惠而浦 (WHR) 2011 Q3 法說會逐字稿

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

Today's conference is being recorded.

Later, we will conduct a question-and-answer session.

(Operator Instructions)

For opening remarks and introductions, I would like to turn the call over to Mr.

Larry Venturelli, Senior Vice President, Finance.

Thank you and good morning.

Welcome to the Whirlpool Corporation third quarter conference call.

Joining me today are Jeff Fettig, our Chairman and CEO; Mike Todman, President of Whirlpool International; Marc Bitzer, President of Whirlpool North America; and Roy Templin, our Chief Financial Officer.

Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Whirlpool Corporation's future expectations.

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

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

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

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

Listeners are directed to the Appendix section of our presentation, beginning on slide 36, 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.

Thanks, Larry.

Good morning, everyone, and thank you for joining us on our call today.

As you saw in our press release this morning, we reported an increase in revenue and earnings in the third quarter compared to last year.

However, these results were lower than we expected, as our price increases and productivity improvements were more than offset by the impact of weakness which we saw in global demand and high material costs.

As you see, today we've announced very aggressive plans to substantially reduce our structural costs in order to improve profitability.

You may remember as we stated in our second quarter call, that given this period of uncertain economic growth in consumer demand, we would be prepared to take the necessary actions to expand our operating margins and improve our earnings, if conditions deteriorated.

And as you well know, since July, consumer confidence in the US has declined.

It is now at its lowest level since March of 2009.

Demand has also fallen off sharply in parts of Europe, and has slowed in emerging markets.

Given this economic environment, we have taken significant actions to substantially reduce our costs and capacity, which will improve our operating margins and profitability.

I would say these plans are the results of a comprehensive global review of our operations, products and manufacturing facilities, and are expected to reduce our fixed cost structure by approximately $400 million by the end of 2013.

Before I get into those details, let me first turn to our third quarter results, which you can see on slide 5.

For the quarter, sales reached $4.6 billion, which represents a 2% increase from last year.

Our EPS was $2.27 versus $1.02 a year ago.

Year-to-date, we have had $739 million in cash usage, which includes $589 million used to fund legacy and financial liabilities which we've previously discussed.

We have started to benefit from previously announced price increases in all major markets in the world.

We also have announced additional increases in several markets, including a price increase in the US which will go into effect next year.

I'd ask you to turn now to slide 6, where you can see our full year's revised demand assumptions.

In the US, demand remains at recessionary levels.

Our 4-year forecast is now for a 3% to 5% decline for the region.

As you know, Europe has been significantly impacted by the sovereign debt crisis and low consumer confidence, and we now expect full-year industry demand to be flat.

Demand in Latin America region declined about 5% during the quarter and we now expect full year demand to be between flat and up 5% for the year.

We've modestly reduced Asia's growth to 2% to 4%, as we expect to see continued growth in China, but we are seeing declining growth in India.

I'll now turn to slide 7, where you'll see material costs, which had a significant impact on our margins.

Despite a generally weaker slowing growth around the world, we continue to see raw material and ore-related costs at very high levels.

We believe, though, they've peaked during the quarter.

Turning to slide 8, given these external challenges, we made very clear what our business priorities are.

First, is to expand our operating margins.

Second, we will continue to invest in our global operating footprint in brands, to continue to offer strong teams of consumer-relevant innovation to the marketplace.

Third, we are reducing our cost structure.

And as you see, we are taking immediate actions to align our cost structure with current and expected near-term industry demand levels.

And we'll provide with you with the detail of that in a moment.

Fourth, we're implementing the already announced cost base price increases in all major markets around the world.

We must continue to pass on some of these costs to the market, in order for us to enable to continue to bring innovative new products to the marketplace.

And lastly, we continue to make very good progress on our US-focused free trade actions.

I'll now turn to slide 9, where we've highlighted the actions we are taking to reduce our costs and capacity, which will accelerate our margin growth beginning in 2012.

As you saw in the release, we will implement a workforce reduction of more than 5,000 positions, primarily in North America and Europe, which includes a reduction of about 1,200 salaried positions.

Yesterday, we announced the closure of our Fort Smith, Arkansas refrigeration facility, which will close by mid-next year.

Production from this facility will be consolidated into current North American sites, in order to leverage existing capacities.

We've also announced the relocation of our dishwasher production from Germany to Poland early next year, and there are additional organizational efficiency actions in both North America and Europe.

In total, we expect capacity to be reduced by approximately 6 million units, based on these announcements and other actions that we have taken.

The capacity being reduced is targeted on high-cost locations in product segments with low profitability.

Of course, these decisions are never easy, but they are very necessary to ensure that we retain a cost-effective business structure in a weak demand environment.

