惠而浦 (WHR) 2013 Q2 法說會逐字稿

Good morning and welcome to Whirlpool Corporation's second-quarter 2013 earnings release call.

Today's call is being recorded.

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

Thank you and good morning.

Welcome to the Whirlpool Corporation's second-quarter 2013 conference call.

Joining me today are Jeff Fettig, our Chairman and CEO; Presidents Mike Todman and Marc Bitzer; as well as 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 Corporation's future expectations.

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

Turning to slide 3, 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 by 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 operation.

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

With that, let me turn the call over to Jeff.

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

As you saw on our earnings release from earlier this morning, our second-quarter results reflect strong revenue growth in every region around the world.

And as I have outlined in the last several quarters, we continue to manage all the drivers and impact our margins and once again, had significant margin expansion during the quarter.

These results mark the sixth consecutive quarter of year-over-year ongoing business operations margin expansion.

Given the strong underlying trends that we see in our business, we are raising our full-year ongoing business operation EPS outlook to $9.50 to $10 per share, up $0.25 from our previous guidance, and our free cash flow to between $650 million and $700 million, up $50 million from our previous guidance.

Our second-quarter results are summarized on slide 6. Excluding the impact of foreign currency and BEFIEX, our revenues were up approximately 6% versus last year.

Our diluted earnings per share from ongoing business operations improved 53%, up $0.82 to $2.37 compared to $1.55 last year.

And as we continue to drive higher revenue, growth, and expand margins, our expectations for cash generation are firmly on track.

All of our actions regarding our use of cash are aligned with our previously committed priorities, which are funding -- appropriately funding the business, particularly focused on new product innovation, which we're doing, refinancing our long-term debt.

We did increase our dividend in April by 25%.

And recently during the second quarter, we resumed our share repurchase program.

Turning to slide 7, you'll see our industry assumptions have changed within the regions as compared to our previous outlook.

In North America, we are increasing our industry demand assumption to be up 6% to 8% for the year as we continue to see very positive trends in US housing, as well as pickup in really all segments of the market from a demand perspective.

In Europe, we expect now to see flat to minus 2% industry demand for the full year, as weak demand environment continues across the Euro zone.

And for Brazil and other Latin American countries, we are forecasting a lower but still positive industry growth for the year.

Now we see it ranging from 1% -- up 1% to 3%.

And finally, we're forecasting the industry to be flat from the prior year in our Asia regions.

But in total, given these changes, our overall global industry demand assumption has increased for the year.

One last note before we get into our regional and financial results, during the second quarter we realigned our senior leadership structure here at Whirlpool.

Marc Bitzer now has responsibility for our developed markets, which are North America and Europe, while Mike Todman's focus is on accelerating our growth in emerging markets of Latin America and Asia.

These changes reflect the similar nature of the opportunities that we see in different parts of the world, and we are providing the appropriate leadership focus to realize these opportunities.

So at this point in time, I would like to turn it over to Marc for his review of North American and European operations.

Thanks, Jeff, and good morning, everyone.

Let me begin on slide 9 by reviewing North America's performance in the second quarter.

Starting with the top line, net sales of $2.6 billion for North America were up 5% for the quarter driven by higher volumes.

Ongoing business operating margins were 10.1% for the quarter, with operating profit of $262 million, compared to $186 million in 2012.

Higher sales, ongoing cost productivity, and cost and capacity reduction benefits continue to be positive drivers in the second quarter, offsetting higher material costs.

Overall, our ongoing business operating margins expanded by 2.5 points year-over-year.

The consistent and disciplined execution of our actions resulted in the seventh quarter of year-over-year ongoing business operations margin improvement.

And we continue to be pleased with our structural improvement in margin and the market's response to our innovative new products.

We are comfortable with our structural market share and channels and products that clearly create value as we were able to grow our sales and expand our margins in this quarter.

As in the previous quarter, we did not aggressively participate in non-value creating promotion.

Now let me take a moment to talk about our expectations for the rest of the year as shown on slide 10.

As Jeff indicated earlier, we are increasing our full-year industry guidance to up 6% to 8%.

Positive trends in US housing continue, including both new construction and existing home sales.

In addition, we see demand for replacement purchases, as well as improving consumer confidence.

Therefore, we expect continued growth as we progress throughout the year, and we continue to invest in innovative new products.

We are seeing the benefits of our cost and capacity reduction initiative, as well as our ongoing cost productivity programs.

And we are focused on growing beyond our core business.

