惠而浦 (WHR) 2011 Q2 法說會逐字稿

Good morning and welcome to Whirlpool Corporation's second quarter 2011 earnings call.

Today's call is being recorded.

For opening remarks and introductions I would like to turn the call over to Larry Venturelli, Senior Vice President at Whirlpool Corporation.

Please go ahead.

Thank you and good morning.

Welcome to the Whirlpool Corporation's second 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 Corporations future expectations.

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

Turning to slide 2, we'd like to remind you that today's presentation includes non-GAAP measures.

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

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

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

Our remarks today track with the presentation available on the 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 on the call.

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

And you can see these results summarized on slide 4.

For the quarter, sales reached $4.7 billion which was a 4% increase from the prior year.

On an operating basis, excluding non-operating charges for recent legal developments, our EPS was $2.76 a share versus $2.82 a year ago.

And while earnings are down slightly from last year, our second quarter performance demonstrates that we have the ability to quickly adapt our business to deliver revenue growth and operating earnings due to our strong global leadership position even in what I would describe as a very challenging environment.

In our release today we are re-confirming our annual operating EPS guidance of $12 to $13 a share and free cash flow guidance in the range of $400 million to $500 million.

Given the current operating environment which we'll describe as we see it in great detail in a few moments, we now see EPS at the low end of the range.

As a result of our non-operating charges reported, our GAAP EPS guidance is now $7.25 to $8.25 a share and free cash flow is now $160 million to $260 million.

While our second quarter results were impacted by non-operating charges, we are pleased to have substantially reduced our legal uncertainties and financial liabilities going forward.

The Brazilian collection matter is now completely behind us, and we took an accrual for the ongoing European Union investigation for the compressor business.

Now I would like to provide you some perspective on three things, the global economic environment and how we see it impacting our business in the industry, the actions we're aggressively taking to adjust to this changing environment, and how we expect these factors to play out in the second half of the year versus what we have already seen on the first half of the year.

Now turning to slide 5, you can see we've revised our full year 2011 demand assumptions to reflect what happened in the first half of the year and how we see the second half.

Overall, we expect global demand in the second half of 2011 to be up approximately 1% to 2% roughly equal to what we saw in the first half, which we believe today is a realistic assumption in light of the current environment.

North America demand in the first half of the year has been weaker than expected.

The first half demand was down 5% which was composed of flat in the first quarter and down nearly 10% in the second quarter.

In fact, the second quarter industry demand levels were back to the same levels we saw at our 2009 recession lows.

Also on this slide you can see that our full year demand forecast is now forecasted to be down 1% to 2% which means we expect the second half to be flat to approximately 2% increase.

First half demand in Europe was up 2% which was comprised of western Europe being down 3% with good growth in the eastern markets.

We expect the second half to be flat to slightly up and therefore the full year forecast up 1% to 2%.

Overall we really don't see a lot of change in our Latin America full year demand forecast of 5% to 10% although we do expect to see growth slowing somewhat from what was a very strong second quarter of this year.

Asia demand is modestly changed and we've revised a 4% to 6% for the full year.

Our business is having very good growth in China, but we have seen a slowing of growth in India.

Overall as we step back and look at consumer demand around the world, we believe that high unemployment, low consumer confidence, and recessionary housing levels are the driving factors in demand patterns that we see in North America and Europe, while high inflation is beginning to impact some growth in the emerging markets.

As I said, though, we do expect to see demand growth globally in the second half of the year but we have lowered our previous estimates and this has all been factored into our new financial forecast.

I would now like to turn to slide 6 where you can see a comparison of the key drivers of our results both what we saw in the first half and what we are anticipating in the second half.

I have already spoken about demand so I will move onto costs.

Raw material and oil related costs are at record levels and we have now seen them for the full year in the range of $450 million to $500 million.

As a reminder that's almost two times greater than our original estimate that we made in early February.

(Operator Instructions) That we have in place so we really don't see these costs changing very much in either direction through the end of the year.

As we have seen this high inflation in our costs we have been taking very aggressive actions throughout the first half continuing into the second quarter of the year to help offset the impact particularly in the area of productivity.

There is really four key drivers of our strong productivity that we've had so far and expect to continue to have for the balance of the year.

First is material efficiency.

This is really driven by our new innovative product designs which come in with lower material content, our continued global part standardization and our continued optimizing our value feature content across our product lines.

The second area is quality which we're very pleased about.

Our quality levels continue to improve.

In fact, they're at our best levels ever which is resulting in lower service and warranty costs.

The third area of focus is continuing to optimize our supply chain thereby reducing freight and warehousing costs which is helping to offset much higher fuel costs.

And finally, we continue to make very good progress in reducing our global infrastructure costs.

