惠而浦 (WHR) 2017 Q3 法說會逐字稿

Good morning, and welcome to Whirlpool Corporation's Third 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, Max Tunnicliff.

Thank you, and good morning.

Welcome to our Third Quarter 2017 Conference Call.

Joining me today are Marc Bitzer, our Chief Executive Officer; and Jim Peters, our Chief Financial Officer.

Our remarks today track with the presentation available on the Investors section of our website at whirlpool.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 the 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 are unrelated to, results from our ongoing business operations.

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

Listeners are directed to the 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 Marc.

Well, thanks and good morning, everyone.

On Slide 5, you will see the highlights of this quarter.

As you noted in our press release, in the third quarter, we delivered revenue growth in line of our long-term goals and delivered free cash flow improvement versus the prior year, primarily driven by strong working capital improvement.

Our GAAP earnings increased $0.62 above last year.

And our ongoing earnings per share were $3.83 compared to $3.66 in the prior year, an increase of 5%.

Our global operating margins were negatively impacted by 2 items: significant raw material inflation and price/mix weakness, including the slow progress on our European integration.

In response to these challenges, we are announcing strong actions to put us back on track to deliver our long-term goals.

We will be executing a series of recently announced global cost-based price increases throughout the fourth quarter and the first quarter of 2018 to fully offset the impact of sustained global raw material inflation.

The price increases are expected to impact more than half of our business.

We're also announcing a new cost takeout initiative, which will further streamline our global fixed cost base.

This initiative primarily impacts our overhead cost, including salary headcounts and third-party services, and it's in addition to our ongoing cost productivity programs.

Finally, we remain confident in the strength of our free cash flow and repurchased $200 million of common stock this quarter.

This brings our year-to-date repurchases to $550 million or $125 million above the same prior year period.

Turning to Slide 6, we show our third quarter financial results as they relate to our long-term goals.

We delivered revenue growth of more than 3% during the quarter.

And consistent with our prior expectations, we expect to deliver full year revenue growth in line of our long-term target of 3% to 5%.

EBIT margins were 6.6%, a decline of 80 basis points compared to the same prior year period, driven by raw material inflation and price/mix weakness.

We now expect to deliver EBIT margin of 6.5% for the full year due to slightly increased raw material cost expectations and second half price/mix challenges.

Free cash flow improved by approximately $120 million throughout the third quarter as we continue to focus on inventory optimization.

We now expect to deliver free cash flow of approximately $900 million this year due to lower earnings than previously anticipated.

On Slide 7, we show the drivers of third quarter margin performance.

Price/mix negatively impacted margins by approximately 150 basis points compared to the prior year and was partially offset by approximately 100 basis points of margin contribution from cost takeout.

I will provide more detail on these items on the next 2 slides.

Finally, currency was a slight headwind during this quarter due to British pound weakness versus the euro.

Turning to Slide 8, we provide more detail on our price/mix performance and expectations.

In total, third quarter price/mix was unfavorable by 150 basis points.

Our North America region delivered flat price/mix during the quarter, and we continue to expect the full year impact to be slightly negative in that region.

Price/mix in Europe was unfavorable during the quarter as we continued reducing our obsolete inventory related to brand transitions, which was compounded by currency-related pricing pressure in the U.K. We continue to expect that price/mix in Europe will be unfavorable for our full year due to these challenges.

In Latin America, the industry in Brazil shifted towards washers and away from refrigeration in the quarter, which had an unfavorable impact to price/mix.

However, we believe this represents a very temporary shift, primarily impacting the third quarter, and we continue to expect favorable full year price/mix in Latin America.

We also continue to experience significant price/mix pressure in China, primarily due to industry weakness and related promotional intensity.

We expect these pressures in China to negatively impact our full year margins in Asia despite very strong performance in India.

Overall, price/mix has been a challenge for us this year, and we have initiated strong actions to reverse that trend in 2018.

We recently announced new global cost-based price increases to offset the continued impact of raw material inflation.

This initiative affects our major clients' businesses across all regions and is expected to impact more than half of our total company revenue [growth] .

We have already announced price increases in a number of key countries, including the United States, Brazil, most of Europe and China.

