惠而浦 (WHR) 2016 Q2 法說會逐字稿

Good morning and welcome to Whirlpool Corporation's second-quarter 2016 earnings release call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to our Senior Director of Investor Relations, Mr. Chris Conley.

Please go ahead.

Thank you and good morning.

Welcome to the Whirlpool Corporation's second quarter 2016 conference call.

Joining me today are Jeff Fettig, our Chairman and Chief Executive Officer; Marc Bitzer, our President and Chief Operating Officer; and Larry Venturelli, our Chief Financial Officer.

Our remarks today track with the presentation available on the investor section of our website at Whirlpoolcorp.com.

Before we begin, let me remind 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 of the 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 unrelated to results from our ongoing business operations.

We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations.

Listeners are directed to the supplemental information package posted on our investor relations website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

Following our prepared remarks, the call will be opened for analyst questions.

As a reminder we ask that participants not ask more than two questions in the first round and we will address any follow-up questions after everyone has a turn.

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

Well good morning, everyone.

And thank you for joining us today.

As you saw on our press release this morning, we reported record operating results for the second quarter, driven by strong ex-currency revenue growth and substantial margin expansion of 1.6 points.

Our integration activities in Europe and Asia continue to progress well and we remain on track to deliver significant soft cost synergies for the balance of the year.

Our strong operational execution more than offset currency and demand challenges around the world.

And as a result we delivered another record quarter of performance.

Following a strong first half performance we're increasing our full-year guidance for ongoing earnings per share at $14.25 to $14.75.

Before we move to the details of the quarterly results I would like to highlight an important ruling by the Commerce Department on our washer trade fair trade case.

We're very pleased that this ruling confirmed that LG and Samsung continue to dump washing machines in the US market.

Both companies are now required to pay substantial deposits for the products, which they import from China.

As we previously discussed, this unlawful behavior clearly had an negative impact on our washing machine market share and earnings in 2015 and in the first half of 2016.

But despite this, we are pleased that we are still able to deliver record results through the strength of the rest of our portfolio of products and brands.

I'll now turn to slide 5 where we will take a look at the financial results for the second quarter.

Our revenues overall grew 3% versus last year, ex-currency.

Our ongoing earnings per share grew by 30% to a record $3.50 per share.

And this came through strong execution of accusation synergies, volume growth and ongoing cost productivity programs and free cash flow improved versus last year.

Turning to slide 6, you will see that we are raising our 2016 guidance following the strong first half of performance.

Again, we now expect ongoing earnings per share to be $14.25 to $14.75 per share.

We are reaffirming our expected cash flow generation of $700 million to $800 million, which represents a significant improvement over the prior year.

We are confident that our continued focus on execution and strong second half exes will enable us to deliver another year of record results.

On slide 7, you will see that our 2016 priorities remain unchanged.

We do remain confident in our ability to manage economic volatility and have deployed strong operational plans which we believe will enable us to grow revenues and continue to expand our operating margins.

On slide 8, our capital allocation strategy remains also unchanged.

We continue to prioritize funding the business along with delivering strong return to shareholders and we continue to evaluate opportunistic value-creating M&A opportunities.

During the second quarter we did purchase $100 million of shares during the quarter.

We intend to continue repurchase these stock through the year, and we currently have $900 million of remaining share repurchase authorization.

So overall we do remain confident in our ability to deliver long-term value creation through strong cash generation and the execution of our balance capital allocation process.

Before I move on to our -- move on to our regional businesses, I wanted to comment on the leadership announcements which we made in late June.

As you probably know our Chief Financial Officer, Larry Venturelli, has announced his planned retirement.

We also have announced that Jim Peters, currently our Vice President, Corporate Controller and Chief Accounting Officer, will succeed Larry as Chief Financial Officer.

First of all I would like to take this opportunity to thank Larry for his over 15 years of service to our Company in a number of leadership roles, including the last five years as Chief Financial Officer.

Larry has played an integral part of our executive Management team and in helping us in our global expansion, including most recently the successful acquisitions of Indesit in Europe and Hefei Sanyo in China.

At Whirlpool Larry will be greatly missed, but we all wish he and his family the very best in his upcoming retirement.

At this time I'm also pleased to welcome Jim Peters into his new role as Chief Financial Officer.

Jim does have a very broad background in our global finance leadership in a number of roles and in our business operations, and I'm very confident that under his leadership, we will continue to execute our global value creation plans.

So with that, I will stop here and turn it over to Marc Bitzer to review our global operations.

Thank you, Jeff.

And good morning, everyone.

Turning to slide 10, we will revue North America's performance in the second quarter.

We delivered record operating profit by growing ex-currency revenues 4% and expanding operating margins to 12.3%.

We improved T6 market share versus prior year and saw strong continued demand for our products.

Our record second quarter operating margins were driven by our ongoing cost productivity programs and operating leverage from revenue growth, which more than offset $20 million in unfavorable currency impact in Canada and Mexico.

Turning to slide 11, we outline our 2016 operation priorities for the North American region.

We continue to expect the industry to grow 5% to 6% for full year.

As we have done consistently, we will make targeted investments to grow profitably at or above the industry rates.

We continue to leverage our strong cost productivity programs to drive margin improvements and remain focused on growing our adjacent businesses.

We are confident that these actions will allow to deliver the higher end of your margin targets, or 12% to 12.5%.