We are proactively taking these necessary steps to improve our operating margins and deliver long-term value creation to our shareholders.

I'll now turn to slide 10, where we show that we expect these actions I've outlined today to produce an annual savings of approximately $400 million by the end of 2013.

This will result in a restructuring charge of approximately $500 million, which will be incurred beginning in the fourth quarter of this year through 2013.

Roy will provide you with more detail on this in a moment.

Overall, given the weaker than expected economic environment that we are seeing, we are lowering our full-year earnings guidance, which you can see on slide 11.

Earnings per share are going from $7.25 to $8.25 per share, to $4.75 per share to $5.25.

And free cash flow gains was $160 million to $260 million positive, is now $150 million to $200 million negative.

We will not be providing any 2012 forecasts today, but as we normally do, we will provide annual guidance when we report our year-end results in early February.

At this point in time, I'd like to turn it over to Marc Bitzer to review our North America operations.

Thanks, Jeff, and good morning, everyone.

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

Shown in slide 13, the price increases we announced in April and in August have been fully implemented, and we have announced an additional 6% to 7% price increase on all SKUs, effective January, 2012.

These increases are necessary to mitigate higher material costs.

As a result of these cost-based price increases, our product price mix has improved both sequentially and year-over-year.

At the same time, our margins saw continued pressure because of weaker than expected industry shipments, which were down 4% in the quarter.

Significant raw material costs continued to be a headwind for us during the quarter.

We saw material reach record levels in August, and we expect costs to remain at these elevated levels.

On slide 14, you see annual US industry T7 units since 2005.

Demand has dropped back to recessionary levels, and in the US we have seen the replacement demand become the vast majority of the overall demand.

Based on recent trends, we now expect industry shipments to be down 3% to 5% for the year, compared to our previous forecast of down 1% to 2%.

On slide 15, you'll see North America's financial performance in the third quarter.

Regarding our overall unit volume, we saw our North America unit shipments down 3% in the third quarter, within the US industry, that was down nearly 4%.

Net sales of $2.4 billion were down 2% from last year, due to a weak industry demand.

Turning to slide 16, you can see just a few of our new products that we launched in the third quarter, including a Whirlpool brand side-by-side refrigerator with sixth Sense technology that monitors and adjusts temperatures to help food stay flavorful.

The refrigerator combines counter depth styling with a full capacity refrigerator.

In the middle, you see the Maytag Bravos XL top-load high-efficiency washing machine that offers the best cleaning, while using up to 76% less water and 78% less energy compared to traditional top-load washers.

And finally, a new Whirlpool dishwasher that features 40 targeted spray jets that scour away baked-on foods and deliver twice the coverage.

The dishwasher can save consumers up to 20 gallons of water per load.

Let me also add, at this point, a few comments on the expectation for Q4.

As mentioned before, we expect industry demand to be down over quarter in the range of 1% to 2%.

We announced to our customers promotional activity for the Black Friday season that will be lower than last year's level.

Because we have determined this is a weaker demand environment, with replacement driving more consumers' purchases, we don't see value in heavy promotions during this time.

We expect the combination of cost-based price increases and the significant cost reduction actions which we announced today to contribute to North America margin improvement beginning in Q4.

We will also continue to leverage our strong product innovation for growth over long term.

Let me also spend a minute on our fair trade actions and the Department of Commerce preliminary decision on anti-dumping that was announced yesterday.

A preliminary determination by the US Department of Commerce found South Korean and Mexican producers violated US and international trade laws by dumping bottom-mount refrigerators in the United States.

These preliminary findings of dumping validates legal actions we're taking to protect fair competition.

And as a result of yesterday's preliminary determination, importers will be required to post bonds as security for payment of anti-dumping duties, if US wholesale prices are not raised to fair value.

While the investigation is not yet complete, we remain very confident about the case.

The US Department of Commerce will conduct a thorough audit in the next phase of the investigation, and we expect the final ruling should accurately reflect the damage inflicted by the dumping of bottom-mount refrigerators.

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

Thanks, Marc.

Let me start with the third quarter 2011 review of our international business on slide 18.

Overall compared to last year, our international businesses' balance of sale grew from 47% to 50%, driven primarily from sales in the emerging markets.

Sales of $2.3 billion grew 7%.

Excluding currency, sales were flat.

Our Europe business was particularly affected by weak demand, high material costs, and unfavorable price mixture in the third quarter.

In Latin America, high inflation contributed to a slowing of growth, as we experienced a unit volume decline, resulting in a slight sales growth after adjusting for currency.

Operating earnings were impacted by higher inflation and significant raw material cost.

In Asia, we saw unit volumes grow to 4% over 2010 levels.

