惠而浦 (WHR) 2015 Q3 法說會逐字稿

Good morning, and welcome to Whirlpool Corporation's third-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.

Thank you and good morning.

Welcome to the Whirlpool Corporation third-quarter 2015 conference call.

Joining me today are Jeff Fettig, our Chairman and CEO; Vice Chairman, Mike Todman; President and Chief Operating Officer, Marc Bitzer; as well as Larry Venturelli, our Chief Financial Officer.

Our remarks today track with a presentation available on the investors 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 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 these 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 37, for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

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

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

As you saw in our press release this morning, we reported record revenue, ongoing operating profit, and earnings per share for the third quarter.

Our integration activities in both Europe and Asia continue to progress well, and we expect to continue to deliver significant integration benefits during the fourth quarter.

And during the quarter, our larger global operating platform enable us to offset continued volatility in the global economic environment.

If you'd now turn to slide 5, we'll look at our third-quarter results.

You'll see where we delivered strong revenue growth in the third quarter, with our revenues up 9% versus last year, and up nearly 25% if you exclude the impact of currency.

Ongoing business earnings were a record $3.45 a share, and, additionally, our free cash flow improved compared to the prior year.

On slide 6, you can see an update to our current-year regional margin expectations versus last year.

Here we expect substantial operating margin improvement and record performance in three out of our four regional businesses, those three being North America, Europe, and Asia.

These regions are clearly on track for the year, and we're making meaningful progress towards our 2018 goals.

In Latin America, and in Brazil specifically, we have taken actions to address the current market challenges.

And we expect to continue to adjust, as appropriate, to deliver margin improvements in this very challenging environment during the fourth quarter.

Turning to slide 7, we are outlining our current industry demand expectations for the full year.

Based on recent demand trends, we are revising upward our North America business to a 5% growth.

We are lowering our Latin America forecast to a minus-20% decline, and we're lowering Asia to a 2% decline, primarily coming from China.

Turning to slide 8, we are affirming the lower range of our previous guidance which reflects the current currency and emerging market demand levels.

We now expect to deliver record ongoing earnings of $12.00 to $12.50 per share and free cash flow of $600 million to $700 million for the year.

Globally, we continue to pursue opportunities for both growth and margin expansion, including leveraging our newly introduced innovative products in many markets around the world, executing on ongoing cost productivity programs, and delivering on our acquisition synergies.

So, in summary, we are making significant progress towards our long-range goals this year, despite a very challenging global economic environment with negative impacts of currency and emerging market demand.

But having said that, we do expect to deliver a record year of revenues and ongoing earnings, and earnings per share, along with strong free cash flow in 2015.

Before I move on to the regional sections, I would like to make a few comments on the leadership announcements we made earlier this week.

On Wednesday, our Vice Chairman, Mike Todman, has announced his planned retirement at the end of the year.

We also announced that Marc Bitzer has been promoted to President and Chief Operating Officer for our Company.

First of all, I'd like to take the opportunity to thank Mike for his more than 20 years of service to the Company, serving in a wide variety of global leadership roles.

Mike is leaving us with a strong legacy within our Company as an enabler of our global expansion, and he's had a very positive impact on our entire global enterprise.

Although Mike will be greatly missed, we all want to wish him the very best for he and his family in his retirement.

At the same time, I'm also very pleased to have Marc move into his new role.

And I'm confident that under his leadership, we will have a very positive impact as we continue to execute our long-term strategy.

So at this point, I'm going to turn it over to Marc Bitzer.

Thanks, Jeff, and good morning, everyone.

Let me begin on slide 10 by reviewing North America's performance in the third quarter.

Overall, we are pleased with our third-quarter performance, which included record ongoing operating margins of 12%.

As you might recall, at the beginning of the year, we provided ongoing operating margin expectations of 10.5% to 11.5% for the year.

And with this quarter, we have line of sight to deliver the top end of that range.

These very strong operating margins in the third quarter were primarily driven by our ongoing cost productivity programs and new product introductions, which more than offset nearly $30 million in unfavorable currency impact.

Our net sales of $2.8 billion for North America were unchanged compared to the prior year period, and up nearly 3%, excluding currency.

While we are pleased with our margins, we are obviously not satisfied with our top-line performance, which has been trailing the market for several quarters.

Up until now, our priority has been on the expansion of operating margins, and we are very pleased with the results of that execution.

Our focus in the fourth quarter and beyond will be on delivering strong margins while clearly accelerating plans to achieve our expected revenue growth targets.

And turning to slide 11, we outline our actions taken to continue delivering strong results in the region.

We believe the industry is in the middle of a multiyear growth cycle, which in combination with historically strong seasonal demand in the fourth quarter, positions us for record performance this year.

As mentioned previously, we expect to accelerate our plan to leverage the increasing consumer demand for our new products to drive improved price mix and volume growth in the fourth quarter.

And finally, we will continue to deploy strong cost productivity plans, as well as focus on growing outside the core.

On slide 12, as an example of our product leadership, you can see our new multi-door Whirlpool branded refrigerator.

This award-winning product has nine storage zones and is designed to keep food organized to each family's preference.

I will now share the third-quarter results for our Europe, Middle East, and Africa region, as shown on slide 14.

Sales were $1.5 billion compared to $0.8 billion in the prior year, driven by the acquisition and continued recovery in the Western European demand.

