惠而浦 (WHR) 2012 Q4 法說會逐字稿

Good morning and welcome to Whirlpool Corporations Fourth Quarter 2012 and year-end Earnings Release call.

Today's call is being recorded.

For opening remarks and introductions, I'd like to turn the call over to Senior Director of Investor Relations, Joe Lovechio.

Thank you and good morning.

Welcome to the Whirlpool Corporation Fourth Quarter 2012 Conference Call.

Joining me today are Jeff Fettig, our Chairman and CEO, Mike Todman, President of Whirlpool International, Mark Bitzer, President of Whirlpool North America and Larry Venturelli, our Chief Financial Officer.

Our remarks today track with the presentation available on the investor section of our website at WhirlpoolCorp.com.

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 expectation.

Our actual results could differ materially from these statements due to many factors discussed in our latest 8-K, 10K, and 10-Q as well as in the appendix of this presentation.

Turning to Slide 3 we want to remind you 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 results from our ongoing business operation.

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

Listeners are directed to the appendix section of our presentation beginning on Slide 41 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

With that, let me turn call over to Jeff.

Good morning, everyone, and thank you again for joining us today.

As you saw in our Earnings Release from earlier this morning, our actions in 2012 have delivered a record year of margin expansion.

If you recall in October 2011, we outlined several business priorities and accompanying actions that we said we would execute throughout 2012 to improve our operating margins and lower our fixed costs.

These included realizing cost base pricing actions and increased level of new product innovation driving enhanced mix, reducing our fixed cost structure, and delivering ongoing cost productivity from our global operating programs, and as a result this last quarter marks the fourth consecutive quarter of year over year ongoing Business Operations margin expansion and for the full year generated strong levels of underlying Free Cash Flow.

These actions and this momentum combined with favorable trends that we see in US housing and growth opportunities that we see in emerging markets have created positive momentum as we've headed into 2013.

Our full year results are summarized on Slide 6 and you'll see overall revenues were up approximately 3% excluding the impact of foreign currency and BPX as our strong price and mix continued throughout the year.

And in line with our previously increased guidance, diluted earnings per share from ongoing Business Operations improved $5 per share to $7.05 for 2012 compared to $2.05 in the prior year.

Our underlying cash flow generation from ongoing Business Operations also improved significantly year over year by over $550 million.

Turning to Slide 7 & 8, we highlight our business priorities for 2013 and how we expect them to impact our results.

These priorities are well aligned with our long term growth strategy and build upon the success and the foundation we built in 2012.

For the year, we expect our ongoing business performance and margins to continue to improve as we launch new product innovations, accelerate growth in higher margin adjacent businesses, continue our expansion in emerging markets, realize additional benefits from our cost and capacity reduction initiatives, and execute our ongoing cost productivity programs.

We believe these positive drivers will more than offset the expected increases in material and oil related costs.

We also expect to see positive global demand as we outline on Slide 9.

In the US, we expect demand to be up 2% to 3% for the year as we're increasingly optimistic about a more structural demand recovery and we do continue to see very positive trends in US housing.

In Brazil and other Latin America countries we continue to see strong underlying economic fundamentals and we're forecasting demand growth in the region from 3% to 5% for the year.

In Europe we're forecasting a flat industry for the full year as consumer confidence in the Euro zone remains weak within this still challenging economic environment and finally we expect a modest recovery of growth of 3% to 5% for Asia across the region for the full year.

Finally turning to slide 10 we continue to execute these actions to expand our margins with enhanced price mix through innovative products and our cost of capacity reductions.

Combined these actions along with revenue growth we expect to deliver a GAAP EPS in the range of $9.80 to $10.30 per share and overall positive Free Cash Flow of $600 million to $650 million.

On an ongoing business operational guidance for 2013 is $9.25 a share to $9.75 per share and our cash flow from our ongoing operations is forecasted to be $950 million to $1 billion.

So at this point in time I'll turn it over to Mark Bitzer to review our North America operations.

