惠而浦 (WHR) 2015 Q1 法說會逐字稿

Good morning, and welcome to Whirlpool Corporation's first-quarter 2015 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, Mr. Chris Conley.

Please go ahead.

Thank you and good morning.

Welcome to the Whirlpool Corporation first-quarter 2015 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 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 10-K and our other periodic reports as well as on slide 1 and in the appendix of this presentation.

Turning to slide 2, we want to remind you that 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 that the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations.

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

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

Good morning, everyone, and thanks for joining us.

In the press release this morning, we reported strong revenue growth in our earnings performance for the first quarter.

To date, our integration activities in Europe and China are on track, and we continue to see substantial value creation opportunities in these regions through synergies and growth.

During the quarter, we did see significant movements in global currencies and a very negative demand environment in Brazil.

But, our larger global operating platform helped to offset most of these issues, and we've deployed a series of new actions which are expected to deliver margin expansion in the second half of the year.

We'll review these details -- or these actions in detail during our regional reviews.

Turning to slide 5. In the quarter, you can see we delivered strong revenue growth.

Excluding the impact of currency, our revenues were up 23% on a year-over-year basis.

As expected, our free cash flow was lower compared to last year, primarily due to seasonal working capital requirements related to our acquisitions.

Our ongoing business EPS came in at $2.14 a share compared to $2.20 last year.

Again, primarily due to the negative impact of currency devaluations and lower demand in Brazil.

As a result, we are revising our 2015 earnings guidance which we show on slide 6. Our revised GAAP to EPS is down $9 to $10 per share.

Our ongoing business operations EPS is down $12 to $13 a share, and free cash flow is approximately $700 million positive for the full year.

On slide 7, you can see the combined impact of that these environmental changes had on our business, and it's expected to be approximately $2 per share.

Within this environment, we expect our first-half results to deliver earnings per share that are approximately flat on a year-over-year basis.

And, as a result of the new actions implemented or in the process of being implemented, we expect to deliver margin run rates in the second half consistent with our prior expectations for the year which represents a substantial level of margin expansion from where that is today.

As shown on slide 8, we feel good about the progress we're making on our long-term growth strategy, which remains on track.

We continue to see multiple opportunities for both growth and margin expansion over the medium to long-term falling under three prime categories.

The first is our geographical expansion, and again, our integration plans are fully on track and already producing positive results.

Additionally, while emerging market is currently slow or weak, we still remain very confident there's a tremendous mid- to long-term opportunity in these emerging markets.

And, this, along with what we see as recovering demand in both the US and in many European markets.

The second area we're focused on is product and brand innovation.

We continue to accelerate our investments in the relevant technologies and innovative products which benefit our end customers.

This will ensure our future growth rate and margin expansion.

And, third, and very importantly, we will continue to leverage and right-size our fixed cost structure with volume growth which will lead to further margin expansion.

So, in summary, our strategy remains on track.

We will continue to deliver results and enable us to overcome short-term environmental challenges as we are seeing today.

Turning to slide 9, you can see that our business priorities for 2015 are fully in line with these growth and margin opportunities and remain largely unchanged for the year.

Our integration and activities in Europe and China will continue and are on track.

We have taken additional cost-based pricing and very strong cost productivity actions around the globe.

We do expect our investments in new products and growth beyond the core to continue to drive both revenue growth and margin expansion, and as a result, we expect to expand operating margins significantly during the second half of the year.

So, at this point in time, I'll move on to our regional details, and I'd like to turn it over to Marc Bitzer.

Thanks, Jeff, and good morning, everyone.

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

Net sales of $2.3 billion for North America were up slightly compared to the prior-year period and up 2.1% excluding currency.

It is now the eighth consecutive quarter of year-over-year revenue growth.

Our first-quarter ongoing business operating profit was $230 million compared to $228 million in the first quarter of 2014.

In summary, in an essentially flat market, we delivered strong margins in the first quarter, which confirms that our product transition and availability issues are largely behind us.

Turning to slide 12, our expectations for North America in 2015 remain unchanged.

With major product transitions now largely behind us, we expect to leverage these launches and drive margin expansion.

From a broader US market perspective, we believe the industry is on track for a multi-year recovery as evidenced by a recent increase in existing home sales.

In the first quarter, the industry was up 1%, and we expect the full-year industry to be up around 4%.

2015 did start out a little soft industry-wide largely driven by destocking at several major retailers, a somewhat slow start to the housing market, and what we believe to be a delay, not a reduction, in the ramp up of consumer spending.

In Canada, specifically, where we have a significant currency issue, we do expect that our recently announced cost-based price increases will help offset the market impact of currency devaluation.

As we speak, we are launching a new, commercially-inspired suite of KitchenAid appliances.