Ongoing operating profit was a third-quarter record of $71 million, with ongoing operating margins at 4.9% compared to $9 million and 1.2% in the third quarter of 2014.

During the third quarter, strong execution of our integration plans and ongoing cost productivity more than offset approximately $45 million in unfavorable currency impacts, primarily from the euro and the ruble, that delivered yet another quarter of significantly expanded operating margin.

Slide 15.

As we look toward the full-year 2015, our priorities remain unchanged, with a strong focus on integration activities, ongoing cost productivity, and growth from new products both within and beyond the core.

On slide 16, as an example of product leadership in the region, you can see our new Whirlpool branded washing machine and dryer.

These products combine precision cleaning with eco-friendly drying, and have recently won the prestigious European iF Design Award.

And now I'd like to turn it over to Mike.

Thanks, Marc.

Let me begin with our Latin America results on slide 18.

As you may recall on our Q2 call, we expected demand to be down 15%, and the real to be between 3 and 3.25.

During the quarter, the macro environment in Brazil further deteriorated with increased inflation, volatile currency, and lower demand.

As a result, sales for the quarter were $751 million, down 34% from the same prior-year period.

Excluding the impact of currency, sales decreased 7%.

Our operating profit for the quarter totaled $31 million, or 4.2% of sales, which represents operating margins consistent with our second-quarter results.

These results included a year-over-year unfavorable operating profit impact of nearly $40 million due to currency, and another $55 million due to reduced demand and lower production levels compared to prior year.

These were partially offset by favorability from our previously announced cost-based price increases and mix improvements from new product introductions.

On slides 19 and 20, we want to put our Latin America business in context by providing additional detail about Latin America and Brazil specifically.

Brazil's currency is experiencing the most volatile period in the last 10 years.

In the third quarter, compared to the prior year, the real devalued 55% versus the US dollar, which had an approximately $300 million negative impact on our regional net sales, and, as I mentioned earlier, a $40 million negative impact on operating profit.

Additionally, the deepening political crisis, increased inflation, and falling global commodity prices has had a profound impact on Brazil's economy; and, as a result, overall GDP is in the steepest decline since the global financial crisis.

On slide 20, we put Brazil's performance further into the context of the region.

It is important to note that our LAR International extend and expand businesses, as well as the global compressor business, are delivering solid performance this year.

And with the impact of this year's currency devaluation and demand reductions, Brazil now represents less than 10% of our global sales.

To improve our performance in Brazil, we have fully deployed previously announced actions, and those actions have partially offset the impacts of currency and demand in the third quarter.

We are prepared to take additional actions as necessary, targeting fixed cost reductions in the near future.

While we will be lower than our long-term margin expectations for Latin America, we believe we have the right actions to address the operating environment, and expect improved operating margin in the fourth quarter.

On slide 21, we summarize our current priorities in Latin America.

We are managing short-term challenges through previously announced and executed cost-based price increases.

We have fully deployed previously announced actions to reduce fixed costs, and have plans to deploy additional actions in the fourth quarter as necessary.

Finally, it is important to remember that while we are experiencing some short-term issues in Brazil, long-term fundamentals that will facilitate future growth in the country are still intact.

We continue to invest in new products, and will be well positioned to capitalize on growth when demand returns.

Turning to slide 22, we are showcasing the new Consul refrigerator that is designed with flexibility in mind.

It offers adjustable shelving and built-in containers that fit the needs of even the most demanding consumers.

Now I will turn to our third-quarter results in the Asia region, which are shown on slide 24.

Net sales were $346 million in comparison to $157 million in the prior-year period.

Driven largely by the strength of our integration actions, we have delivered a record third-quarter ongoing operating profit of $27 million.

Ongoing operating margins were 7.7%, up significantly compared to the prior-year period, behind the benefits of those integration actions and record gross margins in India.

Turning to slide 25, we will continue to focus on our integration activities in China, with a special emphasis on continued distribution expansion and ongoing cost productivity programs.

As a result, we will expect strong margin performance, driven by our larger growth platform.

On slide 26, we highlight our new Whirlpool refrigerator that recently won the Good Design Award for Excellence in Form and Function.

It offers food preservation with some of our most advanced moisture control and precision cooling technologies.

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

Thanks, Mike, and good morning, everyone.

Let me start with our third-quarter results on slides 28 and 29.

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

Our revenues were $5.3 billion compared to $4.8 billion during the same prior-year period, an increase of over 9%.

Currencies impacted our revenues by over $700 million, EBIT margins by 2 points, and net earnings by over $1 per share.

As a result of the actions we took in the first half of the year to mitigate currency and emerging market demand headwinds, we saw solid sequential improvement in both our margins and earnings during the quarter.

Our recent acquisitions have strengthened our global footprint and provide greater diversification of our regional profit contribution.

This, combined with cost and capacity reductions, ongoing cost productivity, and enacted cost-based pricing actions, enabled us to deliver all-time record ongoing earnings of $3.45 per share, despite weaknesses in emerging markets.

Allow me to make a few more detailed points on our financial results.

We adjusted our third-quarter ongoing earnings for $42 million, primarily to account for product warranty and liability expenses on heritage Indesit products.

In addition, we adjusted our opening balance sheet for the Indesit acquisition to reflect a warranty liability of approximately $275 million, with after-tax impact of about $220 million.

We expect to substantially complete any actions related to these products by the end of 2017.

