惠而浦 (WHR) 2017 Q1 法說會逐字稿

Good morning, and welcome to Whirlpool Corporation's First Quarter 2017 Earnings Release Call.

Today's call is being recorded.

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

Thank you, and good morning.

Welcome to the Whirlpool Corporation First Quarter 2017 Conference Call.

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

Our remarks today track with the 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 2 of this presentation.

Turning to Slide 3. 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 and our ongoing business operations.

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

(Operator Instructions)

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 from last night, we delivered strong revenue growth for the quarter of about 4%, with substantial growth and margin expansion in both North America and our Latin America regions.

We also had significant free cash flow improvement of more than $240 million, an increase of more than 30% versus last year.

These results represent good progress towards our long-term goals.

We also continued to execute our balanced capital allocation strategy during the quarter.

During the quarter, we repurchased about $150 million of common stock.

And last week, we announced a 10% increase to our quarterly dividend.

During the quarter, we did experience challenges with integration complexity in our European business, which negatively impacted our quarterly results.

But we have plans in place to deliver significant improvements to grow our margins, which Marc will discuss later on in this call.

Overall, the fundamentals of our business are strong.

We are confident in our ability to deliver revenue, earnings per share and free cash flow growth this year.

We plan to continue deploying cash through our balanced capital allocation strategy, including the increased dividend I just mentioned and also continued share repurchases throughout the year.

On Slide 6, we show our first quarter financial results, which I've already discussed.

I'll now turn to Slide 7, where we show our 2017 financial guidance.

Our free cash flow guidance of approximately $1 billion has not changed.

We continue to expect to drive free cash flow improvement through both working capital optimization and increased earnings.

We have updated our 2017 earnings per share guidance, primarily to reflect the impact of the challenges we had in Europe during the first quarter.

Again, we do believe we had the right actions in place to drive improvements to our European margins as we progress through the rest of the year.

So overall, we now expect to deliver ongoing earnings of $14.75 to $15.50 per share for the year, which represents a 5% to 10% improvement year-over-year.

Next, I'll turn to Slide 8, where you see our 2017 priorities, which are unchanged.

As we discussed earlier, we do expect to complete key elements of our integration activities in Europe, driving several points of margin improvement in the second quarter and continuing to subsequently improve margins as we progress throughout the second half of the year.

Also, as we have done over the last several quarters, we expect to continue to drive growth above industry levels, especially in key markets like the U.S. and Brazil.

And we remain focused on driving substantial free cash flow improvements through working capital initiatives and earnings growth.

So with that as an overview, I'd like to turn it over to Marc Bitzer to review our global operations.

Thanks, Jeff, and good morning, everyone.

Turning to Slide 10.

We will review our first quarter performance in North America.

Net sales were $2.6 billion, an increase of more than 6% versus the prior year.

Excluding the impact of currency, revenues grew 7%.

We continued to deliver profitable growth above industry through our leading brand and product portfolio.

We gained more than 1 point of market share as consumer demand for our strong brands and new products has continued to outpace the industry.

We also expended margin through cost productivity and unit volume growth despite $40 million of high raw material inflation and about $10 million of unfavorable currency from Mexican peso.

As a result, our margins expanded by more than 70 basis points to 11.2% for the quarter.

As demonstrated by these strong results, we believe that we have the right plans in place to deliver our full year margin goals of 11.5% to 12% by growing at or above industry levels.

Turning to Slide 11.

You will see our expectations and operation priorities for North America.

We continue to expect industry growth of 4% to 6% for the full year behind strong macroeconomic and housing trends.

The industry grew approximately 2.5% in the first quarter, in line with our expectations.

We continue to expect to grow at or above industry levels, while expanding our margins through cost productivity, adjacent business growth and leveraging the benefits of unit volume growth, as we did in the first quarter.

And we expect to drive improved mix through strong cadence of new product launches throughout the year.

Beginning on Slide 12, we will review the first quarter results for our Europe, Middle East and Africa region.

Sales were approximately $1 billion, down 9% versus the prior year, excluding the impact of currency.

Our operating margins were negatively impacted by approximately $20 million of currency and demand impact in our U.K. business, consistent with our expectations.

And as Jeff mentioned earlier, our European integration is currently at peak levels of complexity, which impacted margins by approximately $40 million.

To provide additional context on these integration-related impacts, I will share some details, beginning on Slide 13.

We are approximately halfway through the final but most complex phase of the Indesit integration.

Our footprint optimization effort, which include integrating product platforms into new factories and reducing the number of factories in the region are approximately 70% complete.

Our brand and product platform integrations are nearly complete, and we are beginning to see working capital benefits of our simplified portfolio in the region.

Finally, we're approximately 30% through our system integrations and legal entity mergers.

We reached the peak level of integration-related complexity in the first quarter, and we expect the impact of these elevated complexities to continue until the end of the second quarter.

On Slide 14, we show the impact of these transitions over the past 3 quarters.