These price increases do not impact our laundry business in U.S., but we will continue to monitor the pending trade actions covering washers and take the appropriate steps to manage the business.

Turning to Slide 9, we provide more details on our cost takeout performance and expectations.

During the third quarter, we delivered approximately $100 million of cost productivity and approximately $25 million of restructuring benefits.

These benefits offset approximately $75 million of raw material inflation.

Net cost takeout contributed approximately 100 basis points to our EBIT margin for the quarter as productivity was slightly lower than initially anticipated.

Going forward, we expect to deliver approximately $350 million of cost productivity in 2017 as slow progress in Europe and volume weakness in China resulted in $50 million less productivity for the full year.

We now expect approximately $375 million of raw material inflation this year and approximately $600 million of combined raw material inflation in 2017 and 2018.

As a result, in addition to our pricing action, we have announced a new $150 million fixed cost reduction initiative.

This initiative primarily impacts our overhead costs, including salary headcount and third-party services.

This is separate from and in addition to our ongoing cost productivity programs, which we'll continue to utilize going forward as a catalyst for margin expansion.

With that, I'd like to turn it over to Jim Peters to review our regional and financial results.

Thanks, Marc, and good morning, everyone.

Turning to Slide 11, we review the third quarter results for our North America region.

Net sales were $3 billion, an increase of 5% versus the prior year.

This growth was driven by continued market share gains and industry growth in the U.S. as well as a strong performance in Canada.

We reported solid margins of 11.7% for the quarter, in line with our full year guidance of 11.5% to 12%.

Compared to the prior year, margins were impacted by elevated raw material inflation of approximately $30 million, which resulted in an unfavorable margin impact of approximately 90 basis points.

We were able to offset the majority of that impact through a continued focus on cost productivity and unit volume growth.

Through the third quarter, the U.S. industry has grown 3.5% compared to the prior year, which is in line with our expectations, and we expect strong fourth quarter industry growth.

We continue to expect 4% to 6% growth for the full year and currently see the industry trending to the lower end of that range.

We are pleased with our North America performance in the third quarter, and we are confident in the underlying strength of our business.

We expect to deliver the lower end of our full year margin goals of 11.5% to 12%.

On Slide 12, we review the third quarter results for our Europe, Middle East and Africa region.

Net sales were $1.3 billion, down 4% versus the prior year.

We delivered sequential operating profit improvement of $11 million as product availability and overall system stabilization continue to improve.

Compared to the prior year, our operating margins were negatively impacted by approximately $20 million of raw material inflation, which impacted margins by approximately 150 basis points.

We also experienced unfavorable currency of approximately $10 million.

Our Indesit integration efforts are progressing slowly.

In particular, we continue to focus on reducing our inventory levels, which continue to be elevated as a result of product transitions.

For the full year, we now expect to deliver 0.5% operating margins due to larger-than-expected currency and raw material headwinds and the impact of the ongoing integration.

We have taken steps this year to ensure that the vast majority of our brand transitions and supply chain challenges are behind us as we enter 2018.

Turning to Slide 13, we review the third quarter results for our Latin America region.

Net sales were $849 million, an increase of 6% versus the prior year.

Operating profit was $53 million, and margins increased 50 basis points versus the prior year.

For the first time in more than a year, we saw industry growth in Brazil, in line with our expectations.

This growth was primarily in washers, which created price/mix pressure on our margins.

We also experienced $15 million of raw material inflation, which impacted our margins by 175 basis points.

Despite these challenges, we expanded margins through strong operational performance.

We continue to expect the industry to be flat for the full year as the industry is starting to show signs of growth in Brazil.

And we remain confident that we are well-positioned to benefit from manufacturing leverage and drive further margin improvement as the industry volume begins to return.

We now expect to deliver 7% operating margin for the full year, reflecting the impact of unfavorable price/mix in the second half.

We now turn to the third quarter results of our Asia region, which are shown on Slide 14.

Net sales were $357 million versus $338 million in the prior year period.

Operating profit was $2 million, and operating margins were 0.6%.

We delivered record performance in India with very strong levels of growth, continued market share gains and market expansion.