SG&A as a percentage of sales, on a GAAP basis, increased slightly.

This increase is due to higher brand investment, acquisition-related costs, and a deleveraging effect of weaker demand in Brazil.

We do, however, expect SG&A margins to return to prior-year levels as we realize integration synergies, additional fixed cost reductions, and higher volumes in the fourth quarter.

Interest and sundry expense was better than a year ago, primarily due to higher acquisition and legal costs in the prior year.

Finally, as shown on slide 29, and consistent with the range we've previously provided, our effective tax rate year-to-date is now approximately 22%.

This adjustment was made during the quarter.

On slide 30, we are narrowing the range of our previous guidance to incorporate incremental currency and emerging market demand risks.

We now expect to deliver ongoing earnings of $12.00 to $12.50 per share.

As Jeff mentioned, we are now forecasting approximately $600 million to $700 million in free cash flow, which includes $75 million to $100 million in working capital investments to support international product transitions.

Turning to slide 31, let me make some additional comments regarding our ongoing EBIT margin.

The solid sequential margin improvement delivered during the third quarter is expected to continue into the fourth quarter as we exit the year.

We expect continued improvement in price mix, driven by the actions we have taken throughout the year and our new product launches.

And we are firmly on track with our cost and productivity reduction initiatives, and expect continued improvement in ongoing productivity during the fourth quarter.

In summary, we expect margins to improve sequentially, and for the full year, despite currency and emerging market demand headwinds.

On slide 32, you can see an update on the progress of our restructuring and integration activities in both Europe and Asia.

We incurred $145 million in restructuring expense and realized $135 million in benefits year-to-date, which was consistent with our expectations.

For the full year, we now we expect $230 million in expense and $200 million in benefits.

It is important to note that the reduced expense forecast has had no impact on our synergy benefits that we expect.

As we continue to grow revenues and improve margins, we have clear priorities to deploy the cash generated from our business, as shown on slide 33.

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 over to Jeff.

Thank you, Larry.

Let me add a few final comments about our view of the business and expectations for the year.

This month, it's actually only been a year ago where we closed on the acquisition of Hefei Sanyo in China and Indesit in Europe, what I believe are two historic acquisitions that is helping to transform our global footprint.

Throughout this year, in 2015, we've seen emerging market demand significantly decline, and the US dollar rapidly strengthen against most of the currencies where we have a significant exposure to, most notably the Brazilian real, the euro, the Canadian dollar, and the Russian ruble.

Given the significant economic shocks this year, we believe that currencies have experienced a global reset, and we are prepared to operate in this changed environment going forward.

Let me try to put this reset into perspective for you.

Currency alone is expected to impact us by reducing our revenues by over $2.5 billion versus the last year, and have a negative $4 per share in earnings per share compared to last year.

And the impact from declining emerging market demand will cost us an additional $1.75 per share.

In total, currency and emerging market demands, fundamentally versus last year, has cost us $5.75.

But because of our larger global platform and our rapid responses to market change, we've been able to absorb both of these impacts and are on track to deliver record revenues and earnings, along with strong free cash flow this year.

Putting it in a longer-term perspective, I ask you to turn to slide 36, where we outline the actions which we introduced late last year, which we believe are key to delivering our long-term growth value creation strategy.

And they really, in our view, remain unchanged.

And today we continue to see multiple paths for profitable growth, going forward.

And, today, we also have very high confidence that our growth plans give us an outstanding opportunity to continue to deliver significant shareholder returns as we continue to execute these long-range plans.

We will update all investors in detail on our 2016 expectations, as well as our progress towards our 2018 goals, on our next earnings call in late January.

That ends our formal remarks, and I'd like to open this up for questions.

(Operator Instructions).

Denise Chai, Bank of America.

Congratulations, Marc, and all the best to you, Mike.

So I know you've always been more focused on margins than on market share.

And when we look at North America, you had such a tough comparison last year.

But this quarter, the variance with AHAM was really outsized, and you also listed your industry guidance for the year.

So what was behind the variance with AHAM?

And as you said, you are going to be shifting your focus a little bit more back to market share.

Are you looking to maintain share over to regain lost share?

Denise, it's Marc.

So let me maybe expand a little bit, and I'll talk about margin and our balance of margin versus revenues.

Obviously, and I've stated that before, we're very pleased with the margins which we have achieved.

12% operating margins; that means we're pretty much now twice the level of our key competitors, twice the profit.

And I also would like to emphasize that's 12% without any volume leverage.

So it just gives you a good indication of how strong the underlying business is from a gross margin and the entire cost structure.

As much as I'm pleased with this margin progress, we would be lying if we say we are satisfied with the revenue.

We are not.

And we also said, so far our focus has been very strong in margin expansion.

And going forward, we will find a good balance between margin, a healthy margin profile, and revenue growth.

So, to be more specific on revenue growth, us trailing Q3 versus market is not what we intend.

There are number of reasons, and I'm not going to get into all the reasons.

The more important thing is any constraint which we he had so far is behind us.

And we are right now operating what I would call in a normal constrained environment, i.e., we have normal availability of products, normal capacity.

That's behind us.

It should not give us any reason why we don't achieve a revenue growth which we have in mind for Q4.

Yes Denise, this is Jeff.

I'd just add to that.

And, again, as Marc clearly outlined, our priority to create value was first to fix the margins -- we're on a great track to having done that -- then grow, and I would say in supporting Marc's point, we have the tools to grow.