On slide 13, you can see our award-winning, five star refrigerator that features storage for easy access for family favorites, five customizable temperature zones, and a platinum interior option.

I will now talk to the first-quarter results for our Europe Middle East and Africa region as shown on slide 15.

Sales were $1.3 billion compared to $0.7 billion in the prior year.

While a significant portion of this growth was driven by the integration, it is important to note that we had underlying growth in both the legacy Whirlpool and Indesit businesses.

Ongoing operating profit was $35 million with ongoing operating margin at 2.7% compared to $7 million and 1% in the first quarter of 2014.

During the first quarter, positive volume, ongoing cost productivity, price mix, and accelerated integration activities more than offset the significant unfavorable impact of currency and lower demand in Russia, delivering another quarter of expanded operating profit and margin.

As we look towards the full-year 2015 on slide 16, our integration activities remain firmly on track, and we continue to drive margin improvement in the region.

For 2015, we expect the continuation of the euro zone recovery and the industry to be flat to up 2% for the year.

Demand continues to be strong in Western Europe, which is more than offsetting weaknesses we're seeing in Eastern Europe, most prominently in Russia and the Ukraine.

We have announced cost-based price increase in most Eastern European countries to offset the impact of currency, and we are well positioned for growth when demand returns.

In summary, we remain focused on accelerating integration activities, ongoing cost productivity programs, and growth throughout new product launches both within and beyond the core.

On slide 17, you can see our all-in-one countertop cook processor as an example of innovation outside of our core appliance categories.

It is designed to simplify the lives of our consumers, functionality to prepare entire meals and featuring six automatic cooking modes that guide consumers step-by-step through recipes for delicious culinary creations.

Now, I'd like to turn it over to Mike.

Thanks, Marc.

Let me begin with our Latin America results on slide 19.

Sales for the quarter were $899 million, down 24% from a very strong baseline in the same prior-year period primarily due to unfavorable currency and reduced demand in Brazil.

Excluding the impact of currency, sales were down 11% from the prior-year period.

Our ongoing business operating profit for the quarter totaled $59 million, or 6.6% of sales compared to $109 million and 9.2% in the prior-year period driven largely by the factors mentioned earlier.

On slide 20, we want to provide additional detail on the macroeconomic picture in Brazil.

Throughout the first quarter, the demand environment in Brazil weakened rapidly.

Inflation, unemployment, and consumer confidence had a significant impact on demand which was down 16% in the first quarter.

While these macro changes are significant, it appears that the economic crisis has been initiated by the political crisis in the country, which is having a strong impact on consumer sentiment in the short-term.

We continue to believe that Brazil's long-term attractiveness remains intact.

As shown on slide 21, if you look at the last 14 years of GDP, Brazil has shown a strong capacity to rebound from downturns, and we believe that the country as a whole has a positive long-term outlook.

On slide 22, we have taken strong and decisive actions to offset this rapid demand decline and currency impacts.

We have executed and announced new cost-based price increases that become effective early in the second quarter.

Additionally, we deployed strong actions to reduce our fixed costs, which included a significant work force reduction and production shutdowns to control our inventory levels.

It is important to note that while we have taken these strong actions, we will not see their full impact until the second half of 2015 at which time we expect to deliver operating margins in line with our prior expectations.

We have adjusted our 2015 industry guidance for Latin America to down 10% to 12%.

In summary, we expect to expand margins in the second half similar to our prior expectations while we continue to operate in a more challenging environment in Brazil.

Turning to slide 23, we launched a new Brastemp laundry product with an easy visibility glass lid and multiple color options that is designed for top performance in cleaning, bedding, and larger items.

Now, turning to our first-quarter results in the Asia region, we are -- which are shown on slide 25.

Net sales of $378 million more than doubled from the prior-year period primarily due to the integration.

Consistent with our expectations, we are on track with the integration process and have delivered ongoing operating profit of $26 million compared to $5 million in the prior-year period.

Ongoing operating margins were 6.9%, up significantly compared to the prior year period behind continued strength in India and our expanded China growth platform.

Turning to slide 26, we continue to see favorable macro trends in India and relatively neutral macro trends in China.

Our industry guidance for Asia as a whole is up 1% to 3%.

In summary for 2015, we expect significant growth from our integration activities, continued strength in India, and as a result, strong margins from our larger growth platform.

On slide 27, you can see our new entry-level refrigeration product for India.

It features rapid cooling and ice-making technology which has been well received by consumers.

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

Thanks, Mike, and good morning, everyone.

Let me start with our first-quarter results on slides 29 and 30, and then I'll discuss guidance for the year.

As Jeff mentioned, we had record net sales and ongoing operating profit during the quarter.