We continue to benefit from demand growth and favorable demographics, and we are well-positioned for continued success in India.

Raw material inflation of approximately $10 million negatively impacted margins by approximately 275 basis points in the quarter.

The majority of that impact was on our China business.

Price/mix remain challenging, directly related to continued demand weakness in China.

We continue to expect flat to 2% industry growth for the full year, with favorable demand in India offset by significant weakness in China.

We continue to expect margins to improve sequentially in the fourth quarter, but our exit rate in Asia will be below our prior expectations.

We now expect to deliver 2.5% ongoing operating margin for the year.

Turning to Slide 16, we review our updated guidance assumptions.

We are revising our ongoing EBIT margin guidance to approximately 6.5%.

We now expect our full year effective tax rate to be approximately 16%.

Overall, we now expect to deliver ongoing earnings of $13.60 to $13.90 per share.

We're also adjusting our full year free cash flow guidance to approximately $900 million, driven by lower earnings than previously expected.

Turning to Slide 17, we detail the drivers of our updated free cash flow guidance.

We are making progress, as expected, on working capital, and we now expect to generate approximately $300 million in free cash flow through our working capital initiatives.

On Slide 18, we provide an update on our cash flow and capital allocation priorities.

We continued our share repurchase program and year-to-date, have repurchased $550 million, a $125 million increase over the same prior year period.

The strength of our balance sheet and more than $2 billion share repurchase authorization continues to provide us ample flexibility to execute share buybacks.

And we intend to continue repurchasing shares in the fourth quarter at a similar rate to recent quarters, while remaining committed to our balanced approach to capital allocation.

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

Thanks, Jim.

Turning to Slide 20, I would like to recap our progress towards each of our 2017 business priorities.

Our year-to-date revenue growth is in line with our long-term goal, however, our margins have been below our expectations this year.

And we continue to deliver significant free cash flow improvement remaining fully on track to deliver 90% free cash flow conversion.

In that this is my first earnings call as CEO and in light of this quarter's result, I want to take a moment to step back and discuss my core operating principles.

I'm proud to have been part of this management team for several years.

And while I don't expect to make radical changes, I'm not satisfied with our performance or predictability this year.

As a global company, there are macro factors which impact our business that we can't control.

We will prepare for them while ensuring we remain focused on things within our control like fixed cost, productivity and price/mix.

Plus innovation remains the core of our company.

We will continue to make great products that consumers want to buy, and we'll continue to fully invest in our strong brands and products.

I will strive for increased accountability and speed as we execute our priorities.

And as a management team, we will execute the strategic and tactical actions necessary to create long-term value, remain firmly committed to achieve our long-term goals and, in particular, the long-term value-creation goals we presented to you in April.

Now I'd like to end our formal remarks and open it up for questions.

(Operator Instructions) We'll take our first question from Michael Rehaut of JPMorgan.

And quite a first quarter conference call for you, Marc.

It's going to be a little rocky, I guess, near term.

First question, you might have seen there's news out this morning about Sears discontinuing to sell Whirlpool appliances.

And it appears, through the press, it's related to pricing dispute, which in turn appears to perhaps be related to the price increases that you've just announced, I'm assuming.

I was wondering if you could discuss a couple of things on this.

Number one, there's a lot of questions out there around roughly what Whirlpool's branded exposure is to Sears.

And secondly, maybe if you take it on a broader basis, the confidence that you have in your ability to implement and realize these price increases over the next couple of quarters.

So Michael, let me answer in 2 sections, Sears and the broader pricing one.

Obviously, we've seen the article in Wall Street Journal, and we don't get into the details of the reasons why.

What we can say is that in line with our contractual obligations, we did inform Sears in May that we would no longer supply Whirlpool-branded products as we simply could not reach terms that are acceptable to both parties.

Now just to avoid any confusion, we are continuing to supply Kenmore branded products to Sears, and this applies only to our branded business.

To give you a perspective of magnitude, the entire Sears business has declined over time and now represent about 3% of our global business, of which the branded portion is only a small fraction.

So that gives you a little bit of perspective on this one.