Thanks, Jeff, and good morning, everyone.

Let me begin by reviewing North America's performance in the fourth quarter starting with slide 12.

Our consistent and disciplined execution of the actions we laid out last year resulted in the fifth quarter of year over year ongoing Business Operations margin improvement and our operating margins exceeded 9% for the quarter.

A continued investment in innovation and a strong market execution drove a significant part of the improvement.

Cost productivity was also a positive driver as we more than offset material cost inflation in the Fourth Quarter.

Turning to slide 13.

Net sales of $2.5 billion decreased 3% from last year as a weak economic environment continued in the US amid uncertainty with government policies.

Concerns over consumer reactions to the fiscal cliff loomed during the month of December and retailers respond by maintaining low inventory levels, resulting in lower industry selling during the quarter.

As we have previously stated, our priority has been and will be margin improvement.

We have increased our balance of sale in the higher price segments across most products driven by innovation as evidenced by our very strong positive mix.

Ongoing business operating profit was $233 million which more than doubled as compared to $106 million in 2011.

Overall, ongoing business operating margin was up over five points year over year.

In addition to a very strong price and mix improvement, the year over year progress was to less extent driven by the benefit of our cost and capacity reduction initiatives as well as our ongoing cost productivity program.

Turning to slide 14, you can see just a few examples of our innovative products.

The small domestic appliance you see here is just an example of how we're growing our adjacent businesses.

Now let me take a moment to talk briefly about our North America and 2013 as shown on slide 16.

We will remain focused on actions driving margin expansions, including growing our high end margin core and adjacent businesses, continuing to deliver cost and capacity reduction initiatives, and realizing positive net cost productivity.

As Jeff mentioned earlier, we expect the US industry to increase 2% to 3% in 2013.

As the market demand grows throughout the year, we believe consumers will remain cautious in the early part of the year as all of the fiscal cliff negotiations are understood and budget debates continue in Washington.

As we continue the year we will remain optimistic that the homebuilding recovery and remodeling will continue to strengthen its momentum and that consumers will gain confidence as Federal Government policies become clearer.

Also, the normal replacement cycle of appliance continues which is particularly important given the peak appliance industry years that occurred before the recession.

Let me just close with some comments on the recent ruling by the ITC on our anti-dumping petition.

Last week the US International Trade Commission or ITC confirmed an unanimous 6-0 vote that unlawful pricing Samsung LG caused injury to the US domestic appliance industry.

This positive vote was the ITC's final ruling in the anti-dumping investigation related to clothes washers from South Korea and Mexico.

As a result of the vote, the US government will impose trade remedy on imports of the unlawfully traded washers.

This decision is a great victory for the US appliance industry and an important stride towards enforcing laws that enable a competitive marketplace for US manufacturers, their employees and customers.

It is not yet clear how the competitor will respond to this decision and, therefore, it is difficult to fully gauge the commercial implications of this.

However we clearly said that in a level, competitive playing field, we are very well positioned to win.

With this in mind, this decision is clearly a net positive for Whirlpool and now I'd like to turn it over to Mike for a review of our international operations.

Thanks, Marc.

Turning to slide 17.

Overall, our international operations were lead by strong performances in our Latin America and Asia regions as well as a return to profitability in Europe.

We delivered improved price and mix across all of our international business as we continued to launch consumer relevant innovations in every product category around the world.

Productivity also drove favorable results as our ongoing cost productivity programs more than offset material cost inflation and currency for the quarter.

If you turn to slide 18 you'll see our Latin America Fourth Quarter results.

Sales excluding currency and BPX increased 14% on higher volumes and improved mix.

GAAP operating profit for the quarter totaled $134 million compared to $155 million in the prior year.

The year over year decline was driven primarily by lower monetization of tax credits.

On an adjusted basis, excluding Brazilian tax credits, our operating profit for the quarter totaled $119 million compared to $96 million, a 24% improvement year over year.

Improved price, mix, and ongoing cost productivity programs more than offset the raw material inflation.