We started our platform of footprint optimization process in the middle of last year, causing a negative impact to the availability of certain products.

As we progress through this process, our availability continued to be challenged, with the impact of late shipments peaking in January.

As we normalized our operations during the quarter, we began to see late order levels improve and shipment volume increased and achieved a major client volume growth in March.

We are confident that the strong actions we have in place, shown on Slide 15, will overcome these challenges.

Our focus is on minimizing disruptions and quickly normalizing our operations as we complete legal entity mergers, the brand and product transitions and footprint optimization efforts.

First, we expect to stabilize systems across the region and improve our key business processes.

Additionally, we are improving our order intake process and safety stock targets.

We expect these actions to decrease late order deliveries.

Finally, as we push simplifying our brand and product portfolio, we expect to improve working capital and drive profitable growth.

To summarize on Slide 16, we now expect 0% to 2% industry growth in 2017, a slight reduction from our prior guidance.

We are expecting growth in Russia and Eastern Europe to be offset by slight weakness in Western Europe and the U.K. Based on current market rates, currency weakness in U.K. is now expected to be largely offset by the strengthening Russian ruble.

But increased raw material inflation will have a negative impact on margins for the full year.

We now expect to deliver operating margins of 3% to 4% for the year as we work to offset the impact of raw material inflation and first half integration complexity.

We expect second quarter margins to sequentially improve by several percentage points, and we expect that performance trend to continue as we progress through the second half of the year.

I will now discuss our Latin America results on Slide 17.

Sales for the quarter were $818 million, an increase of 16% versus the prior year.

Excluding the impact of currency, revenues increased 4%.

Operating profit was $68 million and margins increased 220 basis points versus prior year.

Despite operating in an environment that continues to be challenging, we were able to expand margins through cost productivity and favorable price mix, which more than offset industry volume declines and higher material costs.

We drove strong revenue growth and gained additional market share in Brazil as we continued to benefit from our leading portfolio of brands and products.

On Slide 18, our 2017 priorities and expectations for Latin America are unchanged.

We continue to expect industry demand for the full year to be flat, with demand declines continuing in the second quarter, followed by offsetting growth in the third and fourth quarters.

We remain committed to delivering revenue growth and margin expansion in the region as we continue to realize the benefits of our brand investments and new product launches while delivering strong cost takeout.

As the industry begins to grow in the second half of the year, we will further benefit from our right-sized fixed cost structure in the region.

For the year, we now expect to deliver 8% to 9% operating margin.

We now turn to our first quarter results for the Asia region, which are shown on Slide 19.

Net sales were $419 million versus $371 million in the prior year period.

Excluding the impact of currency, sales increased 16%.

Our operating profit was $23 million and operating margins were 5.5%.

We continue to deliver strong performance in India, and demand growth in the country has remained robust.

We also continue to grow volumes in China despite an operational environment in China which continues to be challenging.

Chinese industry declines continued and raw material inflation in the region was higher than expected, negatively impacting margins by approximately $20 million.

We also saw an unfavorable mix in China as we have not yet realized the full impact of our investments in brands across our larger distribution network.

Turning to Slide 20.

You will see our 2017 priorities for Asia.

We continue to expect flat to 2% industry growth for the region.

We expect strong demand to continue in India, and we will continue to drive revenue growth in China for our distribution expansion despite industry demand weakness.

We are on track to deliver margin expansion in 2017, and we continue to expect to deliver 7% to 8% operating margins for the year.

On Slide 21, we summarize our regional margin progression goals for 2017.

While we're working through challenges in the EMEA region, we continue to expect strong margin improvements and revenue growth in our other regions.

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

Thanks, Marc, and good morning, everyone.

Turning to our first quarter results on Slide 23.

Net sales were $4.8 billion and grew 4% versus the prior year, which is in line with our full year revenue growth expectations.

We delivered strong free cash flow improvement of more than $240 million versus the prior year through focused working capital optimization.

We delivered ongoing earnings of $2.50 per share.

A strong cost takeout and revenue growth were more than offset by $90 million of raw material inflation as well as the negative impact of integration complexity in Europe.

Finally, as indicated on the prior call, due to our tax-planning activities, we now expect a full year effective tax rate of 20%.

Turning to Slide 24.

I will update our expectations for the 2017 EBIT margin drivers.

We are experiencing raw material inflation at higher levels than we expected in January.

However, our exceptionally strong cost productivity and restructuring programs will more than offset these levels of raw material cost inflation while still delivering benefits to the bottom line.

We are also seeing less impact from currency and expect the full year impact of currency on EBIT margins to be approximately flat.

On Slide 25, we update our expectations for total cost takeout in 2017.

As you can see, we now expect $300 million of raw material cost inflation.

However, we remain confident in our ability to deliver substantial levels of cost productivity.

We now expect to deliver approximately $475 million of gross cost takeout for the year.

We have a strong track record of dealing with raw material cost inflation through cost productivity while expanding our margins.

This year will be no different.

On Slide 26, we show our updated full year guidance for 2017.

