4% versus last year; we improved our operating results for the year, I think a clear indication that our brand value creation strategy continues to drive profitable growth; we delivered significant, in fact, record levels of consumer relevant innovations; managed costs; and executed well in the marketplace.

In total, we improved our financial position by strengthening our balance sheet and by reducing debt by just under $400 million.

And we returned to shareholders in the form of dividends, $132 million, while maintaining a $1.4 billion cash balance.

Overall, we made good progress towards reducing our overall leverage as a company, in line with our stated objectives.

Slide six summarizes our current demand outlook for 2011 in the geographies across the world.

This year, we continue to expect positive demand growth around the world.

In the US, we see our full-year shipments to be up approximately 2% to 3%.

Marc Bitzer will discuss the North American industry growth rates in more detail in a moment -- but last year, industry demand grew the first time in four years and we expect this trend to continue in 2011.

In Europe, we see industry growth demand improving by 2% to 4% for the full year and we've seen appliance demand has grown for the last four consecutive quarters across the region.

We continue to see strong underlying economic fundamentals in Brazil and other Latin American countries, and we're forecasting industry growth in Latin America in the 5% to 10% range.

And finally, we expect to continue to have healthy growth in Asia, with expected 6% to 8% growth rate for the year.

Turning to slide seven, you can see the key drivers which we see affecting our business in 2011.

First of all, we expect our cost reduction and productivity initiatives to have a significant positive impact on our margins in 2011.

We once again achieved very strong gains and cost reductions in productivities during 2010, and I expect this to continue this year.

In addition, we will have higher unit volumes and, very importantly, we're driving very strong consumer product innovation for our global brand portfolio, which will contribute to improved growth rates and operating profits.

From a price/mix standpoint, we have announced or implemented price increases in most major regions in markets around the world.

For the full year, we expect these increases to result for the full year a flat to slightly higher-price mix, and importantly, reverse the unfavorable trends which we saw during the second half of 2010.

We continue to manage currency risk and expect currency impacts to be manageable at today's levels for the year.

And finally, we expect raw material inflation to drive higher costs and, therefore, have an unfavorable impact on operating results.

For a full year, we're estimating material costs for the year as an unfavorable impact of $250 million to $300 million.

When you take into account all of these factors, our guidance for 2011 is that we expect to deliver EPS in the range of $12 to $13 per share and free cash flow of $400 million to $500 million.

I would point out that our free cash flow guidance includes an expected US cash pension contribution of approximately $300 million.

Roy Templin will go into more detail on this outlook in a few moments.

This year, we remain very focused on delivering higher margin innovations, realizing significant cost productivity, and achieving profitable growth, which will be driven by some recovery in the main and the developed economies, and continued strong growth in many of our emerging markets.

We also expect to expand our operating margins this year despite the significant global inflation, and we will generate good levels of free cash flow, which will drive further strengthening of our financial position.

So at this point in time, I'm going to turn it over to Marc Bitzer for an update on our North America operations.

Thanks, Jeff.

Good morning, everyone.

Let me start by giving my prospective North America's performance for the year.

As shown on slide nine, we generated record brand share gains in the fourth quarter and full year.

This performance validates the power of our brands and our product innovations, and we continue to provide strong value to our trade customers for our trusted brands.

Our ongoing innovation investments result in a great year of product launches in North America and our new products have been very well-received by consumers.

In addition, we were pleased to see that [2010] market first time we saw industry volume growth in four years.

On slide 10, you'll see North America's performance in the fourth quarter.

Net sales of $2.6 billion were down 1% from the prior year and our adjusted operating margin was 1.7% compared to 5.6% in the prior year.

The results were unfavorably impacted by, one, the negative price mix in a very promotion environment; two, higher material costs; and three, lower production volumes, as we started to balance our inventory positions with slowing demand.

On the other hand, favorable cost reduction unit volume improvement and lower incentive compensation powerfully offset the unfavorable items.

As a result of inflation environments and the unfavorable price mix, we have announced a significant price increase in the US on most of our products and brands.

And we're very confident that the actions we have taken in the areas of cost reduction, price mix, and new product innovation will put the business back on track to improve our operating margins as we move through to '011.

On slide 11, you can see a sample of just a few of our new products that we launched in Q4.

These products have been well-received in the marketplace and contributed to our record level of new innovations in [full year].

These launches include a [KIC] brand dishwasher, featuring a modern version of a [reset handle] found in models from past decades.

The Maytag brand Maxima [Lawn Repair] and our latest fabric care innovations have been recognized by a leading consumer magazine.

In January of this year, we received top ratings for 11 of our latest top and front-loading models.

The Whirlpool brand Duet Advantage Washers were rated number one in the front and top-loading categories, respectively, with the Maytag Maxima, which you see in the picture, taking the number two spot in front-load.

We also launched the Maytag brand Gemini Double Oven freestanding range, featuring two separate ovens and the industry's largest capacity.

In 2011, we will continue to introduce consumer-relevant products while striking positive balance between our products, price, mix and share.

