惠而浦 (WHR) 2013 Q4 法說會逐字稿

Good morning and welcome to the Whirlpool Corporation fourth-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 Lovechio.

Thank you and good morning.

Welcome to the Whirlpool Corporation fourth-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 Investors Section of our website at www.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 be indicative of, or are unrelated to, results from our ongoing business operations.

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 42, for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

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

Well good morning, everyone, and thank you for joining us today.

As you saw in the earnings release from early this morning, the strong execution of our plans drove record earnings for our Company in 2013.

We continued to successfully drive both revenue growth and margin expansion leveraging our industry leading brand and innovate new product launches into the marketplace.

This marks the eighth quarter in a row of ongoing business operations margin expansion for us.

And as a result, we generated strong cash flow, ending the year with a very strong balance sheet and increased investment capacity.

Our full-year 2013 results are summarized on slide 6. Our revenues were up over 4% versus last year, excluding foreign currency and BEFIEX, led by strong growth in our North American and Latin American businesses.

And in line with our previously increased guidance, diluted earnings per share from ongoing business operations improved to $2.97 for the year, or up 42%, in total, delivering $10.02 per share compared to $7.05 last year.

Our free cash flow tripled year-over-year with a $460 million increase to $690 million and overall we effectively deployed that cash in line with our previously discussed priorities.

So if you turn to slide 7 and 8, we highlight our business priorities for 2014, building upon the progress we made last year.

Overall, we remain very confident in our abilities to continue to grow revenues and expand margins.

As we expect to grow it organically and improve our mix with our innovative new product launches; we expect to continue to accelerate growth beyond the core, extend and expand businesses; and we expect margin expansion with the execution of ongoing cost productivity programs, additional cost and capacity reductions; as well as improved price mix and the impact on our margins.

We also expect to complete the acquisitions of the majority shareholder of Hefei Sanyo, which we expect will enable significant emerging market growth in China in the future.

All told, we believe these actions will more than offset some headwinds that we see in three areas.

One is continued increases in material and oil-related costs.

Second is the negative impact of foreign currency.

And third is the inflation that we continue to see in emerging markets.

But as a result of this in total, we do expect to be in a strong financial position to continue to invest strongly in our business and deliver strong levels of free cash flow.

Turning to slide 9, you will see our expectations on global demand, which, in total, we expect to grow in 2014.

Our industry demand assumptions for North America and, in particular, the US, is for demand to grow 5% to 7% for the year as we continue to see growth in US housing, the normal replacement cycle of appliances and improvement in discretionary demand.

In Europe, we expect flat to up -- the market to be flat to up 2% for the full year as the region remains somewhat weak but we are beginning to see some stabilization of this and some signs of recovery.

In Latin America, we continue to expect to see inflation and currency fluctuations impacting consumer demand and consumer sentiment.

So for the full year, our industry forecast at this time is expected to be basically flat.

And lastly, we expect Asia forecast to be up to -- flat to up 3% for the full year, primarily driven by strengthening Chinese market and offset by industry weakness that we continue to see in India.

But in total, we do expect positive global industries coming in for the year.

Finally turning to slide 10, I would sum up by saying given the strong underlying trends in our business from both a revenue growth standpoint and a margin expansion, we're giving our 2014 full-year diluted GAAP EPS outlook in the range of $11.05 per share to $11.55 per share and our ongoing business operations outlook to $12 a share to $12.50 a share.

And this with also our free cash flow forecast of approximately $700 million.

Overall, we remain confident in our abilities to continue to execute our plans and we expect to deliver another record year of performance.

So with that, I would like to turn it over to Marc Bitzer.

Thanks, Jeff, and good morning, everyone.

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

Net sales of $2.7 billion for North America were up approximately 9% driven by higher volumes, particularly in the US.

The revenue was up approximately 11% compared to prior year.

Strength in the US, particularly in the build channel, was partially offset by industry weakness in Mexico and significantly negative currency impacts in Canada.

Our ongoing business operating margins were 11% for the quarter and the ongoing business operating profit of $301 million, an all-time quarterly record compared to $233 million in 2012.

Higher sales, ongoing productivity and restructuring benefits continue to be positive drivers in the fourth quarter, more than offsetting higher material costs.

Overall, ongoing business operating margins expanded by 1.7 points year-over-year.

The consistent and disciplined execution of our actions results in the ninth consecutive quarter of year-over-year ongoing business operating margins.

Now let me take a moment to talk about our expectations for 2014 as shown in slide 13.

