惠而浦 (WHR) 2014 Q4 法說會逐字稿

Good morning, and welcome to the Whirlpool Corporation's fourth-quarter 2014 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, Chris Conley.

You may begin, sir.

Thank you, and good morning.

Welcome to the Whirlpool Corporation fourth-quarter 2014 conference call.

Joining me today are Jeff Fettig, our Chairman and CEO; Vice Chairmen 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 10-K and other periodic reports, as well as on Slide 2 and in the appendix of this presentation.

Due to the complexity of our acquisitions and recent currency fluctuations, we are also providing additional clarification on the operating profit margin expectations by region for 2015.

These expectations are being provided on a one-time basis to provide clarity around our recent acquisitions, and will not be updated on a go-forward basis.

Turning to Slide 3, we want to remind you today's presentation includes non-GAAP measures.

We believe 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 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 36, for a 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 thanks for joining us today.

As we discussed at our investors' day in December, 2014 was a milestone year for us.

We delivered a record year of revenue and ongoing earnings, and are creating an exceptional platform for growth and margin expansion for the future.

During the year we completed two very important acquisitions in China and Europe.

In both -- and we have accelerated the integration activities of both.

Overall for the year, we grew our revenue, we expanded our margins, drove ongoing productivity, and delivered restructuring benefits, while at the same time we continued to invest our preferred brands and innovative products.

So as a result, we generated a strong year of result, including cash flow.

We ended the year with a strong balance sheet, and we have created multiple opportunities to create value going forward.

I'll now turn to Slide 6, where you see our financials.

As you can see again, we delivered good results for the year, slightly above our most recent guidance, with record revenue and ongoing earnings.

Excluding the impact of currency, our revenues were up 8% versus last year and our ongoing business earnings per diluted share increased to a record level, at $11.39 compared to $10.02 last year.

Our free cash flow grew year over year $164 million to $854 million.

And we effectively deployed that cash in line with our priorities.

Turning to Slide 7, we highlight our business priorities for the year.

First, we remain confident in our ability to integrate our acquisitions and deliver the synergies which we previously communicated.

We do expect top-line growth, margin expansion, price mix improvement with our new product launches, and our continued growth in our extend-and-expand categories.

We will execute our ongoing productivity programs, and leverage a much broader global operating platform to improve the efficiency of our productivity actions in our investments.

And as we have seen over the last several years, we do expect volatility from movements in things like currency, which we've seen, raw materials, and emerging market demand.

But we do fully expect to offset these actions through our own actions throughout the course of the year.

So as a result, I'll turn to Slide 8, and we are reiterating our financial guidance for 2015.

As we announced in December, we expect our ongoing business diluted EPS outlook is to deliver $14 to $15 per share.

Our free cash flow forecast for the year is in the range of $700 million and $800 million, and again that's based on -- includes all of our restructuring and additional capital included with our new acquisitions.

I now would turn to Slide 9 and just briefly summarize our long-term strategy that we discussed about a month ago at our investors' day.

We have outlined multiple opportunities for growth and margin expansion, which really fall under three main pillars.

The first is geographical expansion.

Our acquisitions provides us with outstanding opportunities to truly transform and change our business position in both Europe and China, which we think will create substantial sources of value creation and a diversification globally of our earnings profile.

Additionally, we have great opportunities for growth, as demand in the US continues to recover, which we expect will happen over not only this year, but over a number of years ahead.

And we're very well positioned to capitalize when growth does return to emerging markets such as Brazil, China, India, and Russia.

The second important pillar for us is our product and brand innovation.

We are continuing to accelerate our investments in those relevant technologies and new products which clearly benefit our end consumers.

We're also continuing to drive revenue growth in those areas that expand and extend from our -- with our core appliance business.

And we will continue to accelerate growth in these higher margin categories.

And finally, we have a great opportunity to create value with what we believe is the best global cost structure in our industry.

We will continue to drive ongoing cost productivity programs globally, leverage what we believe is the right-sized fixed cost structure with volume growth.

And we'll reduce complexity through our introduction of high volume global platforms.

So in total, we are on track for another record year of business operating performance.

And we believe we're continuing to build a great global platform that will drive future growth and strong value creation.

So with that, I'm going to turn it over to Marc Bitzer to give us a view on North America and Europe.

Thanks, Jeff.

And good morning, everyone.

Let me begin on slide 11 by reviewing North America's performance in the fourth quarter, starting with the top line.

Net sales of $2.8 billion for North America were up 4.1% compared to the prior year period, and up 5.1% excluding currency.

This is now the seventh consecutive quarter for year-over-year revenue growth.

Our fourth quarter operating margins were 9%, with operating profit of $255 million compared to $301 million in the fourth quarter of 2013.