So, overall we will achieve a very strong level of productivity this year and we're confident in our ability to deliver these savings to help mitigate the impact of this high inflation.

The next lever or driver I would turn to is price.

We do expect the negative year-over-year price mix impact that we have seen which was about 2 points negative in the first half of the year to turn positive and will add at least 2 points to our margins in the second half of the year.

This is supported by the strong consumer demand that we've seen for our new product innovation.

These have already been announced or implemented price increases and the ones that have not been implemented to date will be between now and October.

And they cover virtually every market around the world.

Finally, 2 other topics I would touch on.

First is energy tax credits which are based on consumer demand for our US produced highly energy efficient products.

They are expected to remain strong and as we have seen all year and will be even stronger in the second half of the year.

We continue to expect to have $300 million to $350 million of energy tax credits this year.

The second area is BEFIEX credits in Brazil which as you know are driven by appliance sales and mix in Brazil.

We expect those to be close to first half levels and overall expect to generate between $250 million and $300 million for the year.

So with this as a backdrop, I would just summarize all of this by saying that we continue to have a challenging and volatile global economic environment which has been more challenging than we previously expected in the first half of the year.

We have and will continue to take very aggressive cost, productivity and price mix actions to quickly adjust to these conditions.

And as I said before based on these set of assumptions, today we see our results towards the lower end of our EPS forecast with demand and therefore volume as the factor that we see right now that's the most variable in the second half of the year.

We're very confident in our costs, our productivity and our price mix assumptions that we see in the second half and as we have before, we'll continue to take strong actions to drive margin improvement and earnings improvements throughout the second half.

So, at this point in time I'm going to turn it over to Marc Bitzer for his update on our North American business.

Thanks, Jeff and good morning, everyone.

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

As shown in slide 9 we continue to achieve solid productivity and real cost reduction gains across the region which only partially offset lower volumes and higher material costs.

As Jeff mentioned, April price increase has been fully implemented and we have announced an additional cost base price increase for August due to further material cost increases.

And as a result, our price mix while still negative on a year-over-year basis improved substantially quarter-over-quarter.

Regarding industry unit shipments, we expected to see negative US industry unit shipment trends during the second quarter given by the 2010 Cash for Appliances program and Housing Credit.

However, the decline was clearly steeper than expected.

On slide 10 you will see US T7 industry for the first half of the year compared to prior periods back to 2005.

You will note that first half 2011 industry volumes have dipped to 2009 recessionary levels as continued high unemployment and low consumer confidence continues to depress the US housing market and discretionary purchases.

In fact, given the current US economic environment, the percentage of our business representing replacement purchases is at an all time high.

Based on these recent trends, we expect to see only modest growth in the second half and now expect industry shipments to be down 1% to 2% for the year compared to our previous forecast of up to 2% to 3%.

On slide 11 you will see the North America's financial performance in the second quarter.

Regarding our overall unit volume, we saw our North America unit shipments down 5% in the second quarter despite a US industry levels down nearly 10%.

Net sales of $2.4 billion were down from $2.5 billion in the prior year due to weak industry demand.

Our adjusted operating margin of 3.2% compared with 6.6% in prior year, the results are favorably impacted by cost reduction and productivity initiatives.

Of the factors offsetting our productivity combination of significantly higher material costs, lower year-over-year product mix, and however as I previously mentioned, we did see solid sequential price mix improvement due to a positive impact of cost based price increases.

We are positioned to benefit from previously announced price increases during the balance of the year.

And we also expect the overall promotion environment in the second half of the year to be lower than last year's levels, especially in the market where almost 61% of all consumer purchases are direct purchases.

And we will also continue to leverage our strong product innovation for growth over long-term.

Based on all of these factors we fully expect to have sequential margin improvement and significantly higher absolute margins.

On slide 12 you can see just a few of our new products that we launched in the second quarter.

Before I highlight these new launches I would like to briefly discuss some recent product leadership recognition.

Whirlpool Corporation's 100-year-old legacy of innovation has led to several top ratings in a leading consumer magazine in a refrigeration, cooking and dish washing categories for all our brands.

The Company scored number one ratings from the French top mount, convention bottom freezer, built in refrigerator, 30 inch and 36 inch dual fuel range categories.

That is in addition to all our laundry top ratings which we communicating during last earnings call.

Now turning back to some of our recent new product launches which includes a Maytag brand EcoConserve top [mod] refrigerator which features improved Energy Star qualifications and precise temperature control.

Jenn-Air brand induction cooktop that feature the most powerful cooking element available for the home kitchen and also shown here is our Maytag brand Maxima 9000 front-load high efficiency washing machine featuring the industry first power spray feature that evenly applies detergent solution.