Positive trends continue in both new construction and existing home sales and we see increased demand for normal replacement purchases as well as discretionary purchases driven by improving consumer confidence.

We remain focused on the innovative products growing beyond our core business and we expect positive net cost productivity.

And we will continue investments in marketing, technology and products.

Turning to slide 14, you can see just a few examples of our leading innovative products in the North American regions.

First of all you see Whirlpool's brand new four door refrigerator, it offers superior flexibility and energy efficiency.

The Everydrop water filter by Whirlpool Water offers fresh filtered water at the speed of light and shows how we're growing beyond our core business.

And we also highlight the Jenn-Air built-in coffee systems featuring ideal brewing pressure for barista-style at home.

I will now shift gears to talk about the fourth quarter results for our Europe, Middle East and Africa regions as shown on slide 16.

Despite a weak market environment, we see positive operating profits for the quarter driven by the actions we put in place.

Sales were $847 million, compared to $794 million in the prior year.

Excluding currency, sales increased 1% year-over-year driven by higher volume.

Operating profit of $10 million improved by $2 million compared to the prior year and operating margins improved 20 basis points.

Now turning to slide 17, our market environment in the Euro zone remains weak.

We expect normal seasonality and slower industry demand recovery to accelerate in the second half.

We expect to grow revenue organically and improve our mix with our innovative new product launches and growth beyond our core.

Margin growth will be driven by continued benefits of our ongoing cost productivity programs and are expected to more than offset higher material costs.

And also, we expect further margin growth from our additional restructuring initiatives, which includes the recently-announced closure for our plant in Sweden.

We will continue to evaluate all options necessary to ensure the positive trends in the operating margin growth to continue.

Turning to slide 18, we are highlighting the Bauknecht brand KOSMOS built-in induction oven that integrates seamlessly into any kitchen and the Bauknecht GreenKitchen refrigerator and dishwasher are both together to save consumers water and energy.

And now I would like to turn it over to Mike.

Thanks, Marc.

If you turn to slide 20, you will see our Latin America fourth quarter results, which highlights our seventh consecutive quarter of year-over-year ongoing business operations margin expansion.

Sales for the quarter were $1.4 billion compared to $1.3 billion in the prior year.

Excluding currency translation and BPS, sales increased more than 8% compared to the previous year due to continued growth in the core appliances and favorable products and price mix.

GAAP operating profit for the quarter totaled $159 million compared to $134 million in the prior year.

On an adjusted basis, our operating profit for the quarter totaled $130 million, 9.7% of sales, compared to $119 million, or 9% of sales in the prior year.

Improved product price and mix, including cost-based price increases and ongoing productivity initiatives, offset higher material costs and foreign currency for the quarter.

Turning to slide 21, the appliance industry in the region for 2014 is expected to be flat as inflation and currency volatility throughout the region impacts demand.

However, given our strong market position and the current competitive environment, we expect to grow our revenue despite this environment.

Our innovative new product launches are winning with consumers and we remain focused on growing beyond our core business.

Even with this short-term volatility, we continue to be very confident about the long-term fundamentals in Brazil.

Now let me take a couple of minutes to talk more about the region on slide 22.

You can see that the long-term positive drivers outweigh the short-term uncertainties and challenges.

Those positive drivers are primarily related to Brazil and include population growth with an emerging middle class who has the ability to increase and upgrade the number of appliances in their home.

Brazil's strengthening domestic market, real wage growth and low unemployment rates are also very positive drivers as we look at the fundamental economics.

LAR International, our appliance business outside Brazil, is made up of over 35 markets.

Some of them are up, some down, but LAR International in aggregate is fairly balanced, even in the short term.

We continue to be confident about the long-term growth opportunities in these markets.

As we look at the uncertainties in the year, the 2014 World Cup and government elections in Brazil may affect consumer and business sentiment in the short term.

We also expect inflation pressures and currency fluctuations to have a negative impact on consumer demand, especially in the first half.

However, we will continue to manage through the short-term volatility and overcome the challenges, just as we did last year.

Slide 23 shows how we continue to capitalize on the opportunities for growth in product leadership in Latin America.

For this quarter, we highlighted the Whirlpool Connect refrigerator with smart technology, Consul Facilite portable refrigerator and the Brastemp Ative!

washer-dryer.

Our fourth quarter results in the Asia region are shown on slide 25.

Net sales during the quarter were $177 million compared to $203 million in the prior year period.

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

Operating profit of $10 million improved by $3 million and operating margins improved 210 basis points compared to the prior year period.