And finally, turning to slide 12, I would like to turn to our industry outlook.

As I mentioned earlier, we had our first year of positive demand in shipment terms in four years during 2010.

For the full year, we expect US industry shipment of major appliances to increase approximately 2% to 3%.

We are seeing signs of stabilization in new housing starts and improvement in the existing home sales.

When you look at the year, however, it is important to note that we have a very difficult comparison in the first half of 2011, and we compare against the Cash for Appliances program impact of 2010.

We are anticipating slightly negative industry growth trends in the first half, which will be more than offset by positive trends during the second half of the year.

From a full-year perspective, we are optimistic the industry remains on-path to recovery, as we still remain well below long-term trend demands.

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

Thanks, Marc.

And let me start a 2010 review of our international business on slide 14.

Overall, our international business performance was strong for the year.

During the fourth quarter, sales at our international businesses accounted for just under 50% of our total company sales.

Our operating results benefited from our ongoing cost production and productivity efforts, and solid volume growth in our emerging markets.

We generated unit volume growth and improved operating margins in Europe.

In Latin America, we saw strong growth rates for the full year despite the strong year-ago comparisons, enabling us to further extend our leadership position in Brazil.

We generated strong operating margins along with this growth.

Our Asia business experienced significant growth throughout the year, while due to material inflation, our margin performance was mixed across the region.

Turning to slide 15, in the fourth quarter, our European sales declined 4% year-over-year to $922 million, with unit shipments increasing 6%.

Excluding the effects of currency, sales increased approximately 4% compared to the prior year.

The region reported an operating profit of $29 million during the fourth quarter compared to an operating profit of $19 million in the previous year.

The profitability improvement was driven by continued cost reductions and productivity improvements as well as higher unit volumes.

The improvement was partially offset by lower price mix and higher material costs.

Overall, we made solid progress improving our profitability in Europe, and we'll look to build upon and accelerate this trend in 2011.

Slide 16 shows a summary of our Latin American fourth-quarter results.

The region reported sales of $1.4 billion, an 18% increase from the prior year period, as appliance unit shipments increased approximately 15%.

Excluding the impact from currency, sales increased approximately 17%.

Adjusted operating profit reached $193 million compared to $142 million in the prior year.

The profitability improvement is primarily related to [increased] monetization of BEFIEX tax credits, cost reduction and productivity initiatives.

These favorable items were offset by higher material costs, lower price mix, and unfavorable foreign currency fluctuations.

Our fourth-quarter results in Asia are shown on slide 17.

Net sales increased 9% during the quarter to $204 million, up from $188 million in the prior-year period, as unit shipments increased 4%.

Excluding the impact of currency, sales increased 4%.

Operating profit reached $4 million for the quarter versus the $6 million generated in the prior-year period.

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

Turning to slide 18, you'll see just a few of our international product launches during the quarter, including a line of Whirlpool brand, energy-efficient, frost-free refrigerators in our Latin American region.

The refrigerators feature improved aesthetics, more freezer space than previous models, and the ability to adjust interior temperatures with exterior controls.

Our Bauknecht brand, KOSMOS Wall Hood in Europe, featuring a brushless motor that consumes up to 50% less energy than comparable Bauknecht goods; and the Whirlpool brand Carisma 6th Sense Dryer, featuring faster drying times and an A Class energy rating.

In 2010, we had innovative product launches in every major category around the world.

We entered 2011 with a continued commitment to strategically strengthen our position in all markets through our global brand portfolio, and our diverse and innovative product offerings that meet the unique needs of consumers around the world.

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

Thanks, Mike, and good morning, everyone.

Beginning on slide 20, I would like to summarize our fourth-quarter results.

For the quarter, our sales grew 3.7% to $5.0 billion.

Appliance unit volumes increased 7.6% from the prior year, led by 15% growth in our Latin American region.

All other regions reported mid-single-digit volume increases during the quarter.

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

In addition to this, we monetized $81 million of BEFIEX credits compared to $17 million in the prior year.

During 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.

We also saw a year-over-year improvement from lower incentive compensation expense and recognized a $10 million, or $0.08 per diluted share, gain from the sale of an asset in the current quarter.

These favorable effects were more than offset by lower price mix and higher material costs.

Turning to the income statement on slide 21, we reported net sales of just over $5 billion.

Our gross margin contracted 90 basis points to 13.2%.

The most significant unfavorable impacts on our gross margin were lower product price mix and higher material costs.

These were partially offset by cost take-out and productivity actions and higher BEFIEX credit monetization.

SG&A expense totaled $441 million compared with $427 million in the prior year.

The increase in SG&A spending was related to higher infrastructure spending on strategic initiatives and increased revenue generation spending.

SG&A expenses were 8.8% of sales during the quarter, which was equal to the prior-year level.

Restructuring expenses totaled $16 million during the quarter and were the result of cost reduction actions in Europe and North America.

For 2011, we expect to record restructuring charges between $75 million and $100 million.

Finally, our reported operating margin declined 10 basis points to 4.0%.

On an adjusted basis, our operating margins contracted approximately 60 basis points.