Our revenues were $4.8 billion compared to $4.4 billion last year, an 11% increase.

The business performed well given rapid changes in global currencies and a weak demand environment in Brazil.

Currencies, which have weakened double digits versus the dollar year-over-year, impacted our revenues by over $500 million, EBIT margins by just under 2 points, and earnings by approximately $0.85 per share.

Despite significant currency headwinds and a weaker-than-expected demand environment, the Company delivered solid ongoing earnings of $2.14 per share down slightly from the $2.20 reported last year.

The diversification of our regional profit contribution and the combination of positive price and mix, cost and capacity reductions, productivity, and benefits from our acquisitions offset most of the headwinds we discussed.

You'll note that Interest & Sundry increased $30 million compared to the prior year, and this is primarily due to fluctuations in currency.

Additionally as shown on slide 30, on a GAAP basis our effective tax rate for the first quarter was lower than our full-year guidance, however the ongoing rate was 24%.

And, we expect our full-year tax rate to be between 22% and 25% percent for both GAAP and ongoing earnings.

Turning to slide 31 relative to the guidance we provided in our last earnings call, we are revising ongoing business EPS guidance to $12 to $13.

This will represent a 10% improvement in earnings compared to last year.

Our expectations for 2015 free cash flow are now approximately $700 million.

On slide 32, let me make some additional comments regarding the challenging macroeconomic environment and actions we have taken to mitigate the impact.

Our revenues year-over-year will be reduced by approximately $2.5 billion due to currency, and we are now expecting a $500 million year-over-year impact to EBIT, which is $150 million higher than our previous guidance.

This includes transactional currency of approximately $330 million, which impacts our margins, and translational currency of $170 million.

Additionally, we expect approximately $100 million impact due to the recent weakened demand environment in Brazil.

Combined, these two factors will lower our current earnings by approximately $2 per share from our previous guidance.

We view this earnings reduction as concentrated in the first half of this year.

We expect to fully offset these headwinds and return to the second-half run rates we previously expected.

As Mike and Marc discussed, we have taken further accelerated actions through cost-based pricing, cost productivity, and integrations synergies to mitigate these impacts.

When combined with the actions we had previously communicated, we now expect to deliver $700 million in EBIT improvement on a year-over-year basis to offset these headwinds and deliver a 10% earnings improvement.

We have demonstrated over the past few years that we can offset significant cost headwinds and improve our margins and earnings.

On slide 33, let me make some additional comments regarding regional operating margins in our earnings expectations.

Given the fact that significant volatility in currency and demand have an immediate impact on our results and the cost and pricing actions we are taking build throughout the year, we would expect first-half margins and earnings to be relatively flat with the prior year.

We do expect strong second-half margins and earnings given the normal earnings seasonality of our business and the benefits from actions we have taken.

As we previously discussed, 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.

In North America and Europe, we expect second-half demand growth and the continued price/mix benefit from prior-year product transitions and our new product launches.

Previously announced price increases as well as a ramp-up in acquisition integration synergies in Europe will also improve second-half results.

Both of these regions remain on track.

For Latin America with recently announced price increases, fixed cost reductions, second-half product launches and actions to lower inventories to current demand levels behind us, we expect to restore margins to our prior expectations in the second half.

We expect that Brazil's demand weakness and currency impact to result in lower margin expectations for the region on a full-year basis.

Asia is on track, and we expect continued integration progress from our acquisitions in China as well as continued strong performance from India.

In summary, we expect margins to accelerate in the second half as our previously announced cost-based pricing, ongoing cost productivity, and price/mix benefits ramp up to more than offset the negative currency impact.

On slide 34, you can see additional detail on how we intend to deliver ongoing business EBIT margin expansion with a very balanced approach.

On slide 35, you can see an update on the progress of our integration activities in Europe and Asia.

We incurred $33 million in restructuring expense and $30 million in benefits during the first quarter which was consistent with our expectations.

For the full year, our acquisition and restructuring activities are on track, but we expect $300 million in expense and $175 million in benefits consistent with our earlier guidance.

Benefits will be more weighted towards the second half of the year.

As we continue to grow revenues and improve margins, we have solid priorities to deploy the cash generated from our business as shown on slide 36.

Recently, we announced an increase in our quarterly dividend by 20% reflecting our confidence in the continued strength of our ongoing business.

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

Now, I'd like to turn it back to Jeff.

Thanks, Larry.

Let me sum up by saying we certainly are addressing the short-term challenges we see throughout our business, but as I mentioned earlier, the priorities that we have to the business have not changed.

We're focused on successfully integrating our European and Asia acquisitions, which are on track.

Additionally, we do expect revenue and margin growth from our innovating new product launches that are in the market today.

I feel good that we've deployed very specific actions to address the current challenges and position us well to expand margins in the second half of the year.