Before I close I want to say that we're confident in the actions we're taking to address the weaker than expected economic environment.

Our strong focus on innovation, cost reduction, productivity, marketplace execution, and price mix will provide us with earnings momentum throughout the second half of 2011 and into 2012.

Now I would like to turn it over to Mike for further review of international operations.

Thanks, Marc, and good morning, everyone.

Let me start with a second quarter 2011 review of our international business on slide 14.

Overall, compared to last year our international businesses balance of sale grew from 45% to 50%.

Sales of $2.4 billion grew 17%, growing 7% excluding currency.

In Europe developed market economies continue to remain weak and the region continues to face high material cost inflation.

To address these costs, we have announced 5% to 7% price increases in most countries across the region which will take effect between August and October.

In Latin America unit volumes were up 21%.

We saw solid demand growth both in Brazil and also within the remaining countries that make up our Latin American region.

Demand in Brazil during the second quarter was significantly higher, as the industry comped against a weak quarter last year due in part to last year's World Cup as Reece Taylor shifted their focus to brown goods from white goods.

Material costs are also significantly impacting this region of the world and during the second quarter we announced and are implementing cost based price increases to mitigate the impact.

And in Asia we saw slowing demand with unit volumes 4% below 2010 levels.

Inflation and a weak summer season in India due to adverse weather conditions were partially offset by strong unit growth in China despite a softer industry in China.

Now let me walk through each region individually to provide more detail.

Turning to slide 15, in the second quarter our Europe, Middle East and Africa sales improved 14% year-over-year to $841 million, with unit shipments increasing 2%.

Excluding favorable impact of currency, sales decreased approximately 2%.

The region's operating profit of $20 million was flat with the previous year.

Results were unfavorably impacted by lower product price and mix and higher material costs, partially offset by cost reduction and productivity initiatives and higher unit volumes.

We expect that the impact of previously announced price increases and continued cost reduction initiatives will improve margins within the region towards the latter part of the year.

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

The region reported sales of $1.3 billion, a 25% increase from the prior year period with appliance unit shipments up 21%.

Excluding the impact from currency, sales increased approximately 16%.

Operating profit totaled $166 million compared to $165 million in the prior year.

Cost reduction and productivity initiatives and increased monetization of tax credits favorably impacted results.

These factors were partially offset by higher material costs and unfavorable price mix.

We expect announced price increases and our ongoing cost and productivity initiatives to result in margin expansion throughout the second half of the year.

Our second quarter results in the Asia region are shown on slide 17.

Net sales decreased 2% during the quarter to $257 million, down from $263 million in the prior year period as unit shipments decreased 4%.

Excluding the impact of currency, sales decreased approximately 5%.

Operating profit of $14 million was essentially unchanged from the prior year period.

Favorable product, price mix was offset by inflation including higher material costs.

Continued productivity efforts along with the introduction of new product innovations will result in margin expansion in the second half of the year.

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

Thanks, Mike, and good morning, everyone.

Beginning on slide 19, I would like to summarize our second quarter results.

First before focusing on our operating results, I would like to comment on the quarter's 2 non-operating charges.

As we discussed earlier on the call, our results include $4.86 per share of expense to settle a Brazilian collection dispute and provide for recent developments in the ongoing Embraco antitrust matters.

As previously disclosed we reached an agreement on June 22 to settle all claims arising from a longstanding dispute in Brazil.

The settlement enables us to remove significant uncertainty and financial risk by bringing financial closures to the matter.

The settlement amount is within the range between the previous disclosed accrual and the previous disclosed maximum exposure.

During the second quarter we recorded an additional pre tax charge of $439 million with an interest and sundry expense to adjust our accrual to the full amount of the settlement.

Based on recent developments, we made an $83 million accrual this quarter for the ongoing EU investigation of Embraco and other matters related to the global antitrust investigation.

The accrual is reflected within interest and sundry expense.

As previously announced, the Brazilian and US antitrust investigations of Embraco have been settled.

Taking these matters into account, we remain in a strong financial position and continue to maintain our liquidity priorities.

Now I would like to comment on our base operating results for the quarter on slide 20.

Our sales grew 4% to $4.7 billion.

Excluding the impact of currency, sales were down slightly on unit volumes which increased 1.4% from the prior year led by Latin America.

We continue to benefit from higher productivity and cost reduction initiatives during the quarter.

Based on volume and product mix, we also monetized $79 million of BEFIEX credits compared to $47 million in the prior year.

These favorable results were effectively offset by lower price mix and higher material and ore related costs.

You will note that our gross margin contracted 270 basis points to 14.1%.

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

These were partially offset by cost takeout and productivity actions and as I previously mentioned, higher BEFIEX credit monetization.