High inflation reduced consumer spending in India, resulting in a very weak demand environment, and this was partially offset by strong unit growth in China and continued productivity improvements across the region.

Turning to slide 19.

In the third quarter, our Europe, Middle East and Africa sales increased 6% year-over-year to $874 million, with unit shipments flat compared to the prior period.

Excluding the favorable impact of currency, sales decreased approximately 3%.

The region reported an operating loss of $12 million versus a $26 million profit last year.

Results were unfavorably impacted by significantly higher material costs, lower product price mix and production reductions to align inventories with demand, which were partially offset by cost reduction and productivity initiatives.

Slide 20 shows a summary of our Latin American third quarter results.

The region reported sales of $1.2 billion, an 8% increase from the prior year period, with appliance unit shipments down 5%.

Excluding the impact from currency, sales increased approximately 1%.

Operating profits totaled $147 million, compared to $143 million in the prior year.

Cost reduction and productivity initiatives, increased monetization of tax credits, and favorable price mix impacted results.

These factors were offset by notably higher material and oil-related cost, and production cuts to keep inventories in line with demand.

Our third quarter results in the Asia region are shown on slide 21.

Net sales increased 10% during the quarter to $215 million, up from $195 million in the prior year period, as unit shipments increased 4%.

Excluding the impact of currency, sales increased approximately 7%.

The region's operating profit was $4 million for the quarter, compared to $5 million in the prior year.

Overall, declining volumes, high inflation and high material costs in India were offset by volume improvement in China and ongoing productivity initiatives.

On slide 22, you can see a sampling of our new products launched in the third quarter around the world, including a Whirlpool brand green generation dishwasher in Europe, featuring the lowest water consumption of any dishwasher in the industry.

A Consul brand washing machine in Brazil, featuring a detergent and softener dispenser that can be pre loaded for up to 10 washes.

And a Whirlpool brand washing machine in China, featuring both the smallest footprint and the largest load capacity in the market.

In closing, several of the cost reduction actions today are specifically designed to address higher raw material costs and lower demand levels, particularly in Western Europe.

The actions that Jeff outlined at the start of this call will reduce manufacturing capacity in high cost locations to support margin expansion and strengthen our overall global competitive position.

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

Thanks, Mike, and good morning, everyone.

Beginning on slide 24, I would like to summarize the main drivers of our third quarter results.

Our sales grew by more than 2%, to $4.6 billion.

We benefited from both price mix and currency.

Excluding the impact of currency, sales were down slightly on global unit volumes, which decreased 2.3% from the prior year.

We continue to face elevated raw material and oil-related costs, which peaked in August.

Additionally, weaker than expected industry demand resulted in further production reductions.

We continue to tightly manage inventory levels, given the challenging and volatile global demand environment.

And, we continue to expect year-end inventories to be in the $2.6 billion range.

Based on volume and product mix, we monetized $62 million of BPX credits, compared to $56 million in the prior year.

Turning to the income statement on slide 25, you will note that our gross margin contracted 190 basis points to 12.4%.

A most significant unfavorable impact on our gross margin was higher material cost.

This was partially offset by favorable product price mix and positive productivity, despite significant production declines.

SG&A expense totaled $394 million, compared with $391 million in the prior year.

As a percentage of sales, SG&A was down slightly from the prior year, as a result of lower infrastructure cost.

Restructuring expenses totaled $36 million during the quarter, and resulted from cost reduction actions in Europe and North America.

In light of today's announcement which Jeff discussed earlier, we now expect to record restructuring charges of approximately $160 million during 2011.

Turning to slide 26, I wanted to point out interest and sundry expense.

While several individual line items roll into this caption on the income statement, the key year-over-year reduction was related to legal contingencies incurred during the prior year.

We reported diluted earnings per share of $2.27 per share, compared with $1.02 per share in the prior year, or $2.35 per share and $2.22 per share on an adjusted basis.

Included in our results is a tax benefit primarily due to the recognition of $122 million in energy tax credits.

For the full year, we now expect approximately $350 million of energy tax credits, which is on the high end of our previously disclosed range.

Moving to our free cash flow results on slide 27, we report a free cash flow use of $739 million in the 9-month period of 2011, compared to a use of $1 million in the prior year.

Current year results were impacted by lower cash earnings, and include $266 million in pension contributions and a $301 million payment related to the settlement of the Brazilian collection dispute.

I want to spend a few minutes on the expected impact of the actions we announced today.

Slide 28 shows our current estimate of how the $500 million in restructuring costs will be allocated over the next 2 years.

There will be approximately $105 million in the fourth quarter of this year, approximately $280 million in 2012, and approximately $115 million in 2013.

Slide 29 shows the anticipated efficiencies of approximately $200 million in both 2012 and another $200 million in 2013.