I will now talk to the second-quarter results for our Europe, Middle East, and Africa regions as shown on slide 11.

As you can see, our results continue to reflect a very challenging market environment in the Euro zone.

However, our second-quarter sales increased 6% year-over-year to $731 million driven by high volumes, and our operating profit improved by $21 million.

Higher sales, benefits from cost and capacity reduction initiatives, and ongoing cost productivity more than offset higher material costs and foreign currency.

Operating margins improved 310 basis points compared to the prior-year period.

And we will continue to evaluate and take all actions necessary to ensure a profitable position in Europe, despite the weak market demand.

Turning to slide 12, you can see just a few examples of our leading innovative products in these two regions, with Whirlpool brand 6th Sense induction oven, Kitchen Aid brand's Pro Line Series 16-cup food processor- and the top rated Maytag Maxima front-loader.

Now I would like to turn it over to Mike for his review of our Latin America and Asia operations.

Thanks, Marc.

If you turn to slide 14, you'll see our Latin America second-quarter results.

Sales, excluding currency and BEFIEX, increased approximately 8% on higher volumes.

GAAP operating profit for the quarter totaled $135 million, compared to $103 million in the prior year.

On an adjusted basis, excluding Brazilian tax credits, our operating profit for the quarter totaled $111 million, up 10% over the prior year.

Higher sales and ongoing cost productivity more than offset higher material costs and foreign currency.

We continue to drive margin expansion as our ongoing business operating margin increased 0.5 points to 9.3%.

On slide 15, we saw a slowdown in the industry, particularly at the end of June with the unrest in Brazil.

So, we have slightly lowered our full-year industry demand assumption for the region.

However, July demand seems to have returned to normal levels.

Despite this volatile external environment, we continue to gain market share and expect our business to outperform, resulting in continued strong revenue and earnings growth.

We continue to leverage innovate new product launches, execute ongoing cost productivity programs, and grow beyond our core businesses.

Our second-quarter results in the Asia region are shown on slide 16.

Net sales increased during the quarter to $246 million, up from $241 million in the prior-year period.

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

The region's operating profit was $14 million, flat from the prior year with higher sales, mainly due to market share gains and ongoing cost productivity, offset by raw material costs and foreign currency.

Slide 17 shows a few examples of how we continue to capitalize on the opportunities for growth with the product leadership in Latin America and Asia.

For this quarter, we have highlighted the Brastemp brand Ative!

Smart Cook range, the Whirlpool Agitronic washing machine, and the Whirlpool Ares Combo washer and dryer.

Now I would like to turn it over to Larry Venturelli.

Thanks, Mike, and good morning, everybody.

Our first-half results with higher sales and margins have us tracking ahead of internal expectations, and as a result, we are raising our full-year guidance today.

The Company continues to manage well through short-term volatility and demand and currencies across the world.

Importantly, the underlying fundamentals of the business remain very strong.

Turning to slide 19, you can see we now expect to deliver annual GAAP EPS in the range of $10.05 to $10.55 per share, and annual ongoing business operations EPS of $9.50 to $10 per share.

Our 2013 free cash flow is now expected to be in the range of $650 million to $700 million.

Before I move on, as a reminder, slides 29 through 36 in the Appendix provide you with a reconciliation of our reported GAAP operating profit and EPS to ongoing business operations for 2013 and 2012.

On slide 20, you will note that we continue to drive our margin expansion actions for the first half, driving a 180-basis point improvement in ongoing business operating profit margin.

Price mix was positive for the first half of the year and we expect to realize a 0.5 points for the full year.

Our cost and capacity reduction initiatives contributed 1 point, consistent with our full-year guidance.

Net cost productivity was positive for the first half, as our actions more than offset first-half material cost inflation of approximately $75 million.

Cost productivity is on track to ramp up throughout the year as we continue to leverage higher volumes, fully offsetting $150 million to $200 million of year-over-year material cost inflation.

We expect net cost productivity to deliver up to 1 point in margin for 2013.

Our increases in marketing, technology, and product investments are expected to reduce margin by approximately 1 point for the full year.

As we manage all of these margin expansion drivers, we continue to expect to deliver an ongoing business operating profit margin toward the high end of our previous guidance of 6.8% to 7.2%.

The combination of revenue growth and margin expansion will lead to a strong second-half performance.

Moving to the financial summary on slide 21, overall, our second-quarter revenues increased across all regions, driven by higher volumes.

Reported net sales were $4.7 billion, compared to $4.5 billion last year.

Excluding the impact of both currency and BEFIEX, sales were up approximately 6% compared to the prior year.