We continue to expect to deliver approximately $1 billion of free cash flow, and our first quarter free cash flow improvement of more than $240 million has us firmly on track to delivering that goal.

As a result of the increased complexity of our first half integration activities in Europe, we are adjusting our full year ongoing earnings guidance to a range of $14.75 to $15.50 per share.

On Slide 27, we update the first half versus second half timing of our earnings for the year.

We continue to expect volumes to be a positive contributor to earnings in both halves of the year.

We now expect the impact of total cost takeout to be slightly positive in the first half, with the benefits from our cost takeout programs ramping up in the second half, as has been the case in prior years.

We have seen some improvements to currency in the first quarter, and we now expect the full year impact of currency to be approximately flat.

Finally, we expect to more than offset slightly negative price mix in the first half of the year with positive price mix in the second half, driven by our innovative new product launches.

Overall, we expect full year earnings seasonality to approximate 40% in the first half and 60% in the second half.

On Slide 28, we provide additional detail on our cash flow and capital allocation priorities.

As I mentioned earlier, we delivered free cash flow improvements of more than $240 million in the first quarter.

And we are well on track to deliver approximately $1 billion of free cash flow for the full year.

During the quarter, we repurchased approximately $150 million of shares and we recently announced a 10% quarterly dividend increase.

Given our confidence in our underlying business performance and our cash-generation capability, we remain committed to returning significant levels of cash to our shareholders by executing our balanced approach to capital allocation.

Turning to Slide 29.

We update our full year free cash flow improvement drivers.

We now expect to deliver cash earnings growth of approximately $200 million through the margin expansion plans I discussed previously.

And we now expect to generate $250 million in free cash through our strong focus on improving working capital efficiency, primarily in North America and Europe.

Turning to Slide 30.

Consistent with our prior disclosures, we remain committed to our balanced capital allocation strategy.

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

Thanks, Jim.

I'll turn to Slide 32, where I wanted to update you on our progress towards our long-term value-creation goals, which we laid out at the beginning of the year.

Our first quarter revenue growth of 4% has us fully on track towards our annual growth target for the year in revenue.

We remain committed to achieving our long-term EBIT margin goals of 10-plus percent by executing all the elements of the strategies that we described.

We've also delivered significant improvements in free cash flow in the first quarter.

We expect to deliver again for the year.

And we are on track to deliver cash generation of 5% to 6% of revenues, in line with our 2018 goal.

So overall, we're confident that we will make meaningful progress towards each of our value-creating goals this year.

Lastly, on Slide 33, let me summarize kind of key points we want to communicate in this call.

Again, first, good revenue growth in the first quarter; really good growth, revenue growth, in margin expansion in both North America and Latin America; cash flow, very strong, and we are on track for the year.

We do have actions in place to complete the key elements of our European integration as we go through the year.

And we do expect strong improvement from the first quarter to the second quarter and the balance of the year in our European business.

So overall, we remain confident in the strong underlying fundamentals of the business and we're fully committed to delivering our long-term goals.

Finally, we do look forward to providing all of you more detail about our long-term strategy for shareholder value creation at our Investor Day, which is scheduled to be held next week, May 4, at the New York Stock Exchange.

So with that, I'd like to end our formal remarks and open it up for questions.

(Operator Instructions) We'll take our first question from Robert Wetenhall of RBC Capital Markets.

Jeff and everybody, it sounds like you made a lot of progress in North America, and LatAm is rebounding nicely.

And then we get to EMEA and it seems like there's some hardship in place.

And I really was hoping you'd give everybody a little bit more comfort.

Is this kind of a transitory margin shortfall, an air pocket in the first quarter we saw?

How confident are you that you can return to profitability in the second quarter based on that chart you had, Chart 14?

And where can this business go in terms of longer-term margin performance once you finish with the platform integration and get the headquarters system integration complete?

How should we think about this going forward?

Yes, Bob, I'm going to turn it over to Marc to give you a little bit more detail.

But big picture, our expectations for Europe are unchanged.

We think, with the integration complete, this is going to be a highly value-creating business.

First quarter was a big challenge and it had a material impact on our earnings.

We do think -- very much believe it's transitory.

And again, I'm going to turn it over to Marc, and let him give you a little color on it.

Bob, it's Marc.

First of all, as you outlined, we're very pleased to have 3 of our 4 regions are fully on track, probably even on the high end of the margin.

Europe was a miss; there's no question around this one.

To Jeff's point, what is important is we strongly consider this as being of temporary nature and not structural.

This is nothing.

And also if you look at the issues, there's nothing structural.

We had a blip, if you want to say so, which was particularly concentrated in January and February.

And as you'd seen on the slide before, March, I would say we stabilized the situation and we exited the quarter with a much stronger performance compared to January, February.

What ultimately drove it is, call it, the cumulative effect of the complexity of integration.

So as we came to the tail end of the factory and product platform integration and as we did the entire SAP system go live from the headquarter in Italy and all the factories in Italy, that led to a major supply chain disruption in January, February.