We believe in earning market share, not buying market share, and I think we're in a great position to do that going forward.

Okay, great.

Thank you.

And just one more on LatAm.

You've taken so much price, but volumes were a lot worse than we were expecting.

So are you losing share in that market?

And how much are your competitors raising price?

And also, at some point, do you focus on market share in Brazil?

Denise, let me address that.

First of all, the market in Brazil was down about 27% in the quarter, so the market was fairly negative.

And the fact of the matter is that's just -- there's an impact on consumer demand, so less consumers are buying.

Having said that, we're focused on both margin and share.

We did lose a couple of points of share in the quarter, but not significant.

And we think we have the right plans in place, with some of our product launches and the work that we're doing, in order to recover that share.

So we see that as a very short-term item.

So, I can't comment on what competitors are doing.

But we continue to do what we think is necessary, from a pricing perspective, and from taking out costs to make sure that we maintain our margins.

Denise, too, I'd just say our profile in total Latin America, country-wise, is different than others, so it really depends on your country profile.

I'd say, without a question, I think in Brazil, we are -- relative to our competitive as a market -- despite the difficulties, we're in a strong as position as we've ever been.

Okay, thanks.

And I would just add, Denise, I think -- keep in mind that in Brazil, we've been leading pricing increases, and there's always a lag related to that.

Got it.

Thank you.

Robert Wetenhall, RBC Capital Markets.

Just wanted to focus on North America.

It looks like unit volumes were flat year-over-year, and it seems like industry shipments are mid-single-digit growth.

And I think that would suggest that you guys would have very strong volumes going into fourth quarter.

And I just want to see if I'm thinking about that right.

Do you see a good spike in volumes, both on a sequential and on a year-over-year basis in North America?

Robert, it's Marc.

Let me first come to Q3, and then we can talk about Q4.

In Q3, our volumes have been flat to very slightly down, which also implies that despite Canada and everything else, we had stable to slightly positive price mix, which is, I would say, a good achievement in a very competitive environment.

So that also means, in Q3, we lost market share, even though as always -- and as we made comments in previous times -- our units are not exactly comparable to T6 or T7 market share because there's more now volumes than just T6 and T7.

There's also Canada, Mexico, small domestic, et cetera.

Anyhow, having said that, Q3, we lost market share -- without drilling down the details, there are certain elements of different shipment patterns between Q3 and Q4 last year, so that gives a little bit of a tailwind in Q4.

But above and beyond that, more importantly, it's the [finally but] full effect of our new product launches, which give us momentum in Q4.

Got it.

And then, taking from that, you had very strong third-quarter margin performance in North America, 12%-plus.

And that's also at the -- above your full-year guidance top of the range for 11% to 11.5%.

So should we expect to see very robust margin performance in fourth quarter as well?

Robert, as I stated in the previous comments, we expect to be at the top end of that range.

Again, in context, we gave 10.5% to 11.5%.

If you just do [very arithmetic] math, yes, we are at the very top end of that range.

I think from a structural margin run rate, we do not expect any surprise.

So the question is, how much volume leverage can we capture?

Got it.

And if I can just sneak one more in, can you give a little color in terms of what you were seeing on industry growth trends in Europe and Asia, year to date, and how organic volumes are trending versus your expectations?

Thanks very much.

Robert, it's Marc; and I will give a comment on Europe, and then Mike will give a comment on Asia.

On Europe, again, it's a split market, if you want to say so.

The Eastern European market demand continues to be very slow and very much down, which is driven by Russia and Ukraine.

As we know, these markets are also historically very volatile markets, so it's always difficult to predict how long they will be down.

Historically.

we didn't see these markets to be down on an extended time length.

But right now, year to date, they are down significantly.

And keep also in mind, with the acquisition we have a much higher footprint and exposure in these Eastern European countries compared to previous years.

On the Western European side, on the other side, I would say is stronger even than we anticipated.

Most markets are in a very healthy and robust state, which totally -- if you add the two numbers together, that's basically to this 0 to 2% forecast.

And I would say right now, if Western Europe sustains, then we will be probably at the high side of that range.

And that's where we would expect it from today's perspective.

Okay, Robert, just to give a little perspective on Asia: as you know, we took the Asia forecast down to about minus-2%, and that's largely driven by China.

China has been slower in terms of market demand than we expected, coming into the year.

It's at around minus-4% right now.

And for that market, it's a big decline; although, in general terms, it's not.

And we don't think that it should have a significant impact on our business.

India is a little bit different.

We've had a couple of quarters of fairly strong market demand.

And then the third quarter -- more because of seasonal issues -- it reduced.

But we think India will stabilize at a small growth, and that's why we have about a minus-2% for the year.

Sam Darkatsh, Raymond James.

Marc, congratulations.

And Mike, congratulations to you, as well, and it was a pleasure working with you over the years.

Thank you.

Thank you.

A couple questions.

First, clarification: Marc, if I could peg you on this, what specifically were core shipments in the US as it relates to AHAM comparable?

Sam, it's Marc again.

The T7 as we look at it, is a plus 8.1% in Q3.

That's basically -- and given our guidance of 5%, then you can make the math what it basically implies for Q4, i.e., a 4% to 5%, in that ballpark.

That's what we, again, [reaffirm] to a T7 units.