Turning to slide 12, we highlight our exciting new French Door Bottom Mount Refrigeration platform.

The jumbo-capacity product features the most shelf space among leading brands in the industry.

It offers the first-to-market flexible pantry inspired shelving system delivering both the capacity and flexibility our customers desire.

Beginning on slide 13, I will review the second quarter results for our Europe, Middle East and African region.

Sales were $1.3 billion, down slightly from prior year.

Excluding the impact of currency, sales were flat.

Ongoing operating margin was 4.6%, a 40 basis point increase compared to prior year.

This margin expansion included a 200 basis point unfavorable currency impact, primarily from the British Pound and the Russian Ruble.

We have deployed previously announced cost-based price increases to offset this currency impact.

Turning to slide 14, we want to put our European business in context by providing additional details of first half performance and the plans for a second half.

We made significant progress on the integration of Indesit, demonstrated by the substantial first half restructuring and synergy benefits that Larry will discuss in more detail.

We are confident in our ability to deliver planned 2016 synergies evenly in the third and fourth quarters.

We experienced a negative first half currency impact primarily in the UK and Russia and have deployed previously announced cost based price increase to improve our operating margins as we progress throughout the second half of the year.

We are in the process of integrating product platforms across Europe and expect to make strong progress by year-end.

We expect to grow second half revenues to the fully deployed marketing and sales activities.

We do believe we have the right actions to address the operating environment.

And as a result, we expect operating margins to improve throughout the second half.

We expect our exit rate on operating margins in the fourth quarter to be more consistent with our long range expectation of 7% to 8%.

On slide 15, in addition to the second half actions we discussed, our 2016 priorities remain largely unchanged with a continued focus on integration activities, ongoing cost productivity and growth from adjacent businesses.

We also continue to expect the industry to be flat to up 2% for full-year, while clearly various uncertainty in the European region.

Through the strength of our operating plans and continued acquisition benefits remain confident in our long-term guidance of 7% to 8% of operating margins by 2018.

On slide 16 we're proud to feature award winning built-in oven of our new built-in kitchen suite.

These products incorporate advanced cooking technology and on-demand recipes with elegant, contemporary esthetics for sophisticated customers.

Turning to slide 17, I will discuss our Latin America results.

Sales for the quarter were $826 million, excluding the impact of currency sales, increased 4%.

The industry in Brazil continues to be challenging.

However, our top line performance in Brazil was strong as we continue to leverage our leading portfolio of brands to drive growth and outperform the industry.

We were able to gain several points of market share in the second quarter by substantially improving our operating margin.

Our operating profit for the quarter totaled $50 million, a 190 basis point increase compared to prior year.

The actions we have taken over the past year to improve margins in a challenge environment and grow market share have been successful and we now expect to deliver the higher end range of margin targets, or 7% to 7.5%.

Slide 18, we summarize our priorities in Latin America which have not changed.

As we have done consistently, we will manage economic volatility through strong cost productivity programs and by leveraging our right-sized fixed cost structure.

We will continue to invest in new products and remain well positioned to capitalize on growth in Brazil when consumer demand does return.

On slide 19, we're highlighting our award-winning Brastamp brand.

This year Brastamp was recognized in a nationwide study as the most engaging consumer appliance brand, building on six decades of inspirational performance and superior design.

Now we turn to our second quarter results in the Asia region, which are shown on slide 20.

Net sales were $363 million in comparison to $381 million in the prior year period.

Excluding the impact of currency, sales were flat.

Our ongoing operating profit was $29 million compared to $31 million in the prior year period.

Ongoing operating margins were 8.1%, flat to prior year, as continued record performance in India and ongoing cost productivity offset weak demand in China.

Turning to slide 21, you will see that our 2016 priorities for Asia have not changed.

We remain focused on growth through distribution expansion and ongoing productivity programs.

We also continue to focus on the longer term opportunity in China as we navigate through demand uncertainty.

On slide 22 we showcase our new front-load washing machine for China.

We leveraged for integration between Hefei, Indesit and Whirlpool using the best of the best to provide consumers with world class laundry performance.

Finally on slide 23 we summarize our regional marginal guidance for the full year.

Given continued global volatility in some regions and strong first half performance in others, we have adjusted our margin expectations as follows:

North America increased to 12% to 12.5%.

Latin America increased to 7% to 7.5%.

Europe decreased to 5.5% to 6%, due to negative currency and the expected timing of our offsetting actions.

Asia remains unchanged at 7% to 8%.

It is important to note that we are on track for strong margin expansion in all regions and have not changed our overall operating margin guidance.

We remain confident in our ability to manage for global volatility and to deliver our strong second half plans.

Now I would like to turn it over one last time to Larry.

Thanks, Marc.

And good morning, everyone.

Let me start with our second-quarter results on slide 25.

As Jeff mentioned, we had strong performance in the second quarter despite a challenging external environment.

Net sales were $5.2 billion; excluding the impact of currency, revenues were up 3%.

We achieved record ongoing earnings of $3.50 per share, which was up 30%, primarily driven by acquisition synergies, unit volume growth and ongoing cost productivity.

In the second quarter, currency impacted our revenues by approximately $150 million, EBIT margin by about 1 point, and net earnings by $0.50 per share.

Our ongoing EBIT margin improved by more than 1 point and we are fully on track for our full year guidance of 8% to 8.5%.