Turning to slide 19, we saw good market demand in Brazil and a share gain in our Core 3 appliances which are higher margin and contributed to our positive mix.

I now want to highlight a few points regarding our Latin America region.

On slide 20, we compare a few economic indicators for two portions of our Latin American appliance business, Brazil and what we refer to as LAR International.

As you can see, LAR International, which is made up of over 35 markets outside Brazil, is comparable to Brazil in size, GDP, and number of households.

Our appliance business in these markets is approximately a third of the size of our appliance business in Brazil but has been growing over the past few years.

Our Latin American International business continues to have significant growth opportunity.

In fact, we had record sales and operating profit in this portion of the business again this year.

In summary, in addition to Brazil, we also have an opportunity for growth and strong margin contribution in many other countries in Latin America and the Caribbean.

Slide 21 highlights the growth potential in our Latin American region, given current penetration rates of appliances in Latin America compared to the United States.

Now turning to the Fourth Quarter results of Europe, Middle East and Africa on slide 22, we returned to profitability in the quarter driven by the actions we outlined last quarter.

The region had an operating profit of $8 million compared to a $32 million loss in the prior year period.

Favorable price mix, the benefits of cost and capacity reduction initiatives and ongoing cost productivity positively impacted results.

Our Fourth Quarter results in the Asia region are shown on slide 23.

During the quarter, we gained market share and expanded our margins across the region despite weak consumer demand, material cost inflation, and unfavorable currency.

Net sales increased 1% during the quarter to $203 million up from $200 million in the prior year period.

Excluding the impact of currency, sales increased approximately 4%.

The regions operating profit was $7 million up from $2 million in the prior year due to favorable price and mix and ongoing cost productivity.

Slide 24 shows just a few examples of our new products in 2012.

To continue to capitalize on the opportunities for growth, we expect to launch over 200 new products in our Latin America region alone in 2013.

Our international priorities are outlined on slide 25.

In 2013, we expect to leverage new product launches and grow adjacent businesses, continue costs and capacity reduction initiatives and execute ongoing cost productivity progress.

These actions combined with stabilization in Europe and growth opportunities in emerging markets have us well positioned to perform in 2013.

Now I'd like to turn it over to Larry Venturelli.

Thanks, Mike, and good morning, everyone.

Let me start by making some comments on our fourth quarter results and then I'll transition to guidance for 2013.

Beginning on slide 27, you'll note that we continued to deliver on our margin expansion initiatives.

For the quarter, we had approximately a 400 basis point improvement.

Ongoing operating profit margin increased to 6.5% driven by price mix, which was up approximately 4 points and resulted from both cost base price increases as well as favorable mix.

Another positive margin contributor has been benefits associated with our cost and capacity reduction program which contributed about a point of year over year margin improvement.

Material cost inflation was approximately $73 million.

As expected we saw cost productivity ramp up more than offsetting our material headwinds resulting in positive net cost productivity.

Overall, our fourth quarter and full year margins were firmly on track with expectations.

Now turning to free cash flow on slide 28.

We generated cash of $230 million compared to a free cash flow use of $55 million last year.

Adjusting for items impacting comparability, our underlying ongoing business cash flow improved by over $550 million compared to last year, largely driven by our improved margin structure.

Now let me spend a couple minutes on some general topics embedded in our fourth quarter results.

Before I do that, as a general reminder, slides 42 to 45 in the appendix will provide you with a reconciliation of a reported GAAP operating profit in EPS to ongoing business operations.

As you can see, we have removed the impact of restructuring expense and BPX tax credits as well as the impacts from legal resolutions and an intangible impairment.

Turning back to financial summary on slides 29 and 30, let me provide a couple of observations.

It's important to note that net sales in constant currencies and excluding BPX credits were up approximately 2%.

Monetization of BPX tax credits were $15 million compared to $59 million last year.

For the year $37 million of credits were recognized and at the end of the year, $184 million remain.

Regarding interest and sundry expense in the quarter, we recorded an expense of $17 million for anti-trust resolutions.