You've heard us talk today a lot about capacity reduction, and here again you see an approximate 6 million unit target based on today's announcement and other actions already underway in 2011.

It is important to keep in mind that this is high cost capacity take-out designed to reduce our fixed cost structure, not limit our ability to boost production when demand levels improve.

Before I turn the call back over to Jeff, I want to talk briefly about CapEx.

I often get questions on capital allocation, and given today's announcement, I thought it would be helpful to provide a high-level breakdown that you can see on slide 30.

While there is some variance year-to-year, generally speaking in looking at a historical 3-year average, capacity comprises 10% of our capital spend, maintenance of business is roughly 20%, and cost efficiency and quality initiatives are roughly 30%.

You see innovation on the chart at 40%.

As you can see, these investments are critical to position the Company to successfully execute our strategy, particularly with respect to bringing a cadence of innovation to the market and continued improvements in cost and quality.

As Jeff mentioned earlier, continued innovation investment is a big piece of our long-term growth strategy in both the core appliance business as well as adjacent business opportunities.

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

Thanks, Roy.

As I mentioned previously, we are focused on aggressively expanding our operating margins and executing all the actions which we describe on slide 22 that we've discussed on today's call.

I'd like to turn to slide 33.

Many of you may remember, about last year at this time we hosted an Investor's Day and shared our value creation targets, which used 2010 economic data as a basis.

At the time, we certainly didn't foresee the extraordinary material cost inflation or the weakening of industry demand levels that we have seen this year.

And of course, these macroeconomic assumptions were critical elements in setting our long-range financial goals and timeline.

Certainly, these challenges have delayed our revenue growth and the rate of improvement -- margin improvement for most of this year.

And we do expect the volatility we've seen in the global macro economy will have a continued impact on industry demand in the near term.

Having said that, we still remain confident in our ability to achieve our long-range financial goals, including achieving 8% operating margins.

However, given the current economic conditions, it may take us additional time to realize these targets.

Turning to slide 34, we show what we expect to be the main contributors to our margin expansion.

The first are the announcements we are making today regarding fixed cost capacity reduction.

We expect this to result in 2 points of margin expansion in 2012 and 2013.

Secondly, we expect ongoing productivity initiatives to more than offset inflation going forward and positively contribute to our margins.

Next, as you heard from many of our speakers today, we expect improved price mix driven by innovation and already-announced or implemented cost-based price increases, and we expect this to have substantial margin impact next year.

We also continue to grow our adjacent businesses, which are providing positive mix in our margins.

These businesses are growing at a faster rate and offer higher margins than our core appliance business.

And finally, in the midterm, we do believe we will see normalized demand returned, which will also have a positive impact on our margins.

While any one of these individual assumptions may vary, we have strong confidence that our long-range targets can be achieved, given the strength of our brands and product innovation, I believe our proven ability over time to reduce costs, and the growth we are seeing in adjacent businesses.

Ultimately, we do believe the industry demand environment is a shorter-term challenge, and we are confident in the opportunities that we see in all parts of our business to grow.

And some of those examples are on slide 35.

So, in summary, we have not changed our expectations or commitment to execute our road map for growth and value creation.

Overall, we believe the actions announced today will strengthen our global competitive position.

I believe our cost and capacity reduction initiatives, our recently announced cost-based price increases, and continued innovation investment will in fact expand our operating margins and deliver long-term shareholder value.

With that, I like to end the formal remarks and open this up for questions.

(Operator Instructions).

Eric Bosshard, Cleveland Research Company.

This is Tom Mahoney calling in for Eric today.

You commented about price mix, that it would add substantially to margin in 2012.

How do you think about this statement relative to an industry that is getting more competitive in the US and in Brazil, plus the consumer that is more focused on value and lower prices rather than higher prices at this point?

We just had an important turning point in the third quarter where price mix has turned positive for us.

And this is after several quarters, 4 or 5 quarters, of negative price mix, more driven by what I would call very aggressive competitive actions in the marketplace in a lot of major markets.

We are seeing a very strong acceptance to our new product innovation.

Given the economics of this business, we made the decision that we had to pass price increases through, based on the high costs that we are seeing.

And we are adjusting our business accordingly.

This is not a consumer issue.

The price points that remain -- the affordability factor and the price points that remain in the marketplace today will be there tomorrow.

It is the value feature content for what you saw at the prices.

In the case of the US, this is the biggest replacement market, percentage-wise, we have ever seen.

So people are buying -- or people whose products break, they are in the market for 2 or 3 days and they buy a new one.

I think the tough economic environment we agree with.

We do believe people, particularly if they have been in the market, haven't bought a new washing machine or refrigerator for 8 or 10 years, recognize the new innovation value and are willing to pay for it.