We expect profitable revenue growth to continue throughout the year with increasing demand.

Second-quarter ongoing business operating profit increased over 50%, to $335 million, up from $222 million in the prior year.

Driven by higher sales, ongoing cost productivity with volume leverage, and cost and capacity reductions more than offsetting higher material costs and an unfavorable currency.

The graph on slide 23 illustrates expenses associated with the cost and capacity reduction program.

The program continues to do very well.

For the full year, we still expect our program expense to be approximately $185 million, and the program remains on track to deliver $175 million of benefit this year.

We remain firmly on track to deliver the full $400 million of benefits we previously communicated through 2013.

On slide 24, you can see that our actions are aligned with our cash priorities.

We continue to fund the business, which includes capital expenditures.

We refinanced our long-term debt and are contributing to our pension.

We are returning to shareholders, as evidenced by the 25% increase in our annual dividend announced in April.

Now, given the strong underlying trends in our business, we recently resumed our share repurchase program and have $320 million remaining under existing Board authorization.

Given our free cash flow outlook and strong balance sheet, we are growing our investment capacity and will continue balancing funding for all aspects of our business to ensure the best long-term value creation for our shareholders.

Now I'll turn it back over to Jeff.

Thanks, Larry.

Let me be brief in the summary, turning to slide 26, we're very pleased with where we are at mid-year.

For the quarter, we grew both unit revenues -- units and revenues in every region around the world and we have strong momentum throughout our business operations.

Our margin expansion actions continue to drive strong benefits.

We continue to invest in consumer relevant innovation for our leading global brands.

As you saw, we increased our full-year EPS and free cash flow guidance.

We also, again, increased our dividend by 25% in April, and as Larry mentioned, we have now reinitiated our share repurchase program.

Going forward, we'll continue to take strong actions to do three things.

One, grow our business.

Secondly, continued expanding our margins, and third, actions that create value for our shareholders as we deliver on our road map for both growth and value creation.

So with that, I would like to stop and open this up for questions.

(Operator Instructions)

We'll take our first question from the site of Sam Darkatsh from Raymond James.

Good morning, Jeff, Larry, Marc, Mike.

How are you?

Good.

Two primary questions.

I'll make them brief.

First, it would appear at least in the second quarter, Jeff, that your price mix specifically in North America was down a few percentage points.

Could you talk about that specifically in terms of how much was price and how much was mix?

And then in the second half, it looks like you're expecting price mix to be up about a half point, which suggests that it's going to sequentially improve pretty meaningfully.

Could you talk about that, if you could?

Then I have a quick follow-up.

Yes, Sam.

We'd be happy to.

Some of the earlier parts, I think there is some confusion out there on that.

Let's first -- I'll have Larry talk about the globally, and then have Marc and Mike specifically talk about mix because we're very pleased with where we are with the price point.

Yes, Sam.

This is Larry.

Let me talk about the margin improvement in the Company.

So, both -- we had both revenue and margin expansion in Q2.

Very important.

If you look at the drivers at the margin for the profit improvement, you know, we were up 2 points, where structuring was about 1 point.

Productivity was about 2 points.

That was offset by about 0.5 point of material cost inflation.

Price mix at the margin held up very well globally.

North America?

Sam, it's Marc Bitzer.

First of all, let me start with we've demonstrated over the past seven quarters that we balance price, mix,and volume in a very value creating way and we will continue to do so.

When I look at some of the reports this morning to echo what Jeff was saying, we have to structurally differentiated between ASVs, which is basically the ticket value and the price mix impact on margins.

Now, ASVs are impacted by a number of factors, such as industry mix, how much we've grown in our non-core business, et cetera.

That is different from impact of price mix on margin.

And actually, impact of price mix on margin is way, way lower than what was reported this morning in some of the reports.

So, otherwise we couldn't help not have lifted our operating margins by 2.5 points.

So, again, the price mix impact on the margin side is significantly less as would be implied by the ASV.

And Sam, this is Mike Todman.

For Latin America, we actually have -- it's very similar, if you will, to North America, in that the ASV change is very different from the price mix impact on margins.

And so, we actually gained share in every category, but we gained share in some of the lower ASV categories, more than some of the others.

And so that had an impact on the ASV.

However, we actually had a year-over-year increase in our price mix on the margin.

So, again, just distinguishing between the two.

Let me, again, because I think this was a big point of understanding that's important.

We're pleased with where we are on price mix as it impacted the margin.

We've got to distinguish between ASVs and price mix.