It happens.

The situation is stable, but it doesn't mean that it's yet a good supply chain situation.

We expect it to be stable in Q2 and then turn back to kind of, call it, normal operations in Q3.

It is also, as we are progressing in April, we see a similar trend as we've seen in March, a fairly stable system of environment, not yet good, but stable.

And also, we see then the subsequent positive effect on order and shipments.

So again, we had an issue particularly focused in January, February.

March exit was much better.

As I indicated in my prepared remarks, Q2, we will see several points of margin improvement compared to Q1.

And we expect the positive trend to continue in the second half.

And straight up on that question, do you think you're going to be in positive margin performance for the second quarter in EMEA?

We do expect so.

Got it, that's great.

And then obviously, you show some good progress working through these issues.

North America, it's your big engine driver of profitability.

I was just wanting to get a little bit more depth, sounds like there's some input cost inflation on the steel side but you are making good progress of productivity improvement.

And how do we think about the pacing cadence kind of profitability?

You reaffirmed your longer margin target this year for North America.

Does the productivity improvements outstrip cost inflation?

And could you talk a little bit about the pricing environment?

It seems like you're gaining some share.

How should we be thinking about competitive dynamics?

Bob, it's Marc again.

So let me break it up in several points.

First of all, top line.

As I indicated before, we're highly confident the industry will grow 4% to 6%.

That 2.5% in Q1 was more driven by inventory adjustments related to a trade partner bankruptcy.

In that environment, we picked up approximately 1 point of share.

What we haven't referred to in detail is actually if you look at the underlying driver, that 1 point of share growth, particularly came from KitchenAid then, where we launched a new kitchen suite last year, and Maytag laundry.

Actually, right now, if you look at the industry, these are probably strong growing brands in the entire industry.

So we feel very good about the mix we achieved in Q1.

Despite some reports out there, we were not very promotionally aggressive, otherwise we would have never achieved this kind of margin.

So I think we were very balanced in deciding which promotion to go in.

We drove the mix very well and that helped very strongly the top line.

On the cost side, yes, we see globally and we refer to that significantly higher raw material than we expected just 90 days ago.

The good news, both globally and in North America, a big part of it already is already behind us.

We ate through a big part of raw material increase in Q1, both in North America and a global level, which is largely related, you mentioned, steel.

But call it the surprise came particularly from resin.

Steel prices are high, but resin is substantially higher throughout the quarter but start coming down in late March.

So yes, we face some raw material increase in North America.

We dealt with them through additional cost productivity and we are very confident that we can deal with them throughout the year.

Our next question is from Sam Darkatsh of Raymond James.

Two questions.

First, I think you mentioned that the systems integration milepost in Europe is still ongoing and probably doesn't end, at least comfortably until late Q2.

So why specifically do you feel comfortable that your visibility is better now than it was in late January?

And how do you get improved working capital for the year knowing that you have to raise safety stock inventory?

That would be my first question.

Sam, it's Marc.

I'm going to take this one.

First of all, on the system integration, the Q1 of January, February was the combination of system integration and the remaining piece of some factory moves.

We particularly moved some off, which was confined then to January.

So the combination of this one led to a supply chain disruption.

In particular also, the system introduction in January was not a normal one.

This is not one of a normal market introduction.

It impacted Italy, the entire headquarter operations and linked to this one all the Italian factories.

So this was even though we were not done with the system integration, that was the single biggest piece and it's kind of, yes and we had some issues in particular on electronic orders, which we addressed, but it took us some time to address it.

So yes we will have system go-lives going forward.

But I would say, these are more kind of normal market go lives, which, on its own, are challenges, but we know how to deal with them.

But they are not -- a single piece but not comparable to anything, which we had in January, February, and that gives us certain confidence behind this one.

To your question on working capital, again, as you know, we don't show regional working capital levels.

But we actually addressed the inventory overhang in Europe, which may sound contradictory to delayed orders, but we had a lot of inventory coming from kind of phaseout products as a result of a product transition.

And if you want to say so, we flushed them out so we're kind of -- an inventory reduction is largely related to phaseout of the products, which helped us significantly improve our working capital in Europe and we basically dealt with that, so we don't have to deal with that going forward.

Last question, if I could.

And if you mentioned this in the prepared remarks and I missed it, I apologize, but where specifically is the extra productivity and cost takeout coming from?

I think you called out $25 million or so.

Are there specific areas where you highlighted that you could talk to, if you could?

Yes.

Sam, let me maybe give you an answer on a global level, and Jim showed it also in his overall chart.

First of all, in terms of headwinds, we so far assumed $150 million plus raw material headwinds.

We now expect this to be about $300 million.

At the same time, we think we can increase our gross productivity to roughly $475 million.

So the net of this one being roughly $150 million to $200 million positive.

The increased gross productivity is -- comes back to, basically, a playbook, which we use in these kind of situations.

We ramp up our engineering activities on normal cost takeouts.