Favorable price and mix, including cost-based price increases as well as ongoing productivity, offset industry weakness in India, increased raw material costs and foreign currency.

Turning to slide 26, in 2014 we expect to continue managing through volatility in India and capitalize on the industry growth in China as well as leverage our new product launches.

Last August, we were pleased to announce our intent to become the majority shareholder of Hefei Sanyo to accelerate our growth in the emerging Chinese market.

Earlier this month, we welcomed the announcement that our acquisition proposal had received the second of the two key approvals required by -- from the Ministry of Commerce in China, or [Mop.com], those being the anti-trust and foreign strategic investor approval.

The transaction remained subject to approval by the China Securities Regulatory Commission, the CSRC, certain other regulatory approvals required by the relevant Chinese authorities and some other formalities.

At this time, we expect the transaction to close any time between the end of the second quarter and the end of 2014.

Slide 27 shows a couple of examples of our product leadership in Asia.

For this quarter, we have highlighted Whirlpool brand Professional frost-free refrigerator with innovative Sixth Sense Active Cool technologies and the Whirlpool Armstrong total laundry home solution that includes a pre-wash station, washer and storage.

Now I would like to turn it over to Larry.

Thanks, Mike, and good morning, everyone.

Let me start by making some comments on our fourth quarter results and then I will transition to guidance for 2014.

Overall, the underlying fundamentals of our business remain strong as evidenced by continued sales growth, and margin expansion as well as a strong balance sheet.

As we have previously demonstrated, we continue to effectively manage through short-term volatility and demand and unfavorable currencies across the globe.

Our strong execution throughout the year delivered record earnings.

On slide 29 you will see how we expanded our margins with a balanced approach across multiple drivers.

For the year, we exceeded the high-end of our original guidance and drove a 160 basis points improvement in ongoing business operating profit margin.

We realized 0.5 point for the full year in price mix.

Our costs and capacity reduction initiatives contributed 1 full point.

Net productivity was positive and delivered approximately 0.5 point in margin as our actions more than offset material cost inflation of approximately $180 million.

And as expected, increases in marketing, technology and product investments reduced margins by approximately 0.5 point.

Moving to the financial summary on slides 30 and 31, reported net sales during the fourth quarter were $5.1 billion compared to $4.8 billion last year.

Excluding the impact of both currency and BEFIEX, sales were up 7%, primarily driven by strong growth in North America and Latin America.

Fourth quarter ongoing business operating profits increased 25%, driven by higher sales, ongoing productivity and the benefit from cost and capacity reductions, more than offsetting higher material costs and unfavorable currency.

The graph on slide 32 illustrates expenses associated with our cost and capacity reduction initiatives.

The actions we have been taking over the past couple of years and into 2014, represent a generational change to our footprint and cost structure.

Through 2013, we have delivered the $400 million in benefits we laid out in Q4 2011.

For the full year, our program expenses were $196 million and we delivered approximately $175 million of benefits.

As Marc mentioned earlier, we have taken additional costs in capacity reduction actions to address the weak, but recovering, European market and to continue to expand our margins.

For the full year 2014, we expect approximately $100 million of charges and $80 million of ongoing benefits.

As Jeff introduced earlier on the call, our 2014 guidance is was shown on slide 33.

We expect to deliver annual diluted GAAP EPS in the range of $11.05 to $11.55 per share and an annual ongoing business operations EPS of $12 to $12.50.

Or expectations for free cash flow are approximately $700 million, which I will provide more detail shortly.

On slide 34, you can see the reconciliation from diluted GAAP EPS to ongoing business operations EPS for 2014.

As we take appropriate actions in regards to our generational change in footprint and consistent with prior years, we are adjusting diluted GAAP EPS for restructuring expense.

As we near the conclusion of benefits associated with the long-running program in Brazil, we are also adjusting for the remaining BEFIEX tax credits of $16 million.

Consistent with 2013, we are adjusting for the one-time investment expenses of approximately $22 million that relates to the pending acquisition of Hefei Sanyo.

Lastly, we expect our tax rate assumptions for 2014 to be 24%.

On slide 35, we expect the current year to deliver another balanced approach towards margin expansion, resulting in an 8%-plus margin.

For price mix, we expect 0.5 to 1 full point of margin, driven by cost-based price increases as well as from innovative new product launches and growth beyond our core business.

Across the capacity reduction initiatives, we drive 0.5 point improvement.

We also expect positive net productivity to contribute 0.5 point in margins to 2014 as our actions more than offset material cost inflation of $150 million to $200 million.