They are two different things.

For the quarter, we had about a minus 0.5 point price mix, as we define it.

And we feel good about our forecast for the year being up 0.5 point.

I would only add color on two other points.

In parts of the world like Brazil and India, our high inflationary areas, we've already announced second half price increases, so we'll benefit from that.

And I think the general theme of growing mix through innovative new product launches continues.

So, hopefully that clears that up.

My follow-up question, thank you for that color, by the way.

It was helpful.

I noticed that, this might be a nuance that doesn't really matter.

But I noticed that you didn't change the expectation for US energy tax credits for the year, yet you did take the US industry expectations and theoretically your own also higher.

How -- why is that?

Yes, Sam, I think we said for the program, it would be about $120 million for the year.

Obviously, we took into consideration with that the production that would generate that.

That category continues to do well, so I would say we're still in that range.

Could potentially be a little bit higher, but at this point in time, I wouldn't raise it about, above that.

But it could be a little bit higher than that by the end of the year.

It really depends on where we are at the year-end, production for the balance of the year and year-end inventories, as well.

All right.

So, theoretically, the incremental sales volumes that you would be selling, would it largely be coming out of inventory as opposed to incremental production?

Well, we always deplete inventory the second half of the year.

Yes, and again, it's not, again, it will be based on what we produce by year end.

And just one other comment on that, Sam.

The realization is that those credits are tax assets on the balance sheet, they are non-cash this year.

Thank you very much.

Helpful.

Thank you.

We'll move next to David MacGregor with Longbow Research.

Can you hear me okay?

Yes, now we can, David.

All right.

Sorry about that.

I wanted to see if I could get you to talk a little about Brazil.

There's obviously been a lot going on down there.

You had the civil unrest that was disruptive to June.

If you could talk a little bit about whether we're free and clear of that now and business is normalized.

You've got the Mabe bankruptcy.

You took your Latin American industry guidance down, but presumably your share goes up as you pick up listings from that event.

And then you've got the renewed stimulus down there, which if you could talk a little about the impact of those three.

And with respect to stimulus, there's a perk your next by driving volumes to the Consul as opposed to Brastemp.

If you could just talk about those moving parts and give us a sense of how Brazil plays out in the second half for Whirlpool, I would appreciate it?

Sure, sure.

Well, David, as you mentioned, there was a little bit of unrest in Brazil that had an impact.

But primarily, that's been June we saw it.

In the first several weeks of July, we've actually seen a return to a more normal industry demand environment.

Actually, I would say, first, just kind of step back.

We feel very good about both the medium and long-term prospects in Brazil, because we think the fundamentals are right and, frankly, the penetration levels are still low.

In terms of the impact of then some of the other items that you've talked about, the stimulus, we've yet to see what impact that that's going to have.

Obviously, we assume that it will be positive.

And it is likely to be more in the Consul brand than Brastemp, but we also know that a lot of consumers, even in that range, want to be able to go buy and afford the Brastemp brand, so we do expect some positive out of that.

In terms of our ability to pick up market share, we've shown in the second quarter that we were able to, with some of the problems in Mabe, we expect that trend to continue throughout the remainder of the year as we continue to launch some new innovative products into the marketplace.

So we're feeling pretty good about our position in Brazil and our ability to grow that business.

So, when you talk about the stimulus, you sound relatively tentative.

You're saying you haven't seen much evidence of that yet.

You've realized your industry guidance of 1% to 3%, do you not have any of the stimulus in that 1% to 3% for '13 Latin America?

No, at this point we don't.

Because just as in some of the other stimuluses, it's difficult to predict what the impact is going to be on the total industry.

So, our perspective is right now we've revised it down just based on the activity that just happened.

And at this juncture, we feel good about where we've got it.

Okay, and then do you have any growth in your Latin American listings from the Mabe developments in your guidance?

Yes, we have seen some pickup in both listings.

And as you can see, we've also seen some pickup in our market share.

Okay.

And then just to be clear, the upwards revision to your earnings guidance, $9.50 to $10, does that include any of the share repurchase activity you anticipate?

Yes, David, this is Larry.

The increase in our guidance is entirely operationally driven.

What we did include in there was the repurchase activity we had in the second quarter, which was about $30 million.

Right.

So, that is what's included within the guidance revision.

So, again, very largely driven by the revision in industry assumptions and growth, the higher end of our margin, and then we are offsetting some unfavorable currency also.

Okay.

Last question.

Just Canada and Mexico within the North American numbers, is there any way you can give us some sense of the delta there, sequentially?