But we also know that there is a small percentage of very, very limited price-only shoppers that may buy the opening price point.

And that is not the piece of the market that we're as heavily invested in.

Then a follow-up on Latin America.

What do you guys see as the driver of the swing in unit demand there?

2Q 21% and 3Q down 5%.

Is it the market?

Is there any moving pieces within share there?

Does it temper your expectations as you look into 2012 for the region?

What we've seen in Brazil, as we have seen in some other emerging markets, is inflation.

That's what's caused the consumer dampening for our types of products, if you will, durable goods.

Having said that, what we saw is -- if we take our core 3 products in Brazil, which is washers, refrigerators and ranges, we actually did see increases.

Where we saw decreases was in air conditioners and microwaves.

Particularly at the low end.

What we are expecting is to have an environment that's less favorable, if you will.

But we still expect to see some positive growth in the region.

Ken Zener, KeyBanc Capital.

Marc, you had said you expected improvements, and I believe you were referring to North America in the fourth quarter.

Could you give us a sense if you are talking about the 2.6 in the third quarter or was that the year-over-year versus the 1.7?

I was referring to sequential and given the poor margins of Q4 last year of the year-over-year.

I know you said that the largest headwinds to your gross margin was material.

Could you talk about, given the -- obviously, people had seen the AHAM data that was out there, but you guys obviously took down the volume.

Would you be willing to quantify how much the volume was impacting you guys, in terms of underproduction?

From the first part of your question on materials.

When you factor in the LIFO piece in the materials, it was actually about 310 basis points negative on our margins in the third quarter.

That is the first part of your question.

The second part of your question, though, you are right.

Conversion was a really big deal in the quarter.

We took out roughly 6% of production units, when you look at year-over-year production levels.

And that cost us about 130 basis points in gross margin.

Typically, we are at 2 points plus of productivity and cost takeout every quarter.

This quarter, we were about 0.6 of a point, and the reason is because we had a 130-basis hit from production take down.

I guess that 0.6 is referring to North America.

That 0.6 is a global production number.

So total global is down 6% year-over-year.

The 3% you reported in North America, I know last quarter you guys had out paced the AHAM data.

Would you say that 3% versus the -- 3% North America decline versus the 4% AHAM data is more on a like-for-like basis versus the last quarter?

Again, let me offer a clarify.

The typical T7 or T6 AHAM data is not exactly consistent with overall North American unit shipments, because there are other product groups in their segments.

Having said that, when you particularly refer to market share, market share on a sequential basis has been approximately flat or marginally up.

And on a year-over-year basis, down.

Sam Darkatsh, Raymond James.

First off, the restructuring, Roy, that you announced.

Is that incremental to core restructuring, or is that going to be overall restructuring for the next couple of years?

That is overall, Sam.

So there is an incremental piece in 2011.

All of these numbers are total restructuring that we expect.

So you see the stub in 2011 at $105 million.

That is about $80 million for new initiatives and about $25 million for things that were already underway.

And then you see in 2012 and 2013, the $280 million and $115 million, but those will be all inclusive numbers.

What were specifically your North American unit expectations for Q4?

In my script we basically referred to 2 numbers.

We referred to a full-year number of down minus 3% to minus 5%.

And that was also referring to a Q4 number of roughly in the range of minus 1% to minus 2%, compared to last year.

The industry did a minus 4%, and the comparison gets much more difficult in Q4.

And you're saying that the promotional environment may even ease.

How does that foot logically or rationally?

I'm confused.

Of course, there is a lot of uncertainty and all going forward on market expectations and demand.

Having said that, we know that there is a certain base element which is so strongly replacement driven, which almost puts a certain floor in the overall unit demand.

Of course, it yet needs to be seen what the overall holiday period will bring as an overall demand level.

Our models right now would indicate a minus 1% to minus 2%.

The US energy tax credit program is set to expire at the end of this year.

I guess there is some bandying about in Congress as to potentially extending it.

If the program is allowed to -- at least theoretically -- is allowed to continue in its current form, how much additional capacity do you have to -- in terms of incremental production of the applicable units, since I believe the credits are based on incremental production on a year-on-year basis?

First of all, we don't have any insight to whether these will be extended or not.

The way we are planning is, they expire at the end of the year.

And that is how we are planning the business.

It has been reported there are some bills, bill proposals in Congress that potentially could include some type of continuation of these credits.

The how and what are the rules, et cetera, et cetera -- first of all, will they get passed?

And second of all, what will the content be?

We don't know.

That is why we are not planning on anything.

Those requirements would then determine how you calculate incremental.

But basically we'd have to sell more than we did this year.

Because we basically do our production based on what we sell.

It 's a deep question, you are right.