We take very tight controls of SG&A measures, and that basically leads to the increased results.

And that is pretty much true for all the respective regions.

So the kind of measures we are looking at art true for North America, Europe and all the other regions.

And, Sam, the only thing I'd add to that, in addition to that, the other side of the equation where is what we have done in some markets with price.

We have gotten in markets like Brazil and some other markets, where we have an even higher level of inflation.

It requires us to take cost-based price increases.

And everywhere, and Marc showed -- told you the example of North America, with our brand portfolio, of how we're driving mix.

So cost productivity has always got to be on and particularly in this kind of environments, but we get the same attention to the Price Margin Realization side.

We'll move next to Megan McGrath of MKM Partners.

I guess back on the couple of updates on your operations in the U.K. I know you said last quarter, you had initiated some cost-based price increases there over the last 6 months and it was a little slow-going in terms of getting competitors to follow.

So if you could give us an update on that, that would be great.

Megan, it's Marc again.

So I'm going to take this one.

As we -- so first of all, U.K. was not a surprise for us.

It's basically the kind of issues which we expected, which impacted in the quarter by roughly $20 million year-over-year.

So the price increases, which we referred to already in our last earnings call, we had a July and September price increase, of which year-to-date, given competitive intensity and given trade partner situation, we realized about 6% or 7%.

So we realized quite a bit of a price increase, but not yet to the full level of which is required to offset the currency impact.

It's difficult to comment on the entire competitive environment, so we focus on our operations, so we realized something.

But it's also important to note, with our exit market share in U.K. after 2 or 3 rough quarters has now no stabilized, so we're basically back to kind of pre-Brexit market share level, which is an important measure.

And we continue to stabilize that.

Keep also in mind, pretty much in June of this year, we kind of annualized the Brexit's impact.

So, from then on, shouldn't be a headwind any more.

Great.

And then moving on to Latin America, good stable results there on the top line and an improvement in margin.

What's your level of confidence there now in terms of the overall market having bottomed?

Megan, it's Marc.

No question I would call the results stable.

We were actually very pleased with these kind of results in a very, very tough environment.

So first of all, there's 2 aspects to this one.

So the market remains tough.

I mean, Q1 was down.

In Q2, as we indicated earlier, we'd probably not see a lot of recovery.

We're still fairly confident in the back half.

So on a full year basis, we expect market to be flat.

But we're not putting a lot of hopes behind a too-fast market recovery.

But again, for the second half, we're a little bit more confident.

I think the team has done an excellent job in rightsizing fixed cost structure and also on the variable costs.

If we look at our variable product margins, despite not having a lot of volume, we have a very healthy business in there.

And it's kind of -- and we know we had a similar experience in North America 3 years ago.

If you have strong variable product margins without volume in a down market, then you know you can exit very strongly once the market recovers.

We'll take our next question from Michael Rehaut of JPMorgan.

First question I had was just going back to the EMA, the European margins and sorry to beat a dead horse but just obviously want to gain a little bit of incremental clarity.

So I guess, just going back to the end of January, kind of 2 parts on this.

Going back to the end of January, obviously, you were already -- when you kind of put out your 4Q release and held the conference call, you were obviously already going through a pretty tough January, but at the same time expected.

It seems like perhaps better improvement within the quarter than ultimately played out.

So just kind of curious what kind of turned in February.

Or why wasn't the -- where was the enthusiasm that you could pull it out maybe a little sooner than ultimately occurred?

And then conversely, looking forward, it seems like you're kind of expecting a back-half margin, perhaps similar to original expectations, to get to the 3% to 4% for the full year.

So does that kind of point to, by the end of 2Q, most of all of this drag essentially ending?

Yes.

Michael, just again, big picture, Marc kind of went through it very specifically in detail.

But the first quarter, whatever word you want is the -- operationally, not a surprise, but it was operationally challenging to us.

We had very negative shipments in January, still pretty negative in February, turned around slightly positive in March.

We've shown that progression.

So yes, it was -- we didn't plan on an operational shortfall, no.

We had one.

We got, I think, our arms around it by the end of the first quarter, we said, as Marc said, we still have challenges going to the second quarter.

We will improve our margins to profitable levels in the second quarter.

And then we expect to kind of get back to an improving margin structure in Q3 and Q4, which leads to 3% to 4%.

I mean -- so what gives us confidence, well, and again Marc said, we saw improvement in March.

It was just too late for the quarter.

Looks like we're going to have similar in April.

And every day, every week, we get further past kind of the peak execution point in the integration, and that's our job, and that's what we intend to do.

No, I appreciate that, Jeff.

And I guess, I was just kind of looking for, again, it seems like by the time you're getting -- looking at the back half, it seems like you're expecting more business to return to normal or so the expectations to return to what you had at the beginning of the year.

So I just wanted to try and confirm that.

But...

You figure out the math.

I mean, yes, compared with almost minus 2% margin in the first quarter, yes, we do expect much better margins in the second half.

Right.

No, and I guess, just switching gears to North America.