David, it's Marc Bitzer.

As you know, we're not breaking down the Canada and Mexico piece.

I mean, just to make an overall comment is right now Mexico and Canada follows slightly different market dynamics than US.

Right.

The Mexican market is still down actually surprisingly to a large extent, which obviously impacts us and because we report Mexico in the North American region, Canada market is holding up, but does not yet show the positive momentum of US.

So, can you compare that 8.2% growth in units in North America to AHEM 6 and just give us what the apples to apples comparison would be?

David, there's too much other elements slow to improve because first of all, you know that T6, we also have a lot of business between what we call T6 and T12, the non-core business manufacturers from Canada, we typically don't break it down.

Yes, I think people are just trying to make some sense this morning of what the read-through would be from ahemp six to that number.

What I can tell you is our overall market share, overall market share in T6, as we said before, we are actually structurally comfortable with our structural market share position, so if you look at the everyday market share, we are very comfortable.

I would be lying if I would tell you that our market share did not drop a little bit over promotion periods, but we're not overly nervous about it.

The market share dipped for two or three weeks, that was exactly around July 4th.

We did not see dips with any value creating if we would participate in that and now it's bouncing back.

Okay.

Thanks very much.

Thank you.

We'll go next to the line of Eric Bosshard with Cleveland Research.

Good morning.

Hi, Eric.

Two questions.

First of all, a little bit of color on the full-year guidance.

You obviously had a great first half and adding the repurchase and it looks like you've increased your productivity assumption from the good progress you're making there and the upside US volumes.

And then the increased guide of $0.25, I'm just wondering if you can give a little color on the puts and takes beyond the $0.25 for what looks like is shaping up to be a very good year?

Yes, sure, Eric.

I mean, there are really three components.

If you do the math on our industry assumptions from last time to this time, we would say that we would expect growth in the industry and certainly our growth to be 1% higher than we originally expected.

The second piece of that is if you have seen our first half margin is very strong.

We normally have a seasonality build and we would expect to show higher revenue growth in the second half of the year with a higher margin in the second half.

And so we're guiding now towards the higher end of that range.

And then partially offsetting that, quite frankly, is the unfavorable currency that we've seen.

For instance, we had $25 million, or $0.25 a share of currency at year-over-year in the second quarter.

So we've incorporated that in.

And as I mentioned before, we have initiated share repurchase.

The only thing we put into the guidance has been what we repurchased so far, which is $30 million.

But largely driven by the strength in the operational performance of the business to the first half, so, you we've earned about 45% of our annual earnings, which is very consistent with what we would expect the Company to earn based on the guidance in the first half relative to the second half.

And then secondly, I would love -- the ASV dynamic, I would love to just understand a little bit more if this is a change from what we've seen the last four to six quarters, especially in North America?

And my question is, is this something that should be sustained?

Is this something that we're going to see continue?

And then related to that, why is this a different dynamic than what we've seen previously?

Hi, Eric.

It's Marc Bitzer.

Let me refer to the ASV dynamics as they happen so far, and obviously we can't comment on future ASV trends.

What you see right now, first of all, there's an industry part.

As the industry has been showing much more growth momentum than we saw before, the different segments in the industry picked up at different paces.

And if you would drill down the details of the T6, but if even you can go through certain price segment where I've seen quite a bit of different dynamics across the different price segments, and that's basically just floating through our system.

In addition, you know, our what we call the non-core business, is a fairly significant portion of our business and we are driving there higher growth than the other businesses.

That typically comes with higher -- lower ASV, I'm sorry, but higher margins.

So, you see all of that dynamic flowing through here.

So, to what extent that extends in future, we don't know and we can't comment on this one.

But I want to reiterate what we said before.

We're laser sharply focused on price mix impact on the margin.

And we've managed it very well so far combination with volume and we are not changing course here.

But again, just to build on what Marc said, the focus here is on growth, which we showed in the first half, and margin expansion at the same time.

So, hopefully that answers your question.

The only other comment I would make, Eric, again, we fully anniversaried all of our last year price increases.

So, there's been no new like-for-like price increases so far this year.

So, the real dynamic is mix.

Mix, I think, as the market expands, you're going to see growth at every price point.

And that can shift a little one way, a little bit another.

We're -- we think this is not abnormal.

And then in a quarter like this quarter where you had all the last three weeks of June shipments for those who promoted 50% off over 4th of July and things like that, that distorted things a little.