Our operating margins were down in the quarter, as ongoing cost productivity and higher unit volumes were offset by several drivers.

The impact of product transitions, very unfavorable currency in Canada, Mexico, and what is most likely the last quarter of higher material costs.

Similarly, while higher fourth quarter, our volumes were negatively impacted by very aggressive and value-destroying strong promotions on import products.

And as we've consistently stated, we only participate in promotional activity where we can create value for our shareholders and our brands.

While we are not surprised by these results, we are not satisfied with them either.

So we are taking actions to drive our margins to 10.5% to 11.5% in 2015, as shown on Slide 12.

With product transitions largely behind us, we expect the new product lines to increase revenue and improve price and mix.

We believe our business has the right-sized fixed cost structure with enough capacity to meet the demands of industry growth, as well as grow from our strong cadence of new product launches.

Our business priorities for 2015 also include growth beyond our core business in areas like kitchen and small appliances, Gladiator garage products, and our recently introduced Swash product.

And from an operating perspective, we will continue to drive ongoing cost productivities.

As Jeff mentioned, we believe raw materials will have a neutral to slightly positive impact on our operating margins.

And as we've stated previously, we believe the US industry is in the beginning of a multi-year recovery.

2014 was up 6%, and we expect the full-year 2015 industry to be another 4% to 6%.

We continue to see improvements in housing trends, consumer sentiment, and discretionary spending which we expect will translate into increased appliance demand in the US.

Current trends of low real wage growth and unfavorable currency are the two factors that we believe have the potential to negatively impact our business.

However, in total we feel confident in our plans to mitigate both risks, and deliver operating margin of 10.5% to 11.5% in 2015.

I will now talk to our fourth-quarter results for our Europe, Middle East, and Africa region, as shown on Slide 14.

Due to the timing of the acquisition, these results include a partial quarter of consolidated results.

Sales were $1.7 billion compared to $800 million in the prior year.

In addition to positive organic demand growth, over $800 million of revenue growth was provided by the acquisition.

Our costs and capacity reduction initiatives, combined with ongoing productivity programs, more than offset product price mix and unfavorable currency to deliver another quarter of expanding operating profit.

Ongoing operating profit was $101 million with ongoing operating margin at 6.1%.

It is important to note that our business, along with [Ignis'], has strong seasonality impact, but has historically driven much higher margins in the fourth quarter.

From a full year 2015, we're expecting operating margin of 4% to 5%, as shown on Slide 15.

Our integration activities are progressing very well, and are on track to deliver synergies.

We expect positive operating profit and margin expansion, driven by growth beyond our core new product launches and continued benefits from our ongoing cost productivity programs.

The margin environment in the Eurozone continues its slow recovery, so we are expecting industry to be flat to up 2% over year.

While raw materials are expected to be neutral to slightly positive, we expect a significant unfavorable currency impact, which we plan to offset for productivity, accelerated integration activities, and the benefits of previously announced cost-based pricing.

Overall, we believe our business priorities and mitigating action plans for headwinds will deliver operating margin of 4% to 5%.

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

Thanks, Marc.

Let me begin with our Latin America results on slide 17.

During the fourth quarter, our Latin America region delivered record ongoing operating profit while operating in a challenging external environment.

Sales for the quarter were $1.3 billion, down 7.6% from the previous year, primarily due to unfavorable currency and reduced demand, which was down approximately 2% during the quarter.

However, our net sales, excluding currency and BEFIEX, increased just over 1% compared with the previous year.

Our ongoing business operating profit for the quarter totaled $149 million, or 11.7% of sales, compared to $130 million, and 9.7%, in the prior year period.

Previously announced cost-based price increases, new product introductions, and improved mix in our appliance business more than offset lower industry demand, higher material costs, and unfavorable currency.

Turning to Slide 18, we summarize our expectations for the region in 2015.

We will continue to successfully manage through a challenging external environment.

As a result, we believe that price mix, along with continued productivity and restructuring benefits, will continue to help offset these external factors.

We continue to focus on growth beyond our core, and launching new models with exciting innovation across all product lines.

As discussed in the past, we also believe that the low appliance penetration rates, real wage growth, and other macroeconomic indicators in Brazil point to long-term healthy demand growth.

Although currently we face volatility in the short term, we will offset it with appropriate actions, which may include productivity improvements, cost reductions, and price mix.

Given this volatility, we expect industry demand to be flat to down 3% for 2015.

However, we also expect to continue outperforming the industry, and growing our revenue with industry-leading brands and a strong cadence of new product introductions.

As we look at the total business, we expect operating margins of 10% to 11%.

Now, turning to our fourth quarter results in the Asia region, which are shown on Slide 20.