On a GAAP basis, our second quarter tax rate was driven by the timing of tax settlements and planning activities and does not impact our previous guidance of 22% for the full year.

Our ongoing tax rate for the quarter was 22%, consistent with our previous guidance.

Overall we are very pleased with our results for the quarter and are at the appropriate run rates to deliver a very strong second half.

Turning to slide 26, let me take a moment to discuss the expected impact of currency on our results for the year.

You may recall in our original guidance for 2016 we assumed a negative impact of $2.50 per share.

During our first quarter call, as currencies began to improve, we indicated that if April rates held, we would expect $0.50 per share lower currency headwinds for the year.

While there was significant volatility to key currencies in the second quarter, the net result for the basket of currencies we're exposed to has not changed substantially since our last call.

We expect the impact of currency to be approximately $2.00 per share for the full year.

We will continue to execute previously announced cost based price increases and deliver cost reductions to offset currency impacts.

And our ongoing hedging programs continue to be an effective tool for us to reduce short-term volatility.

On slide 27, you will see an update on the progress of our restructuring and acquisition integration activities.

Through the first half, we incurred restructuring expense of $87 million and delivered $120 million in benefits.

We now expect $200 million in expense for the year and are increasing benefits to $200 million.

Overall we are on track to deliver our previously announced synergy goals through 2017.

Turning to slide 28, I will discuss our expectations for full year EBIT margin expansion.

As previously communicated, we expect to expand our margin by over 1 point, primarily driven by ongoing cost productivity and cost and capacity reductions.

Our first half year-over-year EBIT improvement continues to support our full year expectation.

We expect to continue funding our global brand and product innovation and to absorb approximately 1 point of margin impact from currency.

On slide 29, we highlight the cadence of second half earnings drivers.

Consistent with historical trends, we expect a meaningful step-up in the seasonality of our volumes between Q3 and Q4.

We expect negative currency impacts to continue in Q3, but will lessen in Q4.

As a result of these trends we expect our second half earnings to approximate 45% in the third quarter and 55% in the fourth quarter, which is very consistent with what you saw last year.

On slide 30, we share some details on our first half free cash results and capital allocation actions.

Our free cash flow improved versus prior year, primarily due to the improved earnings.

Consistent with our strategy, we executed a balanced approach to capital allocation by funding the capital needs of our business and returning cash to shareholders in the form of dividends and previously announced share repurchase program.

We plan to buy back additional shares throughout the year.

Turning to slide 31, we are adjusting our full year guidance in response to our strong first half results.

As Marc discussed in the regional reviews, we are confident in our operational plans, and as a result expect to deliver 15%-plus growth in ongoing earnings per share in 2016 and approximately $700 million to $800 million in free cash flow.

Finally on a personal note regarding my retirement, I've had the opportunity to work with many of you in the financial community over the past several years.

It's been an honor and privilege representing Whirlpool, and I wish you all continued success in the future.

So I'd like to turn it back over to Jeff.

Thanks, Larry.

I'll summarize slide 33, which shows again our 2016 priorities, which haven't changed, and our plans to drive revenue growth, margin expansion and to generate strong free cash flow for the year.

Overall, I think our ongoing efforts to drive margins, especially in the areas of volatility around the world, have demonstrated our ability to manage the needed actions within our control in response to this global volatility.

And I think the first half of the year is really a good example of that, because we had many changes that we were able to adapt to.

We do believe we are well positioned in the second half and we have deployed strong operational plans across the world to ensure we deliver our goals.

So overall we do expect to deliver record results., while at the same time executing a balanced approach.

Finally on slide 34, we do continue to execute to our long-term value creation strategy.

Overall we remain confident in our goals.

We do expect to be able to continue to leverage our industry leading brands, keep bringing a strong portfolio of innovation to marketplace and our best cost position to ensure that we're delivering strong returns to our shareholders.

So with that I would like to end our formal remarks and open this up for Q&A.

And we will take our first question from Denise Chai from Bank of America.

Please go ahead.

Great.

Thank you so much.

Congratulations on a great quarter.

I wanted to start with the anti-dumpings ruling that came out.

What is different this time compared to two years ago?

And could you just walk us through the mechanics of how duties apply and what it theoretically means for market pricing?

So for example, if Samsung and LG move production back to Korea and Mexico, would the old duties apply?

And really, what are the next steps?

Any color around that would be very helpful.

Denise, this is Jeff.

Yes, the current fair trade action is for washing machines in the US market.

In one sense this is a continuation of the 2013 situation.

But at the time, you know, dumping is -- the law is -- applies to countries, not companies.

And the countries involved then were South Korea and Mexico.

And we won very decisively in that case.

But the companies, which are LG and Samsung, basically moved their production to China immediately to work around this and continue dumping.

So our new case is for dumping against manufacturers in China, but it specifically affects LG and Samsung.

That required a new action.

We're going through the process.

We believe the evidence is compelling, as evidenced by the Commerce Department's preliminary judgment.

With the duties they've levied, they are now having to pay cash deposits on all imports.

In fact one of them is actually retroactive to the last three months because of all the product they brought into the marketplace.

There is a very clear Commerce Department process that is followed.

They will make the final determination of duties in December.

Then it goes to the International Trade Commissions to evaluate injury.

And we expect that judgment to be mid to late January.

Denise, it's Marc.

Maybe just one additional comment specific to your question.

The 2013 order is still active and in place.

To your question if they move it back to Korea or Mexico, it does not help them because the old order is still active and in place.