And finally, higher marketing, technology and product investments are expected to reduce margins by about 0.5 point to 1 full point.

Now to provide a bit more clarity on our free cash flow expectation, I will refer to slide 36.

In walking from our 2013 actual free cash flow to our 2014 outlook of $700 million, there are several factors impacting the comparison.

Most notably, you can see that we plan to utilize our increased earnings to drive enhanced investments for growth and profitability.

Increased capital expenditures of $75 million will support continual product innovations for consumers.

And higher restructuring cash of approximately $45 million will support continued margin expansion.

Working capital is essentially neutral year-over-year.

Due to the requirements in the pension relief program enacted in 2011, our US pension contributions are required to increase approximately $45 million this year.

However, it is important to note that our US GAAP pension obligation was cut in half during 2013 and has been lowered to $700 million.

Lastly, we will monetize $90 million less in BEFIEX tax credits compared to last year.

Overall, the underlying cash flow generation of the Company remains very strong.

In total, we continue making investments in our business to support our long term growth and margin objectives.

As we have executing our plans to improve margins and grow revenues, we have effectively deployed the cash generated from our business, as shown on slide 37.

During 2013, we increased our dividends and recently completed our share repurchase program.

Shareholders were also rewarded with 54% increase in the Company stock price.

Moving into 2014, we will continue to fund the business for growth, as I just mentioned, including capital expenditures between $625 million and $675 million.

We plan to refinance our maturing debt.

Also, as Mike mentioned, we are on track with the acquisitions with the majority stake in China's Hefei Sanyo.

Consistent with the past, we will continue to update you with our future plans for use of cash.

In summary, given our increased investment capacity and strong balance sheet, we will continue balancing funding for all aspects of our business to ensure the best long term value creation for our shareholders.

Now I will turn it back over to Jeff.

Thank you, Larry.

I will turn to slide 39 to summarize our remarks.

First of all I would say we're pleased with the actions that enabled us to deliver record results in 2013.

We have and we expect to continue to grow revenue and expand our margins.

And we're firmly on track to deliver our 2014 objectives, including 8%-plus operating margins.

As we look ahead, we are very well positioned to capitalize on positive global demand trends and we are very positive about our own robust pipeline and new innovative products for consumers that will enable us to grow faster and improve our mix.

The Hefei Sanyo acquisition provides a great opportunity for us for transformational growth in China.

We will continue to grow beyond our core business, as we have been, and as a result, we will have even more opportunities to grow our investment capacity and deliver on our cash priorities.

Finally, I would like to turn to slide 40, which should be familiar to you, which is our road map for growth and value creation that we first introduced to investors in 2010.

I think we're now demonstrating that we have the capabilities to address challenges related to raw material costs, rapidly changing global economies, currency fluctuation, inflation in emerging markets and value destroying competition.

Given our success and current momentum, we remain confident in our opportunity to grow the business, expand our margins and generate strong free cash flow.

As we achieve our 8%-plus operating margin and close the Hefei Sanyo transaction, we will provide updates to our shareholder value creation targets at the appropriate time later in the year.

In the meantime, we will continue to invest in our long-term growth strategy and we're firmly on track to deliver our shareholder value creation targets and deliver another record year of operating performance.

So with that, that concludes our formal remarks.

We would now like to open it up for Q&A to the audience.

Ken Zener with Keybanc.

Currency -- if Latin America volume is flat in 2014, could you describe the currency headwind you would expect at today's rates, given the volatility we've seen week-to-week?

We can see the fourth quarter currency hit but could you kind of frame out, given that there is 35 different countries passing through, and America, what it would look like in terms of currency headwind so we could understand that?

Ken, this is Larry.

Let me give you a couple of comments.

First, for the total year of 2013, we absorbed -- effectively absorbed about $85 million of currency head wind, a lot of that occurring in the second half of the year.

For -- and I'm talking globally.

For 2014, we would expect total currency to be a head wind of around $50 million, based on where currencies are today.

The majority of that -- a large percentage of that happening in emerging markets.

But we will continue to effectively navigate through currency headwinds just as we have over the last couple of years.

Maybe, Ken, I can just add to that specifically related to Latin America and just it in perspective and just put it in perspective.

With that currency headwind, we still have been able to grow our market position and we still have been able to, if you will, balance off that currency with price increases that we have already taken.

So we certainly feel like we can deal with this current volatility (inaudible).

And, Ken, just one other comment.

With relating to currency, there is a lot of discussion in the press.

If you look at our combined businesses we do in countries like Argentina, Venezuela, Turkey, Russia, South Africa, these represent about 3% of our sales, to give you a little bit of perspective.