Since we closed on our acquisition at the end of October, it is important to note that these numbers include a partial quarter of consolidated results.

Net sales were $282 million compared to $177 million in the prior year period.

Over $160 million of this revenue growth was provided by the acquisition.

Consistent with our expectations, as we combine these two organizations, ongoing operating profit of $17 million improved by $7 million and ongoing operating margins of 5.6% were up slightly compared to the prior year period.

Growth related to our acquisition, continued strength in our India business, positive price mix, and the benefits of cost and capacity reductions were partially offset by unfavorable currency.

Turning to Slide 21.

We have been accelerating our integration activities, and expect to see benefits beginning in 2015.

We are excited to bring our trade customers and consumers new integrated product lines that leverage our global technology organization.

And with the transition issues largely behind us, we are focusing on driving sales growth and cost synergies to deliver profitable growth and reinvest in our business.

We are confident this acquisition has put us in a very strong position to leverage our new growth platform in China going forward.

Operationally, we continue to execute ongoing productivity actions and benefit from previously announced cost-based price increases across the region to offset inflation and currency.

We expect favorable macro trends to continue in India and relatively neutral trends to continue in China.

For the Asia region in total we expect industry growth of 1% to 3%.

For the full year 2015, we believe accomplishing our business priorities will deliver operating margins of 7% to 8%.

Now I would like to turn it over to Larry.

Thanks Mike, and good morning everyone.

Let me start with our fourth quarter results on Slides 23 and 24 and then transition into our guidance for 2015.

Our fourth-quarter results were largely in line with the guidance provided in mid-December, as we delivered slightly stronger earnings per share and free cash flow.

Reported net sales during the fourth quarter were $6 billion compared to $5.1 billion last year.

Excluding the impact of both foreign currency and BEFIEX credits, sales were up over 22% compared to the same prior-year period.

As Jeff mentioned, we were pleased to close on two major acquisitions late in the year.

Our results include a partial quarter for the acquired companies, which translated into approximately $1 billion of additional sales.

Due primarily to acquisition-related costs and the previous year benefit from BEFIEX credits, operating margins were down 2 points versus the prior year on a GAAP basis.

However, fourth-quarter ongoing business operating profit increased 18%, driven by higher sales, ongoing cost productivity, and the benefits of cost and capacity reduction initiatives.

Lastly, our tax rate for the full year of 2014 was approximately 22%.

The rate was lower than our guidance of 24%, due to benefits from tax-extender legislation in the US that was approved very late in 2014.

Our 2015 tax guidance remains at 24% for both GAAP and ongoing, while the range could be 22% to 25%.

As a general reminder, slides 36 through 47 in the appendix will provide you with reconciliations of our non-GAAP financial measures to reported GAAP measure.

In total, the business performed well and delivered another record year of ongoing earnings.

Before I move on to our outlook for 2015, I would like to put the 2015 estimated impact of cost headwinds into context by looking at our results over the past three years on Slide 25.

From 2012 to 2014, higher raw material costs and unfavorable currency have averaged approximately $300 million, or just over 1.5% of sales.

During this time period, we were successful in offsetting these external headwinds, and our ongoing operating margins grew from less than 5% in 2012 to approximately 7.5% in the fourth quarter of 2014.

Recently there have been fluctuations in several currencies around the globe.

However, we are also seeing a partial offset to currencies from positive trends in commodity prices.

We currently estimate the net impact of headwinds in 2015 to be about $300 million, which is consistent with what we've successfully managed through over the past few years.

We expect to fully offset this year's headwinds through productivity, favorability in material costs of roughly $50 million, new product introductions, and previously announced cost-based pricing.

In fact, we have implemented price increases in Canada and Russia during the fourth quarter in addition to previously implemented price increases in Brazil.

Given the significant recent changes in currencies over the past 45 days, let me make some general comments regarding 2015 first half versus second half earnings expectations, beginning on Slide 26.

The normal seasonality in our industry and demand environment drives a ramp-up of both volume and productivity as we progress throughout the year.

So the second half is typically more positive than the first half.

As we look at the macro variables for 2015, we expect currencies to have a greater impact in the first half of the year.

On the other hand, we are also seeing positive trends in commodities around the world.

It's important to remember that the full impact of lower commodity costs take time to fully flow through our financial results, due to hedges in contracts.

But we are already beginning to see the impact of these prices softening, and expect favorability to build throughout the year.

Additionally, we expect the benefits from our acquisitions and restructuring activities to ramp up throughout the year, and we expect positive benefits from our previously announced price increases.

Given the external factors affecting the first half, we would expect to deliver approximately 40% of our ongoing earnings in the first half and approximately 60% in the second half, which is slightly different than our historical trends.