But again, as Marc said, as we hit in other activity, normal promotional activities, we were very stable share and mix through probably middle of June, fell off with all these import shipments and then July, it's quickly rebounded back.

So, I think it's pretty much consistent with what we've been seeing.

So, your reduction and your full-year price mix guidance, if I'm interpreting it right, is just reflective of what happened in June, that's not a go-forward?

Thinks are different at guidance?

It's a 0.5 point on a $19 billion business.

So I mean, it's -- could it go 0.3 point one way or the other?

Yes, it could move right.

I mean, last year, we had such positive.

We're up 4 point, 5 points price mix from full year.

In a year where we took significant price increases around the world.

In the developed markets this year, we've not taken price increases.

Inflationary markets, we have taken price increases.

But the mix dynamic, I don't think is changing at all.

Yes, the other important thing to build up what Jeff said is with the volume growth, we start to see the leverage, which is also very positive.

The other side of this is with a little volume growth in North America, you start to see the power of all the productivity and the lowering of our fixed costs taken place over the last two years and so on.

So, the productivity lever is delivering very strong.

The only other thing I would mention on the top line, keep in mind that there's a 1 point to 1.5 points of negative currency in the top line when you're looking at the ASVs.

Okay, thank you.

We'll go next to the site of Michael Rehaut with JPMorgan.

Thanks, good morning, everyone.

Good morning.

First question I had was about Europe.

Marc, with your expanded responsibilities for that region, obviously it's been an area where you guys have done a lot of work to get back to profitability and the region remains very challenging.

Is there anything that we should expect in terms of how you're going to approach that region in terms of -- I know you kind of said earlier you continue to look and fix the cost structure.

Is that something that we should be expecting in terms of additional actions over the next two, three, four quarters to get that back to perhaps a mid single-digit operating margin?

And is that your goal over the next year or two?

Mike, it's Marc.

Let me start on the tail end of your question.

As you know, we don't give the regional guidance on a quarter-by-quarter basis.

But we do expect Europe to come to break even.

We can't tell you exactly which quarter.

That's, of course, our I would say short-term objective to get Europe as quickly as possible to breakeven or above.

Overall I would say for the European marketplace is it is still very challenging.

What impacts us in particular is that our exposure is particularly strong in countries which are not impacted the most and that just hurts us right now.

Having said that, we are convinced that even in current environment you can make money in Europe, okay?

And that's what we are focused on.

When it comes to how we deal with that, I would say it's by and large, not so dissimilar to what we've been doing in North America last couple of years.

We have to address the fixed costs.

If the market demand is not there and probably not rebounding in the short term, we will address fixed costs.

We have announced actions already previously.

We announced some additional actions actually June of fixed costs.

And as we said earlier, we've continued to evaluate all actions necessary and possible to address the fixed costs.

That's just one part.

And, of course, we will also manage the price mix equation very carefully in a value creating manner.

So, long story short, despite the market environment, it is our firm expectation to bring Europe back to breakeven as quickly as possible and above breakeven.

Appreciate that.

And, Larry, a question for you on the share buyback.

You know, we noticed that year to date, you guys have issued about $60 million worth of shares, I assume through different employee option and other types of programs and then you repurchased $30 million.

How do you think about the share repurchase relative to your overall count?

Is this going to be something more to just combat creep, or would you expect, of course, on an opportunistic basis maybe to get back to the share count that you had in 2012, plus or minus?

Yes, I think with the current authorization, Michael, mathematically right now you would probably get back to the dilution.

So the way we look at this, we are generating much more cash in the second half of the year and along with our other priorities, we'll continue the repurchase program.

And then we'll update everyone quarterly as far as where we're at against that.

When you mean get back to where you were against the dilution, do you mean in the fourth quarter you're at roughly $80 million, so maybe something back in that neighborhood?

Yes, I think we had about 2.3 million shares of dilution versus a year ago.

And again, if you do the math on the $3.50, you would probably be able to get back there.

But I'm not going to give an update on when we'll exhaust that authorization.

But we will give you an update each quarter.

Great.

I appreciate it.

And one last one, if I could.

The -- you're going back to the North America, the promotional activity, which you guys have appropriately tried to stay out of and been able to hold on to your margin.

Could you give us a sense of any more color around that in terms of if that's something that maybe is going to -- do you have any sense of if it's going to continue in the back half of the year, and what the drivers are of that?

Mike, it's Marc Bitzer.

And, obviously, I can only comment on the promotions which happened.

I cannot and will not give comment on future promotions.

First of all, stepping back, just so you know, it's always been promotions in this industry.