Our long-term growth strategy certainly remains on track, and we're making great progress towards this as we do continue to see multiple paths to profitable growth throughout our business.

And, we certainly haven't changed our mid- to longer term value creation expectations.

Overall, these growth plans do provide us with an outstanding opportunity to continue delivering significant shareholder value.

So, with that, I'd like to conclude our formal remarks and open this up to questions.

(Operator Instructions)

We can take our first question from David MacGregor with Longbow Research.

I guess just to talk about Latin America for a second, certainly be a focal point today.

I wanted to see if you could address, to the extent you can, the discrepancy between your competitor that announced 2% organic growth in Latin America this quarter and your negative 11%.

I realize you're up against a pretty tough comp from a year ago.

Can you help us understand that?

Was Embraco a factor there?

Maybe to the extent you can add some color, it would be helpful.

Yes, David, it's Mike Todman.

I'll talk about our business in Latin America and what we saw in the marketplace.

We saw a market that it was dramatically down and significantly from where we thought it was going to be when we entered the year, and what we saw was that volatility, and really throughout the first quarter.

So, what did we do?

We took immediate action to lower our production levels to make sure that we were producing in line with where the market demand was.

What we also saw was that some of the trade partners had too much inventory and so started to destock, so that had an impact on overall volumes.

I could only comment on where our volume was and what the impacts were, and those were largely the significant impacts for us.

David, this is Jeff.

I would add to that as we've talked in the past, there's -- we subdivide our Latin America business into four elements.

Our global compressor business which I would say is on track.

Obviously, currency translation affects everything.

In terms of the fundamental business, it's on track.

Our -- what we call our international appliance business, all of our appliance business in the 30-some-odd countries outside of Brazil is off to a good start.

Our extend and expand categories within Brazil continue to grow very rapidly.

So, the heart of our challenges really has to do with the core appliance business in Brazil.

And, there -- the issues Mike explained very clearly.

The market was down over 20%.

We certainly have the currency, the valuation of almost over 40%, and then we still have the issue with inflation which is relatively high in that country.

I think we understand the dynamics of our business very well.

A big part of our business is the core appliance business.

That's what's under pressure right now.

I feel good about the actions we're taking to get it, at least, the margin stabilized.

Demand is going to be whatever demand is, and we think that's a nearer term problem, but will be with us most of the year.

Just a follow-up question would be with respect to the guidance of down 10% to 12% for the industry for the year.

In the second quarter, the comps start to get decidedly easier here as you're up against the World Cup from a year ago and then the presidential election the second half.

It seems as though you go from a very difficult comp situation 1Q to a much easier comp situation.

I'm hesitant to use the word easier, but easier nonetheless, over the balance of the year.

And yet, you took your guidance down substantially.

Do you expect that you'll still -- against those easier comps still have a 10% challenge as the year goes on?

Or, how does the cadence play out?

David, it's Mike again.

What we're seeing right now is still lower demand even starting in the second quarter.

So, we expect demand even though those comps are a little bit easier to continue to be down in the second quarter, and then we see a relative improvement, although still negative, but down in the third and the fourth quarter.

And, that's exactly what we're experiencing.

Remember, a lot of these comps in demand is based on consumer sentiment, and as we said, there are some issues in Brazil in the overall political environment, which are impacting.

Which won't necessarily resolve just in the short-term.

So, that's how we've come to the 12%.

We still see second quarter being challenging and slight improvement in the third and fourth quarter.

We can take our next question from Megan McGrath with MKM Partners LLC.

Please go ahead.

Good morning, thanks.

Obviously a lot of questions.

Just one of the moving parts here, could you just give us a sense for when we're watching things going forward as to when you lowered your guidance what date you took the FX at?

Things are moving pretty quickly.

Just so we can track going forward.

Was it this week?

Was it last week?

At the end of the quarter?

Megan, obviously, the currency has moved a lot.

I'd say we're using recent rates that we're seeing in the currency markets around the world.

As we did during the last call.

And, as we've seen currencies move, we've taken actions to improve our business in specific areas like price increases and cost reduction.

Because of the fact that currencies are relatively immediate, the benefits that we get from these actions will build over time.

But, essentially, to answer your question, we use very -- the rates we're using are very consistent with what we've seen over the last -- in the very near-term.

Okay.

Great.

And then, a follow-up on your guidance, could you give us an update on what you're assuming from commodities?

Because we have seen still prices also continue to decline.

Yes, I would say, Megan -- this is Larry.

I would say our guidance last time was about $50 million of deflation.

We're seeing -- at current rates, we're probably closer to $100 million.

But, I would say currencies especially in some of the emerging markets around the world are obviously having a negative impact and reducing the benefits of that.