Based on the actions we discussed today, we are reaffirming our full-year guidance for 2015, as shown on Slide 27.

Relative to the guidance we provided at our investor day in December, we are expecting revenue to be towards the lower end of the $24 billion to $25 billion range, given recent changes in currency.

In spite of that change, our full-year ongoing business EPS guidance remains in the range of $14 to $15, which represents an approximately 25% improvement versus our 2014 results.

We will have slightly stronger margin performance than previously expected, due to price mix actions we have taken, as well as higher productivity from recent commodity cost trends.

Higher margin will offset the lower revenue guidance.

We expect to report full-year GAAP net earnings per diluted share of $10.75 to $11.75, which includes acquisition-related integration costs.

Our expectations for 2015 free cash flow remain at $700 million to $800 million.

Turning to Slide 28, you will see how we intend to deliver approximately 7.5% to 7.8% (sic - see Slide 28 "7.4% to 7.8%") ongoing business EBIT margin with another balanced approach towards margin expansion.

In walking from our 2014 ongoing business EBIT margin of 6.9% to our 2015 goals, we expect to realize a full point in margin and price mix, driven by previously announced cost-based price increases, innovative new product launches and growth beyond our core business.

Benefits from our cost and capacity reduction actions are expected to contribute 0.5 point.

For the full year of 2015, cost productivity is expected to deliver 1 point of margin expansion.

We expect material costs to continue improving, and are encouraged by recent downward trends.

Our planned increases in marketing, technology and product investment are expected to reduce margins by about 0.5 point.

And the impact on currency is expected to reduce margins by 1 to 1.5 points.

These overall impacts result in the range that I previously communicated.

Our acquisition integration activities remain on track, as you can see on Slide 29.

For 2015, restructuring-related expenses continue to be estimated at $300 million, which is primarily related to the acquisition integration activities.

Benefits of approximately $175 million are primarily driven from acquisition synergies and benefits associated with previously announced restructuring actions.

As we deliver on our 2015 objectives to continue to grow revenue, improve margins, and deliver yet another year of record ongoing earnings, we have solid priorities to deploy the cash generated from our business, as shown on Slide 30.

These priorities are consistent with what we've previously communicated.

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

Now I'll turn it back over to Jeff.

Let me turn to Slide 32, where I'll kind of summarize our comments.

Again, we're focused on successfully integrating our businesses in Europe and China, and fully leveraging our new expanded global platform to create shareholder value.

We will continue ramping up investments in our brands and bring a very strong lineup of new innovative products to the marketplace, both in our core business and in our adjacent business.

In total, we're very well positioned to capitalize on improving demand trends, which are uneven around the world today, but we're seeing good demand trends in the US, and some volatile trends in some of the emerging markets.

We'll continue to drive benefits through our ongoing cost productivity programs.

And despite continuing headwinds that Larry outlined, like currency devaluations, we do remain confident in our ability to grow revenues, expand margins, and deliver another record year of ongoing operating performance for the year.

Lastly, again strategically, we're very excited about our opportunities to grow geographically, with our -- not only with our acquisitions, but with our expanded presence in emerging markets.

Our North America region is poised for multiple-year growth.

We've never had a stronger innovative product lineup as we have today coming into the market.

These things together give us a lot of confidence in our ability to grow revenue and margin expansion.

Finally, we're not taking our eye off the day-to-day operations of our business.

We have many opportunities to fully leverage our fixed cost structure and drive ongoing productivity around the world, to both ensure our competitive position, but also to improve our margins.

So we believe these multiple paths for profitable growth provide us with a great opportunity to really move and achieve our next level of strong operating performance, and this will deliver significant value to our shareholders.

So with that, I would like to conclude our formal remarks and open it up for question and answers.

(Operator Instructions)

Our first question is from Meghan McGrath.

Your line is open.

Good morning.

Thanks for taking my question.

Just wanted to ask a little bit about your expectations for end market demand.

You've altered them slightly in three of the major regions.

So if you could just talk us through what's changed in your outlook since mid-December when you gave the initial guidance for those three regions?

Well, let me ask Marc and Mike to discuss their regional expectations.

Meghan, it's Marc Bitzer.

Let me first talk about North America.

As you know, we basically met guidance for 2015 has not changed since our December meeting, which basically means we remain bullish exactly to the same level as we were mid-December.

As you may recall, when we issued the marked demand guidance early 2014, initially it looked like the market would not grow at 6%, and actually ended up doing.

And we have the same reasons to be bullish for 2015, i.e., housing demands, we believe both on existing home sales will probably rise to somewhere around 5.2 million.

New housing, probably 1.1 million, plus/minus.

These are still the most important demand drivers in the industry.