This is adjusted from ongoing business operations to provide better clarity of our underlying business results.

Slide 31 illustrates expense associated with our cost and capacity reduction program.

We continue to expect our total program expense to be approximately $500 million through 2013.

The program is progressing very well and we delivered $227 million of benefit in 2012 and expect an additional $175 million in benefit in 2013 for a total of $400 million which is consistent with our previous guidance.

As Jeff introduced earlier on the call, our 2013 guidance is shown on slide 32.

We expect to deliver annual GAAP diluted EPS in the range of $9.80 to $10.30 per share and annual ongoing business operations EPS of $9.25 to $9.75.

Our 2013 free cash flow guidance is $600 million to $650 million.

To provide further clarity and comparability between our GAAP guidance and ongoing business operation guidance, we have included a table on slide 33 which I'd like to provide some comments and perspective on.

Consistent with 2012, we will continue to adjust GAAP EPS for both EPS tax credits and restructuring expense.

As you'll recall in October 2011 we announced the largest restructuring program in company history.

Restructuring expenses expected to be $185 million or $1.75 per share this year.

In 2013, we expect to monetize approximately $60 million to $70 million of BPX tax credits.

Lastly, recent legislation in the US has extended the energy tax credit program.

You'll note that our 2013 GAAP earnings guidance includes $120 million in energy credits.

We will continue to exclude these from our ongoing business operations.

Our 2013 ongoing tax rate guidance is 24%.

The 2013 GAAP tax rate guidance is 9% and this primarily reflects the energy tax credits.

On slide 34 we highlight the main drivers of our expected year over year ongoing business operating performance improvement.

During 2013, we expect a point of margin improvement from price mix, largely driven from the mix impact of innovative new product launches and adjacent business growth, approximately one point of margin improvement from our cost and capacity reduction program.

We also expect to deliver approximately 0.5 points of margin expansion from our normal cost productivity and this includes fully offsetting approximately $150 million to $200 million of year over year material cost headwinds.

And finally, higher marketing and technology investments are expected to reduce margins by approximately 1 point in 2013.

On slide 35, you'll note we generated $230 million in free cash flow during 2012 and our guidance is $600 million to $650 million largely driven by cash earnings.

It's important to note that we now expect the bulk of our restructuring program cash out flow during 2013 as well as higher capital spending which is expected to be $600 million to $650 million compared to approximately $475 million in 2012.

The underlying ongoing business operations free cash flow we're generating through our operations takes into account short-lived cash requirements and it continues to be close to $1 billion.

Before I close, I wanted to discuss our short-term cash allocation priorities outlined on slide 36 which include funding the business, including Capital Expenditures, debt maturities and pension contributions, return to shareholders, and M&A.

We are planning to refinance our $500 million, 5.5% long term debt which matures March 1 in the public debt markets.

Now I'll turn it back over to Jeff.

Thanks, Larry.

Well let me summarize.

I'll start with slide 38.

Overall, we were pleased with the performance and progress that we made in 2012.

We delivered record margin expansion across our global business which in turn generated very strong underlying free cash flow.

These actions, as I mentioned, combined with what we see are positive trends in US housing and our growth in emerging markets do position us well coming into the year.

Our actions have clearly produced expected results and we remain committed to delivering at least 8% operating margins by 2014.

Turning to slide 39 I am confident in opportunities that we see to grow the business worldwide.

These opportunities in summary will come through appliance growth in new and emerging markets, our stepped up investment in consumer relevant innovations, our expansion in the higher margin, faster growing adjacent businesses, and the advancement of our overall global product leadership.

So we continue to make great progress on our road map for growth with our great brands and great products and more importantly, we're performing at levels that will continue to create value for our shareholders so with that I'll conclude our formal remarks and open it up to Q & A.

Thank you, sir.

(Operator Instructions) We'll take our first question from the site of Ken Zener with KeyBanc capital.

Outstanding year, gentlemen.