Now let me make a broader comment on the price increases.

As I said in the prepared remarks, it is our intention to fully recover raw material cost increases over 2 years with the price increase which we've just announced.

The reason why we're confident behind this one, we had done in the past cost-based price increases whenever we were faced with a significant material headwind.

In particular, markets like U.S. and Brazil, we've been very successful.

And with the same commitment, with the same drive, we're executing now what we've just recently announced.

So we have full confidence in the price increase we have experienced, and we have experienced [team] in both U.S., Brazil and other markets which can drive it, and that gives us the confidence.

Marc, I appreciate that.

I'm going to shift to another area, and I'm sure there'll be other follow-ups on Sears.

Just shifting to Europe for a moment, obviously, another area of challenge for the company and very slight improvement sequentially over the last few quarters, but obviously well below what you're looking for.

And I noticed that you raised your working capital cash flow.

And I'm curious if part of the near-term pain in turning this around is due to perhaps an acceleration of some of the excess inventory in the channel that you referred to last quarter in terms of the SKU rationalization, et cetera.

And how to think about where you are in this process and if this is a 1- or 2-quarter fix or is this a 1- or 2-year fix?

Yes, Michael, this is Jim.

I think, first off, your assumption is correct that in Q3, we still did feel the impact of our product transitions and our reduction of inventory as we moved through those.

Additionally, within the third quarter, obviously, we had weak demand in the U.K. and currency impacts as well as inflated raw material prices that we talked about.

So if you look at the actions we've implemented, again, we'll be through the inventory reduction by the end of this year within EMEA.

We're implementing price increases there right now that we've talked about, and then we're driving fixed-cost takeout.

So I think in the near next couple of quarters, near term, that will begin to improve the margins and continue the margin expansion quarter-over-quarter rate that we've seen, in fact, accelerate that rate.

And Michael, it's Marc, maybe in addition to Jim's comments.

So first of all, we did sequentially improve our margins in Europe and we will also going forward.

Having said that, we're not pleased with the pace of the progress, and we would have expected more.

You're absolutely right, that obsolete inventory is a key factor.

To put that in perspective, a year ago, we had roughly 12,000 different SKUs in Europe; today, we have 7,000.

And in that process, we pretty much changed 80% of all SKUs which we sell.

So of course, we want to sell the obsolete inventory as quickly as possible and don't want to carry bad inventory.

But it has a significant impact.

The other impact is still we're not pleased with the progress of our U.K. pricing execution, and that is something which we are addressing with different intensity, but these are the key drivers why the progress is there, but slower than we anticipated.

We'll take our next question from Samuel Eisner of Goldman Sachs.

So maybe sticking with the U.K. pricing story.

I mean, Turkish lira has certainly continued to devalue here.

And so perhaps you can talk about the competitive dynamics with Arçelik in that market and how positive you are in actually getting these price increases.

I know that you guys tried to kind of reduce the rebating mechanism, but how intense is the competition?

Is it as fierce as it is in North America with the Koreans?

Just maybe an overall kind of update on what you're seeing in that market.

Sam, it's Marc.

I'm obviously not trying to speculate about what the competitors might do or will do.

I can comment on what we've been doing, what we've seen from the marketplace.

Obviously, this British pound now sliding with some ups and downs over 15 months, whenever we first put out a price increase, clearly it was not sufficient because the pound has further deteriorated.

And we can speculate about what the British pound may do going forward, but it's clear that the first increases were not remotely enough to cover this sustained slide of British pound.

That's why we have announced additional price increases, so that is already out in the announcement.

What makes the U.K. market somewhat challenging is it's a very concentrated trade environment, and that makes price increases always a little bit more challenging.

The flip side is we have a very strong brand positioning, and that gives us confidence where we can drive it.

But of course, it needs more effort.

The competitive dynamics are different than in U.S., but it's just different players.

They may have different currency exposures.

And again, I don't want to speculate about what they might want to be doing or not.

All right.

And then perhaps transitioning to the tax rate, a pretty large delta there, 400 bps, I think it's saving you about $50 million of cash flow for this year.

Long-term tax rate for the company is over 20%.