However, I would still expect some seasonality in the growth rates, so that's a full year guidance.

It doesn't mean you will see it exactly every quarter or every promotional period.

For Europe, we've gotten a little bit more positive.

As you may recall, in December we basic expect flat, and we right now see a flat to plus 2%.

The big uncertainty in Europe, very frankly, is Russia demand.

Russia was the main reason why we were more in a zero in December.

And right now it's actually was reasonably stable in December and so far Q1.

But that's still the big uncertainty.

The bound of the upper markets will certainly be slightly positive.

Meghan, let me comment for Latin America and Asia because we did change both of the outlooks for both regions.

Latin America really focus on Brazil.

And what we've seen since the time that we have spoken is continued currency fluctuation, and it's had an impact on the overall market there.

And we've also seen the government come out with some new economic measures, which have created a little uncertainty in the consumer base.

So our view right now as we go in, we were flat before.

We said flat to minus 3%.

We think that the first quarter is going to be down because we're lapping against a very high first quarter last year.

We think the second quarter will be up, because if you remember last year it was down significantly.

And then the balance of the year may trend flat to slightly down.

So all in all, we've made that slight adjustment, just given some of the volatility in the region.

For Asia, what we've seen is China change growth a little bit.

I mean, now it's flat.

We were seeing it be slightly up before.

That's just due to kind of the same overall global economic situation with currencies and so on.

India continues to be on track.

We think that market will continue to be positive.

So the change that we made for that region was from 2% to 5% to 1% to 3%.

And we think that's appropriate with what we see today.

The only thing I would add, Meghan, is if you take the pluses and minuses of the industry changes in total, industry demand, just given the weight of where the changes are, is about what we said during investor day.

Great.

That's really helpful.

Thank you.

And then a quick follow-up, Marc, on North America.

In terms of the pricing, that environment that you mentioned that happened in the fourth quarter, could you give us a little bit more color in terms of did you -- were you forced to follow at all with the pricing, or did you hold your pricing stable?

I'm not sure how much of the sort of implied negative pricing in the quarter was just due to the currency mix shift, if we do the calculation there.

So Meghan, let me by and large repeat what I said in the earlier script.

Yes, we've seen a more aggressive promotion environment by certain imports.

As we stated in the past, and we stayed course on that in Q4, we did not follow our promotions all the way down, because [this destroys] value for our shareholders, for our brands.

So in a certain way it had a volume impact, a negative volume impact, relative to market opportunities in Q4.

Okay, great.

Thank you very much.

Our next question is from Denise Chai.

Your line is open.

Thank you.

I had a couple questions.

So again on North America, can you detail for us the product transition costs in the quarter, and how much more we should expect in 2015?

Denise, it's Marc Bitzer again.

I'm going to give a crack at it.

First of all, let me repeat also what I said earlier.

We were not surprised about our Q4 margins, but that doesn't mean that we were satisfied with our Q4 margins.

These Q4 margins were down year over year, and they were not in line with how we deliver the first three quarters and our guidance for next year.

Ultimately, beyond the promotions which I just referred to, we had the three major kind of issues which we have to deal with.

One was the product transitions.

Two was the extremely unfavorable currency in Canada and Mexico.

And hopefully, or we're pretty certain actually, the last quarter of higher material costs.

It's difficult to exactly give a number behind these three issues, but I would ballpark them all -- or each of them around $20 million each.

Now in terms of your question of timing, it's of course difficult to exactly predict what's going to happen with currency (inaudible) going forward.

The currency part is still with us.

Canada has gotten a lot worse, even in Q1.

The product transitions are largely behind us, but they still play a factor in Q1.

And material costs, we're pretty certain are behind us.

Okay.

Okay, got it.

And then a question on Europe.

How much did weakness in Eastern Europe benefit Indesit -- or kind of your overall margins?

And can you give us a sense maybe of growth rates in Western versus Eastern Europe?

And just directionally how are margins in the existing Whirlpool business in Europe compared to Indesit, if you just kind of separate those directionally.

Denise, it's a lot of question in one question.

Let me try to just kind of simplify a little bit.

So first of all, Indesit historically has been more exposed to Eastern Europe than the Whirlpool standalone business.

So of course a weak market demand hurts.

What hurts even more is rapid currency move to the extent which we have seen.

I would say the existing Indesit team, but also the Whirlpool team did a fabulous job in moving fast with cost-based price increases, which basically reflect the currency.

So if we want to say so, the pain which we could have experienced if we wouldn't have responded in Q4 is a lot less, but still net/net has been painful.

And if you look at historical margins, and at investor day we commented on this one, the current margin in Russia are not comparable to historical margins or where this market could be in the long term.

Okay.

All right.