If you guys could kind of comment on the competitive backdrop.

You noted very positively you gained 1 point of share and you did that without being aggressive on the promotional side.

I was wondering if you could give an update on just the overall competitive backdrop.

Has anything changed in 2017 versus the back half of '16?

And maybe also talk about some of the ongoing changes in the different distribution channels, the different retail partners, to the extent you're able.

Mike, it's Marc.

The first one, competitive level in North America remains -- and for U.S., remains highly competitive, I mean, as it always does now.

I think small change from Q1 versus the back half of last year.

As you know, back half last year, we had a significant impact on our P&L coming from excess inventory by certain Asian competitors who kind of loaded the trade with laundry products in anticipation of an antidumping cost.

That was a reality.

And we paid a big price for that as a company in the second half.

That effect has moderated in Q1, but it doesn't mean that it's quiet elsewhere.

So there's always promotion pressure.

I would say not the same kind of inventory overhang as we saw in the second half last year.

It's hard to predict, and I can't comment on our competitors, what would happen in Q2 and Q3.

But right now, as you know, there are certain antidumping measures in place, which we are confident will lead to a fair, level playing field in the middle of our markets, and that's what we, right now, continue to expect to see.

From a trade environment, it's kind of we -- as always, we don't comment on specific trade partners.

I would say overall, we're still very confident, first of all, in the entire builder segment.

That continues to show strong growth, where we're well positioned.

The home improvement channel is overall growing very strongly, where we have a very strong market position.

So I wouldn't call out any specific retailer.

You all read the headlines out there, and we're experiencing similar things.

And then I'd only add to that, Michael.

Demand was solid in the first 3 or 4 -- or has been in the first 3 or 4 months of the year.

There -- again, we get into this sellout data versus shipment data and plus we had a major bankruptcy of a retailer and all that kind of stuff.

But as we look at it, we feel really good about the 4% to 6%.

Our next question is from Samuel Eisner of Goldman Sachs.

Just wanted to double check on some of the EBIT walk numbers here.

And so I just wanted to confirm, so of the $300 million of raw material inflation for this year, how much has been recognized in the first quarter?

And then in addition to the $475 million of gross cost out, again, how much has been recognized in the first quarter?

If you can give us either by segment or in aggregate, that would be great.

So, Sam, this is Jim, and I think the one thing I mentioned is that $90 million of the raw material inflation has already been realized in the first quarter.

So you could think about 1/4 of it has already come in.

And then for the first quarter, as we said, cost was slightly positive.

So you should think of it, for the full year, we've got about 1/4 of our cost also improvement that's come in at this point in the year.

So it's about ratably in the first quarter.

We do expect it to accelerate somewhat in the back half of the year.

But that's where we are, and that's what you should assume.

Understood.

And then if I just think about the North America margin, it certainly seems a surprise to the upside.

The incremental margins strictly on volume in the quarter or even going forward, how should we think about that?

Is that a 25% incremental margin?

Is that a 40%?

Just how should we think about it given that presumably you're reaching pretty decent levels of utilization on that success at base?

Sam, it's Marc.

So first of all, we guided North America to 11.5% to 12% margin.

And right now, obviously, with the strength in Q1, you could probably make the case that we're more on the high side of this one, but we can see how the year plays out.

Right now, I would say we're confident we can deal, as Jim said, through overall material increases for cost productivity and even more than offset this one.

A lot depends also on how we can drive our product mix going forward.

Q1 was very strong in KitchenAid and Maytag laundry.

Both [ along ] we can continue.

That gives us a lot of upside in price mix.

The volume impact, we had 6% in Q1.

So that's solid, but it doesn't drive a massive P&L impact.

Yes, you have some volume leverage on this one, but right now, from a pure margin expansion, we're still more focused on product mix and cost takeouts.

We'll take our next question from David MacGregor of Longbow Research.

Congratulations on the North America share gains.

I know you talked about that 5 or 6 quarters ago as sort of being a rising priority for you.

It's nice to see that playing out.

Two questions.

First of all, on the Indesit integration, you'd originally, at the time of the acquisition, laid out some ultimate cost synergies numbers.

And I'm just wondering if this morning you could update us on the cost synergy expectation now for Indesit in 2018.

David, it's Marc.

First of all, as we said at the very beginning of the Indesit integration, we expect to deliver roughly $350 million of overall synergies.

As of to date, we're fully on track to deliver these ones.

We delivered them in '15 and '16.

And in '17, we expect the number $75 million of incremental synergies to come to the bottom line.

So we're fully on track on this one.

Unfortunately, so far, these have been masked by currency and demand upsets.

That's been, obviously, very painful.

But versus the original $350 million of synergy targets, we're fully on track.

And while we will also give a further update on this one on the Investor Day, but that part of the equation is fully on track.

Okay.

And then, secondly, just on the raw materials, I guess you raised the guide of raw materials to $300 million from $150 million 3 months ago.

Is there any way to achieve a little more forward visibility on these costs and manage some of the quarter-to-quarter volatility?