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

The most significant increase in interest relates to a favorable tax settlement in Brazil during 2009.

Excluding the prior-year tax settlement, interest expense was down slightly year-over-year, due largely to lower overall debt levels and a lower average interest rate.

Lower interest in sundry expense was the result of a reduction in legal costs and contingencies, and the non-recurrence of a $13 million charge in the prior year related to previously capitalized transaction costs.

Turning to our tax rate, we recorded an income tax credit of $46 million during the quarter, corresponding to an effective tax benefit of approximately 35%.

The fourth-quarter credit was an improvement from our previous expectations due to lower pretax income, higher BEFIEX credits, and the favorable impact of fourth-quarter tax law changes here in the US.

Finally, we reported diluted earnings per share of $2.19 per share compared with $1.24 per share in the prior year.

On an adjusted basis, diluted EPS was $2.11 per share compared with $1.67 per share in the prior year.

Moving to our free cash flow results on slide 23, we generated free cash flow of $502 million during the year compared to $1.1 billion in the prior year.

The main variance from the prior year's record results relates to changes in working capital levels from the prior year-end.

Overall, our free cash flow was below our expectations.

The most significant driver of this variance relates to inventory.

While we made some progress in reducing our inventory balance during the fourth quarter, we did continue to have some excess stock at the end of the fourth quarter.

For the full year, our capital spending totaled $593 million, which was in line with our previous expectations.

Our 2010 capital spending as a percentage of sales was equal to the prior year at 3.2%.

For 2011, we expect our capital spending to be between $600 million and $650 million.

Turning to slide 24, I would like to discuss our 2011 outlook.

As you read this morning in our press release, we expect to generate earnings per diluted share between $12 and $13 for the full year.

Given the recent tax legislation, the US Energy Tax Credit Program was extended through 2011.

As a result, we expect to earn approximately $4 per share of these credits during 2011.

We have included this amount in our outlook and expect our corresponding effective tax rate will approximate our 2010 rate.

As Jeff mentioned previously, we expect unfavorable material and oil-related costs of approximately $250 million to $300 million during 2011.

We expect to more than offset these costs through our cost reduction and productivity initiatives, favorable unit volume contribution, and slightly higher price mix.

Turning to our free cash flow, we expect to generate free cash flow in the range of $400 million and $500 million during 2011.

We have assumed US pension contributions of approximately $300 million within this estimate.

Finally, turning to slide 25, I'll close my remarks by discussing the cash flow priorities for the business.

In the near-term, we are focused on returning our credit ratings to pre-recession levels.

During 2010, we executed well against our priorities and paid down just under $400 million in debt, while funding our capital expenditures, pension, and maintaining our dividend.

As we move into 2011, we continue to see these priorities unchanged.

We have repaid just under $400 million of debt during 2010, which helped us improve our overall leverage ratio.

Over the next 15 months, we have $650 million in debt maturities and we expect to make a cash pension contribution of approximately $300 million this year.

While we continue to focus on improving our leverage ratio, we will consider these maturities and contributions as a part of our normal capital structure review.

Overall, however, our cash flow and credit rating priorities remain unchanged from our previous priorities, and we will continue to prioritize our cash flow accordingly.

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

Thank you, Roy.

Turning to slide 27, I wanted to take a moment to review our outlook relative to our mid-term value creation objectives that we shared last fall.

We expect our revenues to be in the range of our mid-term objectives of 5% to 7% with growth this year.

As you can observe from our industry demand assumptions, this is largely driven from our emerging-market businesses, as our developed markets still have not yet returned to what we would consider a normalized level of demand.

Over time, however, we do expect the US housing market with new construction, resales and remodeling, to begin to return to more normalized levels.

And, ultimately, I believe this will accelerate our developed market growth rates in North America; but our 2011 forecast reflects only a modestly improving housing market and still at near-record lows from a historical perspective.

Turning to profitability, we expect to grow our operating profit and expand our operating margins during 2011, and make good progress towards our goal of delivering at least 8-plus percent operating profit as a percent of sales.

We expect to grow our operating earnings at the high end of our 10% to 15% goal during 2011.

And, finally, turning to our long-term free cash flow target of 4% to 5%, as we've mentioned, our outlook of $400 million to $500 million is below this objective, but I would say we also look at the fact that this includes $300 million in US cash pension contributions, which is much higher than it's traditionally been.

If you remove that contribution, we do expect to improve our free cash flow performance as a percent of sales to be at the lower end of our 4% to 5% range, which represents a significant improvement over 2010.

So I'd summarize and say we're very focused on delivering higher margins, realizing significant cost productivity, and achieving profitable growth.

We expect positive but uneven demand around the world.

Raw material inflation is driving costs higher, but we expect to fully mitigate these costs with improvements in cost productivity, the benefits of our very strong innovation, and our recently announced price increases.

Overall, based on these assumptions, we expect to have a record year performance in 2011.

At this point in time, this ends the formal comments.

We'd like to open it up for questions.

(Operator Instructions).