Ultimately, as you know, a couple of factors.

One, it's units produced above a rolling baseline.

And again, as Jeff said, the important piece will be what will the new baseline be?

Will there be a baseline?

And secondarily of course, there's always a total limit.

Right now, it happens to be on gross receipts.

But again, what might that limit be?

How might it be calculated?

If, in fact, they were extended, we would have to first understand the components of legislation, then figure out what it would mean for Whirlpool.

And we wouldn't dare be in a position to speculate on that at this point.

But the capacity takeout announced today does not necessarily impact your ability to produce over and above what the baseline has been, at least theoretically?

No.

It does not, Sam.

That's why, in my script, I was careful to talk about the focus that we have is on high-cost capacity, but absolutely with laser focus on the ability to continue to sync it up, if in fact and when in fact demand improves, we have the ability to take capacity up.

Robert Kelly, Sidoti.

Last quarter, and you touched on it during your earlier remarks, you have a goal of about 200 basis points from cost productivity actions that you try to get.

Assuming everything breaks your way with material and whatnot.

Do the actions that you announced today -- would that be incremental to that 200-basis-point margin goal?

How should we think about the structural changes that you announced today?

Robert, the way you should think about them and the way we think about them, you should look at the restructuring actions.

We expect to take down our fixed cost structure by $400 million.

That is why I said I expect that to be directly focused on expanding our margins.

Beyond that, in a normal productivity year, and this was not one in 2011, and if you go back the last 4 or 5 years, our productivity has exceeded our inflation in the business.

We have global productivity programs in place at all times.

And we would expect -- for example, last year I think we achieved 3.5%.

This year, with the high inflation -- raw material, high inflation in the emerging markets, this is, candidly, the worst inflation year we've ever seen.

But going forward, and as we get more visibility next year, we would expect and we are building our plans beyond the restructuring to have net positive productivity, which would enable us to improve our margins as well.

And then over and above the cost-savings amounts?

Correct.

You talk about the raw material pain being behind you at this point.

Have you seen, as far as the competitive landscape, the urgency to match price increases or continue the price increases staying there with raw materials leveling off?

Let me be clear on raw materials.

They've stabilized at a high level; they haven't gone down.

It's too early for us to talk about 2012, but we certainly don't expect to see the increases that we saw throughout this year.

Not going up is viewed as a positive.

Regarding pricing, candidly, we can only comment on what we do.

We can't really make any comments about what competitors are doing.

David MacGregor, Longbow Research.

On the most recent question there, you indicated that raw materials have stabilized at a high level.

It's pretty clear that raw material markets are rolling over pretty hard here.

Do you have hedges in place or contractual obligations that are going to keep you at these price levels and represent some divergence from what's happening in spot markets?

If you look at our cost structure for raw materials -- steel, resin, base minerals, copper, oil-related, so on.

Those dynamics -- every one of those markets has its own contract structures.

And base -- let's just take base metals.

And we've talked about this before, we have a very consistent forward-hedging policy that we, within limits, adhere to at all times.

When metals are going up, we're usually under the curve.

When metals are going down, we may cross over for a while and be over the curve.

But the point is, it's predictable for us.

Even with the metals market, at which point in time do we talk about?

Because the volatility, as you know, has been very extreme.

So that is one.

Resins have been one of the biggest increases this year.

I think, quarter-over-quarter spot rate for resins is 25% up.

Those contracts are negotiated all the time.

They are generally of shorter term durations, and so they go up and down with the market.

Steel is a little bit different, as we've talked about in the past.

In the emerging markets, steel is an every day, every week discussion.

In both Europe and North America, we have multiple types of structural contracts that do provide us, within limits, some predictability for an annual period of time.

But we don't have any steel contracts going on an annual period.

So there's a lot of volatility, but to be clear, raw materials have not really gone down.

In fact, as we said, based on the set contracts and the mechanisms we have, we actually think we've peaked out.

Meaning increases in the third quarter.

And now look forward to some stabilization, without having increases month over month, quarter over quarter.

Given the announcement yesterday on the trade cases, there's a lot of interest in that this morning.

Can you talk about the potential to pursue other trade actions, based on how this looks like it's playing out?

Yes, David, let me first -- as I said, we are very pleased with the progress on the trade case that we have in the US.

Just to be clear, there's 3 parts of the process.

Last May, there was a 5 to 0 ruling by commission that there was grounds for this.

This is the second step in the process, which was very important, where the Department of Commerce had issued their preliminary ruling.

And now we enter the last phase, every phase is important, but the last phase is the auditing process, where all materials will be verified with an expected final ruling in late April or early May.

So we reiterated our confidence in our position.

We are very confident, as we were when we filed the case.

We are not speculating on anything beyond that.