So how should we think about the medium-term implications of a -- or medium-term cash flow for you guys as it relates to taxes?

Yes.

And Sam, this is Jim.

In terms of the tax rate, and obviously, it's been driven by some of our strategic tax planning things and that, right now, we don't comment on any of the future of that.

But we still believe that our longer-term rate is in the low 20-some percent, around 22%, as we've said before.

And I think from a cash flow perspective, that's the best way to think about it because that's pretty close to what our cash tax rate is.

We'll take our next question from Bob Wetenhall of RBC Capital Markets.

I wanted to ask about pricing.

The last time Whirlpool got a lot of price was in 2012, which coincided with a lot of raw material inflation.

And since then, price has been flat to negative on a consistent basis.

And so it sounds like, going forward, pricing is going to be a linchpin towards restoring profitability and margin strength.

And I wanted to ask, on the pricing specifically, if you raise prices, why do you think competitors will follow given the competitive landscape?

And if they don't, how do you intend to protect volumes and market share?

Bob, it's Marc.

And again, obviously, we don't want to give any speculation about what competitors might do or will be doing.

Let me maybe just keep -- set a little bit broader context of this price increase, and it first starts with raw material increases.

As we all know, coming into the year, we were expecting raw material headwinds of $100 million to $150 million, which quickly turned to $250 million, then $300 million.

Then we saw that resin is not showing any relief, it will be around $350 million, now it's $375 million.

What has even more changed is our outlook for next year.

Coming into this year, we hinted we would have expected significantly less raw material increase for next year.

And by now, we're talking about $600 million for 2 years, i.e., more than $200 million for next year.

So what has really changed is our view of raw materials are not going to change to the positive in the short term.

And at one point, we just got to face reality.

Now you could argue, well, it took us a long time to get to this conclusion.

But frankly, some of the outlook for '18 has only changed the last 6 to 8 weeks, in particular, investments in steel, but also in some other raw materials which are important to us, like zinc, which has just gone through the roof.

So we are going up with price increases.

I can just judge from the past, and again I'm not trying to speculate what's going forward, you're referring to the 2011, 2012 price increases which were also cost-based.

It ultimately starts with us being convinced we do the right thing for us based on our cost situation, and that's what we're trying to recover.

Judging from the past, you need to be prepared to lose some volume for some time, but usually, it is not over an extended time period.

Again, that is just judging from the past.

We got to be seeing what's happening this time.

At the end of the day, raw materials, it's inescapable to some extent for everybody.

And Bob, judging from the past, too, typically, in most cases, our margin improvement through these cost-based price increases has more than offset any potential volume loss.

Got it.

And you guys have reaffirmed your 2020 financial targets.

And obviously, you've had 3 consecutive quarters where you've cut guidance.

Can you give us the margin walk into '18, given the fact that recent performance has fallen short of company expectations?

What gives you confidence of going into '18 from a margin walk perspective and your long-term objectives to 2020 that you can get there, given the fact that there's a lot of environmental challenges like [RMI] and kind of a difficult integration in Europe?

Where is this confidence coming from given recent performance?

Bob, this is Jim.

I'd say to begin with, the first thing that is different from the last time we talked about our margin walk from now until 2020 is that we have announced significant cost-based pricing.

And since then, we had deterioration in materials.

We've now announced the cost-based pricing to offset that, which we were planning on offsetting it before just with ongoing cost productivity.

Additionally, we have announced the $150 million of cost takeout on top of our fixed cost takeout on top of our ongoing cost productivity.

So these are both new levers that we would include in our walk from where we are today to our 2020, 10%-plus EBIT goals.

Outside of that, we are confident in the other measures that we have in there, including ongoing cost productivity, our ability to realize margins through price and mix outside of the price increase, and our volume growth that we still believe demand is healthy in many of the markets around the world, and there is potential for demand recovery in emerging markets.

Bob, it's Marc.

Let me maybe just add also, given that you mentioned our 2020 long-term value-creation goals.

Jim and myself were both part of communicating that in January, and then in April, when we all met in New York.

So we're fully standing behind this.

We've been part of developing these targets, and we're not going to back off.