But, certainly, what we're seeing trend-wise, material costs have been favorable.

I would expect that the benefit from that would be more back-half weighted than first-half weighted.

Megan, I would just add to that, you talked about the moving parts.

If you really step back and look at our global business, we spoke the two negatives which are, globally, currency but really a handful of currencies in particular.

The euro, the [real], the Canadian dollar, and the ruble are probably our four most impactive currencies.

They have moved significantly.

And, the other we talked about demand, and the only place where we're largely different in demand that we thought is Brazil.

Those are the two negatives.

On the positive side, we feel really good about the rate of integration that's going on to date.

That's very positive.

The new product transitions that we had some challenges with in the last couple quarters is behind us, and now we actually have the benefits of having those in the marketplace.

And, for the full year, our ability both through our cost productivity, our synergies, and our integration benefits, our cost position will improve radically as we go throughout the year.

So, as we look at it, it's really have we adjusted the business to the current range of currencies and demand, and I think the actions we've taken to date, or are putting in place in the second quarter we have.

And, that's why we feel good about our ability to get our margin run rates at an accelerated level in the second half of the year.

Great, thank you.

I'll let others get on.

Thanks.

We can take our next question from Sam Darkatsh with Raymond James.

Please go ahead.

Good morning, Jeff, Larry, Marc, Mike.

How are you?

A couple of quick questions.

Raising prices in Latin America in the face of demand deterioration.

Obviously, there is some benefit to how appliances are sold from a pricing standpoint in the country.

But, how concerned are you about elasticity of demand perhaps making things more challenging for the consumer down there would be my first question.

Sam, it's Mike.

The reality is we've raised prices every time we need to based on the inflation and the environment, and right now, we're focused on expanding our margins.

Getting our margins back to the level that they need to be.

The fact of the matter is there is a level of demand that stays there, and that we're relatively confident in the demand outlook that we've given.

In that, having our price increase won't have a material impact on that.

Sam, I would add to that -- if you look at our price increases, they're at or below the overall level of inflation, one.

Two, we're taking just as hard actions on the cost productivity side, so ensuring that our business is competitive every day.

And then, the third thing is we don't believe in selling products at a loss, and so restoring the margins is critical in -- . I think all the things going on in Brazil recently politically, et cetera, has shaken consumer confidence.

That has more of an impact than absolute pricing levels, particularly when you consider virtually everything in Brazil is bought on installments, and it's a cost per month.

Therefore, that's usually not the factor.

Next question, and I recognize this is patently unfair because your visibility four months ago is going to be different than now, and I'm going to be asking you a question about four years from now.

But, regarding your 2018 expectations, you are expecting second-half 2015 stabilization.

Should we reset the base year lower now?

And then, it assumes similar growth rates from there?

Or, does that $22 to $24 goal still hold without making it a stretch goal?

Sam, the way I'd answer that, everything we talked about at our investor day in our strategy remains impact.

We have a different environment in a couple of dimensions right now.

We do view this as -- certainly, we've been through ups and downs in Brazil demand before.

And, we think -- we're still -- believe over the mid- to long-term we're going to like the growth rates in Brazil.

Currencies you adjust, and we are adjusting very rapidly.

As I said maybe it wasn't clear enough, but there's nothing that has happened to date that would cause us or give us pause as to the targets that we outlined for investors last December.

And, final question, Larry, if you could help.

Do you have the breakdown of the organic units growth -- or change year-on-year in Europe and Asia?

As Marc, I think, mentioned, units -- both the acquisition was up in units and the base business was up in units.

And then, I think on the Hefei side we were up slightly.

So, in line with the industry in both counts?

At least in line.

Yes, Europe were better.

At least in line or better.

China the same.

Yes.

Okay.

Thank you.

You're welcome.

We can take our next question from Denise Chai with Bank of America Merrill Lynch.

Please go ahead.

Okay, thank you.

Could I get some more color on the $100 million benefit from raw materials?

What commodities do you see benefiting you the most?

And, is it your expectations that you will be able to keep all of this benefit?

Or, that it would be partly competed away?

Yes, Denise, I think the whole basket of commodities have been stable to lower.

Whether it's -- again, it depends by market because -- and again, I don't want to get into complexity here.

But, currency outside of the US dollar-denominated is -- does have a negative impact.

So, for example, globally in US dollars we've seen commodity prices go down.

That does not mean they go down in local currencies.

In fact, in Brazil, we have again with the 40% valuation, we have a huge increase in local currencies.

But, at a macro level, globally steel is a little bit lower year-over-year.

Hydrocarbons are lower.

Therefore, you see plastic prices, and although we hedge all the pure commodities, the commodity trend has been going down.