Could you restate those just for everyone's clarification again?

If you look at countries likes Argentina, Venezuela, Turkey, Russia, South Africa, they represent about 3% of our total global sales.

Very good.

Thank you very much.

And moving to the US, it is obviously very constant tension between market share and margins, as any industry faces, but the margins that you had in North America were very good.

Your North American volume did lag [a ham] by about 200 basis points.

So, Jeff, could you kind of comment if you would be willing to go into a little more detail about -- obviously you're looking for profitable growth.

We do think a lot of pressure from the Korean firms has been -- is always there but you have been able to navigate it.

Could you just -- as you look back at 2013, reaffirm your view of how you can maintain share profitably?

And as it relates to the refrigerator comments you made, that you were not pursuing the appeal despite the international -- the appeals decision that in fact the ITC might have been flawed.

Is there a reason you are not pursuing that appeal as it relates to margins and market share?

Thank you.

Sure, Ken.

Let me turn the first question over to Marc.

He's very -- he will answer that.

Ken, it is Marc Bitzer.

First of all, about the markets share and the units inside it.

First of all I think we made that comment several times in the previous earnings call.

The units which we report are not comparable to the AHAM market share units.

Our units, which we report, include more than the so called [T7], includes the units which are T7 to T12 in the US.

And of course it also includes Mexico and Canada.

So when you compare AM numbers with our reported units, you're not comparing apples to apples, not even apples to oranges, certainly.

Our T7 market share, which as you know we don't publicly disclose, our T7 market share in Q4 was stable sequentially and actually even up year-over-year.

So we are kind of all from a market share perspective -- we are certainly solid right now (inaudible) at our current point.

And, Ken, regarding fair trade questions that you ask, we did put out a statement earlier in the week basically to position our -- or gave our position on the refrigeration ruling.

And let me make a couple of comments.

One, as we said in the announcement, dumping -- we have proven twice in both washers and refrigerators, that dumping has occurred and we see that we believe it is still occurring in the marketplace.

Secondly, there is no question in terms of -- with the Department of Commerce and with the appeal that we are correct on -- in terms of bringing this fair trade issue to the table legally, if you will.

We are pleased with and agreed with the appeal ruling from the trade court that the decision on the refrigeration case, by the ITC, was based on nonaccurate data.

But we also stepped back and said, as we said in the release, we are now talking about data that's from 2008 to 2011 and that our view is that in 2014 the marketplace has changed, prices have changed, products have changed, countries of origin have changed.

And given the time that it would take to continue to pursue this or, in effect, get a ruling on this appeal, we believe there is faster vehicles available to us to both monitor and address trade issues that we see in the United States.

So that was the basis.

We have a strong and unwavering commitment to fair trade enforcement.

And we will continue to take the appropriate actions to monitor that.

Understood.

The last question, if I may, is your long term guidance, which at one point seemed long term, of 8% margin is in fact your 2014 guidance.

Despite obviously difficult Latin America guidance, I would say.

So would you venture to give us what might be a medium term guidance or thought given that long term is in fact your FY14 guidance of 8% margin?

Thank you.

Yes, Ken.

Okay, so you've got our 2014 guidance.

Correct.

And what I have said, the question has been asked before, is 8%-plus the upper limit?

And my answer has been, no.

That's why we say 8%-plus.

And what I said in my remarks is as we -- first of all, we want to demonstrate we are in fact achieving that, which we expect to do this year.

Second of all, we have a very important acquisition, which will positively affect both our revenue -- and if you look at their margins, they're good.

And our -- my comments are is that there will be an appropriate time, as we progress and hit our milestones in 2014 and update you and investors on a more medium to longer term value creation targets, which we intend to do.

But for now, I think that 2014, we're -- we've got 11 months to go and we're focused on delivering 2014.

Very good year.

Thank you.

Denise Chai with Bank of America.

Could you -- just starting with your US guidance of 5% to 7% volume growth, can you maybe break than that down now for us into replacements, new-build, existing and discretionary demand?

And how do you see that mix of that demand at this point?

Denise, good morning.

It is Marc Bitzer.

As opposed to breaking it down, let me just maybe give you a broader comment on the 5% to 7%.

First of all, starting with last year's industry, we've shown the Q4 industry pretty much came in exactly -- essentially exactly within the guidance as we communicated -- the 9%.

As we start the year, we're starting off with a slightly softer January, which is largely driven by fairly significant trade inventory corrections and (inaudible).