That's consistent with what we previously all communicated.

That's the industry.

I was looking for your units in the third quarter, sorry.

Our units in the third quarter were almost minus 1%, minus 0.6%.

All in -- keep in mind, that's more than T7.

There is a significant impact from Canada in there.

The Canadian market is very soft, and there's also the impact from Mexico in there.

Right.

I was specifically looking for T7, what you guys were doing in T7 in the quarter.

Sam, as you know, we don't typically drill down by US T7 numbers.

(multiple speakers) directly flat, slightly.

Very, very slightly up, but it's not to a level of the market.

Got you.

And two more quick questions, if I could.

Can you give an update, Marc, in terms of the $170 million in acquisition integration savings that you had originally planned for 2016 over 2015 -- what is that number now based on currencies and the volumes, and what have you?

And then how much of that actually do you expect to translate down to the bottom line?

Yes Sam, this is Larry.

Let's first talk 2015.

Even with weaknesses in the euro, we will exceed our 2015 synergy target.

At Investor Day, we did show 2016 -- our expectations between 2015 and 2016 would be approximately $170 million.

We will update that.

But we continue to believe we're going to have some really strong synergies in 2016, consistent with what we've talked about in the past.

And Sam, it's Marc again, just to add to Larry's point.

First of all, we will hit or even exceed the dollar synergy targets, which means in local currency we are actually quite a bit ahead of plan, of the original plan, communicated plan.

Given that synergies build of our time, it should give you also a lot of confidence going into 2016.

So far, our integration is running very well.

And we will remain fully committed and confident behind the numbers which we showed Investor Day, and communicated subsequently.

Thank you.

Last question, if I could, Larry.

You took the free cash flow expectations lower for the year, but you took your CapEx and restructuring cash outlays lower, also.

I imagine that some of that might be slightly lower net income.

But what is the other variable that I'm missing, in terms of why free cash flow is going down now, versus prior expectations?

Yes, I think the point that I made in my remarks, Sam, was we're going to carry a little bit higher inventory than originally expected.

And that's primarily due to international product transitions, and that's obviously a timing issue.

That's already on the books?

Or that's planned into 4Q, also?

Well, in the fourth quarter, a little bit higher in inventory than we previously said.

Got it.

Thank you very much, gentlemen.

Michael Rehaut, JPMorgan.

Congrats also to Marc, and best of luck to you, Mike.

First question: I guess you've gotten a couple questions on this already, but I think it's going to be one of the big focuses coming out of the call, and I'm referring to North American margins versus volume.

And Marc, you mentioned that you still expect to generate healthy margins, and you've done a lot of the heavy lifting in terms of really strong improvement over the last two years.

But at this point, it kind of sounds like you are shifting the pendulum a little bit back in the other direction, where you are still going to, like you said, have healthy margins, but try and achieve some better revenue growth.

And it sounds like you were maybe a little disappointed with 3Q.

Is that the right way to think about it?

In other words, the 12% that you've got in the 3Q -- should we think about that as, more or less, a high water mark?

And maybe when you say still healthy margins, maybe that could be something a little less than that for next year?

Michael, it's Marc.

These are obviously several questions embedded in one question.

And obviously, we don't give guidance, at this point, for next year.

So first of all, on high water mark on peak margins, keep in mind the numbers which were floating around half a year ago about presumed peak margins, we blew already through them.

And I don't want to nail down whatever is a peak margin, but the only thing which I want to reemphasize, we achieved 12% in Q3 without any volume leverage, which is a big deal.

Having said that -- and you mentioned that it's not margin versus volume; it's margin and volume.

And I think ultimately for us, it means a better balance between margin expansion and volume growth.

It's not margin versus revenue; it's margin expansion versus volume growth.

And very honestly, yes, we will put a strong emphasis also on revenue growth without diluting our strong margin profile.

Okay.

So in other words, embedded in my first question, or what was lacking there, was that you [kind of] think about giving up margin because you are ignoring the leverage benefits from the better volume.

And as you said, you are still hoping to hold onto the margin levels, and maybe just dial back the expansion from here.

Did I understand that right?

First of all, again, we are not going to give a 2016 margin guidance.

And I'm not quite sure I would say we will hold the margin, okay?

It's a question of weight or emphasis on margin expansion versus revenue growth, and that's what we will carefully balance, going forward.

Okay, appreciate it.

And Michael, just keep in mind the longer-term goals for North America, back in December, were 12%-plus.

We're at -- as Marc mentioned, we'll be at the higher end of this year's range at 10.5% to 11.5%, so we're very much on track with the longer-term perspective of the Company.

And to Marc's point, we will balance that with revenue growth.

No, that's fair.

Appreciate it.

And just a few technical questions.

You mentioned about the progress with Indesit, and that this year you are exceeding your synergy target.

I believe you had called for $80 million, and as you said, $170 million, which would be updated.

If you're exceeding this year, and you still remain on track for the full amount of $350 million over the next three years, does that mean that -- maybe you could give us a sense of what -- where you are in 2015, versus the $80 million originally expected.

And if, in effect, we should think that perhaps you are holding onto the full-year, full $350 million, but some of the 2016 is coming into 2015.

Michael, it is Marc again.

Let me try to answer it.

So first of all, on the $80 million, you are correct that both the anticipated restructuring benefit in US dollars, we are in US dollars at the $80 million or slightly above.