Eric Bosshard, Cleveland Research.

Can you give a little bit more color on the price mix situation in the US in 4Q perhaps relative to 3Q, and relative to your expectations of 4Q?

And then how you expect that to behave in 2011?

Marc, why don't you answer that?

Eric, it's Marc Bitzer.

So let me give you a little bit more color from a product mix in North American Q4, which was below where we expected it.

So on a sequential basis, because that was your question, Q3 versus Q4 deteriorated, largely driven by a very big element of a promotion around Black Friday holiday period, which extended more -- a day more than a week, it's basically almost for the entire quarter.

There was a long pre-buy period.

And the overall promotional element in our sales in Q4 were higher than we expected, and plus our price mix was also lower than we expected.

So on a sequential basis, it was worse [when] we had accounted for.

So [a very] situation year-over-year and sequential on the price mix.

The only question going forward, as indicated, we have announced some price increases to our trade partners.

And in Q1, we also obviously will not have the impact of this Black Friday promotion element in there, which takes some burden off the pricing pressure.

And I'm sure at some point Roy will give us a little bit more numbers, but I guess, from a bigger picture perspective, as you move away from this in the first half of '11, how do you think this impacts your units in your market share performance?

Eric, it's Marc Bitzer again.

So, first of all, bear in mind Q4, we ended on an all-time record market share.

So, obviously, as you enter a period of price increases coming from a position of strength and market share gives you certain confidence on the market share.

So that just gives us a lot of momentum as we go into Q1.

Overall, in Q1, we don't expect the promotion intensity to be as extreme in the overall market place as it was in Q4, so I don't think that will come at the expense of market share.

And in Q2, we will have to see.

Eric, let me give you a little bit of color to your point with respect to some of the numbers.

Price mix impact on margin in the fourth quarter, Q-over-Q, year-over-year, was minus 3.2 points.

North America was a little worse than the global amount, but obviously, the international businesses were better with respect to their price mix impact on margin.

From a topline sales perspective, when you look at the sales recs, price mix globally and the sales rec with minus 4.6 points in the sales reconciliation.

So those are the global impact and, again, the relative numbers with respect to what happened in North America and international.

And then just the last question on this.

As you look at that -- whichever of those numbers you want to choose, and I appreciate that you ended 4Q on a record market share in better volumes than you expected in 4Q, but I guess, is -- you reversed the price mix, I would think it'd have a corresponding influence on your market share performance, on your unit performance.

How do you assume that that works in 2011 and especially the first half of '11?

Eric, this is Jeff.

Let me maybe give you just one other perspective, because this is an important point.

This fourth quarter US promotion period, a lot of people talk about Black Friday.

Black Friday became a week and then it became two months.

I think a lot of the decisions that were made about that at every level, [many] impacts for retailer, et cetera, largely were made six to eight months before, when the environment in the US was very different.

There was good growth, material costs was at relatively stable levels, and a lot of these plans were put in place.

And the fact of the matter is the environment in the fourth quarter really was very uneconomical.

Total revenues sold in the industry were probably below 2008 levels, given demand and client prices.

So I don't think it's -- at least from our view, it's not economically feasible to stay there.

As Marc said, we took -- we're not promoting after November, so that promotion driven on our part comes back to us in the form of my price mix in the first quarter.

The second part I guess I would just say too is, we had the most impactful innovation in the market we've ever brought in the last four months of last year.

That is driving our business very strong right now.

We just got top ratings in all the consumer magazines for all of our washing products.

People want to buy them.

So we have good, what I would call, consumer-driven demand for our brands right now.

And we want to make money selling them.

Great.

Thank you.

Joshua Pollard, Goldman Sachs.

The first question is on your guidance.

Just want to know very quickly whether or not you're including the $75 million to $100 million of restructuring in your $12 to $13 of guidance?

And then if you could also talk about, on the margin front -- are you expecting a respective 4Q over 1Q comparison that you guys are talking to?

But as you look at the whole year, are you somehow expecting next year's Black Friday to have a different promotional environment, such that you'll have a positive price mix in 2011 versus 2010?

Josh, it's Roy.

Let me take the first part.

The simple answer to your question is yes, we have included the $75 million to $100 million in the guidance.

And on the second part, Josh, we can't project what's going to happen November of 2011.

I would just -- I would stick to my comment -- 2010 was value-destroying and I don't think that's sustainable.

I guess another way of asking the question is -- could you break out sort of the components that get you all to margin expansion, when you talk about the unfavorable commodity mix -- $250 million to $300 million -- you take the midpoint of that versus 2010 sales, you get a reduction of about a point-and-a-half.

And I'm trying to understand from where you guys are ending the third and fourth quarter, what gets you back into positive territory for 2011?

Josh, it's Roy.

Let me talk -- we're not going to give specific line item guidance, but let me talk to you sort of from a high-level perspective.

And then, Jeff, Mike, or Marc maybe can append to my comments.

But when you think about operations as we step forward from '10 to '11, the way I think of it, there are three major pieces to the positive side.