SG&A expense totaled $425 million compared with $401 million in the prior year.

A majority of the dollar increase in SG&A was related to foreign currency translation.

Higher advertising spending was partially offset by lower infrastructure costs.

As a percentage of sales, SG&A was up slightly from the prior year.

Restructuring expenses totaled $14 million during the quarter and resulted from cost reduction actions in Europe and North America.

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

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

While several individual line items roll into this caption on the income statement, the key year-over-year variance was the settlement of the Brazilian collection dispute and the incremental accruals for Embraco antitrust matters that I previously discussed.

Turning to our tax rate, we recorded an effective tax benefit of 56% during the quarter compared to a benefit of 4% last year.

The difference in rates is primarily due to the change in pre tax earnings.

We have included a table on slide 22 to provide you with a reconciliation of our 2011 second quarter tax rate.

In addition to the BEFIEX credits I previously discussed, we also recorded $79 million of energy tax credits in the quarter compared to $87 million in the prior year.

For the full year, we continue to expect between $300 million to $350 million of energy tax credits.

The delta between our prior guidance for our effective tax rate of minus 10% and our current outlook is due to the projected drop in earnings before taxes.

And finally, we reported diluted earnings per share of $2.10 per share compared with $2.64 per share in the prior year.

On an adjusted basis diluted EPS was $2.76 per share income, compared with the $2.82 per share in the prior year.

Moving to our free cash flow results on slide 23, we reported a free cash flow use of $473 million during the second quarter compared to a use of $88 million in the prior year.

The main variances from the prior year's results relate to lower cash earnings and a $212 million US cash pension contribution.

There are two additional items I would like to highlight.

As previously disclosed in June we completed a $300 million 10 year bond issuance at a coupon interest rate of 4.85%.

This issuance replaces dollar-for-dollar the debt that matured this June 15 which carried an interest rate of 6.125%.

The new issuance is the lowest coupon bond in our capital structure allowing for flexibility with liquidity.

Also in June we entered into a 5 year amended and restated long-term credit facility.

The new facility extended our existing credit facility scheduled to mature in August of 2012 to June of 2016 and increased our existing $1.35 billion facility to $1.725 billion.

We regularly review our capital structure and liquidity priorities which include funding the business through capital and engineering spending to support our innovation and productivity initiatives, funding our pension plan and term debt liabilities, return to shareholders, and potential acquisitions.

These priorities are aligned with our goal to return our credit ratings to pre-recession levels.

And with that I will turn the call back over to Jeff.

Thanks, Roy.

I would like to take a moment now to kind of put all of these pieces together and provide you with a perspective of how we see the business.

I am going to be referring to slides 25, 26, and 27 which show the priorities which we laid out and discussed with investors late last year at our Investor Day conference.

As a Company we're now in our 100 year of operations.

We are today the global leader in the major home appliance business and we see significant levers for us to grow in the future.

We remain very well positioned and I think are demonstrating that we are capable to quickly adapt to changes in the environment.

For a reference during the last 3 years we've substantially lowered our break even point by reducing capacity, fixed cost, and optimizing our global operations and we see more opportunities in this space.

We have invested and continue to invest in great new product innovation and I think today have the best portfolio of winning products that we've ever had in our history.

As Roy mentioned, we greatly strengthened our balance sheet, we've improved our liquidity and we dealt with some very large historical liabilities that are now behind us.

In addition, we continue to grow and are getting an even stronger position in critical emerging markets like Latin America, India and China.

What we expected late last year was some economic recovery in our developed markets.

We certainly didn't foresee the extraordinary inflation that we've experienced this year or the weakening of demand levels.

So this economic challenge has delayed the growth rate of margin improvement that we expected in the first half of this year.

But it has not changed our expectations or our commitment to execute our road map for growth and value creation which we presented last year.

We are aggressively responding to these economic realities that we see today around the world.

As we've laid out throughout this presentation, we've implemented additional price, productivity and cost actions to overcome higher material costs, higher inflation, and lower demand levels.

We clearly expect second half margins to improve, particularly in the fourth quarter where we will have the full impact of our announced and implemented price increases with cost and productivity levels which will fully offset inflation and positively contribute to our margins as well.

So to summarize, we are in a period where global growth is uncertain, and in that environment we are taking the necessary actions in order to expand our operating margins, improve our earnings, and generate cash inline with our target range projections which we remain committed to delivering.

So with that I would be happy to open this call up for questions.

(Operator Instructions) Our first question comes from Eric Bosshard with Cleveland Research.

Please go ahead.

Thank you.

On Latin America I am wondering if you can just give a little bit more color on the margins there which have excluding the BEFIEX seen some erosion?