Having said that, we remain very positive about this years, and probably also midterm trends for US market in both new construction, existing home sales and, as you also pointed out, we are hitting more and more normal replacement cycles, i.e.

appliances which were bought in the peak of the market in 2004 to 2006.

So without breaking down into components but it is both elemental markets, replacement and new constructions.

We see a very solid momentum and that's why we are still very bullish about the 5% to 7%.

And, Denise, I would add we have talked before about those four dimensions.

Replacement is in a -- and we're moving back toward the more normal market is in the high 40% to 50% of demand.

New construction, as it starts to get back to what we think is replacement level should be around 15%.

Existing home sales is about 15% and the rest is discretionary.

And as we pointed out at the end of the third quarter, we're hitting a period where the first time in many, many years, we're all for our growth in those directions.

Which to Marc's point, is why we're still bullish, not only for this year but over the next coming years.

Great.

Thank you.

We're still 15% below the peak of the industry through 2013.

So a lot of opportunity there.

Got it.

Thank you very much.

And just turning to [lat ham] -- excuse me, last year Mabe gave up a significant amount of share.

Can you kind of update us where your share stands now and also on pricing?

Because I believe you took prices at mid single digits in Brazil sometime around June last year but was there a further increase in the fourth quarter?

And given your more dominant market position, how should we think about pricing going forward?

I mean obviously with the currency fluctuation?

Yes, okay.

Let me first answer the first one.

We closed the year up about [3 points] of market share for our Brazil business.

And we expect with the product investments that we're making, the innovation that we're bringing, that we will to have good performance in the marketplace -- so taking market share.

We did also announce after the June price increase, a price increase that we are actually executing right now.

And we announced that for the first of January.

So we're in the process of doing that and I really can't comment on any future increases.

Okay.

And the first of January 1, is that also mid single?

Yes, that is mid to high singles.

Okay.

Great.

And just one last thing about raw materials.

So can you give us maybe the dollar increase in raw material costs in 2013 and what you're expecting for 2014 now that you have done a lot of your negotiations?

Yes.

We ended up 2013 with about $180 million of headwinds.

And we are forecasting for this year, which we will offset through [core] activity, is about $150 million to $200 million of raw material headwinds.

Okay.

Great.

Thank you very much.

Megan McGrath with MKM partners.

Could you just clarify your comments on the retail inventory levels?

I think you said that January is a bit weaker because of inventory.

And sort of compare it to what you're seeing -- what you saw last year?

Marc Bitzer.

My comments on the trade inventory correction, let me answer for the context.

We have -- the vast majority of our retails we have a very good understanding and have exact data on what we call sell-through, i.e.

what we sold to consumer and what we selling.

So we have a fairly good understanding of trade inventory moves.

And what we see this year coming out of 2013 into January, there was pretty much overlap the last 12 weeks, significantly in the [e-trade] inventory reduction on the trade side.

There is a certain element, which is not surprising, [we expect to see] something in January, but I would say the magnitude of what we saw this year clearly goes beyond what we're seeing before, to the point that I think some retail is below -- we run very low on inventory coming into February.

Okay.

Thank you very much.

And then just a little clarification, I know it is small as a percentage of your sales, but clearly you're looking for the full year for the Asia market to improve versus what you saw in the fourth quarter.

Can you talk a little bit about what you're seeing there to get you to flat versus the mid single digit unit decline you saw in the fourth quarter?

We have a strong environment in China and we expect that that will continue.

There are -- India continues to be somewhat challenging but we are beginning to see some improvement in India.

And then there all the markets around -- there is growth in those markets.

So we feel pretty good about what we're seeing out of China and some improvement that we're seeing in India.

Great.

Thank you very much.

David MacGregor with Longbow Research.

Both Mike and Marc talked about growth beyond the core.

And I presume you're talking about your adjacencies business, which you address in your IR deck.

Using the numbers that you cite in that deck, it is about a $4 billion business.

It's basically pretty close to the European business in terms of its magnitude, Europe and Asia together maybe.

Can you just talk about what you achieved in 2013 in terms of full-year growth and the look for 2014 in terms of what kind of growth we can expect?

And also, not only growth in terms of revenues but growth in terms of margin contribution?

Yes, David, this is Jeff.

We've got -- just for everyone's benefit, we talk -- the way we look at our business is many different lenses.

We first look at them regionally and then we look at them by product line and then we have introduced the concept that we talk about our core appliance business, which there tends to be a fixation on T6 US business, but it is really at least a T12 global business.

That we call our core business.

And then we look at categories, which due to that strong core business, we're able to extend revenues from that.