We don't do that.

We're really focused on this case.

My understanding is that you elected to take Maytag out of Best Buy.

I'm just wondering if there's any major changes going on in terms brand strategy with Maytag.

Is there a market share delta there that we should be talking about?

We usually don't comment on specific trade partner arrangements.

There is always a lot of tactical FDU moves.

In this specific case, you need to keep in mind that the initial volume of Maytag was very, very, very small.

Is there a change in brand strategy there?

No.

Our brand strategy is really built around consumers.

Michael Rehaut, JPMorgan.

I was hoping to go back to raw materials for a moment.

I don't believe you quantified what the full-year expected headwind is now.

I was curious if you could do that, because obviously I think it is one of the key drivers to the reduced guidance.

As part of the raw material conversation, I understand that a big issue of this is how it works through the system and again some of the hedging.

But, as mentioned earlier, at this point you have cold rolled down 20% from year-earlier peaks.

You obviously have oil and other materials down as well.

Why wouldn't that necessarily be a little bit of a tailwind in 2012?

Let me first of all answer the first couple parts of your question.

First of all, our full-year outlook continues to be $450 million to $500 million, as it was last time we provided guidance.

So there has been no change in terms of the full-year outlook.

I think Jeff gave a thorough response to David's question.

Maybe a little more mathematics behind it, for your perspective.

If you look at Whirlpool Corporation quarter in, quarter out, period in, period out.

If you look at what we have in the way of fixed contract, what we've protected through caps, collars, hedges, et cetera.

What you'd find, Michael, is about 60% is covered with some kind of derivative or fixed contract and the other 40% is floating.

To build on all of the things that Jeff said, from a mathematical perspective those are the numbers behind how much is fixed and how much floats and is variable.

I think that general discussion about weak demand levels and high inflation don't tend to go together, but that is the environment.

And that is what it's been.

We are not prepared to talk about 2012 yet.

As I said, we will in early February.

And candidly, there is a lot of discussions and negotiations going on between now and then, too.

To hit back on some of the anti-dumping, the primary ruling there.

Can you give us any sense of what that means on a practical basis in terms of the market?

I understand that obviously there are some tariffs that would have to be put in place if prices aren't raised by some of those parties.

What does that mean on a practical level?

Do you expect there to be a -- some further price increases then or price adjustments by the competitors?

Would there be a reduction in volume of those competitors if they don't necessarily act immediately, or would this alternatively be just more tied up by more litigation in the near term?

Let me first try to answer your question to -- first of all, what is factually happening?

What factually happens is, as of next week a number of importers, Samsung and LG being among them, will be liable to pay dumping duties if they fail to set US wholesale prices to a fair value.

Basically, they have to submit a bond.

That is what is going to happen factually.

What will also happen in the course of March, April and the final announcement in 2012 is a final determination, which is based on the formal in-depth audit by the DOC, which will reveal a lot of -- the full picture.

So that's what's factually happening.

What different players will do in the marketplace, from my perspective, is pure speculation at this point.

I can't say how they will deal with that.

That needs to be seen and viewed in subsequent months.

The period that this begins is next week.

November 2.

So that would effectively be addressed by the posting of a bond, and I guess we'll get the final determinations late 1Q?

No, May.

There is a published schedule by the agencies which give you exactly the process and the dates.

In fact, it should be in our press release yesterday.

It is.

I appreciate that.

The pension expense was reiterated.

Is that type of a level something that we can expect contribution level over the next few years?

I know you didn't necessarily want to talk about guidance, but given all the changes in market assumptions and return assumptions, if you could have any comments on that front it would be helpful.

I can't go fully into 2012, but I can give you a perspective here.

Our defined benefit pension expense this year will be roughly $28 million.

The expense next year, while we do not have a finite number, will not be significantly different than that number.

So you should expect next year to be fairly similar to this year.

From a funding perspective, we are going to end up finding just under $300 million this year.

While it's not perfect, what we'll fund next year, I would guess it would be approximately $250 million, so down about $50 million from this year.

Josh Pollard, Goldman Sachs.

My first question is for Mike Todman on Brazil.

I want to understand everything that's going on there.

You're talking about production cuts in Latin America, which is not something that we were expecting.

Electrolux, about an hour ago, said that the market was up 4%.

You said that your volumes, or your shipments, were down 5%.

Your margins are right around that 7% level, ex-BVX.

Should we be thinking about this as a 7% margin business until something changes on the demand function?

Where do you feel like your share is headed?

What I said to an earlier question is when you look at the core 3 products.

We had an increase in our sales of around 5%.

Where we actually had some decreases, which we elected to, is in microwaves and air conditioners, really at the low end.

That's where we made the adjustments that we need to make.