In the US it seems like you have been able to start to stabilize or improve the margins a bit but can you just talk about what's going on with Latin American margins, what's driving the change there?

Yes, Eric, this is Mike Todman.

We did see a reduction in margins in Latin America in the second quarter.

We actually saw that that had started in April largely driven by material costs but also driven by price mix and that's why we executed price increases beginning in the second quarter and kind of taking effect through the quarter and into next quarter.

But we did see some erosion.

We expect that to improve as we go to the back half of the year because of the price increases to offset the erosion.

Can you talk about your sort of confidence and conviction in that and perhaps compare and contrast that to North America because you are obviously dealing with the similar issues?

Yes.

We're actually very confident.

We have already started the execution of those increases and we are beginning to see them, to see the results of those, so we expect them to you know absolutely to take hold and we're very confident that we will see them in our margins as we go into the second half of the year.

And then I guess the second question, the follow-up question, in North America you've talked about being less promotional in the back half of the year, pretty meaningfully less promotional and that being a favorable contributor to margin.

Can you just talk about your expectation about how that will influence volume and how you expect the discipline to be in the industry to hold that position if volumes continue to behave in a challenging fashion?

Eric, it is Marc Bitzer.

Let me first of all the comment about referring to the overall promotion environment in the industry, obviously promotions are determined and decided by the retailer.

The reason why we believe the overall promotional noise is going to be less than last year is very simple but for any reason return on investments in a promotion is significantly less than last year.

And that is simply driven by the fact that the direct purchases or basement purchases are at an all time high.

So there's just no return in putting a promotion out there for a consumer who basically buys (inaudible).

And we saw that already in the second quarter but I would say the lift which many retailers got from promotions brought lower than expected anticipated and were therefore expect that the retailer adjust that behavior also somewhat in the second half.

I don't think it will overall impact the levels of industry demand and we factored that promotion assessment already into our expectation for the second half industry volumes which again as I mentioned before we expect the full year to be down minus 1 to minus 2 and if you translate that into the second half we expect the second half to be up plus 1 to plus 2.

Thank you.

Our next question comes from the site of Laura Champine with Cowen.

Please go ahead.

Can you comment on your inventory levels still up 15% in this kind of demand environment looks a little frightening and I am wondering how much it is impacting price mix globally and how much it should impact price mix in Q3?

Yes Laura, good morning, it is Roy.

First of all, Laura let me talk a little bit about inventory in general at $3.1 billion.

That is up just under $400 million from a year ago on the balance sheet and first of all, and very importantly, $200 million of the $395 million, Laura, is just simply the result of the change in currencies year-over-year.

And then you have got what I would estimate just under three days or about $115 million would relate to what we would call excess inventory, and a lot of that is in our international businesses and a lot of that is seasonal related inventory with a chunk of that related back to what Mike talked about in terms of the seasons that we experienced in some of our international markets relative to that inventory.

And so we'd say that's about $115 million and then the other $80 million Laura is two things, part of it is just the cost lift as a result of higher commodities and then when you look year-over-year obviously a year ago we were building inventories relative to a low position and so we had some availability issues and so if you look year-over-year from that perspective, those two components give you the other $80 million.

From a Company perspective, Laura and I know you follow this for a long time, we normally build somewhere around $425 million of inventory in the first half of the year to sort of support the seasonality in the business.

This year we built less than that at $280 million.

We did take 5% of our units out globally in terms of production year-over-year.

The greatest reduction being in North America and Marc's business where we took out about 8% year-over-year in terms of production units.

And we plan and have plans in place to continue to take production down over the back half of the year to get our inventories aligned.

I think last call Larry Venturelli mentioned that you know our plan was to take inventory levels down to $2.6 billion or roughly thereabouts.

We still have those same plans in place.

We have our production schedules aligned with the most recent demand that Jeff talked about in order to achieve that inventory reduction.

It is, Laura, admittedly more reduction than we typically do midpoint to end of year but you know we did this same level in 2008 and we did $300 million of takedown in 2009, so we're confident in our ability to get the inventories down over the remainder of the year.

Great.

Thank you.

Our next question comes from the site of Sam Darkatsh with Raymond James.

Please go ahead.

Couple quick questions.

First off, there seems to be a lot of things going on in price mix.

Can you parse out the price part versus the mix part both in the quarter and then your expectations for the year?

For the quarter, Sam, this is Roy, let me give you a little bit of high level.

For the quarter you know Jeff talked about we had roughly 2 points of impact on price mix from a margin perspective.

I want to emphasize that.

Like for like, Sam, was about 0.5 point relative to the 2 points.

Allowance is about 0.5 point and then if you look at mix globally, that was about 1 point of the 2 point reduction.