Which means also compared to our original euro assumption, we are actually trading quite a bit ahead from the operating synergies.

And again, keep in mind, euro is our operating currency in Europe.

So from my -- every day, what we deliver from synergies, it looks very good.

Which also means yes, we are confident on the previously stated $170 million, and we're confident on the previously stated $350 million.

The other thing that you've got to bear in mind -- what we did not anticipate coming in the year, but we have been able to mitigate it through additional actions -- there are significant currency issues in Europe.

That comes from a weaker euro, because you have a lot of dollar buying in Europe, largely from China and other Asian areas.

And particularly with ruble and from [kroner], so there are massive currency headwinds.

Again, I'm very pleased that through better synergies and better ongoing cost productivity, we've been fully able to mitigate any currency headwinds.

And if you drill down in the European number, what I'm particularly pleased is the massive margin progress year-over-year is very healthy, between gross margin benefits and SG&A improvements.

So we are hitting it on both sides.

And Michael, to be clear, because you've talked about in both markets -- in terms of our direction -- that's why we've put the margin chart in this -- North America, Europe, and Asia are fully on track, and, I would say, also fully on track on our 2018 long-range goals.

The outlier this year from a regional business has been Latin America, because of -- again, I won't repeat -- but the currency and the decline in the market.

We are dealing with that.

But in terms of the expectations, we may be getting there a slightly different way in Europe: more synergies, offset by transactional currency costs and things like that.

But directionally, all three of these regional businesses are on track for a record year, and are on track for their 2018 long-range goals.

Okay.

One last one, if I could.

The tax rate, I believe -- and then I'll hop off -- the tax rate guidance, at 22%.

I guess that's now at the low end of the prior range of 22% to 25%, if I have that right.

Is that a number -- the 22% now for 2015 -- that we can use for 2016, all else equal?

Or are there some one-time things, and we should think of a tax rate of 22% to 25% long-term for the Company?

Again, Michael, it's kind of hard to forecast really long-term tax rates.

But I would say, going into next year, we would expect our range to be what we've stated at the beginning of this year, a similar range.

Okay, thank you.

David MacGregor, Longbow Research.

I think Michael had the right point: this is truly -- North America is going to be the focal point of the call.

Wanted to better understand just some of the moving parts here.

And it seems as though you don't want to break out Canada and Mexico.

Maybe even just this one time, you may want to make an exception on that, just because it seems to be such a core concern for investors today.

But I want to understand the price mix being up 350 basis points, and gross margins in North America up about 200 basis points.

It looks like maybe you are walking away from some unprofitable business, but maybe you could just peel back a little bit and give us a little more color on the moving parts there.

David, it's Marc Bitzer.

Again, in terms of the specific breakdown of Canada and Mexico, we won't provide the details.

But, however, I will give you a couple of hints which we also presented at investor conference.

Canada historically has been a $1 billion business for us, roughly.

That's what we showed -- depending on currency, that what we showed also in Investor Day.

If you just look up exchange rates, you basically had to deal with 25% or almost 30% devaluation over the last 18 months.

So just do that math on the entire year North America business, it gives you a sense of about how much of revenues we were losing in Canada.

To a much smaller extent, but still to an extent, you have the Mexico also.

But our Mexican business is not the same size as Canada.

So yes, that has been impacting; but in reality, we don't have sufficient growth -- didn't have sufficient growth in Q3 on our US core business.

And that's what we will change going forward.

So are you walking away from unprofitable business?

And maybe just talk a little bit about US domestic market share.

David, I wouldn't say we're walking away from unprofitable business.

I would say it's a combination of two things.

One, we have not yet found the full leverage of all our new products.

As we talked a lot about the massive amount of product introductions and the KitchenAid new VBL, so we don't yet have a full leverage of all these new products in the markets.

And yes, there is also an element.

There has always -- there are certain promotions which are non-value creating.

We only participate in value-creating promotions.

And there has been a slightly higher promotion pressure by certain competitors; more imports in the markets.

So how much of the apparent share loss is occurring on long weekend sales events, versus day-to-day business?

David, we don't drill it down by promotional times and regular business.

But if you connect it back to my previous comments, yes, there has been a slightly higher promotional pressure by certain imports.

And that becomes this extended promotional periods and deeper discounts during promotions.

Yes, I just noticed that upon the expiration of these retail sales events, MSRPs are popping right back into MAP line, which would suggest that most of this promotion is happening on sales events.

So I'm just wondering if that's where your share vulnerability lies.

It's not entirely, David.

Again, typically yes, you would expect during certain promotions, our share may not be exactly the same as during non-promotional periods.

And, David, I would say that pattern has not changed.

On the heavily promoted -- particularly the ones that -- the major holidays, we would typically lose share, and we bounce right back afterwards.

And that pattern hasn't really changed.

But I would just say, to Marc's point, is that certain competitors have turned weekend promotions into month-long promotions.

And that's been a little bit more problematic.

And we've figured out -- or are figuring out ways to deal with it, and we will.

And I'd also like to point out that our -- again, I feel very good about the tools we have available.

We had some issues getting them all available in the marketplace.

As you know, this time of year, you don't change floors out every day, so we're working customer by customer.

Again, I believe we're in a great position to grow.

And, candidly, with our good margin structure, it's very value-creating for us to grow.

Megan McGrath, MKM Partners.