Okay, so what flexibility do they have in terms of market pricing?

I'm just wondering with this ruling --

I can't speak to competitors' market pricing.

I'm just saying based on the evaluation by the Commerce Department, they have -- their preliminary conclusion is they are dumping again from China.

They have already proven they are dumping from South Korea and Mexico.

Based on that, they will charge substantial tariffs and I guess the company can either adjust their pricing or continue to pay the substantial tariffs.

But that's really their decision.

Okay.

And sorry, just last one.

So to illustrate, if a washing machine -- if a Samsung or LG washing machine is retailing for $1,000, what does -- what do the tariffs of 110% and 50% --

Well if you just take the -- only on the value, forget retail price.

If you take the value, it's, you know, somewhere in the neighborhood of -- in the case of the lower level, probably $175 to $180, to the higher level of over $300.

So it's substantial.

And we will take the next question from Sam Eisner with Goldman Sachs.

Good morning, everyone.

Sam.

Going back to the EMEA commentary here.

I want to get a better understanding on FX.

Obviously the decrement is I think, Larry as you called out, it was about a 200 base point, 2% headwind to the quarter.

But it looks like decrementals for the total Company were around 35% and we were closer to 25%.

So just curious if you can talk a little about the transactional exposure within the EMEA business and how we should think about that going forward.

Sam, it's Marc Bitzer.

Let me maybe just provide some clarity on it.

And yes, you're correct.

The currency predominately impacts the margin.

And to out that in context, there's obviously a number of currency moves and currency baskets in the -- what flow to our European regions.

The most impactful ones, just given the size and movements have been the British Pound and the Russian Ruble.

There are other ones as well, but these are the most impactful ones.

What it means operationally, in the UK, like us, most competitors don't produce in the UK.

Almost nobody produces in the UK.

So basically any currency weakness of the British Pound turns into a lower margin for us.

That's an immediate impact.

It's somewhat similar in Russia, maybe to a lesser extent because we produce more in Russia.

The combination of these two, just to put it in absolute terms, was basically $30 million just in the quarter.

Just these two big markets.

So we're talking on massive and substantial.

You calculate it back on a European level, that's more than a 200 basis points.

That's where the number comes from.

And just for clarity, I'm referring to year over year impact of a currency.

As you also know, the Russian Ruble even on a weak level has stabilized.

Sequentially we don't see big surprise but still a year over year impact.

As you also know the British Pound for the quarter average has deteriorated, but obviously particularly post Brexit, the decline has been significant and has a significant impact on our margins.

And we're adjusting our actions accordingly.

To Jeff's point, obviously what we're doing as a Company in this kind of environment, we basically have cost based price increases which we have communicated and largely implemented in some of these markets, obviously the UK one is fairly recent.

But we expect in the second half to fully compensate the currency losses through these cost-based price increases.

That's very helpful, Marc.

Thanks.

When I think about the North American business, back into the pricing, the pricing looks to be down about 1% in the second quarter.

It was slightly down in the first quarter.

So it seems as though you could argue that you're using price as a tool to accelerate volumes.

If we look our to 2017, where maybe raw materials are not as supportive, how do we think about that dynamic going forward and your ability to continue to gain share when raw materials are maybe not as much of a tool for you guys anymore?

Sam, it's Marc again.

Let me first talk about the Q2 pricing that you observed in North America.

There's actually a very straightforward and easy explanation for this.

One, it's based two components.

One is Mexico and the impact of Mexico.

Keep in mind in North America we have three countries flowing through the overall North American revenues.

You have in Mexico significant currency decline year over year.

Also still in Canada, even though now to a less extent.

So roughly we're at an $8.00 decline in the quarter of the ASV.

More than half of that is just coming from currency.

Also combined with a little bit of mixed impact with growth we have pretty strong volume growth in Mexico -- profitable volume growth in Mexico -- but it has a mixed impact on the ASV.

The other part, and that goes straight back to Jeff's earlier comment.

Yes, we are exposed to the continued and sustained dumping practices in the washer business.

That has an impact on our ASV.

I'm pleased that despite all that we delivered very strong operating margins, which just tells you how strong the underlying business is.

But these two factors explain the ASV in Q2.

Again, just on the washer side, as we have said, it has a significant negative impact on our market share which is volume, but also on our earnings.

That is embedded in there based on the type of promotion that we saw in the second quarter.

And we will take the next question from Michael Rehaut with JPMorgan.

Please go ahead.

Thanks.

Good morning.

And best of luck to you, Larry.

Great working with you.

Thank you, Mike.

A question on going back to North America with the -- with the sales growth.

Clearly this has been an area of focus for Whirlpool and reaccelerating that.

You know, with roughly a 4% revenue growth rate ex-currency in Q2, as you look forward, this is obviously also a big focus over the next couple of years to get to the 2018 goals.

I mean, is this sort of a number that you, you know, are expecting to be sustainable or perhaps even accelerate excluding currency as you continue to, you know, get momentum on the new product front and perhaps a little more stability with the antidumping?

Mike, it's Marc.

Let me maybe just comment a bit on, yes, in Q2 we had a 4% excluding FX revenue growth and a very, I would say solid volume growth of 5%.

And you also know the ins and outs of the market share T6 for units.

We're very pleased with the market share progress and revenue growth.

I would also -- and that probably gives us confidence also full year -- point out to this: what you're seeing are sell-in unit growths and sell-in market share, are sell-out trends are very strong.