And Sam, those numbers relative to year-to-date are probably fairly similar as you know.

In the first quarter we had minus 2.3 and this quarter minus 2.0.

Two more quick questions if I might.

Any early read through so far in terms of 2012 inflation based on what you're looking at in the raw materials markets right now?

Sam, this is Jeff.

No, I don't think we really have a -- you know I think there is a lot of things that are changing very quickly.

You know we're kind of at an odd point in time in the economy where you have record high inflation and relatively weak demand, so we are seeing again included in this forecast some turning of material costs, but it is -- you know we probably don't really begin negotiations or getting a firm handle on that until you know late third quarter, early fourth quarter.

Last question if I might.

Electroluxe yesterday or the other day mentioned that the Latin America industry they pegged at 7% growth and you folks with a very high market share grew your units considerably more than that, and also took your BEFIEX rates higher.

What are you seeing there from a demand standpoint?

Is it a fair amount of market share gains and why would that be or is it definitional?

Why the discrepancies?

Well, Sam, first of aural, we have said for the year we're holding to the 5% to 10%.

If you think about it, the second quarter was up fairly substantially year-over-year because of the down quarter last year, so I would say that's the first thing.

Now, in terms of our business, as I said on the last call, we have expanded our distribution to areas of growth within the country.

There is some 6,000 cities in Brazil, and a lot of them are small, but that is where we're seeing growth and so we have expanded our distribution there and so we're enjoying good solid growth in those regions.

So if I could take that farther, then you would anticipate growing perhaps considerably more than the 5% to 10% industry growth that you're pegging?

No.

I am not saying that, Sam.

I think that's a reasonable level of growth that we should expect.

Okay.

Thank you much.

Hey Sam?

Yes, I am here.

Sam, this is Roy.

Let me talk a little about your BEFIEX question because I think it is an important one and by the way I know you have been following this for a long time so you know the connection here, but with respect to BEFIEX we did take up our guidance.

We did have higher BEFIEX in the second quarter, but a couple of things, Sam, to emphasize here with respect to the why.

As you know, this is not only volume driven, but it is also very much tagged to the mix that you have within that volume, and you have the highest IPI taxes and therefore the highest BEFIEX offset in the laundry category at 20% and as you know the lowest at cooking at 4%.

And so what happened in the second quarter and what we project happening over the remainder of the year is, one, we have taken share in laundry and improved our laundry mix.

Laundry mix is up 6% year-over-year.

We have a cadence of innovation that we're bringing to the market continuing throughout the back half of this year and so that was the reason, one, for the higher BEFIEX in the quarter but very importantly to your point, too, the reason we have taken the guidance up for the year related to those two matters.

Very helpful.

Thank you.

Our next question comes from the site of David MacGregor with Longbow Research.

Please go ahead.

Hopefully this heat is helping your replacement refrigeration sales.

I guess I just had a couple questions.

Is it fair that you gained some share in North America so I wonder if you can address that?

And then the second question just pertains to your ability to secure price increases in a down commodity market and history would suggest that at the peak of the commodity markets manufacturers typically have a tough time securing a full pass through and where does your confidence come from that you can be a little more successful in that this time around if commodity prices continue to come down?

David, I think the first part.

This is Marc Bitzer.

Just on the share.

First of all, we talked about our overall unit that was down 5% in an industry which was down 10%.

Keep in mind these overall units include our entire North American business everything from Mexico, Canada, Portugal, et cetera.

If you look at our core appliances T7 market share which is a subset of our overall North American business we would say on a year-to-date base our share is flat year-over-year flat, however, it is sequentially down from the first quarter.

That is both a combination of somewhat seasonality but it's also we expected some share drop as a result of our price increase in April.

So I would say we're pretty pleased with where we are today from a share position, some share losses we expected due to the price increase and we're pretty comfortable where we are today in a share position.

How much share do you think you forfeited with the price increase?

I would say a big part of Q2, Q1 drop-off was a result of us going very early and aggressively and decisively with a price increase and we expect over time to get that back.

That's not abnormal pattern for us.

Let me address the price increase, David.

I don't think I could agree that we're yet in a down commodity cycle.

You know in fact, we raised our material forecast from again to $450 million to $500 million.

You know I know there was a period where we had some peaks but I mean we never buy at the peak.

We never buy at the bottom.

The trend is still up.

What I said was we expected the second half to be high, in fact, we peak in the third quarter, and then but stabilizing.

There are a few isolated cases where you have seen small declines but you know if you take the material cost increase of the second half of last year plus this, it has been the biggest commodity and material cost inflation period we have ever seen.

So you know I think the price increases we're asking for are very justified and less -- well, I certainly don't see that cost situation turning.