One is, as we said in our scripts, a higher volume on a global basis and the impact from that, the contribution margin from that.

The second area we're assuming is, is flat to slightly positive price mix.

So we've got some benefit in there for that.

And then the important piece, which gets direct reference to your comments on material cost, is we have assumed in our guidance, and given our plans, that we will have more cost take-out than we will have in material cost increases.

Now, Josh, again, a couple of things to keep in mind.

Jeff has talked for a number of calls about all the components that go into that cost take-out, so think of all those items, plus in 2011 is the year when we will be to our total run rate in terms of cost savings that we will benefit from all the restructuring we've done in the recent past.

So this year we're assuming $270 million of benefit from the restructuring we've done.

So all those components together get you the operating side.

And then, again, in fairness to full disclosure, the other key item, as I said in my script, is the energy tax credit this year, we're in the low 200's, $225 million, roughly, but we have assumed $300 million in the guidance for next year, so there is a benefit from that.

Josh, the other perspective I would give you is that our number one priority and focus is margin expansion.

So that's how we're prioritizing our investments and our decision-making.

Our expectations in this guidance, that all regions around the world are expected to improve.

As you look at the growth rates we've indicated, quarterly, Latin America is growing the fastest and it has already double-digit operating rates.

That's a natural mix improvement in our total margin.

And the price increases we'd either implemented or announced, the highest that we publicly announced are in North America, which we're fully committed to achieving.

So, that along with, again, what I'd call is another very strong year of cost productivity, and those two combined, we feel confident will offset the material cost inflation and provide for margin expansion.

Okay.

So let me just ask one quick follow-up.

You guys gave the cadence of the growth you expect first-half versus second-half in North America, considering the comps.

Would you guys care to give the cadence of your 2011 price mix by half, considering that you're looking for it to be up and it seems like your first-half comps, considering what you've seen sequentially in the second-half of the year, are going to be difficult.

I guess the other quick one is on the BEFIEX, could you just give a balance and outlook?

Thank you, guys.

Josh, first of all, on the growth, we did talk about the North America because we are going over large year-over-year comps in Q1.

So our expectation is that will be the slowest comps, perhaps even negative, for the first quarter -- or first part of the year, as Marc said.

But you've also got to look at the other parts -- we see Latin America continuing at the rate they've been on.

We see Asia continuing at the rate they've been on.

We see Europe continuing at the rate they've -- so we don't see the same comp issue for -- and by the way, a very important point, our international business is now roughly equal to our North America business.

So it's -- we do have that geographical balance.

Secondly, the pricing is really hard to give -- I mean, some -- what we've talked about is either already executed or announced and for execution.

So we don't talk about any future pricing beyond that.

So it really is then market-specific.

I think the biggest one is the one Marc talked about, is where we have a, I think, appropriate increase has been announced for April 1, which we're committed to executing.

We've had some markets start in November/December, in some of the emerging markets.

I mean, it's a little bit of everything, but your basic premise is that margin improvement for pricing will grow throughout the year is true.

Josh, it's Roy.

Two things -- one, again, in terms of calibrating these, again, the price mix impact.

I talked about three positives -- the volume, the price mix and the cost take-out; but please appreciate, price mix is by far the lowest of those three.

So I want to be clear on that.

Second thing in response to the second part of your question, we have assumed $200 million of BEFIEX credits in this guidance.

Other questions?

David MacGregor, Longbow Research.

You talk about flat to barely positive price mix for the coming year.

You've talked about these substantial innovations there in the market.

You've got a price increase coming through.

Help me reconcile why it's only slightly positive price mix.

Yes, David, very clear.

It's -- you know, we exited in Q4 very negative.

So, first, you have to make up the negative run rate.

So if you think of Roy's number, he talked about minus 3.2, I mean, that's coming into the year.

If we did nothing, that would be for -- certainly, three quarters, that would be our run rate, which we are going to reverse as fast as possible.

So we're -- as we eliminate the negatives and then start adding to it, that's how we get to flat to modestly positive.

Okay.

Are you at all concerned about the fact that the Korean manufacturers haven't gone along with this price increase?

I don't -- I guess you'd have to ask them.

I don't really know what they've done.

I'm just asking if you're concerned about your ability to collect the price increase, knowing the fact that they're not going along.

I feel good about our ability to execute this because I know that in multiple product categories, we have tremendous consumer demand for our new innovations.

Okay.

Roy, is there any way you can help us understand the extent to which the hedging programs may have helped to offset raw material cost inflation in your guidance for next year?

Well, David, let me answer it broadly and then, Jeff, if you want to append to my comments.

If you look at it -- again, we've got, in our guidance, $250 million to $300 million with respect to the impact from material cost increase.

I know you all have asked on a number of occasions, how much of that might be protected with respect to either hedges or collars or caps or contracts, et cetera.

And roughly speaking, David, there's about 40% of our total buy that is exposed to variation, and roughly 60% of the total buy in some way, shape or form is protected by one of those elements that I mentioned.

That's helpful, thank you.

And then with respect to cost reductions, you're getting raw material cost inflation, so where are you getting the decreases?