Just to drill down on this a little bit more -- and then I'm going to move to Brazil -- but one of the things, Marc, you just said is obviously on the promotions.

And then you mentioned you haven't found full leverage of the new products.

And you've had a pretty robust slate of new products, let's say, for the past 10 months or so.

Can you point to any reasons why you think those new products haven't taken off as fast as you thought?

Is it just because the promotional environment has been higher, or have there been execution issues with getting them out?

Can you dig deeper little bit into that one for us?

Yes.

So, Megan, let me try to address the two points, promotion and the new products.

Just to be very clear, our new products -- the way how we look at the new products, when we floor them, do they turn, i.e., do they sell through?

And that is going very well.

I think the uplift which we get to whenever we have our new products floored is -- we are very pleased, to the point where we sometimes even have capacity constraints.

When I talk about the leverage, yes, as we referred to also in previous calls, there has been a slight delay on how we ramped up the new product, how we get to the full production capacity.

That impacts the pace at which you can floor the product, and subsequently the sell-through.

But the important thing is, whenever we have it floored, it sells very well and we're very pleased.

And that's what gives us a lot of confidence going forward.

On the promotions, it's the same comments as before.

We are participating when we believe we can create value for certain promotions.

And in Q3, there have probably been slightly higher share of promotions which we would consider clearly non-value-creating.

And then can you then walk us through why you think 4Q is going to be different?

Megan, on this one, first of all, we know what is our ramp-up pace of a new product.

We know how many we've floored.

And if -- with the retail concentration which we have in North America, it's pretty -- you can predict pretty well, depending on the floored units, what rotation you get.

And we know we have a good indication of rotation.

Obviously, we also have a certain order pipeline, where we know and have a pretty good sense for October-November.

That gives us a lot of confidence.

And we're certain, as I hinted before, there are certain seasonality elements between Q3-Q4 last year, which are slightly different this year.

So, the combination of these three factors give us the confidence we have for revenue growth in Q4.

Okay.

Thank you, that's helpful.

And then shifting really quickly to Brazil, one of the things I'm trying to get a handle on here is, I know -- I think last quarter, or the quarter before, you presented the chart around GDP and how it usually bounces back.

And obviously we're not seeing a bounce-back.

So, what's different in your strategy now as you look at Brazil, versus your strategy three months ago?

Well, Megan, I'd say our strategy is unchanged.

We are essentially executing what we said we were, which is new product introductions and innovations.

What we're having to -- and managing our brands in the marketplace the way we have talked about it.

What we've had to do, though, is react to a volatile environment.

And so when currency changes, then we have to react to that.

When demand goes down, we have to react to that.

And our ability to react to that has been very quick.

And so we have managed that.

The difference in the Brazil environment right now than, I think, in some of the past is you have a political crisis going on now, as well.

And so that has just introduced another factor which has driven some volatility.

What I can tell you is, I feel really good about our ability to respond to that; our ability to, if you will, change our business profile quickly, but continue to execute our long-term strategy.

That hasn't changed at all.

And I am confident that as we manage through this, we will see improvement in our margins.

And when growth returns, we well really like the answer.

Okay, thank you.

Ken Zener, KeyBanc Capital.

Look, I think in America you guys are going to be focused on profitable growth, like you're talking about.

So Marc, if you could just say -- you ran some degree short of your metric of AHAM.

How -- what percent of that was -- if you don't want to give us market share, how much of that was self-inflicted?

As self-inflicted meaning, you have products ramping up, et cetera, as opposed to the promotional.

Would you say, half of it was self-inflicted, half of it was promotional?

Ken, it's Marc.

We don't break down how much of a market share was self-inflicted, as you call it, versus promotional environment.

At the end of the year, you always lose market share in a competitive environment.

By definition, you lose 100% in a competitive environment.

However, I would say, directionally, about half of that has been driven by certain constraints which were under our control.

But the other half is particularly focused on certain product categories where we had a slightly higher promotional pressure intensity by certain imports.

Okay.

And then what would you say relative to that competitive import pressure?

Because I believe that the tariff review for large residential washers -- which was one of the two [effective] complaints you guys filed -- was actually reduced.

Could you comment on that?

So, first of all, Ken -- and without getting to the details of a dumping discussion and the previous dumping cases, which we won -- there is a very important aspect.

The tariffs were referring to certain countries and productions.

Some of the imports have shifted their production source; what is, in our view, are circumventional efforts to trying to circumvent existing tariffs.

We've been -- I think on the investor conference.

We've been talking about it, that we monitor it very closely.

And, yes, there is a strong correlation between the promotional intensity and where these production have been shifting to.

And we are observing it very closely and monitoring very closely.

But I don't want to, at this point, reveal what we have or might not have as an anti-dumping strategy going forward.

Understood.

Jeff, if we look at LatAm, so your margins as we entered the year, when you guys took guidance from 14 to 15, down to 12 to 13 (technical difficulty) Brazil, both currency and demand.

(technical difficulty) And if we were to sit in that April quarter, your view was that you were going to be ramping up in the second half towards that -- the longer-term 8% to 9% EBIT.

That was deferred obviously in 2Q, as reported, because -- demand fading.

You thought it would be exiting the year at that 8% to 9%.

And now it says that you guys, while not giving 2016 guidance, talk about it being below that long-term growth rate.

Could you give us an understanding of how that long-term growth EBIT margins is actually impacted by the contraction we've had within that core market being Brazil?