We think it is very predictable between now and the end of the year simply as I said based on hedging and contract.

So you know if they did turn next year, that's a different issue, but I would say margins have been hugely impacted at every level due to this inflation and we have to recoup it with pricing.

Thanks, Jeff.

Just Roy, quickly on the credit facility revision or extension, were there any change in the covenants?

No, same financial covenants, David, we had before.

Okay, thanks, everyone.

Our next question comes from the site of Josh Pollard with Goldman Sachs.

Please go ahead.

My first question is on your cost initiatives.

I think it was back in 4Q when you guys first laid those out.

You guys laid those out again, but I think what investors are looking for is actually some dollar figures to actually put around those.

Initially when you gave guidance in 4Q you said you would be able to offset the $250 million to $300 million unfavorable impact from inflation when you raised it in 1Q your inflation numbers you said you'd still be able to offset it.

It seems like now you guys aren't saying that you will offset it fully so I really don't have a good view on what the total dollar figure is of cost initiatives you guys are having.

How those break out by the items that you outlined, Jeff, and then I am also trying to get a sense of how they break down by quarter?

Josh, I can give you a couple of those pieces.

First of all, relative to the original material guidance of $250 million to $300 million our productivity will offset that.

The issue obviously is the material cost increases we now see as $450 million to $500 million which makes the task obviously much harder.

I would say also don't forget that is just raw material costs.

It does not include logistics costs which globally is probably with fuel is another $150 million to $200 million, and what I would say is very high inflation, particularly in emerging markets on salaries, benefits, basically everything.

So and again I won't have an exact number but you put all of those together and we'll have over $1 billion of inflation across all parts of our business.

So what I said was our productivity by -- and it is fairly well evenly distributed that our productivity will exceed this inflation by the fourth quarter.

So we have had high levels of productivity it's simply just not been enough to offset this inflation, so it is impacted our margins.

I would say we peak in Q3.

We crossover positive to positive territory, productivity exceeding raw material costs and inflation in Q4.

So it will become a positive addition to our margin then but for the first three quarters it is net negative.

So maybe we can take a step back, $450 million to $500 million on a quarterly basis, 1Q, 2Q, what you have seen so far and then I can do the math on what's in second half and I would make the assumption that that 3Q is harsher than 4Q.

What are those numbers?

For raw materials?

Yes.

I am sorry, I missed the question.

The question by quarter, $450 million to $500 million.

So, we had $94 million in Q1 as you know, Josh, and $133 million this quarter, and we would project again these are round numbers, okay, we peak out at about $140 million and then come down to somewhere around $125 million in the fourth quarter and that gets you to $490 million and those back half are round numbers, Josh.

And your cost initiatives, can you give those by quarter as well because I think that's where really your investor base is struggling to get a sense you know of how these things will shape up?

Josh, we don't -- again, we don't give out productivity by quarter.

I would just say let's talk about this quarter and then let me talk a little about year-to-date and then you know as a point of reference maybe I will point back to Jeff's comments to last year.

First of all, this quarter if you look at sort of everything Jeff talked about ex the materials we had about $100 million of benefit in the margin in Q2 or just over 200 basis points, Josh.

Now, the bad thing as Jeff referenced is we had $133 million of material or 280 basis points on materials.

So if you look at us year-to-date, again, the material numbers is about just 250 basis points almost spot on with the productivity at about 200 basis points, so again we're tracking but we're still beneath the headwinds that Jeff referenced.

Again, while we won't do it quarterly, his comments you saw it play out last year where we ended the year with roughly 350 basis points of productivity for the full year, and then of course as you know, Josh, that allowed us to expand our margin because it more than offset what we experienced with pricing and more than offset what we experienced with materials.

That for Whirlpool Corporation is fairly traditional because of the way we build the pipe and execute the pipe over the course of the year we always get stronger productivity in the back half but in terms of specificity on the back half we don't provide that.

You know again, and I would just say that price mix will we said will add at least 2 points to our margin in the second half of the year versus the minus 2 points in the first half.

We said that raw materials will stay high but stabilize and our productivity will exceed this all inflation by the fourth quarter which means it will be positive to the fourth quarter, so that's -- those are the two big levers we see with demand still being the most variable of those factors.

Okay.

And I just want to make sure that when you say it will add 2 points to margin, that's relative to the first half of 2010 or is that relative?

That's correct?

2011.

Yes, you're right Jeff, 2011.

Can we move on to the next question, Josh?

Okay, sounds good.

Our next question comes from the site of Michael Rehaut with JP Morgan.

Please go ahead.

First question you know just to look at the 200 bips of benefit from the price increases for the back half of the year, how much of that do you expect from the price increases that you have already announced and implemented versus the ones that you are going to be implementing you know from today through October?