Is it headcount reduction?

Is it the units of production D&A?

Yes, David, it's really all across the business but -- and then really similar to what I've described in the past.

But first and foremost, it's -- comes through smart, more efficient product design.

So we're more efficient use of material in our new products.

Every one of our new megas that we bring into the market generally has less material content than the one it had prior.

We've talked in the past and we continue to mine global component standardization.

We continue to make great advances in our factories in terms of lean manufacturing and savings and less labor hours per unit.

We see big -- our quality, we've had tremendous improvements on our already industry-leading quality rates.

And that ultimately leads to cost reductions and the cost of quality.

Logistic costs -- even though the oil and fuel related to it is going up, as we now are starting to grow some volumes on our infrastructure there, we're getting leverage off of that.

And candidly, we had a global cost leadership system embedded globally and every piece of the business contributes on an ongoing basis.

So, it's hard work.

It's work we do every day.

But I don't -- we've been on this for -- this is, I guess, the third straight year and we fully expect to deliver.

Last question -- thanks for that answer -- last question, just January off to a pretty weak start here; I guess, the first three weeks were off about 20% year-over-year, industry-wide.

Will we see more production curtailments from you in the first quarter?

Well, you know, we don't give out January -- I just said -- I'd say outside of the US, we haven't seen anything abnormal in our run rates that we saw before.

And Marc, you can mention whatever you want to -- see.

David, it's Marc Bitzer.

What we saw in Q4 is that the trade inventory position at the end of the year was elevated.

Basically, as you know, the industry data which we refer to as selling, i.e., shipment data to a trade partner, this sell-through to consumers throughout the entire Q4 was below that selling number.

So we know that the trade partners -- many trade partners were in an elevated inventory position end of December.

And we see a correction of that in January of some of these trade partners have their year-end close in January or February.

That is not completely surprising, as we saw in the elevated position building in December.

Our senses to sell through is not as bad as would be suggested from the numbers, whatever you used.

And conversely, the consumer sellthrough was not as good as people speculated in Q4 and, actually, we think better than people speculated in Q1.

So there won't be any production curtailments in North America in the first quarter?

David, it's Marc again.

I mean, to Roy's earlier point about the inventory position, we started balancing our inventory levels as we saw demand coming down.

And that process is not yet complete.

So it's more our long-term optimization balancing of the inventory position, which we expect to continue in Q1.

And we will -- yes, we will -- we do have and will have scheduled down days, David.

And that's all included in our guidance.

It is included, that's correct.

Okay.

Thanks very much, everyone.

Sam Darkatsh, Raymond James.

I'm proud to say that I think I helped your quarter a little bit.

I bought a KitchenAid fridge this quarter.

We're very happy with it.

(multiple speakers)

A couple of housekeeping questions, many of my questions have been asked and answered.

First off, with respect to David's last question regarding production plans, for 2011, I guess if my math holds, you're anticipating global unit shipments growth of about 4%.

Are you anticipating for the year production in excess of that, similar to that, below that?

How should we look at your production plans versus your shipment plans?

You know, [David], first of all, the global number is about correct, okay?

And as Roy mentioned, we had -- in days, two or three days probably more than where we optimally like to be at the end of the year.

Of course, the year before, when demand picked up very quickly, we had less inventory than we wanted to have.

So there's always the balancing that's going on.

And the situations are somewhat different all over the world.

We have some parts of the world where we're doing everything possible to keep up production with demand.

And then we've had -- and then we had a market like the US, where demand grew 10% in the first half of the year and was flat in the second half of the year.

So that volatility does create some two or three months worth of changes in what I would call both production levels and inventory levels.

So, for the full year -- I mean, sitting here today, yes, we want to finish next year at the right inventory levels that we think we should be at, with the right availability levels to our trade customers.

So I'm not, frankly, worried about having two or three days more or less inventory.

And that's what you would say the excess at, at two or three days?

Yes, Sam, we would -- I would tell you we have three excess days.

And to help you sort of calibrate that, for Whirlpool Corporation, you've got low 40s, the value of a day.

And that will help you sort of calibrate in your mind.

Thank you.

Second question -- do the cash tax benefits of the US energy tax credits versus the stated P&L, are they similar or how should we look at that from a cash flow standpoint?

No, again, a couple of things, Sam.

If you look at the cash flow statement and it's a tough line to review but there's a line there, I think it says deferred taxes and other -- embedded in that line, though, Sam, is a bad guy for the overall tax credit on the P&L.

So if you have pure visibility to see what did we book in the way of tax provision, what did we pay in the way of cash taxes, you would find that we reverse out the income statement effect from the energy tax credits.

Because, as I've said on prior calls, those are non-cash in the current period.

So we booked the tax asset for those.

Those will be used to offset otherwise payable taxes in future periods, but they are not a cash credit in the current year.

What I'm getting at is for 2011, though, for expectations for the $4, how much of that gets monetized in cash and how much of that gets pushed out to 2012 and beyond?

It will all be in '12 and beyond.