And I guess, as well, how exposed are you to further upward revisions to these numbers as the year goes on?

David, it's Marc again.

So first of all, as you know, the 2 biggest components of raw materials in our case is steel and resins.

Okay, these are the 2 single, biggest items.

And there's, of course, a number of other raw materials.

Steel and resins are the big ones.

What made the change in Q1 and what makes also the forecast very difficult is, yes, you have some element of steel prices, which are on the high side of what we even expected, but the resins had a massive move in Q1.

What makes the forecasting so difficult and more difficult than usual times, that in both steel and resins, we can't relate these increases to either input costs or demand levels.

They are more driven by what I would call capacity management.

So there's a lot of factors which are, right now, hard to explain and hard to forecast.

Because again, it's not input driven and we do not see the demand side on either steel and resins to justify these kind of price increases.

So that also makes the rest of the year a little bit difficult to forecast.

But right now, I think the $300 million which Jim referred to, that's probably our, right now, our most likely assumption for raw material cost increases for the full year.

We'll take our next question from Denise Chai of Bank of America.

So my questions are still around EMEA as well.

You gave guidance in late January.

You said that January was the toughest month for the integration.

So I guess, what was your thinking when you provided that guidance?

And what was kind of most out of expectations in terms of CDM, complexity of integration?

And then secondly, how should we think about margins as you exit the year with all this integration now under your belt?

And related to that, when you think about those intact long-term margins, should we think about it as being a 2018 thing, 2019?

Just kind of any sort of color around the time line.

Denise, it's Marc.

First of all, when we gave the last earnings call, that was kind of late January.

So frankly, we expected the operations to stabilize faster.

So the fact that it also took us way into March to stabilize it took longer than expected.

The reason for this one is plenty-fold, but it's largely systems and complexity of managing through supply chain challenge.

Having said that, March was better and April is better, so we're confident on the improvement sequentially.

As Jeff indicated before, the 2 aspects are, if we just do the math, the 3% to 4% full year guidance, the exit run rates of Q3 and Q4 are very similar to our original expectations.

And by the same token, again, we will talk at Investor Meeting, we stand behind our 8%-plus long-term operating margin for the full year.

And that's -- we're fully convinced that's the right structural run rates, that Q1 was a blip, but we're fully confident we can be on that track.

Yes.

And, Denise, this is Jim.

One of the things too is some of the increased raw material inflation we saw came in EMEA, and we were able to offset it globally, as we said.

But with some of the integration issues, we weren't able to offset it necessarily in EMEA.

So they saw a more significant impact within the first quarter.

But again, we believe we're going to be able to offset it globally on a full year basis.

Okay.

And just one more.

Looking at Slide 14, you had 8 straight months of negative volume here, which has now turned positive.

But do you see any obstacles to regaining market share?

And if you could perhaps size on maybe the aggregate production shortfall that you've seen.

So overall, Denise, I mean, obviously, with this kind of year -- this 7 or 8 months of volume decline, we lost some markets in Europe.

It was largely focused initially on the U.K., where we took some strong pricing actions and we lost some market share.

But this integration complexity we also lost in Q1 and Q4.

We lost market share in a number of countries.

We're country-by-country, regaining the market share and actually see positive momentum.

Probably, the first country which came around was Russia, where we had solid market share gains in Q1.

U.K. is only in March we now saw good exit market share, similar to kind of going into Brexit.

Italy, we had some challenges in Q1.

So we're, piece-by-piece, we're finding our way back to market share.

What is actually important to realize is the market reaction on our new product as a result of this product integration had been very positive.

So we know the products are working.

We had availability issues.

And Europe and all the other global markets are so competitive.

If you have availability issues, you will have competitors being able to quickly fill in.

But again, what has been a headwind, we would expect to be a tailwind as we go forward.

Our next question is from Ken Zener of KeyBanc Capital.

So once again, the bear case in the U.S. wasn't realized, and that's really the permanent shadow that you guys are under.

But Europe missed, and I'm not diminishing the difficulty of what you guys are doing in Europe, but I think part of the bigger issue here is if you could respond to that "temporary" that you referred to, Marc, because that's the first time from an operational perspective.

We did have several years ago, as you recall, the complexity of the product rollout in the U.S., which impacted you.

So I guess if I could have you respond to the complexity issue of these operations, if we are thinking about Europe, there's a lot going on, but also in the U.S., we had this issue a while ago and why that miss results and reduced guidance, perhaps.

That's my first question.

Ken, it's Marc.

So yes, I would say we had a supply chain issue in North America.

It was 2 or 3 years ago.

However, I would not compare these 2 things even ever.

I mean, U.S. was around a product introduction and the massive demand increase against what was still limited capacity in the system.

Europe is the amount of complexity is probably difficult to explain on a conference call.

We have about 9,000 SKUs in Europe, which compares to about 2,000 in the U.S. We changed last year about 80% of these SKUs.