So, there's nothing new about it.

The 4th of July promotion environment was actually as we expected, and we early on decided not to participate in a very aggressive manner.

I think if you look back at July 4th, it's been very evident there have been two players who went very aggressive.

That didn't completely surprise us.

We decide to not participate because it simply does not create value.

So, our strategy in promotions has not changed at all.

And, obviously, I cannot comment on what other competitors will be doing.

And we will -- I mean, we have evaluated in the past how aggressive we go in there and we will probably do that also going forward.

Great.

Thank you.

Thank you.

Next to Denise Chai from Bank of America.

Okay, thanks very much.

Congratulations on a great quarter.

Thank you.

Thanks.

I just want to know when we think about your North America pricing, was the fact that maybe you were making more sales to home builders possibly a contributor to the ASV pressure?

And actually how much of your sales went to this channel compared to the first quarter of last year?

Denise, this is Marc Bitzer.

That's actually a very good question.

The home builder has a very big impact on the ASVs.

And if you would go in the home builders segment, you would see big differences across the different builders in terms of who sells more to a premium segment and who is more of a mass segment, and yet that has impact on the ASV, among many other factors.

So for example, if you have an industry growth which is stronger on a mass top loaders, or even on dishwashers, you typically see an ASV impact, so there are a lot of factors floating through here.

However, I want to repeat what I said before.

In the segments which I just mentioned, they are margin attractive.

So, th home builder segment for us is margin attractive, despite maybe a different ASV.

Okay, got it.

Thank you.

Also, you mentioned that you are now contributing to your pension.

So, can you give us perhaps a sense of the run rate or maybe how long you think it will take to close the gap there?

Pension was the question?

Yes.

In the US, we have about -- year end, we had a $1.4 billion net liability, so your question is a good question.

We are contributing, I believe, $138 million this year.

But there's another thing you have to also factor is that interest rates, as you know, have increased.

They are probably up close to 80 basis points from when we closed at year end.

So, if you would expect that rates would maintain at this level, that would probably be, could be $300 million to $400 million benefit on our net liability.

And I would say going forward, right now, given the current pension legislation, that $138 million is a good estimate going forward.

Okay.

Great.

Thanks.

And just one last thing, you mentioned that you're putting up prices in Latin America and Asia due to inflation there.

Can you give us a sense of the magnitude?

Yes.

We've announced price increases in both regions of 3% to 5% for the second half of the year.

Okay.

Great.

And in, you know, that's as an average.

We evaluate this every month, every quarter based on inflation and currency movement.

Got it.

Thank you so much.

Are there any more questions?

Hello.

Gentlemen, can you hear me?

Yes.

Who is this?

Good morning.

What big inflection in US demand.

So that's the big picture, I think.

People are obviously very focused on AHEM versus year unit.

I think it would, for the broad investment community, to the extent you guys could create an index, let's say make it 100 in some point in time and just give us an up or down, I think that would be constructive for you guys in terms of getting rid of some of the noise.

That's one suggestion I would have.

Second, when your AHEM is 6% to 8%, in the first quarter there was a difference between AHEM and demand.

Could you give us your view of what that means for demand in both the quarter, as well as for the year, or is there a lot of load-in?

Thank you.

This is Marc Bitzer.

So, what you are highlighting is the point which we refer to in I think the Q1 earning's call, we talk about the inventory build of retailers.

And yet, we did see Q1, we saw a slight impact of inventory build in the overall AHEM numbers.

It's of course difficult to quantify it exactly, but it was probably to the tune of 1 point to 1.5 point of overall market growth.

The has also being in the period leading up to July 4th, some inventory build, which is normal as retailers load for that big promotion.

So on the year-to-date base, I would say the two combined are in the ball park of a positive point, so it has an impact.

We have a pretty good handle on it.

And we factored obviously inventory moves into our full-year guidance.

And Ken, I would just add to your point, there's a lot there of news coming from different sources about the marketplace.

I think your first comment is right.

The headline is we are seeing, we think, sustainable, profound demand recovery in the US marketplace.

Over the last year and a half, we've talked about being down 28% from the peak, that we were much lower under the curve, the 30-year growth curve than ever above it.

And that some day this market would recover and particularly with housing becoming solid on a solid foundation and growing and that we might see double-digit demand growth sometime in the next three years.

Well, it started sooner than we thought.

It is recovering.

We think it's sustainable.

And we think it's a multi-year recovery.

So to your point, that's the big picture.

I guess to be candid, all the other stuff for us, there's a lot of information.