There will be no cash benefit from those.

They're non-cash tax credits in 2012 -- or 2011, excuse me.

So it will be all in 2012.

So, the (multiple speakers) --

(multiple speakers) In 2012 and beyond, Sam.

I want to be very clear -- 2012 and beyond.

So the $4 on the P&L does not show up in the cash flow statement until 2012?

And beyond.

Okay.

(multiple speakers) And the last question, just a clarification, how much at the end of Q4 was remaining under the BEFIEX program, to be monetized?

$540 million.

We'll file our 10-K in February 16, but it will be $540 million in the 10-K, Sam.

Thank you much.

Other questions?

Michael Rehaut, JPMorgan.

First question, I was hoping if you could just review -- you talked about gaining branded share.

But I was wondering if you could just review maybe branded but also overall share for 2010?

And 4Q, let's say, and 2010 overall in North America, what was your overall share up or down?

And maybe break it out between OEM and brand.

Yes, Mike, just to be clear, we don't give on a routine basis overall share number.

We can give you directions and give you some indications of our branded share, but just before Marc answers that, we do not regularly give out the exact market share numbers.

But with that in mind, Marc, why don't you answer that?

Mike, it's Marc Bitzer.

And again, I'm referring to US branded and overall market share.

Our overall market share was steady year-over-year, and that was a composition of continued down OEM share and significantly elevated brand share.

The brand share particularly driven by KitchenAid, Whirlpool, and Maytag.

So all these three brands were in a very, very healthy shape overall.

But one reference point I can give you in our financial analyst presentation would basically show that we reported market share, and our Q4 share would be above that run rate what was showed in the financial analysts, by roughly 1 to 2 points.

Yes, our branded market share is at an all-time high, post the Maytag acquisition.

Okay.

I appreciate that.

The second question on raw materials, if you could just kind of give us what the overall 2010 number was?

And looking into 2011, the $250 million to $300 million, if there is any way to give us a sense of maybe how much of that is -- do you expect to be led by steel versus other, either plastics or oil-related, just to give a sense of the breakdown there?

Sure.

Michael, the total, first of all, the first part of your question -- this is Roy -- $217 million was the total impact for 2010.

And as you know, that's roughly 85% of that in the back half of the year versus the front half.

I'll let Jeff talk about the composition.

Yes, Michael, in terms of the composition of our business, the top -- there's three big ones which account for more than 80% of the total material costs -- steel, resins, which we use in plastics; and base metals, like -- such as copper, which is at an all-time high.

All three of those buckets are going up.

Steel is the largest simply because it's the largest purchase, but proportionately, all three are going up.

And that's where the increases are coming from.

And for steel, is -- in your assumptions for the overall headwind, are you using current steel prices?

Or over the last couple of months, because obviously in the last two, three months, steel has had a pretty nice move.

Just trying to get a sense if you are using, let's say for example, (multiple speakers) January or --?

Yes.

Michael, as you know, basically, steel is a regional market.

And as we've said in the past, in North America and Europe, you should expect that we have contracted our rates in some form, either an exact price or within a range or whatever as we traditionally have done.

In Latin America and Asia, it's a weekly, monthly buy and goes up and down.

So I would say our forecast is based on our absolute best view today.

Okay.

If I could just squeeze one last one, you mentioned that you have in North America, I believe you said your price increases are scheduled for April 1, but that at the same time, the first quarter, you don't expect a negative hit from the Black Friday promotions that extended throughout 4Q.

Is there any way to give us a sense of what that particular negative headwind was in 4Q, to just get a sense of looking into 1Q what that would look like without that hit?

Or just talk about that hit specifically.

Michael, it's Marc Bitzer.

And obviously, we can't get into too much forward-looking speculation about what may or may not happen on Black Friday.

In principle, you're right, there's basically two components of us lifting price mix in North America.

One is just a simple discontinuation of the promotional intensity of Q4.

And that is not a question of does it stick or not; it's just a question of us deciding of participating or not participating.

And we made already that decision.

And that is, in effect, that will help our Q1 run rate from a price mix, and don't confuse that with the year-over-year comparison, but on our run rate of sequential, yes, we do expect improvement coming out of this one.

And you should assume that a big part or almost all of the Q4 versus Q3 deterioration was driven by the promotional intensity.

The second part is when will the price increase, and yes, that is in effect in April 1.

And we do expect that -- we're determined behind this price increase.

And Michael, I'd also add -- you know, I mean, there's a number of moving parts.

That's one.

The year-ago, we're coming out of a year where consumer demand was really picking up and we had less inventory than we needed, so we ramped up production as fast as we can.

This year, as Marc said, consumer sellout was not as robust as people thought in Q4, so there's a little bit too much inventory, so we're ramping that down.

And then, lastly, the timing of material costs and our own productivity -- those are kind of the factors we look at it at any period of time.

Did the high raw material hit you said -- the $217 million was back-half weighted, was 4Q worse than 3Q as well, so that maybe also contributed to the margin deterioration?

Yes, for sure.

(multiple speakers) 4Q was -- half of our annual increase was in the fourth quarter.