Can you address the trends in 2013, Marc, and I think you were touching like why investors shouldn't be concerned about the North American GAAP volume that you guys are reporting, first day of M6, so negative five versus negative two in the fourth quarter?

And talk about North American margins and your view on discounting in 2013.

You guys said you'd be discounting as part of the landscape, but it's going to be disciplined.

If you could expand on those two comments.

Ken, it's Marc.

Let me try to break it out with the volume, and I think you had a question about Q4 to a soft industry volume, but it (inaudible) when it comes to discounting.

First of all, the Q4 volumes I would say overall the full year industry volumes and the Q4 largely came in in the range of guidance provided in previous quarters.

It's slightly below, we always had 0 to minus two.

Full year industry was minus 2.3 and it was largely driven by a weaker than expected December.

As I mentioned before, the trade sell in December was pretty low.

Everybody took inventory down and probably a lot has to do with the uncertainty coming out of Washington.

I would say overall at the very low end of our guidance, the only if at all (inaudible) December was.

On our 2013 guidance, Jeff indicated and I indicated that the plus two to plus three which we expect to build throughout the year, we expect some uncertainty in the market certainly in the first quarter depending on the whole fiscal discussion, but the underlying trend remains robust.

The housing trend is I would say, in very healthy shape.

If you look at the housing starts, very positive trend for the completion (inaudible) definition of time, but six to eight months later that is the strong momentum.

I also refer to what is still a very important part of our business replacement cycle.

Basically cycling now against almost a peak of the appliance demand in 2004 and 2005 and that is also an underlying growth driver.

So we're pretty confident behind the plus two to plus three.

Now on your comment on the discount.

I was referring to our course has been and will be margin expansion and as such we kind of and I can only comment on our Q4, we don't make forward comments on planned promotions.

On Q4, we will stay the course.

We participated when there was value creation, and we did not participate when there was no value creation for us.

And that is of course [INAUDIBLE].

Thank you and then my second question.

Some of the recent analysis we've done in terms of modeling forward demand, if the AM6 around 36 million units in 2012, we forecasted a rate of 42 million units in 2015.

And what surprised us is starts were to be normalizing towards a million and a half, approximately half of that growth or 3 million units would come from new construction.

And I believe you guys have roughly a 40% share there, GE 45.

So if our analysis and what I described is correct, can you describe the operating leverage that you're going to see, and why this wouldn't result in meaningful growth for Whirlpool North America above the industry shipments?

Ken, this is Larry.

A couple of things.

Certainly, during this time period, the restructuring time period, we've taken down our fixed cost structure significantly.

We're very well positioned as volume comes back from a leverage perspective.

So on an incremental margin perspective, (inaudible) if you think about 90% of our cost of goods sold approximately is variable and 40% is SG&A, we would have nice volume leverage as volume comes back.

And as Marc indicated, certainly the housing completions and existing home sales are a stimulus for us combined with the increased share we've had over the last couple of years.

Okay, I guess just one more question.

On the marketing, technology and product innovation that we see in 2013, the hundred basis point, is that a normalized rate of investment that we should think about that needs to be met by positives, such as price mix, cost, and productivity?

Thank you very much.

Well again, as we outlined, we are stepping up investments beginning with our new product introductions, so both capital and technology investments, because we're getting paid for these in the marketplace.

Innovation sells and that's our view of how to grow faster and win in the marketplace is through product innovation, not through price cutting, so that's one.

Two, brand investment.

With new products you need to, through all of the different mediums, communicate to consumers, and we're at a level where we're going to increase that substantially.

And our systems investment is really to help us drive productivity through our Global Operations.

So we have a lot of levers that will offset that increased investment, but it's a combination of continued PMR, getting paid for innovation, the restructuring, which we're completely on track to delivering, and we're very optimistic we're going to have positive net productivity, so we're balancing all those, expanding our margins, growing our business.

If the market is better we'll do better.

We'll take our next question from the site of Michael Rehaut with JP Morgan.

Good morning, everyone.