And probably outpacing even sell-in pace.

So that's obviously a very positive development which we've seen.

As I also said in my remarks earlier, our commitment is to grow at or above market for 2016.

And we're firm on that commitment.

It's obviously way too early to talk about the 2017 and 2018 targets, but I would expect similar guidance from our sales, that we grow at or above market.

That is very helpful, Marc.

I appreciate that.

And then, you know, just on the restructuring benefits.

You know, increased it by $25 million for 2016.

How should we think about the total amount of benefit, you know, over the entire period?

If you could just remind us of that number.

And does that number change at all, as well?

Mike, this is Larry.

Yes, we did increase the restructuring benefits from $175 million to $200 million for 2016.

As you know, what we committed to was $350 million by 2017.

And we're fully on that path.

Thank you.

We will go next to Sam Darkatsh with Raymond James.

Please go ahead.

Good morning, Jeff, Marc and Larry.

And Larry, I also say it's been a real pleasure dealing with you over the number of years now.

Congratulations and kudos to you.

Thanks.

A couple questions if I could.

First, the washing machine profitability or at least the ability to expand margins if you were able to normalize washing machine profitability, I think you mentioned in the -- in the petition that you're -- that you're losing money currently in washers.

If you were able to return the washer part of the segment in North America to appropriate margins, what might be your margin upside for overall North American margins?

Sam, it's Marc Bitzer.

First of all, I hope I was clear in our earlier comments.

Washers as defined in the anti-dumping case don't equate to what we call laundry.

Laundry is broader.

It has other driers; it has other capacities.

So there's a very specific definition of a washer case.

So don't equate these two ones.

Having said that, if you look at the pure washers, the profitability is clearly, clearly below where we would expect at any normal time.

We're losing money on top of the volume impact.

So your question, unfortunately, in the short term probably is a more theoretical question.

The reason I'm saying this one, as evidenced by the ruling -- or the preliminary ruling -- is there has been a significant amount of stockpiling by LG and Samsung at the end of Q2.

I.e., inventory loading and unfortunately we see that's still entering the market in Q3.

There is still an impact.

And that's just a reality.

I would also not be surprised, even though to some extent that's speculation at this point, that both players continue to circumvent.

I would see some relief on our margins on washers.

But it needs to be seen to what extent LG and Samsung actually follow the order.

And that's not our decision.

Sam, to be clear, short term, you know, we have to get through the year and get this completed successfully.

Gage the reaction and so on.

But to your point, the theoretical question, it's worth a lot to our North American business.

At least a couple points.

And my second question, if I could re-ask what one of my peers asked in terms of 2017, the ability or willingness of either the consumer or the retailer channel partner to accept price increases, what do you think the willingness might be and the elasticity with the industry if you do have to raise prices -- or the industry participants have to raise price next year?

Yes, Sam, you know, we've had this discussion in the past.

And, you know, the reality is there are -- price points won't change.

Model feature per content change.

It's not affordability and therefore not an elasticity question at all.

Whatever number.

5% price increase on a $500.00 ASV is $25.

There will still be a $499.00 and so on.

So first of all, we have made no decisions nor are we talking about any future price increases.

You know, we're going to see how the environment evolves.

You know, and we will make the decisions as we always do.

We have great levers to improve margin through mix and many other tools.

The one directly to your question I point out is, I don't see any price elasticity at the kind of levels that we have historically looked at.

Sam, it's Marc.

Also in addition to this one, I guess you wouldn't have asked the question without the context of concerns about material price trends.

Let me practically also address this one.

Because we have seen in some of the early comments about material price.

Of course we do observe material trends, and of course for certain elements in the global material market, like the USD prices, which are somewhat of a concern.

I want to just comment two things.

A, we have long-term contracts, particularly in steel.

We have on several commodities very strong and now favorable hedge positions.

So I would say for 2016, certainly very well positioned on the material side.

And I would say right now it's way too early to speculate about the 2017 material trends.

Of course these are the spot prices.

But I would also argue the demand on certain materials is just not strong enough to see that going into fully into 2017.

And the other thing, Sam, would be if you go back in history you followed us for a long time.

When we have had material inflationary environments before we have been able to overcome that through a lot of different tools and continue to improve our earnings and our margin also.

It's too early to call on pricing.

And we will go next to Ken Zener with KeyBanc capital.

Please go ahead.

Good morning, gentlemen.

Good morning, Ken.

Just a forewarning, I'm going to go back in the queue here.

I'm not going to ask too many all at once.

Europe, you guys talked about $30 million EBIT hit in Q2.

The margin guidance revision to 5.5% to 6% implies more than $30 million.

Could you please tell us what that dollar value is and how that would fall kind of sequentially, Q3 and Q4 with a neg item?

Ken, it's Marc.

There's obviously a number of timing and moving parts.

The $30 million refers to the exact what we lost in Q2, predominantly through British Pound and Ruble.

That is an average currency rate for the quarter, and you need to be aware that the exit run rate of the British Pound was way below the average.

So version the impact of a British Pound, if you wouldn't do anything, going well through Q3 and Q4.

The offsetting element of, I have a previously announced private increase, which we've already implemented, or ones which we have not yet fully implemented but announced, that takes a certain ramp-up here.

The negative part of a currency, which right now we just have to assume is going to be with us for the rest of the year, we are starting to offset with every month more through previously announce cost price increases.