We're probably above that trend right now because of hedges, but over time, it just smooths it out.

So, $100 million-plus or minus is not a lot in the global business.

I would just say this is the first time in absolute dollars that we might actually have lower our raw material costs in over a decade.

But, on the other hand, we have a lot more than that in currency impacts as it relates to materials.

So, yes, I don't see it as a big game changer either way other than it won't be a drag against our productivity numbers this year.

Okay.

Got it.

And, just a follow on on that.

Can we get an update then on the North American part of the situation?

I'm just wondering if the strong dollar would be encouraging more discounting by your foreign competitors?

I guess from what you're saying those US -- in local currency, commodity costs have also gone up.

Denise, it's Marc, and I'm trying to answer your question.

First, of all on the cost base in North America.

On the cost base in North America, yes, it is true.

We're starting to see raw material tailwinds.

As you may recall, Q4, when we said that, that would be the last quarter where we had headwinds, and now it's slightly turned.

We have some modest benefits in raw material which we expect to build and that added with cost productivity actions helps us improving our cost situation.

I presume your second question was related more to the promotional environment?

As you know, we were a little bit somewhat concerned about the heightened level of promotion in Q4.

I would say Q1 was what I would describe more back to normal levels.

Okay.

Got it.

Thank you.

And, just last one, you've reduced your CapEx guidance.

Are there any projects getting pushed out to 2016?

Or, what' has changed there?

You shouldn't think that any changes -- just, again, on currency in US dollars we're going to have lower CapEx with the same projects.

Okay.

Understood thank you.

Our next question comes from Ken Zener with KeyBanc Capital, please go ahead.

Good morning, gentlemen.

Good morning, Ken.

Might have more than two questions for you.

When you talk about the first half 2015, I believe you were talking about flat EBIT.

Can you attribute how much of that would be to Brazil?

If it's most of it?

And then, what is that 10% unit decline in Brazil relative to where you were before in volume imply for LatAm margins sequentially?

Because I think the strength you're talking about in the second half specifically is related to LatAm.

You had previously a 9% to 11% margin range, so I'm just trying to make sure we're all on the same page for 2Q sequential versus what seems to be 9% to 11% on the back half.

Ken, let me try to answer this a little bit differently.

I think I understand what your question is, it's more half one versus half two-related.

We said we'd be relatively flat in the first half of the year, and we did a little under $5 a share in the first half of last year.

So, that would imply we'd do over $7.50 in the second half of this year.

There's probably about five factors that you need to take into consideration.

First, just the normal seasonality in the business.

Historically, results are -- we have higher volume in margins in the second half than we do in the first half.

If you were go back and look at the last three years, that's probably about $1.50 per share.

We've been talking a lot about the acquisition synergies.

Those will be higher in the back half of the year.

That will give you in order of magnitude probably $0.50.

Net cost productivity.

Combination of the cost takeout, the material cost trends we're seeing will be better in the second half as I mentioned, and you could get about $1 out of that.

And then, the enacted price increases and improved mix will be more weighted towards the second half based on the actions we've taken.

There will be a slight offset to that, and we'll just do the year-over-year currency impact will be higher in the second half than it was in the first half.

The business is larger -- has higher volume in the second half.

That's really the bridge that gets you between the first half and the second half.

And, Ken, this is Jeff.

I would add -- you talk about Latin America.

The challenges that we saw in Q1 which is currency, which is lower demand, and I would add inflation that has been persistent also causes us to reduce our production schedules which will continue on into the second quarter.

So, you should expect, the one part of the region in the world that's negative in terms of EBIT year-over-year, in Q1, it was Latin America, and in Q2, it will be Latin America.

Everywhere else is either modestly improving or improving a lot.

And so, what we're really saying is that -- those trends that you saw in Q1 will be similar in Q2, but in Q3 onward, we expect our margins to, albeit at a lower revenue level, will expand significantly in Latin America.

You'll see continued improvement with more cost productivity in North America -- well, in all parts of the world.

And, in the markets where we have -- which are Europe and China, where we have integration activities, those too will ramp up.

Q2 is going to look a lot like Q1, and you ought to see an acceleration because of those factors in Q3 and Q4.

I do, Larry and Jeff -- I do appreciate the details.

I'm just still trying to I guess hone you in on that sequential margin.

Because when you talk about a strong second half in LatAm, last quarter you provided regional EBIT guidance which was very useful, and if you could update that I think everybody would appreciate that.

But, it seems a big drag -- . (multiple speakers)

I would say the goals that we talked -- because we're not going to give quarterly or guidance on regional EBIT.

But, I would say this, though.

The goals we articulated haven't changed.

The one that has been delayed is Latin America, and you saw we were at 6.6%, so we went down before we go back up.

But, in terms of where we want to get to, that has not changed.