Nice quarter.

First question I had was on the productivity and material cost guidance for the upcoming year.

Little surprised with the expectation for the 150-200 headwind in the materials given.

Right now at least both steel and oil are tracking down year-over-year as we end the year.

So I was wondering if you could give commentary around that and also on the productivity side if that offset is being driven more by volume leverage, if that's what's included as part of that productivity.

Or if there are incremental actions more like cost actions that also helped that productivity offset.

Yes, Michael, this is Jeff.

Our guidance of 150-200 million, it is still more inflation raw materials, lower than we've had, obviously, the last two years.

But if you look at our main drivers of raw materials are steel, resins, base metal, strategic components, and so on.

And I'd add currency because we've had the currency impact on this as well, so we feel pretty good about our position in the year.

Resins are much higher and have a material impact, as well as some of the strategic components in currency.

So this is a balance.

We think it's a fair snapshot for where we are right here.

It is a lot of inflation given the global environment, but we have been pretty accurate in tracking these things over the last couple of years.

As it relates to productivity, the lion's share, we have very little volume built into our cost productivity, because even last year, we had dampened production levels as we both dealt with market demand negative situation in some key regions, as well as managing very tightly our inventory.

So there is a very small amount of volume built into that.

It is largely through our cost programs, lean manufacturing, product redesign, process and supply chain optimization that we're very confident in our ability to drive productivity, which will offset this and contribute to our margins.

So, if the cost productivity doesn't include volume leverage is that just a source of upside to margins relative to your guidance?

As I said if we have better demand it will affect us both in the top line and affect us on the productivity level, and if we have higher demand than what we're showing we'll do better.

And then just clarification on Q4 results.

I think it was referred to before that your shipments were down 5% versus negative 2 in the quarter for the AHEM6.

Is that correct?

And how are you thinking about your shipments versus the industry for 2013?

Michael, it's Mark Bitzer.

And again, what is correct from these numbers, our year-over-year volume and market share has been down; however, if you compare to Q3, we basically had an essentially market share of Q3.

And given that Q4 is typically the quarter where you have higher promotion because of the holiday period and given our policy to expand margin and stay our course, I actually feel pretty comfortable with a steady market share coming out of Q3 and Q4.

Plus also if you peel back the onion, we actually had pretty good share gains in the hiring segments where we have a lot of innovation and we feel very good about it.

And as usual we can't give a market share forecast for next year, and that is driven by a number of factors, but we stay our overall course here.

We'll go next to the site of Sam Darkatsh with Raymond James.

Good morning, Jeff, Mike, Marc, Larry, how are you?

Two primary questions.

One, the last time that the energy tax credit program was in effect, whether this is related or unrelated, your inventories swelled and I'm noticing that you have a very large productivity expectation for 2013.

What should we expect inventories to do by year-end?

And how much of your productivity that you're factoring in comes from trying to maximize these credits from a production standpoint?

Sam, it's Larry.

A couple of things to keep in consideration.

We are not building inventory for energy tax credits.

These appliances, these high efficiency appliances have very quick, very low days of inventory, they are some of the fastest selling products in the marketplace.

Our productivity is based on what we normally do in each and every year, generate productivity and year-end inventories I would say, I would expect our year-end inventory to be right around where they're at this time next year to where they ended up in December.

And my next question you mentioned one point of price mix expected for '13.

I think you might have said mostly mix.

If we were to go around by region how would that differ regionally, that one point?

We expect to see positive price mix everywhere, Sam.

Think of it this way.

There's really three drivers, again this is as of where we are today.

We've got some good carryover coming over from last year from actions we took throughout the year.

We clearly are seeing positive mix with better margins virtually everywhere.

And that should continue because we continue, we're ramping up our launches, we're ramping up our investment so we expect that piece to continue.

And in our high inflation or high devaluation markets we've already announced, such as Brazil and India and a few others, new price increases this year to cope for the kind of inflation we're seeing thus far so it's a combination of all that we expect positive price mix everywhere.