And then we talk about expand, which is categories that aren't completely dependent upon the core but where we can bring our capabilities to expand our business scope.

And it is largely all around brand and consumer products in and around the home.

So with that definition, I mean your math is roughly correct.

I think those categories, which we look at internally as they tend to expand, account for about 23% of our revenue in total.

They're nicely profitable and we're growing, as we said on value creating objectives, it varies per year and so on.

But roughly we expect to grow faster than our core business.

And I will just give you two quick examples.

There are over 30 different categories in there so it is hard to really go through, and they vary in size from $10 million to $1.5 billion.

But we manage virtually all of them discretely.

And I think that in terms of growth, the two biggest growth generators right now are -- one is our kitchen aid small domestic appliance business, which is strongest base is in North America but we're expanding it globally.

We're growing it very, very strong double digits as we have for the last couple of years.

We're adding new product lines to that.

We're expanding into many, many more markets around the world.

And it is a sustainable source of both growth and significant value creation.

Another interesting example, which is a composite of many different things in different markets, but it is our overall water business.

You saw, I think Marc Bitzer showed a new to the world product for us, which is the drop product in the United States, which is a consumer product, which we have now have in many retailers across the United States.

It is a water filtration product.

We have a subscription model in Latin America that is meaningful and grew 30% last year.

And I could go through a whole litany of those things.

But suffice it to say, our goals in this area is to continue to extend and expand.

We expect over time to grow this business at twice the rate as our total business.

And we have substantially higher margins so as we grow this business, it will be a mix up to our total margins.

So that's the quick snapshot of that category.

And do you get growth in margin from where you are or margins pretty much where they will be now and it is really just about growing the revenues in that group?

It is a little of both.

But I would say -- because where we have really good margins, I would say we're reinvesting rapidly in expansion and advertising and things like that.

But in terms of mix on our total margins -- I mean we have both.

We have some where we will also improve our margins substantially and where we have big position high margins, we basically are focusing just on growth.

And, Jeff, I realize there is a lot of categories there but you would say you have more pricing power in those categories than you do in the core 6?

You know, David, over the last couple of years, our view is -- very simply put, as we talked before, we're in the business of selling products a at profit and that applies to everything, including the core business.

And the last couple of years, we have been able to do both.

We have gotten pricing on our core business and we're getting pricing in our extend and expanded.

Okay.

Thanks a the lot.

Last question, just for Larry.

Two things.

Could you talk about the interest and sundry expense line, 82 versus 35, and just what might have been going on in there?

And then also on the balance sheet, you had a $7.00 per share drop in your pension liability.

You went through that quickly in your prepared remarks but maybe you could give us a little elaboration.

What was your question, David?

Interest to sundry to change year-over-year is?

Is that what the question was?

Yes.

Your 82 versus 35 -- could you give us a look at what is going on there?

Yes.

The Delta is really related to a legal accrual that we took late in the year in the interest and sundry.

That's what is driving that.

The pension liability, quite frankly, is a couple of things.

One is discount rates dropping.

And we've been saying for a while -- I'm sorry, rising.

So as interest rates increase, we would see a substantial decrease in our liability.

And the return on our assets have been pretty strong.

So in total, for the Company, and I talk about the US pension liability, which is the most -- the largest part of liability, we were about $1.4 billion in pension liability last year in the US and we are a little bit over $700 million this year.

So a significant, significant decline in one of our legacy liabilities.

Great.

Thanks very much.

Michael Rehaut with JPMorgan.

First question, I was hoping if possible to give a little more color on the price mix benefit that you saw in 2013 and expect in 2014.

And if it is possible to kind of give us a sense of which was the bigger driver, price or mix?

And as you -- particularly as you expect that benefit to, I believe, improve in 2014.

Michael, I would say, overall our price mix was positive.

It varied dramatically.

The source of that varied dramatically around the world.

I would say in our developed markets, which is largely North America and Europe, it was largely on the mix side.

In our emerging markets, it was both alike with like price increases, which we executed throughout the year like in India and Brazil, which we talked about, as well as some positive mix contributions in new product innovation.

As we look at 2014, we have talked about -- we have announced in many major markets around the world and have implemented, or have announced we're implementing, price increases based on the inflation that we're still seeing virtually -- it's raw materials everywhere but high inflation particularly in emerging markets, partly currency driven.

So we have that.

That has been announced.

But in principle, given the investments we're making in new product innovations, we do expect to have a positive product mix as well.

So it will be a combination of both.

I appreciate that.