Is it possible to hit that 8% to 9% if you just don't have the volume?

Because you are not going to go in and restructure your whole footprint, like you've done in various regions.

So are we really sitting at -- if volume is down 30%, let's just say this rate continues, are we going to be sitting more at a 6% to 7% for the total segment?

Ken, to your point, and particularly in Brazil -- but there is a few other countries also I would -- it applies to in Latin America.

We have literally seen three waves, so far this year, of currency devaluation.

Which there was a first-quarter wave, and then it stabilized for a while; then there was a second-quarter wave, and now the third-quarter wave.

And we've seen the currency last year go from an average of about 2.30 to 2.35 to now almost 4. And obviously no one forecasted that, nor did the financial markets forecast that.

Now, with that, then came an accelerated decline in demand.

And we feel confident as you can in a rapidly changing economy like that.

Right now -- and all of our forecasts were updated to 20% down demand in Brazil, at about a 4.0 real.

And based on that, we are very confident about increasing our margins and forecasts, and so on and so forth.

What we really need to see is stability, in currency and demand, whatever levels they are.

Because we adjust, and we have adjusted very rapidly every quarter to these changes, but we're chasing a down market right now.

Is it going to stabilize in the fourth quarter?

I don't know.

But to your bigger question, maybe your medium-term question, is whatever the real is, and whatever demand levels are -- if it's down 20% or 30% -- I absolutely -- once it stabilizes, I absolutely believe, given our market position, given our brand equity, we will, number one, continue to have a very strong share position, our fair share.

And we will be able to drive at least 8%-plus margins, because that is a choice, that's what we would choose to do.

That key is, is that it's the rapid, profound volatility that you have to adjust to.

And it doesn't take us years to adjust; we adjust now within months.

We just still -- but we've had to adjust several times.

So, what we really need to do is, wherever the bottom is, see stability.

We'll start building margins back up from there.

I appreciate that.

And I'm going to ask another follow-up question related to LatAm; and if you could, to the extent you are comfortable to expand on it.

Marc, you highlighted Canada, at your Investor Day, was $1 billion.

There's currency, that's changed.

So ask Marc (technical difficulty), could you guys do the same for LatAm in terms of -- you had Brazil at a certain point in December 2014.

Could you tell us what percent of LatAm it is today?

And if you would, directionally talk about margins within that segment being Embraco outside of Brazil -- and Brazil, if you would, because I think what -- on the increment, people are really trying to understand it.

If you're looking for stability in Brazil, you haven't found it yet.

But we also want to understand how Brazil is different than those two other buckets that I just mentioned, because that's also going to point to the stability, if those businesses are staying stable and/or deteriorating.

Thank you very much.

Ken, maybe just let me take a quick shot at that.

If you go back to our presentation, we gave you a view on 2014, and then to 2015, what sales look like if you broke them down in LatAm, and what the percentages were.

And what it showed is the compressor business went from 32% to 37% of our LatAm business; that our extend-and-expand and LAR International went from 15% to 22%.

And then it showed that Brazil core went from 53% to 41%.

So you can see what the rebalancing in sales have been.

I can tell you that our compressor business continues to perform, and the margins in our compressor business are exactly where we thought they would be.

And remember, this is a global compressor business.

So, yes, it has some impact in LatAm, and it has impact in some other regions of the world, but there's some balance because it also provides product in North America, in Europe, et cetera, et cetera.

So the margins in that we've been able to manage, and they are very good.

Our LAR International and extend-and-expand businesses have also performed very well in this environment, and are delivering increases in both sales; and we are taking market share in LAR International, as well as maintaining a very high margin level.

So the reality is, as we look at the rebalancing, the impact of Brazil core has become less and less on the total.

And so we're pretty confident that we're going to continue to perform in those other businesses, and that's going to allow us to perform in Latin America.

Eric Bosshard, Cleveland Research.

Two things: first of all, in terms of material cost savings, input savings, if you could update us on 2015, and some thoughts on 2016.

And also curious on how you think about the savings, relative to the investment that you are considering within the North American business.

Eric, this is Larry.

We've said, in the last call, that we'd expect raw material benefits of around $100 million.

And if trends were to continue, we expect it to be north of that, and certainly we would say we'll be north of that.

It's also important -- for 2015 -- it's also important to note that many currencies around the world are US dollar-based.

So when you are in emerging markets, there's a partial currency offset to that.

But based on rates we're seeing right now, we'd say north of $100 million for 2015.

And, Eric, going into next year, if current trends hold, we ought to see some further improvement based on today's rate.

It wouldn't be as much a next year as this year, because we're already accruing some of those benefits this year.

But we have other activities.

We have productivity activities.

We have continued -- the way we look at it is total cost productivity, which includes not only raw materials but productivity programs, as well as our restructuring synergies.

So, we are very positive about our ability to generate those next year.

We have not -- again, I don't necessarily buy the question leading to that we're going to be spend margin money in the marketplace.

We are going to be competitive in the marketplace.

We've got the right tools.

We've got great innovation, great brands.

And I fully expect that we will be able to do it in a value creating way.

So with that, we will wrap up the call for today.

We'd like to thank everybody for your participation, and we'll talk to you again.

Thank you, everyone, for joining us, and look forward to talking to you next time.

And this does conclude today's program.

We thank you for your participation.

You may now disconnect.

Have a great day.