I feel very good about where and how we are positioned in the marketplace in terms of both our competitiveness and our ability to maintain our share.

I'm very comfortable that in the core categories we have done that.

The 6% production take-down that I referenced earlier, and again, I mentioned, that's a global number.

And so Mike is exactly right.

When you look at production in the Latin America region by itself, production is in fact up year-over-year.

It is not down.

Then I guess the other part of your question is where are our operating margins.

What we saw, even if you strip out the BCX, is our operating margins went up.

They were around --above 8%.

So not at 7%.

And what we have done is we've executed some price increases in the marketplace already.

And we are beginning to see the positive effect of those.

We expect that our margin will continue to improve throughout the business.

The only other color I would add to that is we are still very positive about our Latin America business.

It's had spectacular growth.

We don't see easing of growth for shorter periods of time as a bad thing, given some of the inflation that is going on in those markets.

But the general trend has been, continues to be up.

There's a lot of talk about what's going on in the Brazil market.

There's a lot of clarification we could add to that.

But the point is, we feel very good about our position.

We have implemented price increases in Brazil.

That was a conscious decision given all the inflation there.

And actually feel very good about our business there.

I'd love to discuss with you guys how you get to that 8% plus, maybe after the call if you guys have some time.

My second question is around cash flow for 2012.

I'm just going through a couple of line items.

Between the Brazilian cash settlement, the pension contribution that you mentioned a few minutes ago, the cash for restructuring you outlined, and then the makeup of your CapEx of maybe being flat next year.

I get cash obligations from those 4 buckets of about $1.4 billion next year.

Am I off on that?

I'm trying to understand how you get to cash flow positive next year when you add that and also consider the debt that you add to it in 2012.

No, I don't think you're off in terms of assumptions you're making with respect to the payments for next year.

I mentioned to Michael what we think pension funding will be.

You're exactly right.

We do have a software payment and we have some significant outflows next year.

But what we haven't talked about yet -- and unfortunately what we can't talk about on this call, because quite frankly we're just not prepared -- is all the other components of operating cash flow.

In particular, the delta in cash earnings when you look year-over-year to next year, et cetera, what we are going to do with working capital.

When you see that side, then the story will come together better for you.

In terms of, have you identified some big cash outflows next year, that we are in fact seeing as headwinds in cash flow, yes, you have.

On the promotional environment.

You guys made the mention that it would be better.

I am just comparing and contrasting that with the comments that we heard from Electrolux about an hour ago that they expected to be equal if not worse, and a pretty big player here in the market.

I'm wondering what gives you the confidence that the promotional environment would be better this year.

I want to understand if there is something different about the sales environment or about the pricing or competitive environment that would suggest that the promotional environment could be better this holiday season?

I was referring to our promotion plan for the holiday period.

The big difference on our plans versus last year, last year most of the promotions were in the ballpark of 10 to 20 days.

Right now, we talk more about 6 to10 days maximum.

So we've roughly cut our promotional window, if you want to say, in half.

It also means, with our promotion price investments, which we put into the holiday period, is roughly half.

We are a very significant part of the market.

And that's what we can tell for our actions.

I can't comment on any competitors' actions for the holiday period.

We talked about this last quarter.

Given the high material costs, given the fact that we were -- that we had announced and now have implemented price increases.

Given the fact that this is a highly replacement market, that is what drove the decision-making we had around our own plans.

Just to add also (Unintelligible), and maybe that explains our own reasoning.

In hindsight, if you look at specific promotion windows around Labor Day or July 4, the typical lift which we saw in the market from promotions in the market was a fraction of the past.

That is why we just don't get -- we don't expect in returns of promotional investments, and that drove our decision.

From a strategy standpoint, it seems like between your production cuts, the focus on not being as promotional last year, that you guys are taking on a strategy to be more profit-focused over market-share focused.

I recognize that you don't always have to make the decision one versus the other.

Given the industry dynamics, it seems like that is one of the decisions that has to be made.

If having to choose between those 2, are you leaning on the side of profit margins?

If you just want to talk about any initial plans for that $350 million?

I wouldn't call it strategy.

If you look at the margins and the profitability that -- yes.

I tried to be very clear about that.

Our number 1 priority needs to be on operating margin.

With the material costs increases that we have seen, we are not overly interested in selling appliances for a loss.

That is not really a strategy; that is just value creation.

Our strategy is to drive innovation, to drive great brands, and get appropriately paid for those products.

Even in our restructuring plans, that is what we focused on taking high-cost capacity of low profit segments off-line.

Because we didn't see a near-term path to create value from that.

So listen, everyone, I appreciate you joining us today.

Thank you.

We'll look forward to talking to you next time.

That does conclude today's conference.

Thank you for your participation.