As a follow-up, Jeff, I know last year you were real demonstrative and still remain so, that that price and margin expansion will supersede market share.

Should we then read your comments today by you are every bit as resolute going forward, or is market share going to be a bit more of an important factor for you going forward than it was last year?

You know, Sam, our primary objective is great value.

There's been a number of questions about market share.

We had some what I would describe as marginal market share losses, primarily around the area where we had significant large, appropriate cost base price increases last year.

Everybody has got their own objectives and I can't speak for others.

I would just say that it is not abnormal for us to lose some market share during those period of time.

I would say that we have gained market share where we've won it which is in higher value, innovation driven areas and we're not in the business to chase market share based on price.

We try to earn it with customers every day, and I guess we're very pleased with what we're doing in earning our market share in areas of great value.

Next to the site of Eric Bosshard with Cleveland Research.

Good morning.

Two things.

First of all-in terms of the environment, obviously your focus in '12 works being more focused on margin and a little bit less focused on share but certainly aware of share.

I'm just interested in how Q4 played out and as you're having discussions with your customers and in the channel in 2013, if you feel like that stance that the environment is going to be different?

2012 is a year, obviously, where it was much less promotional, and that helped.

How do you feel or what do you see within what retailers are wanting to do or competitively in 2013 in that area?

You know, Eric, it probably varies a little bit but not a lot around the world.

I'll take the US for example.

This industry got into a lot of trouble when there was a recovery in early 2010, a lot of it by stimulus driven things off of a low base and we had very fast volume recovery and then it stopped.

And then very negative reaction in terms of aggressive promotions and price discounting at levels never seen before in this industry.

And there was tremendous value destroyed at every level, manufacturer retail, et cetera.

And the fact of the matter is it didn't change demand at all.

And so as we said two years ago, we're in the appropriate level promotion that makes sense with a business to offer values in the marketplace and so on, but the kind of stuff we saw earlier, I don't see us, there's no economic value to doing that.

It does not attract demand.

We're still in a largely replacement market.

Even with housing coming back, that's a new construction market.

I would say the weakest part of the market in between is the pure discretionary so it isn't like we're in an environment where people are coming to the marketplace because they see a discount or a price promotion.

They are coming to the marketplace because they need a new product.

So we see the focus you will see from us is largely built around letting consumers know about our new products, and I think that's the way to attract customers in the marketplace in this kind of environment.

Okay, secondly, the volume expectation for '13 up two to three in North America is a material improvement from what we saw in '12.

Housing seemed robust in '12 and seems robust in '13.

What's different in '13 that allows the category to perform much better with what looks to be a similar new housing environment?

Eric, it's Marc.

Yes, with plus two to three seems different than this year in the grander scheme of things it's still in the very low, absolute level.

And we're still far, far away from a peak level which we experience in 2006 and 2007.

As I said before, despite the uncertainty which was driven a little bit around consumer and trade confidence towards the end of the year, which we will have some spillover in Q1, there's a couple underlying drivers which are helping.

One is the housing, and keep this one in mind, we're in the housing completion side, not necessarily housing start side.

The housing completions in 2012 are still very low, below 600 and by the start its come right into the market.

Many people expect housing starts next year to be between 950 and 970, so you add in you took six or eight month completion, you can do the math.

I mean it's very useful mentioning building the market and housing side, but if you (inaudible) assume out our business is not only driven by the new housing.

Existing homes is still the number one driver for appliance sales.

Inventories are low, but probably more supply constrained right now.

We expect the inventory supply coming back into the market and that gives us a healthy confidence in existing home sales.

And the third element, which is really maybe one of the most important ones, (inaudible) is still in replacement markets.

We are cycling against a peak demand level of 202 to 205.

So you add your typical 10-year life of an appliance in there, you are entering now pretty healthy replacement, so you put all of these three factors together, that has a very strong momentum in the market.

Now, it may be shortened by consumer confidence issues, but doesn't structurally change our view on a slow but very steady recovery of the industry demand.