Just last one on a separate subject.

In terms of hedges and contracts, what do you actually hedge, and when are those contracts rolling off?

Denise, we're kind of on a rolling forecast from a hedging perspective.

We continuously hedge some currencies more than others.

But normally we can hedge anywhere from today through 36 months out, depending on the currency.

So it's hard to give you an answer as far as when they roll out.

What we try to do is to take volatility out from swings in currencies over time.

I think we've done that successfully over the last few years.

What hurts us is when we see sudden changes in currency, it takes us a little bit longer to over -- kind of offset that.

But in general we do follow a hedging policy across most currencies, and it's a rolling forecast type of currency.

So, I think that --

Denise, I would add the same with raw materials, commodity, base metals, and things like that that we hedge.

It's -- our philosophy is to take a rolling 12- to 18-month view where we're always hedging, if you will.

It's not to guess the market.

It's to smooth out the volatility.

So when base metals are going up, we're generally under the curve for a while.

When they are going down, we may be above the curve.

But on average, we smooth it out.

Okay.

And if I heard you right, you said that you expect to see a $50 million benefit from raw materials this year?

That's correct.

Yes, that's everything, including the base metal hedges.

Got it.

Thank you.

Our next question is from David MacGregor.

Your line is open.

Yes, good morning.

And congratulations on a great quarter.

Good morning, David.

Just on Europe, stronger performance there than I had anticipated.

I'm wondering, you've done such a nice job at the analyst meeting of quantifying the whole synergy expectation over the next few years.

Is there any way you could quantify for us the extent to which synergies were realized in Europe in the fourth quarter?

David, it's Marc.

First of all, I'm pleased to hear we gave you a positive surprise.

But let me also reiterate a little bit of what I implied in the earlier comments.

Europe generally has a stronger seasonality in Q4 than, for example, North America.

That is on our base business coming from essentially two elements.

That's because you have more small domestic business, which you know is very profitable for us.

And you have much higher microwave sale, which is also very good business for us.

On the Indesit sides, Russia more than any other market is a strong Q4 market.

So you put the three things together, you should always expect that with Q4 revenues and operating margins in Europe in generally higher than the full-year average.

Don't extrapolate too much from Q4.

In addition, very frankly, it's been a mixed bag of ins and outs in Q4, which is normal with such an acquisition.

Having said that, we're very pleased with the ramp-up, both of the transaction integration and with synergies, and we are at this point very confident that we fully deliver, or over-deliver with synergies which were presented at the investors' day.

But David, I would just add, and I think we talked about in the Q&A as well, those synergies, as Marc said, are on track.

It's moving very well.

But the net effect is probably you're going to see the full synergy delivery Q2 onward.

Because again, we're still forming the organization and doing all the things in Q1.

And there were actually very little, if any, synergies in Q4.

Okay.

That was my sense, but it's nice to hear you say that.

Where do you think your capacity utilization rate is today in Europe?

David, it's, again, that's a very blended average and it all depends on how many shifts you run in different factories.

But I would say, particularly with the acquisition, we have ample capacity to fill these factories, to put it this way.

So, I mean, it's clearly below over 75%, if that's the question.

Right.

Okay.

That's helpful.

Then is there any way you can quantify the organic growth in Europe in the quarter?

David, again it's Marc.

It's a mixed bag because of the acquisition (inaudible), but let's say both businesses had underlying organic growth.

Okay.

And then last question.

Just CapEx is guided to $800 million to $850 million for next year.

Is that the new normal going forward?

David, certainly for now we feel good about that number.

That includes obviously the acquisitions, which had their own capital spending plan.

We do have a lot of product innovation, and we do have a fair amount of capital supporting the integration of these things.

So what we've guided to is 3.5% of revenues is a good benchmark.

Could be a little higher, could be a little lower.

And of course on a much larger revenue base, that gets you to $850 million.

Great.

Thanks very much.

Our next question is from Ken Zener.

Your line is open.

Good morning, gentlemen.

Good morning, Ken.

Europe.

The 6%.

The last time you were there was 2007, and then the preceding year, so it was 2007.

So it was actually third quarter was your higher seasonality.

Understanding the comments around 4Q relative to your fiscal year guidance in Europe, could you talk to how we might think about the European countries being a little different in terms of the retail rhythm, if you will?

So in 4Q in the US, you highlighted discounting.

Does that happen as prevalently in some European countries?

And when are you going to be having -- when is it normal to have the discussions with the retailers relative to your floor space in the retail market there?

Okay, Ken.

It's Marc Bitzer.

Without revealing too much competitive information here, but that discussion probably take an hour or so.

Let me, just by -- I would say in general you have in Europe, because of the country fragmentation, probably less of a holiday impact or promotional impact.