But we won't fully offset that in the third quarter.

It's just the timing doesn't work.

Because in most markets and every market is different, you have certain pre-lead time between when you communicate the trade, when you can actually implement, there's certain contracts in place.

So you have a ramp-up of these price increases.

The important thing is, however, by particularly as we go in Q4 and the exit run rates, we expect to be fully offset by cost base price increases.

So the $30 million would be obviously higher, given the run rate spot versus the average, is my assumption.

Do you have a dollar value that you kind of are assuming in that margin degradation then?

Just so we can be clear.

Ken, if you like at the 7% to 8% original, that's mid point is 7.5%.

We're saying 5.5% to 6%.

So you're talking about 1.7 points times our revenues in Europe.

So it's about $85 million.

We took $30 million hit at the very end of Q2.

You know, again, as Marc said, we will be putting the actions in place.

So if everything stays the same, actually the biggest impact will be in Q3.

Right.

Okay.

That's where I'm going.

Because Marc' s comments about the run rate, if it's December versus the average, obviously it makes a difference.

But it seems like at current volume currency, et cetera.

Right.

You're actually going to be a lot closer in Q4 margins than to what you were actually targeting.

Right.

Right.

Now, how much of that is volume-based?

I know in Brazil you guys were very explicit when we had the $200 million, $250 million earnings hit.

In terms of the inventory being higher than price.

I guess that's, Marc, what you were referring to, it takes a little while to recover that.

It's not so much -- could you address -- a lot of investors I speak with the Vera case is, who knows what Europe is going do.

The reply is it's a lot about Indesit and industry restructuring.

Could you give us a sense about how the volume assumptions and what gives you comfort right now around that piece?

And then I'll get back in the queue.

Thank you.

Ken, again let me zoom out on Europe in total.

First of all, I want to reiterate the synergies and the integration is fully on track.

The cost side is a safe bet.

I.e., what we control we do control, and actually we deliver more as evidenced by Larry's earlier comments.

So the increase of restructuring benefit, that's larger Europe.

So the cost side is fully on track.

That is going very well.

You have two elements in Europe.

There's a little bit of an overlap.

One is the currency.

The currency impact of the operating margin.

The offsetting action, our cost based price increase.

That takes time to ramp up.

So I expect the margin impact on this one to go with every month be less and less.

But of course right now it's a Q3 pending issue.

The volume impact is to a lesser extent.

We're not in Q1, as you may recall, we had in Q1 a volume decline of 4%.

Now in Q2 we're at a 2.1%-plus, so it is getting better.

But it's not yet fully at the pace of the market.

That is largely explainable directly by the platform integrations.

And again, that's something which you to some extent expected, but it's still a pain as you go through it.

We are basically replacing 80% of our SVUs in Europe this year.

Massive factory moves, product platform moves.

That is basically, we expect it to be largely completed by the end of the year.

That is probably the single biggest driver behind the top line issue.

I want to reiterate the top line has -- we don't like to see it, but it has a lesser impact on the bottom line than the currency.

Thank you.

We will go next to Bob Wetenhall with RBC Capital Markets.

Good morning, everyone, and nice quarter.

Larry, good luck.

You have been a big contributor and you will be missed.

Just wanted to see if you guys could step me through what is going in the slide deck on page 27.

You're taking down your expenses by $50 million for restructuring.

And you're boosting the benefit this year by $25 million.

I'm trying to understand, and to just tie this maybe to Marc's comments about where is this kind of trade-off occurring?

It's obviously a very positive development.

Can you step us through kind of the puts and takes here?

Yes, Bob.

It's Larry.

On the restructuring side, yes, we did take down the restructuring expense for this year, down about $50 million.

Now part of that is currency related, but some of it quite frankly has to do with timing between years.

We will, obviously, provide guidance for next year in a few months.

But overall to Marc's point, the integration has been going well.

The restructuring has been going well.

The benefits have been -- we have been able to accelerate some the benefits from the acquisition and the integration.

That continues to go well, and we remain fully committed in what we communicated back through 2017 of $350-plus million.

Bob, it's Marc.

Keep also in mind, that's to Larry's other point, there's always a little bit of time lag between the expenses and the benefits.

So I think the way that you should read this one is the increase of benefits has largely to do with actions taken 2015 which are really -- I mean we get the strong needed of this one, and the expense adverse, there are one or two little pieces which we had in mind for this year which we probably will do 2017 and we'll announce it at the appropriate time.

So this just sounds like a timing issue.

Zooming out a little bit on the next slide on page 28, you took your price mix down from 50 basis points to 1% up to 0.0% to 0.5%.

I was trying to understand why you kind of tweaked that downward a little bit.

And your volume growth in Asia and LatAm is excellent.

And you didn't move up your outlook in terms of industry shipments or what you could do there.

And I was trying to understand if that's portending weakness in the second half or just an abundance of caution.

Bob, you know, I would just say there's -- there's been, you know, a number of moving parts in the first half of the year.

And we are assuming there will be a number of moving parts in the second half of the year.

The composite of the margin walk simply is our six months actual versus run rates going forward.

We're doing a little bit better.

As we said on the cost synergy side.

And we have seen a little bit of -- I won't say weakness, but lessening of the total on the pricing.

Volume nets out about the same in total.

But it varies a lot.