Some retailers give their view of what's going on to people covering our stock.

There's industry shipment data coming every month.

And so there's a lot of short-term reactions on these things.

But at the end of the day, we give our guidance for the year, not for the quarter.

And this is clearest picture we see of the year.

And we'll continue to update you on what I would call the fundamentals.

But we're not going to get into the nitty-gritty market share by product, et cetera, et cetera, given that it changes.

We'll tell you the trends, but again, I would just maybe try to put that all together.

We're very positive about demand.

We're very positive about our ability to grow in this improving demand market while expanding margins.

That is, that is what we think is value creating when we do it, and for us, the rest of it's just noise.

And that's good, because I think the, to the extent there's load-in, there will be some variance there, but it does get to the fact of 6% to 8%, looks like 9%, 9.5% volume North America, 3, 4Q on average is what's required to get to the low end of your 6%, if that's your volume.

And it does relate to the margin question to the extent that certainly it's a surprise to see the negative price mix.

But you're discounting what we see and putting in at 50-basis point range, not necessarily the 300 price mix, which gets to the question of how we really should think about the profitability of your business.

Because if I do 9% growth 3, 4Q, we see effectively very similar volume 3Q from 4Q.

Excuse me.

3Q from 2Q and then a big spike in 4Q.

Is it reasonable to think about quarter over quarter volumes driving operating leverage in that 15% leverage?

Yes, yes, Ken, let me answer it this way.

I mean, candidly, we've had five years of mostly negative volatility, and we now have two quarters of positive upside on demand.

You're absolutely right, though.

If Q3 is the same as Q2, or is it accelerating?

I don't know.

But it could be higher.

And as I said before, if the demand is higher, we'll do more.

And we are -- but the fundamental proposition is really three things.

One, higher demand is clearly developing.

Two, certainly for most of our businesses, but certainly our North America business, more demand volume on a very lean fixed cost base is very good leverage which you saw on the productivity lever in the second quarter.

And third, that our price mix is going to continue to be very good due to our investment in new product innovations.

So your basic thinking, I don't argue with at all.

Just late, for five years, it's been hard to forecast, and so we're just giving you a, what I call a sound baseline that we based our earnings on.

Right.

And it's Marc Bitzer.

In addition, echoing what Jeff was saying, is I think in a lot of discussion, we need to differentiate between structural demand drivers and structural market position versus promotional noise.

And I would call it really promotional noise.

We are, and of course we're not giving it 2014 guidance, but we are very bullish on the structural demand drivers in North America.

That's housing, that is replacement, that is consumer confidence, and I've seen the housing starts in June.

Yes, we are a little bit softer, but that does not change at all our very bullish view on the structural demand drivers in North America.

Second, our structural market position, particularly in the contract channel, in several of the high end segments, is a very good one.

For example, see very strong growth in our Jenn-Air and Kitchen Aid business and we are very bullish about it.

In that context, sometimes with the year round promotions is a little bit overblown, frankly.

It does not impact the structural drivers of position.

We will always make good judgement on whether we participate or not.

Excellent.

Then I guess if I could ask my next question around cash flow.

If we just say you do 4% to 5% of sales, which would be roughly $1 billion at $20 billion in rev, my understanding is you talked about buybacks today and the net benefit of that, it was discussed earlier.

But my understanding is roughly 30% of your business of cash is coming in the US pre-pension, which obviously reduces the overall amount available for dividends and buybacks.

So, can you address the bulk of this cash?

How you're thinking about the deployment of it, joint venture, buying a company?

And more, well you can't be so specific, talk about a pipeline, if you will?

Because this potentially is a major driver of earnings that is not in people's estimates.

Thank you.

Yes, Ken, it's Larry.

We've kind of laid out our cash priorities and return to shareholder, certainly one of those.

M&A, we said before, is another one of them.

Those are things that we consider.

And certainly, that and funding the business are the things that we look at as we deploy cash through the Company.

As far as cash generating, you are right.

At the end of last year, we had a little under 30% of our cash in the US and what's outside the US, we look for tax effective ways to bring that back.

So, I would say we're -- our balance sheet's in good shape.

Our forecasted free cash flow is in good shape and we'll update you as we go along as far as how we're deploying that.

Thank you.

Okay.

Well, thank you.

Listen, everyone, again, just to sum up, we're pleased so far through midpoint of this year.

We look forward to deliver a record year of operating results and look forward to talking to you next time.

Thank you very much.

This concludes today's program.

Have a great day.

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