It's a more steady state business, in general terms.

Despite trends like UK has started Black Friday sales and that kind of stuff.

But in general, you don't have the spikes over promotional holidays.

I would say you have a very competitive environment period overall.

And you got to work through mix and the other tools to generate margins.

So I think the strongest country seasonality you see in Europe is still Russia, which has a very strong Q4 business.

That's long historically.

The other markets are reasonably balanced.

And if you see with seasonality, it is more driven by our product mix, which sometimes is stronger or weak in certain quarters.

Okay.

And then kind of the housekeeping question.

But just what's your interest expense?

And then your guidance for Asia obviously includes two distinct regions, China and India.

I apologize if I missed you breaking the growth rates for those two regions out.

Thank you.

Ken, interest figure, around 190.

And we said growth rates, China would be around flat and India will be up couple of points, 3% to 5%.

Thank you.

Our next question is from Sam Darkatsh.

Your line is open.

Good morning, Jeff, Larry, Marc and Mike.

How are you?

Sam, good morning.

Two or three, just clarification questions.

So the EMEA EBIT in the fourth quarter was considerably better than what you were suggesting it would be in the analyst day slides, at least by my math, by $75 million or so of EBIT or so.

I'm trying to understand what the positive variance was due to.

Was it because that you were much quicker with the price increases than perhaps you were giving yourselves credit for back in mid-December?

Or is it the synergies?

Or what was the specific derivation of that magnitude of a positive variance?

Sam, it's Marc.

As you know, at the investor day we gave a revised guidance which took all aspects into account.

But from what I recall, we didn't break it down in Q4 guidance by region.

Having said that, the synergies to Jeff's earlier point are smaller factor in the Europe Q4 numbers.

There has been a good underlying business and a couple other factors playing to it.

But it was a strong underlying performance, which frankly we're very proud of because typically in these kind of acquisitions you would expect more disruption, more volatility.

And the team managed them, both sides of the equation very strongly.

And the other thing, Marc did share today, for the full year we expect 4% to 5% operating margins.

That will ramp up quarter by quarter for two reasons.

One, just first and foremost, is seasonality.

I mean, Marc talked about that before, but the lowest volume quarter is Q1.

Then Q2, Q3, and Q4.

Q4 should, in normal circumstances, always be the best quarter.

And then on top of that for this year our synergies, which are significant, will largely be ramping up at kind of a run rate level beginning Q2 onward.

So we're happy with Q4.

I hope these levels of EBIT in the future are a norm, not an exception, as you pointed out.

And that's really the path.

But Q4 should always be the highest margin quarter.

I would just add, Q4 relative to competition, our margin in Europe was pretty much in line with what we've seen elsewhere.

And just a follow-up question or two here, if I could.

Hefei on a pro forma basis, was that business up, down, and to what extent?

The Hefei business was slightly up in their own, if you will, the stand-alone business in Q4.

We expect that to continue.

As you know with the Whirlpool business, we were going through -- we had destocking through the year.

We then started in the November timeframe to floor new products.

So we expect that business to start ramping up in the course of 2015.

And final question, if I could.

Larry, do you have what the Company-wide gross margin would have been, excluding a lot of the deal-related costs that were broken out in the adjustments?

Margins, gross margins would have been, Sam, probably about 1 point higher than what you're seeing on a GAAP basis.

And that's because you've got BEFIEX credits and some purchase price accounting adjustments in COGS.

It would have been 1 point higher year on year, or a point higher than the reported number?

It would have been 1 point higher year over year.

Okay.

Thank you very much, folks, appreciate it.

Our next question is from Eric Bosshard.

Your line is open.

Good morning.

Good morning, Eric.

Two questions.

First of all, in terms of North America, I think your units were up 6 in an AHAM up 8.5 market.

I know those are slightly apples versus oranges.

Could you talk about how you view your market share performance in 4Q and how you think that performs in 2015?

Eric, it's Marc Bitzer.

First of all, as you pointed out or implied already in your question, as you know, the public AHAM numbers are not comparable to unit numbers which we compare.

One is because it's (inaudible) and we also report a lot of other units in there.

Second of all, in our unit number we also have Canada, Mexico, and in particular these markets with such strong currency moves, with also a lot of volume volatility.

So it's not fully comparable.

Having said that, I would say our market share, first of all, on a full-year base was basically stable.

On the Q4 base, in the products which we talked about, stable to slightly down.

And the slightly down came largely from our lower participation over the holiday sales, due to reasons which I mentioned before.

And, of course, where these promotional holidays where we talked about, we do lose share during those periods of time where we choose not to participate because of value-destroying actions by certain competitors.

And then typically when those promotional periods go -- we come right back up.