I would say everything else we expect to be tracking to those goals in the second half of the year.

Right.

Okay.

Taking a different perspective and then given the majority of the regions are doing well ex-LatAm.

Other companies have elected to use their balance sheet so you have a free cash flow that you're talking about should improve over time.

Can you talk about your willingness to use your balance sheet to perhaps offset some of these currency headwinds?

Whether it be by buybacks?

Or, what some of the constraints might be in your thinking that way versus many other companies to have elected to do that.

Ken, look, Mike mentioned that several actions that we've taken in Latin America to get our run rates back on track in the second half of the year.

This is timing between half one and half two.

We've -- as a Company if you look over the last several years, we continued to fund the business through capital spending.

That has averaged 3.5% a year.

We do have a targeted debt-to-EBITDA ratio of approximately 1 to 1.5 times.

You have to remember, today is the highest debt-to-EBITDA that we've had over the last several years.

And, that's primarily due to the acquisitions that we took on last year, and we fully expect to be back to pre-acquisition metrics by the end of 2016.

That has not changed.

We've also over the last several years repurchased over $1 billion of stock.

We're provided a dividend in the range of 25% to 30% earnings annually.

I just mentioned we just increased that.

And then, opportunistically, we've taken advantage of M&A.

I think all those actions combined have been reflected in the Company's stock price.

So, we're deploying the operational actions that we can do to return the business in Latin America back to the margins that we previously expected.

We will from time to time repurchase stock as well as balance the other opportunities we have.

So, our capital allocation decisions haven't changed.

I think we're doing a very well -- a well-balanced approach to it.

Thank you.

Thank you.

We can take our next question from Eric Bosshard with Cleveland Research.

Please go ahead.

Thank you.

The Europe margin performance in the quarter and the outlook through the year.

It sounds like the incremental cost saves and synergies you're talking about -- it sounds like you're affirming the $175 million, the same number that you've been at.

And so, the two questions -- one, how do you think about the progress of Europe margins 1Q relative to 4Q, and how the margins should behave through the year?

And then, secondly, as you're generating cost saves, your confidence in netting those cost saves to the bottom line as we work our way through the year?

Eric, it's Marc.

Let me try to answer your question.

First of all, the previous full-year margin which we gave as a guidance from the regional perspective was 4% to 5% for Europe, and we are 2.7% in Q1.

So, to answer it in short, we're fully confident that we are within that margin range.

You've got to bear in mind first of all in Europe, the seasonality in Europe is probably stronger than in other regions.

Q1 is typically, and if you go back the last 10 years, I think 9 of 10 years it's by far the lowest margin quarter.

Two, as we previously indicated, a lot of the integration synergies build throughout the year.

So, things which we -- actions which we either took already or announced in Q1, that starts to build in terms of synergies throughout the year.

So, take the normal seasonality, add the typical synergy buildup throughout the year.

We're very confident that we are exactly within that margin range.

And then, within that the second part of the question, the experience and, again, I understand you've owned the business for six months or seven now.

But, the confidence that you have in netting the saves to the bottom line?

Asked differently, how is the competitive environment there, the pricing environment?

How do you feel, and what are you observing within that?

Is that any different now that you've combined the two businesses?

Eric, on that point, keep in mind the synergies are unique to us.

It's not industry-wide cost benefits.

These are unique to us.

Yes, we have a high degree of confidence that we can take them to the bottom line.

And, we've been pleased with the market -- combined market or performances.

They're running at or above the market in terms of volume.

Our price mix is stable, and so we fully expect them to fall at the bottom line.

All right.

And then, if I could just follow up on Latin America.

Two questions there.

One, what were your units in Brazil down relative to the market that sounds like was down [16 to 20], is the first question.

Then, secondly, the inventory situation in Brazil, yours and the channel?

Did you exit the first quarter back at normal?

Or, is that progress expected to be made in Q2?

Answer to the first question, Eric, we were slightly down more than the industry.

So, we did lose a little bit of market share in the first quarter, but, we felt good about where we were in run rates.

And, the answer to the second quarter is we expect some continued inventory reduction in the second quarter.

We think we'll be more normalized as we get through the second quarter going into the second half.

Okay.

Thank you.

Our next question will come from Michael Rehaut with JPMorgan.

Please go ahead.

Thanks, good morning.

First question, I was hoping to go back to slide 32 where you quantify on a full-year basis the currency and Brazil demand and the actions taken.

I wanted to try and look at that slide if possible thinking about it through just the incremental change from today versus three months ago when you gave your guidance originally.

I believe you said earlier, Larry, that there's an incremental [$150 million] negative impact between today and three months ago from the currency.

I would presume that the Brazil demand environment worsening that $100 million is also fully incremental.