You know, I think as I look at the first half of the year and the full year, it will be another great example of how the -- having our balanced global representation operating platform, you know, allows us to take advantage of markets that are going well and offset markets that face challenges during the year.

Second quarter is a great example of that.

I imagine the second half will be the same way.

So there's no real big changes in any of our assumptions, with the one exception that Marc pointed out in terms of short term European margins.

Bob, let me maybe also add in Brazil, because you had specifically asked for Brazil also.

Don't read our performance in Q2 as an indication of the overall market environment.

The market environment continues to be very challenging.

I would read with a -- we were decisive on actions early on, maybe early in the cycle.

Took maybe also some hits early in the cycle, and now we start seeing the benefits of these actions earlier than maybe other people.

I would say right now, given the unfortunate confluence of political, economic and ultimately consumer confidence quite in Brazil, I don't think we can count on a recovery of this one in 2016.

We will go next to David MacGregor with Longbow Research.

Please go ahead.

Good morning.

Congratulations on a good quarter, Jeff.

Larry, congratulations on your retirement.

I hope things go well for you.

Best wishes.

A couple questions here.

First of all, your competitor talked a lot about weakness in private label business in North America.

I was just wondering if you could comment on whatever trends you're seeing in the private label business this quarter.

David, it's Marc.

Obviously I don't know and I can't comment on competitor's comments.

What I can comment on is in our own private label and brand of business.

So did we see over last five years a trend from our private label business to our brand business?

Absolutely.

And that's ultimately the reflection of the strength of our brand portfolio.

That trend is continuing.

So it's nothing shocking or surprising or all of a sudden.

It's been I would say a multi-year erosion.

And again, that's where the portfolio of strong brands help us very strongly.

I would also say in addition, and I think we have been talking about this repeatedly, where we take pride in our very balanced distribution footprint.

What it means, we have I would say a very similar balance of say with most of our national trade partners.

Whenever you see movements or wins and losses of one trade partner in the market, we typically don't see the pain because we have a very well balanced distribution footprint.

Which, obviously, also helps us mitigating any trends you might see in the marketplace by private label or OEM business.

So you didn't see anything that was really kind of discontinuous or that would be different from the trend you've been seeing over that past five years that you discussed?

We did not see a sudden acceleration of a trend.

We did see a continuation of a trend.

What it basically means, our private label also in Q2 went down.

We saw very strong growth of our Maytag business, and the net-net worked for us.

Okay.

Good to hear.

Same question.

If you think about all of the volume you're doing in North America over the course of the quarter, or even you can talk about the industry level if you want, the AM level, is there a growth in the percentage of the quarter's volume that is being sold into the market through retail sales events versus day-to-day non-discounted business?

Is that changing materially year over year?

Dave, again, it's Marc.

Short answer, no, we didn't see a massive change.

Again, the expanded answer, and it's my usual comment, is the AM sell-in T6 is not reflective of our total volume.

And there's always, like in every quarter, there are inventory moves and differences between the sell in and the so-called sell out.

I would say in this quarter some of these numbers may be a little bit more distorted just because of stockpiling by LG and Samsung.

It's just a reality.

But I would say from everything which we have seen, if we take all data points into account, that's why we still say we will still see a 5% to 6% steady state industry growth this year.

We will go next to Eric Bosshard with Cleveland Research.

Please go ahead.

Thank you.

In terms of the sell-through, Marc, to continue that point, the AM shipments were notably softer in Q2 relative to Q1.

And it sounds like there may have been stockpiling that benefited within that shipment number.

I guess what I'm trying to understand is in terms of the self through pace that you observed through the first half of the year and what you're seeing in terms of expectations and activity in the back half of the year, any change in that relative pace is the question?

Eric, it's Marc.

My comments in particular refer to our sell through.

We don't have, unfortunately there are no reliable industry sell through data.

It's just a data source issue.

So we have sell through data on about 65% of our customers out there.

So we have a pretty good proxy of what happens in our business.

And that pace has been ahead of our sell-in volumes.

I know it's also obviously quite a bit ahead of the overall market.

To your point earlier, it's hard to gauge exact market sell through.

Yes, you could say July 4th was maybe a little slow, but some part was expected.

On the other hand, the rest of the quarter was a little bit stronger.

I wouldn't read anything into what it would mean for Labor Day or any of the other promotional periods.

There will be ups and downs.

And of course the more aggressive people will be like on events like Memorial Day, you may see an offsetting item on July 4th.

But these are the normal -- what I would call the normal promotion ups and downs.

I don't think that changes any of our view of the full year industry guidance.

And so I guess just to make sure I understand from a sell through perspective, throughout the first six months of the year, ups and downs, but is there a trend?

Is it strengthening, is it the same, is it weakening?

That's what I'm trying to figure out.

I would say it's pretty constant.

There's probably more noise actually in the sell-in and the inventory data than there is in sell through data.

I think it's a pretty steady -- now there's differences by promotion.

There is also difference by channel.

For example, we continue to see very strong sell through and sell-in on the builder and contract segment.

Some very subtle differences across the different channels.

But the sell through is actually pretty steady.

Okay.

Thank you.

And we will go next to with and company.

Good morning.

I just wanted to get a little more color on Latin America, on how you saw demand progress in the second quarter.

And then maybe talk about if you're taking any competitive actions that are leading to the market share gains that guys are seeing in the market.

Yes.

And let me take this again.

First of all, as a reference point, the minus 10% which we gave as guidance refers to Brazil.