Yes.

You know, let me kind of give you a macro view.

You know we took a what we thought at the time appropriate price increase in the US in April then we saw the higher inflation and Marc can tell you I think he did tell you the quarter-over-quarter benefit we have already seen, so that would carry through.

And then the additional one is needed in August, and Brazil we took -- and we're seeing late in the second quarter already the benefits of what was implemented -- announced in May and implemented.

They will be fully implemented through June and July, and Europe is largely being implemented between now and October, Mike said 5% to 7%.

So we'd expect to net a high percentage of that and in places like India you know we've done it every month or every other month and you can see and we have been able to fully offset inflation in places like that and we'll do that as needed.

So you know our run rate of margin improvement is improving, but it is a combination of that and the new ones that gives you the 2 points.

Right.

I mean, I guess you know you have obviously a lot of experience in you know price increases over the last year or two, but you know I guess with people particularly in the US are looking at is you know the continuation of that trend amid a weaker than expected demand environment.

And so you know I guess is the confidence from you know achieving those price increases, does it stem from some new products or from just your gauge on how your big customers will react or you know if there is any more color on that perspective?

Mike, it is Marc.

I am trying to answer your question.

As you know we're not trying to speculate about expectation of future price increases or how much will stick or not.

Let me maybe first answer in retrospect what we saw in Q2 in what was an exceptionally weak market environment, our price increases were fully executed and we delivered exactly what we internally had in mind.

The confidence, by what happened is very simply we have a very strong innovation pipeline.

We have a number of CU rating on leading consumer magazine ratings which were exceptionally strong and a product innovation which gives you confidence in the marketplace.

Yes, you can execute certain marketplaces, and price increases, and bring confidence up in Q2 and that's where we will also carry in Q2 and Q3.

Michael, I would only add that, look, I mean we have again I want to put this in perspective, a record level of inflation globally across our business, not just raw materials, but logistics costs, other costs.

And you know, the reality is, is without a price increase you know the comparison between the price increase and some volume you know it clearly favors a price increase.

And because selling products that you don't make any money on doesn't really create any value, so we made a strong commitment around the world with what we've announced were we intend to execute them and recoup a small portion of the material inflation and other inflation that we've already experienced.

The rest we're offsetting completely with productivity.

Okay, I appreciate that.

Last question you know in Latin America you know if you strip out the BEFIEX contribution your core margins were down about a little over 200 bips sequentially and so it seems like that is, I believed you identified as due to both material costs and price mix.

I was wondering if you could kind of break out which you know was material cost half or two-thirds of that?

I think you said it was primarily due to material and on the price mix side you know what's driving that, is it you know just more due to mix or is there increased competition there?

You know, I would say, Michael, on the price mix side let me just take that.

If we have seen some mix erosion but it is really it's a combination of both.

We have also seen some like for like.

Again, that's why we you know, we executed the price increases that we did and in Brazil it was 4% to 5%, and we're already seeing that we are able to -- that we're able to net that.

You know in terms of the inflation and material headwinds, I would say that it is about 50/50.

I mean I just put it in those terms.

So, that's kind of what the breakdown is.

Okay.

And BEFIEX balance at the quarter end, Roy, if you have that?

Sure, Michael.

We'll file our Q this afternoon.

It will say 474.

Great.

Thank you.

We have time for one more question.

The last question is from Ken Zener with Keybanc Capital.

Please go ahead.

Good morning.

You said you expect a 2% increase in price overall in the second half.

Can you highlight perhaps different regional swings and, second, does that imply for your April price perhaps only 25% to 35% of it stuck?

Or can you talk about the difference between your back half price and what was talked about in terms of the April in the US at least?

Thank you.

The 2% is global, so it does vary by region, and the timing of that, but it is the net margin contribution which is different, could be very different than what is implemented in the marketplace.

But so then in the April one in North America we executed what we said we were going to do.

Okay.

And we see those prices in the marketplace.

Okay.

And then I guess with the slowing if using Europe as an example but could be for Brazil as well which I think you were talking about.

The volume that you have talked about, the mix you said in Brazil you expected to be recovering it.

In Europe could you maybe talk about that and should we think about mix having a downward impact relative to slowing demand or is that really just volatility you would not have any insight into kind of in the back half of the year?

Yes.

I would say that's just as much volatility.

I think you know we feel pretty confident that we can both recover mix, remember, mix is also new product introductions help drive that innovations help drive that, so you know that not something that we're concerned about.

Okay, operator, I think we're concluded.

Well, listen, everyone, thank you for joining us today.

Appreciate your comments, and we look forward to talking to you next time.