And, if you could just confirm that.

And then, on the actions taken as you list the different categories there, what is just purely incremental versus three months ago?

I know you talked a lot about cost-based price actions, but if you could walk through the different buckets there?

Yes, Michael, versus February when provided guidance, we've made a $2 adjustment.

$1.50 of that is strictly due to currency, primarily the real and the euro.

And, the balance is related to the Brazil economic environment.

If you were to go back and look at our expectations for the year from a price mix perspective -- last time we said, I believe, we'd get about 1 point of price mix.

Now, we're saying 1 to 1.5 points.

We've taken additional pricing since the last call in Brazil, Canada, and Eastern Europe, so that explains that.

Cost and capacity reduction essentially remains unchanged from what we said for the full-year basis.

Ongoing cost productivity, material costs, we are seeing benefits from material costs versus last year, about 1 point.

But remember, we are taking out a lot of production to meet demand so we're still saying we'll get at least 1 point there.

Marketing and technology is essentially the same, and the big mover as I mentioned before was currency.

Now, we're saying -- I think we said 1 to 1.5 times last time, and now we're saying 1.5 to 2 times.

So, I guess taking it another way, with essentially your expectation that second half is unchanged from previous expectation, does that effectively -- in reference to an earlier question.

If you expect all these actions to come in fully and get you back to your prior 2H15 expectations, it would seem then that excluding any incremental again currency or demand-type shocks that it would get you back on track for those longer term expectations.

Is that fair to say?

That's fair to say.

Essentially what we've -- the actions we've taken in the first quarter and what we're doing here in the second quarter positions us well to get back on a run rate for the second half of the year that we expected originally.

Okay.

And, just lastly on this topic.

It seems like most of the offsetting actions are the additional pricing initiatives, but there's also a little bit of cost out in Brazil as well.

To offset that impact, is it really two-thirds additional cost-based pricing and one-third cost reductions?

Or, how to think about that mix?

Yes, Michael, it's -- I would say we're pushing hard on both, but the bigger factor is price.

But, we -- but I would say, we are redoubling our efforts on cost productivity in places like -- well, really everywhere.

But, particularly places like Brazil including significant structural changes.

We're not going to wait for the demand environment to get better, although we believe it will.

We're reducing fixed costs, head count, et cetera, et cetera, et cetera very, very aggressively because we've learned from being in the Brazilian market for 70 years that the faster you adjust to the new environment the better position you are even in recovery, and that's what we're doing.

All right.

And, just to make sure also, the acquisition synergies and the acquisition contributions expected this year, that has not changed at all?

In other words, there's no acceleration in any of those synergies or benefits?

Michael, it's Marc Bitzer.

Let me try to answer this for the European part of the acquisition.

The acquisition, as I said before, is firmly on track.

Actually, if you would peel back and look in euro-denominated synergies, we're even ahead of our original schedule and time line.

But, of course because of the euro-dollar translation, you lose some of that okay.

Net-net, even in dollars are synergy and synergy expectations are fully on track.

It's a complicated and complex undertaking, but we're fully in control and on track.

And, Michael I'd say that in Asia this China integration, we're fully on track with the expectations that we gave at the beginning of the year.

Great.

Thank you.

Thank you.

We'll take our next question from Jay McCanless with Sterne Agee.

First question I had, when you look at the $12 to $13 in ongoing EPS guidance, can you discuss what type of interest rate environment you factored into that guidance?

And also, what type of currency impact you factored into it?

Yes, Jay, from an interest rate perspective we're largely our portfolio right now is fixed.

We have a small maturity in May.

I would say that what you're seeing from a run rate in Q1 should be fairly close and indicative of what you'll see for the full year.

As I mentioned before from a currency perspective, the way we've set our guidance is recent rates that we've experienced in the key markets -- euro, real, Canadian dollar, Russian currency.

Hopefully, that answers your question.

The second question I had, if you exclude the one-time game from the curtailment, it looks like SG&A deleveraged by about 100 bips year-over-year.

Is that how -- should we expect deleverage going forward through the rest of the year?

Just so, we did have a curtailment gain, first one that was not in our ongoing results.

That is in our GAAP results.

The majority of that would have hit in the gross margin line.

But, from an SG&A perspective, apples-to-apples, if you adjust out pension settlements, acquisition-related transition expenses, this year and last year, we're really around 9.8% run rate compared to what we're reporting today about 10.3%.

Okay.

Great.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's Q&A session.

I'll now turn the program back over to Mr. Jeff Fettig for closing remarks.

Again, thank you all for joining us today.

We appreciate your questions, and we look forward to talking to you next time.

Thank you again.

This does conclude today's program.

Thanks for your participation.

You may now disconnect and have a great day.