4Q was $100 million, Michael.

I apologize, but we probably need to move because we've got several folks in the queue, but --

Thanks a lot.

Appreciate it.

Laura Champine, Cowen and Company.

I wanted to ask about productivity.

I think you've been at about a 3% rate of productivity improvement.

What's your run rate now and what are the components within that?

Laura, this is Jeff.

You ought to expect a similar level -- two years ago, we radically ramped up the net productivity, meaning after inflation, all this kind of stuff.

I expect that similar kind of productivity this year, number one.

Although the timing may vary a little year-in and year-out, the rate and the plans we deployed last year for this year are fully underway.

Again, a little bit back similar to the comment I've talked about, the largest portion will come from the productivity around our use of material, because material is such a large cost.

Again, that comes from product redesign, that comes from component standardization, it comes from continuing to refine certain products.

But the big kick always comes from our new product designs, which we have a lot of right now.

So we're fully benefiting and we'll continue to benefit from that.

The second area, again, is our efficiencies, lean manufacturing in the factories.

We use it in logistics; we use it in warehousing; we use it in every part of the business.

We've done a good job of leveraging all of our fixed costs, whether it be warehouses or SG&A or volumes; so when we drive volume growth, we're generally getting margin and productivity leverage from that.

So I would say the tools are largely the same.

The proportions somewhat change, but material productivity will be the number one every time.

And then on the investments that you've made in energy efficiency, I mean, the payoff with the tax credits but also as being able to take advantage of some stimulus, do you think there's any more demand stimulus coming this year?

And part B of that question is, is there a way to measure the returns that you're seeing on those investments in those product lines?

Well, Laura, I mean, we do on a project-by-project basis for all of our capital projects.

So, whether energy or innovation or anything else, we do measure those.

I can't give you a broad answer on energy.

I would say that, first of all, we do invest a lot to have the leading energy-efficiency products in the marketplace.

We have by a wide margin more Energy Star models in the marketplace than anyone else.

So it does take investment.

And most of the time, it's added product costs.

So you've got to recoup that in the marketplace.

The way we see it is we have to recoup the product costs in the marketplace.

The energy tax credit is helping to justify the investment.

Laura, it's Marc.

In addition to this one, I think one important data point is also the Energy Stimulus Program obviously helped drive a higher share of Energy Star product in the marketplace.

After we expired this program, the state actually has been staying on an elevated level.

So compared to 2010 compared to 2009, that share of Energy Star products is about 10 points higher than the year before, and it stayed at that level, even after it expired.

And that is a big driver of the mix and that helps us selling a richer mix in the market.

And I think that's a good point.

And with rising utility costs in most parts of the country, I think the consumer awareness of this, that was brought through this stimulus period, was very beneficial and that's why we are seeing that -- what we think is probably a permanent mix change.

Got it.

Thank you.

Todd Duvick, Bank of America.

I appreciate your comments about the free cash flow priorities for 2011 and I just wanted to drill down a little further on that.

In terms of getting your credit rating back to mid-Triple B, obviously, that's -- we all know that's not out of your -- or in your control; so with respect to the specific priorities, paying down the debt, I'm wanting to know if you can tell us the $650 million that you've talked about maturing over the next 15 months, are you saying then that that's a priority for you to pay down the debt?

Or that you're just considering your options in terms of refinancing or paying down the debt?

Yes.

Todd, this is Roy.

Let me answer your question.

A couple of things.

First of all, this is probably the -- I don't know, fifth or sixth quarter in a row where I've talked about the importance of taking our credit ratings back to pre-recession levels.

And if you hear Jeff or I, either one talk about this, it's really -- it's all in the vein of financial flexibility.

And for us, financial flexibility comes from two fronts -- one is a solid investment grade credit rating, and the second area, which you see and you have seen for some time, is we will carry more cash on our balance sheet than we've historically carried.

My comments in my script were more in the vein of as we look at our capital structure, again, we'll keep this flexibility in mind from both fronts, but we will, in fact, consider that we've got this $650 million in term debt payments and the pension contribution.

As you know, Todd, we're always looking at the latter end of our term debt over periods of time.

It's something that Jeff and I do regularly.

It's something we share with the Finance Committee of the Board regularly, in terms of our financial strategy.

But it's really -- it's all about maintaining the financial flexibility of the enterprise, which comes from both of those fronts.

Todd, the other thing I would add to that is, in the slide that Roy showed, in the first three items, fund the business, pay down debt, and contribute to the pension -- those are within our plan, within our guidance.

So we will do those things.

The fourth, which is very important, return to shareholders either dividend, share repurchase, or looking at what I would call strategic acquisitions, have not been our priority.

As we make progress on those other things, as we see more stability as we go through the year, those could be kind of more important.

We review those on an ongoing basis, both as a management team and with our Board, and we'll continue to do so.

Okay.

Alright.

That's very helpful.

Thank you for your comments.

Well, listen, everyone.

Thank you for joining us today.

We appreciate you participating and look forward to talking to you again in April.