Thank you, Jeff.

And also on the interest expense -- I'm sorry, the investment expense that is something that you add back to get to a -- your adjusted non-GAAP measure and this is also for guidance, it looks like it is about $0.21 per share that you add back in 2014.

It is about $0.19 in 2013.

Is this something that you expect to eventually roll off?

Or given that it is kind of -- you're expecting it to years in a row, it seems to be different from a restructuring expense, is this something that we might expect also in 2015?

And when would this eventually roll off?

Michael, it is Larry.

The expense in 2013 and 2014 is related to the same thing.

It is related to Hefei Sanyo.

So obviously once we close on that, that investment expense goes away.

And there is nothing that we carry over into 2015.

Okay.

And just lastly, if I could, how you're thinking about the effective tax rate ex-BEFIEX in 2014?

And also if you could give us a sense within the guidance of how you're thinking about the interest in sundry income and the interest expense lines.

In my prepared remark, Michael, I said we expected about a 24% rate from a tax rate perspective in 2014.

Figure interest and sundry anywhere -- figure around $95 million and figure interest expense between 165 and 170.

I'm sorry, just one more if I could squeeze in -- the share count also, where would -- did it end in 2014?

I would use what we ended at, which is about $80 million.

Thanks so much.

And our final question comes from Sam Darkatsh with Raymond James.

A couple of questions.

First, housekeeping, Larry, while you're doing all of these granular stuff -- change in pension expense on the P&L in 2014 -- I know you talked about the liability and the contribution, but what about the P&L impact?

Again, just to remind you, we froze the pension plan several years ago so there is not a big pickup.

It will probably be around $12 million between pension and retirement.

That will be an increase of $12 million on a year-on-year basis?

A decrease of $12 million.

A decrease or increase?

I'm sorry.

A decrease.

Decrease.

Okay I was hoping you would say that.

Okay.

And then two final questions if I could.

I mean it seems as though if you go around the world and your industry expectations, Europe, Latin America, Asia, even to an extent I guess US because of the channel inventory correction, that you're really baking in to your expectations improvements in the second half versus the first half.

You talked around a little bit, Jeff, about why you feel that might be the case.

But could you put a little bit more meat on the bone as to specifically what data points or channel anecdotes that you're seeing that gives you that confidence that things in the second half are going to be better than the first half?

Because right now, the first quarter and first half, we may not be seeing that.

For the most part, I think the starting point I would say is that we expect to largely have our normal seasonality that we have in our business.

As I go around the world, I don't necessarily look at the first half, second half, big change in North America or Europe, other than we do believe in both the developed markets that we have seen a slow, generally positive trend that we expect to continue to build.

I think probably where there is a little bit of first half, second half expectation is in markets like Latin America and India.

For one reason, we're facing -- again, you talk about currencies as of today, we still have year-over-year currency headwinds we've got to overcome.

And I think as those markets settle out, you will see a better -- start to see a better return to a normalized growth, which we don't expect to see in the first half.

So that's probably the two places in the world where we have a little bit of a first half, second half view of the world are largely Latin America and India.

Everywhere else we look at basically normal seasonality.

And then directionally, market share expectations -- I know you talked about [Latham] that you expect to gain share.

I am guessing some of that is going to be carry over from Mabe.

But on the other hand, I think organically you're expecting to gain share also.

The US and Europe, directionally, where do you expect your market share trends to be in 2014?

Look, Sam, as we discussed before candidly, with the investments we make in new product and so on, we expect to always gain share with our new product innovations.

Where we -- having said that we want to do it profitably.

So I think everywhere where we introduce new products that are -- which is everywhere, we have an expectation to gain share to some degree.

What we haven't changed is our expectation is that we will pursue loss-making share moves for the sake of share because that's -- for us, that is not an economically viable model.

Some may choose to do it.

We don't.

And so I guess our expectation in the year is everywhere we have a meaningful participation, we would expect to grow our share.

From a new product rollout standpoint, is there a timing -- first half, second half -- in terms of where you expect a bulk of your new product to be introduced?

Not anymore, Sam.

I mean it is -- we got a [kings] in pipeline innovation around the world.

You have asked me and others have in previous years, what's your big innovation this year?

It is hard to say because there are so many of them.

And we literally, every month and certainly every quarter, are bringing out meaningful innovation.

So it is kind of a continuous flow for us.

Very helpful.

Thank you, gentlemen.

Thank you.

Well, listen, everyone, thank you, again, for joining us today and we look forward to updating you at our next earnings call.

Thank you.

This does conclude today's program.

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