And that's our full expectation, just like it's been for the last three years.

Inasmuch as you have visibility into 2015, into the promotional intensity and plans from your customers and perception on your competitors, how do you think that plays out in 2015?

And then also again, how do you think your market share performance behaves in 2015 after you framed how 2014 played out?

Eric, it's Marc.

It's of course difficult to impossible to predict the promotional environment, because it's driven by many factors.

Our market share objectives are not to lose market share, clearly.

They have to come through stronger and better products, not through more aggressive promotions.

Okay.

And then secondly, you indicated 4Q, I think perhaps Larry or one of you, that 4Q was a little bit better than you had expected.

Can you just give a little more detail of what performed better than you had thought in 4Q?

Yes, Eric, I said we were slightly a little bit better.

I did mention the tax rate.

Base business came in relatively close in total to what we expect, just slightly better.

And our European business was better.

Right.

And, sorry.

To follow on to that, the Europe comments, was this the underlying market is better?

That the acquired business is performing better in terms of its market share, or your existing business' market share?

What explains the Europe, do you believe?

Eric, it's Marc.

I think it's a combination of all the factors.

The market were slightly better than we anticipated, but I would only say slightly.

Our internal performance, again on both sides of the business, was actually very strong.

Okay.

That's helpful.

Thank you.

Our next question is from Michael Rehaut.

Your line is open.

Thanks.

Good morning, everyone.

Good morning, Michael.

First question, just to clarify some earlier comments.

Marc, when you mentioned that roughly speaking in the fourth quarter North America, the product transition costs, the currency, and the raw materials each was about a $20 million impact.

How does that affect the movement into first quarter?

You said you expect raw materials to subside, but would the product transition costs and the currency continue or intensify?

Michael, let me just repeat also what I said earlier.

I do expect the currency issues to still be with us.

If you follow the Canadian dollar and the Mexican peso, it's gotten worse.

Now we -- what helps is on the mitigating side, we have a previously announced price increase in Canada for January.

But of course, now the currency moves again.

So in a certain way, it's the same issue still around us.

The raw materials, we do not expect in Q1.

And the transition will be to a slightly less extent, but it's not going to be completely behind us.

Okay.

So would that result then, I know you don't like to go into quarterly margin guidance by region, but given the range of -- that you gave for the full year for North America, would that result in perhaps 1Q being a little bit below the low end of that range and improving throughout the year?

Is that a right way to think about it, at least?

Michael, it's Larry.

Let me just speak in general for the Company as far as margin progression goes.

We talked to currency being a headwind more in the first half than the second half.

We talked about synergies building, productivity building in the second half.

What you're going to see is margins expand more in the second half than they do in the first half.

And I would just add onto that.

It's again, there's a lot of changes in the environment.

That's not new.

We tried to frame the comments around currency, that currency happens immediately.

And we adjust.

We adjust through cost, we adjust through pricing, and so on.

In some markets, it ultimately has an impact on demand.

So we have to adjust for demand.

So kind of my view, or the view I would take today, is that the currency stuff that's happened has already happened.

So it's having an immediate impact.

The material costs have been coming down.

So that's, as Larry pointed out, is a partial offset.

Our productivity will ramp up throughout the year, as it normally does.

And then we have taken, in some cases, new pricing based on these currency moves.

And then lastly in our case, our synergies largely ramp up Q2 to Q4.

So not all these things happen at the same time.

There is some volatility on our results because of that.

But I think the view Larry gave about full-year guidance confirmed.

And a 40/60 split is our best view of it right now.

No, that's perfect.

Understandable.

Again, just trying to understand the context quarter to quarter.

So thanks for that.

Second question, just on North America overall in terms of 2015, you mentioned the 4% to 6% on the industry.

Given if the promotional activity, just for argument's sake was similar in 2015 versus 2014, would you expect your volumes to be in line, above, or below that number?

Michael, it's Marc again.

Let me first of all clarify.

This is not specific comment to 2015, just a general comment.

Typically promotional activity doesn't increase the full-year demand, contrary to what many people may believe.

It just pulls demand forward in a certain time period.

Having more or less promotional intensity will not drive more [end on] consumer impact.

So [Mike] has already the question, but the dynamic for the market comes largely from overall strong consumer confidence, existing home sales, which is one of the strongest drivers in our appliance demand, and new homes.

And then I would only add in, and the promotional activity has, as Marc said, it probably -- it did worsen.

And the areas where we've seen dumping in the past is there, as we continue to see it.

Well, that's -- again, to everybody, this appears to be the last question that we had.

Thank you very much for joining us today, and we look forward to updating you at our next earnings call.

So thank you very much.

This does conclude today's program.

You may now disconnect at any time.