Okay, and then one follow-up you spoke earlier of the incremental marketing technology product investment, the one point margin hit in '13.

Could you just explain a little bit better?

It seems like you'd been making investments in these areas in the past.

Is there reason or a little bit better color for why it's such a material step up in '13, which seemed to be a reasonable level of investment in the past?

Well, Eric, I would say we have had reasonable levels, but number one we've never had as many new products come in the marketplace.

And so, as I said earlier, I think letting consumers know about a lot of this innovation is a value creating activity.

So we have higher capital and higher brand and market launch expense, which I see as a very good investment.

The systems investment, which is not trivial, is to further help us on the productivity side.

So we line all these up against returns.

And so if we don't see the returns coming, we'll scale them back.

But we think these are healthy investments for the business.

They will accelerate our revenue growth in the right areas there for margins and this debts us at a level where we think is commensurate with the kind of things we bring in the marketplace.

We have time for one more question and we'll take that from the site of David MacGregor from Longbow Research.

Good morning and congratulations on all the progress.

Just back to the whole discussion about operating leverage for a second.

Can you update us on where your capacity utilization rates are in North America and Latin America?

David, we've had this discussion before.

It's really hard to give you an exact number there.

I would say let's take North America for example.

We resized the North America capacity to be profitable at 2011/2012 demand levels and in many cases that's running one or a maximum two shifts five days a week, okay?

So on that basis, there's the capacity utilization but the reality and probably the relevant question here is, if we see an uptick in demand or a significant change in demand, can we respond to it profitably?

And the answer is absolutely yes.

We've run some of these facilities back in 2006 and 2007 24/7.

And so, we have substantial upside capacity without any major investment.

Or probably the biggest constraint to upside is just getting the rest of the Supply Chain ready for it, which we work on all the time.

So, the way I look at capacity utilization today is we're very profitable at today's levels and we can go up.

In Latin America, there as we've had nice growth for a number of years, we have had some capacity constraint issues that we continue to address through very targeted and focused investments.

So it's something, I mean our asset utilization and the management of assets and capital is something that's on every day here, and so, basically, that's where we are.

Thanks for covering that.

On Latin America, Mike made the observation that you're looking to grow in the non-brazilian Markets.

Is that largely distribution?

Can you do that with the brands you have now?

Is it organic or do you have to make acquisitions?

No, David.

It is largely through distribution.

Our brands we market both the Whirlpool brand and Kitchen Aide brand in those markets, and the fact of the matter is they're very well received.

We've started to increase our investment in new product innovations in those markets, and we're starting to see it take.

So we feel pretty good that just through investment in more distribution, we can significantly increase our share.

Okay, final question, just you talk a lot about the innovation and the growth that comes along with that which is very encouraging but you're also exiting some underperforming businesses, as well, as I understand, or at least underperforming skews.

Can you just talk about the exiting underperforming skews as a drag on revenue growth next year?

Is it a couple points?

Is it less than that?

No, David.

You know, we've got, we made an awful lot of progress in 2012.

I mean basically, we want to sell products for a profit.

And if it doesn't hit that criteria, you know, we either fix it, change it, or quit selling it.

And so yes, the lions share of the marginal market share loss that we had is -- probably would fall into the categories of unprofitable businesses to sell it.

And -- but our view is not to quit selling, it's to get better products, better costs, that sort of thing.

So it's kind of an ongoing assessment and cleansing process, but fundamentally, we are, we believe great products sell and if they were truly our great products we will get paid for them.

And so revenue growth without profit is not a big interest to us.

Okay, sounds like I was the last question.

You've got a couple minutes to go to the hour.

Let me just ask you if you'd consider a share split.

You know, David, anything like that or return to shareholder or anything else is something that we would, we ongoing have discussions and dialogues with our Board and if anything like that were to happen it would be a Board decision.

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

We really appreciate your questions and the call and we look forward to updating you next time we get together.

Thank you very much.

And this concludes today's program.

Have a great day.

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