As you've seen on this little chart, literally almost everything the factory was impacted by all the combination transitions.

That's behind us.

At the same time, we introduced several new product platforms, and we changed the SAP system.

So the combination of these factors, I don't think, is in any way comparable to what we had in North America.

Now having said that, as Jeff said before, Europe was a miss.

I'm not trying to put it any differently.

I think we got our arms around it very quickly.

We have the entire company focused on this one.

We stabilized it in March.

But we also recognize it doesn't mean that it's yet good from a supply chain situation, but we're confident we can keep it stabilized in Q2 and then kind of month-by-month get better on this one.

Ken, the only other thing I'd add, sometimes you have and you pointed it to operational things; they do happen.

But I would also point to North America.

We had the best quarter ever in North America.

Part of that benefit is from the new product transitions that we had some challenges with.

And we're growing revenue above market.

We're expanding margins in a tough, difficult market.

And we're improving our mix.

And a lot of it has to do with getting massive product transitions in the marketplace, which, I think, hopefully, we'll see the same thing going forward with Europe.

No.

That's why I tied the 2 together, because it is complex and you do have to create a foundation.

Marc, I'm going to go back to, I guess, Slide 14 -- no, 13, wave 3. For us that haven't worked in the industry, I think this conference call and obviously next week, I think this will be a topic, too.

But ramp up industrialization, you mentioned SAP electronic orders.

That is not unique to you all that an SAP system can -- Hershey did it on Easter.

Can you get into a little more detail, though, on this?

Because there's a lot of questions in my e-mails just saying what does it mean?

I mean, I hear the word.

But is it that you turned on a computer, basically, system and all of a sudden orders weren't coming from 50% of your customers through the system into the factories?

Because I do think, Jeff, realize that the U.S. -- and, Marc, that the U.S. and Europe were different.

In many ways, they're the same because you're executing well on the U.S. But it's these hiccups that kind of undermine the longer-term slope that people can expect from your margins.

I think if you could just go into that a little more, Marc, that would be helpful.

Yes.

Ken, it's Marc again.

Obviously, I think that is a good topic for our Investor Meeting in a couple of days from now.

Having said that in a kind of one sense, it's not just the SAP introduction.

We changed all our SKUs, moved pretty much most of the factories, and on top of that, had an SAP introduction.

It is -- and by the way, it's not the first the SAP introduction, we had SAP introductions before in Europe and North America, we know how that normally works.

Right now, as you go for integration, you have 2 legacy systems converging into a new system.

So you basically have, in simple terms, 3 systems talking to each other, which drives a lot of complexity.

No, via electronic orders are not everywhere, the same, without going into detail.

Italian kitchen manufacturer electronic orders are something fundamentally different than a normal EDI order from other trade partners.

But again, these are probably way too much detail for the conference call.

But again, it's kind of we know what's behind us.

We know we're still not done with all of the SAP introductions.

But now they will not come on top of a factory integration, which is a big difference.

But again, I would recommend that we spend a lot more time on this one at our Investor Meeting in a couple of days from now.

(Operator Instructions) We have a follow-up from David MacGregor of Longbow Research.

I guess, certainly good performance on the North America margins this quarter, and clearly, the productivity initiatives you talked about are coming through here and helping you on the raw material offset.

But I guess, could you talk about how important you feel it is, I guess, in the face of these higher raw material costs?

And I guess, given the revision from $150 million to $300 million from the beginning of the year to here there's still risk of upside to that $300 million number for this year.

But wondering if you can just talk about how important you feel it is in the face of that higher raw material cost to get a price increase this summer that would give you more gross margin to take into the Black Friday discounting?

David, obviously, we don't talk about future price increases.

I would just say that in our business, whether it be North America or anywhere else, we believe that's fundamentally critical to maintain and preserve margins in any environment.

And if you look at our track record, there's different levers to pull.

Marc and Jim described very detailed cost productivity actions that we are driving.

We are, in fact, in some apparently big markets around the world, we have announced and continue to announce cost-based price increases.

So we've got to do all of that.

But we've not communicated anything in -- specifically, on a go-forward basis in the U.S. market.

Not saying we won't, I'm just saying we haven't done it yet.

And, David, it's Marc.

To Jeff's point also, again, we will never comment on forward-looking pricing, et cetera.

But our playbook, and we have shown that in the past repeatedly, is when you face raw materials, we've, first of all, double down the cost takeout actions, including fixed cost; two, we drive product mix very hard; and three, as an ultimate result, we have like-for-like.

We've done the cost takeout, the price mix successfully in most regions.

To Jeff's point, we have driven like-for-like increases already in China in the face of raw material, and we will make decisions on a go-forward basis.

So with that, we're going to wrap up.

I want to thank everyone for joining us today, and we look forward to seeing most of you next week at our Investors Day on May 4 in New York.

So thank you very much.

Thank you.

This does conclude today's Whirlpool Corporation's First Quarter 2017 Earnings Release Call.

You may now disconnect your lines.

And, everyone, have a great day.