That is not Latin America in total.

And I would argue probably -- outside Brazil, the rest of Latin America is probably stronger than the minus 10%.

So the minus 10%, particular Brazil.

I would say that given the extreme volatility which we have seen in Brazil over the last five, six quarters, I would right now say close to impossible to predict exactly what happens by quarter -- and we would know we probably wouldn't give that guidance.

So right now it's actually -- we still expect the full year industry to be down minus 10%.

We knew in Q1 it was even worse.

So maybe it's stabilizing, but bear in mind it's stabilizing on a very low level.

Because year was already a significant reduction.

So we do not see any recovery or any significant recovery in Brazil in the back half of this year.

To your question about competitive reaction, we simply do not know.

We do not ask them.

And frankly we focus on our own profitability.

We did the actions a year ago with all the associated pain.

I would say our business is very well on track.

And keep also in mind there are not just mechanics of pricing up and down, these are new products, product introductions, innovation which we brought to the markets.

I would just add to that, you know, in Brazil as we talked about last year, we had three waves of disruptions.

The demand has been constant carry -- negative demand has been constant and has carried over into this year.

We had three major currency valuations.

The last one being in September/October.

And we had to adjust each time to those.

And then thirdly is the inflation.

So this year, demand is pretty much pointed out as we expected.

And we expected it to be down.

Both through cost and cost-based price actions we're dealing with both currency and inflation.

But the third factor is we continue, despite the environment, to invest very strongly in new product and brand innovation.

That is enabling us to improve our market position.

The cost and the price position are allowing us to improve our margins.

But the market share gains are purely the fact that we continue to bring new products to marketplace.

Okay.

And just clarification on guidance.

So in Q1, you didn't include the $0.50 of currency or any share repurchases.

Is any of that already included in the guidance you provided in the second quarter?

Well, everything is all up.

Remember our original guidance -- in our original guidance we said we would exhaust our previous share repurchase during 2016, which was the $225 million repurchase you saw in Q1.

We did do $100 million on a new authorization in the second quarter.

That will have a modest impact on our guidance, which is included in there.

And then the currency piece is now -- the $200 million is now in our guidance.

And that's reflected in each of the regions that Marc took you through from a margin perspective.

We will go next to Megan McGrath with MKM partners.

Good morning.

Thanks.

I'll touch on a region that we haven't touched on a lot so far today, which is Asia.

Wondering if you could walk through your view of the market demand in China and India.

And I know you said in your presentation that China was down.

Do you think that you are gaining share yet from your distribution expansion, or is it still too early for that to be happening?

Megan, it's Marc.

As you point out, first of all let me zoom out a little bit on Asia.

We are very pleased and satisfied with our operating margin.

8% in such a volatile region and a competitive region, is non frivolous, so we are very pleased with that progress.

But you're also right.

It's a little bit of a tale of two stories right now.

India in particular, which it's a big part of that region.

We had exceptionally strong results.

That was a strong market.

But we also made very good progress in the market from cost productivity and new product introductions and we gained share.

So I would say India is really a very bright spot in that Asia one.

China is impacted, even though the integration is on track, but it's impacted by a soft market demand.

When I talk about China market demand, typically you refer to so-called T2.

So it's not the same definition as North America.

But right now even though we don't have the latest June data, I would right now assume Q2 China both high single digits negative.

So this is obviously non-trivial in a very competitive market, which is characterized by a little bit of overcapacity.

So to your one specific question, did our distribution expansion yet translate into market share gains?

I would say not yet.

Because we're also underlying here there's two opposing moves.

We're expanding the Whirlpool brand distribution and we're actually gaining volume of Whirlpool brand, but at the same time we're phasing out or reducing some value brand business.

So there's two offsetting items.

And that's why the net-net, you don't yet see the market share growth which over time you should expect.

Okay.

Thanks.

That's really helpful.

And then switching gears a little bit of a follow-up on the UK.

We started to hear some groaning about construction starting to already pull back or folks talking about -- can you give us a sense of your exposure to the new construction business in the UK versus the retail, and if you're also starting to see any early signs of weakness?

Megan, it's Marc.

First of all, you know, every market around the world is slightly differently set up.

The kind of construction business which we have in US, what we refer typically to as a build of a contract channel, you don't have it to the same magnitude in the UK.

Because there's no typical -- there's fewer national builders.

So you don't have this national builder business.

Having said that of course, like any other markets, and particularly when you talk about kitchen demand, it's still impacted by housing activity.

I would not say not to the same extent as North America in terms of specific correlation, but there is an impact.

Do we see any signs of a pull yet?

No.

I just simply do not see it.

So but could you expect it over time?

Maybe.

I would say it's too early to tell.

As you also know, and I just right now tried to draw the analogy of other markets but yet currency swift.

You may see all behaviors of a market demand.

It wouldn't be the first market that you short term to even see an increase of demand because people are still going for lower priced appliances.

Then you see the opposite effect.

So it's too early to see that in UK.

It's speculation.

But that's the pattern which we have seen in many markets.

You may see the odd combination of first increasing demand and then softness demand.

And it appears we have no further questions at this time.

I'll return the floor to Jeff Fettig for closing remarks.

Well again, everyone, thank you for joining us today.

We look forward to talking to you next time.

Thank you very much.

And this will conclude today's program.

Thanks for your participation.

You may now disconnect, and have a great weekend.