I know given that it's my first CEO call for an earnings call, probably we'll be needing one to put some question marks behind this one or we don't.

We're fully behind it.

We're committed.

It also means for next year, without giving any '18 guidance, our entire focus will be on margin expansion, and we need to catch up what we lost this year.

We'll take our next question from Susan Maklari of Crédit Suisse.

Going back to the Sears topic for a bit, can you just give us some sense -- I know that you said branded is a small portion of the total there and given that they had several months to prepare.

But what is the inventory position in that?

How quickly should we think about that actually moving through?

And then how do you think about shifting that volume to your other customers?

Susan, it's Marc.

And again, as you know, we usually don't want to give too many specific details on our trade relations or trade strategies.

Having said that, I said earlier in my -- in the first question from Mike, I said entire Sears business is about 3% of our global revenue base.

The branded business is a very small portion of that.

So in terms of the impact, what it means to shifting it, to be honest, it's not a whole lot.

That's the honest answer.

So these are -- relative to our North American business volume, these are volumes which are not a major issue.

In terms of your inventory question, again, these are Sears-specific questions which only Sears can answer.

But it is, I think, a common known fact that Sears does not hold a lot of inventory.

Okay.

And then thinking about '18 and perhaps some of the changes that could come in terms of the competitive environment, given some of the recent rulings from the government and that proceeding on, can you talk to perhaps how quickly do you think you could ramp production in '18 if demand shifts or if we get some changes there?

And what is your ability, perhaps, as some of the retail side of this does shift, and granted it's very small, but still it is kind of shifting a bit, how do you think about perhaps regaining some of that share and what it could mean for you next year?

Susan, it's Marc, and I presume you're referring to the safeguard petition.

Yes.

First of all, also in a broader context, we are pleased this year with the overall North American share gain.

We are gaining share.

We have -- we always said we will, from a full year basis, gain 0.5 point, 1 point, and we're on track on this one.

We have a specific issue where we've been harmed on large residential losses, and that is not a new story.

We had 2 dumping cases, and we have now the safeguard petition.

Just to put them in context, and I know many of you are fully aware of this one, it is basically a 3-step process.

So the ITC needs to first confirm that there has been injury.

Then the ITC develops or recommends a remedy.

And finally, it is up to the President to determine what the final remedy is.

We kind of won the very first step, which is the determination of injury.

What is important, it was a 4-0 vote.

So that is, I would say, a strong confirmation of we have been injured and it's real.

So now we're waiting for the recommendation for remedies, which will become 2 steps public, but the real big step is December 4, and then it's up to the President to decide.

So I would say sometime late December, more realistic in January, we will know what the final outcome of this one is.

And to your question, yes, we are prepared to (inaudible) in volume and other measures.

We -- obviously, if we had injury, which also means, we have idle capacity, and we can expand the capacity and hire people there.

We'll take our next question from Sam Darkatsh of Raymond James.

Just got 3 very quick housekeeping questions.

First off, how much price realization is embedded within the fourth quarter guidance?

Well, right now, I'd say for the full year, you should assume that our price/mix realization is going to be about minus 1%.

So again, that's about 0.5 point worse than we were when we did the last earnings call.

So that's what you should assume for the full year.

I'm trying to isolate the price increase announcements that are going in, in the fourth quarter.

How much of a benefit is that anticipated to be, specifically in the fourth quarter?

Okay.

Sorry, I took the question the other direction.

Right now, as we said, most of the price increases have been announced and are implemented late within the fourth quarter and early in the first quarter.

So it's going to be a very minimal impact on the fourth quarter.

Got you.

And then second question, the raw material look that you gave us into '18, have you already determined your steel contracts for next year or is that pending?

Or do you have decent visibility on that?

I'm just trying to get a sense of the sensitivity around the numbers that you gave for next year.

Sam, it's Marc.

So we -- no, we have not finalized the contract for next year on steel.

This is an early look into '18.

But given what we've seen this year, we spent a little bit more time really trying to get an understanding what is the most likely scenario for '18, which also ultimately led to these cost-based pricing decisions.

In the late January of the earnings call from Q4, that's when we'll give you all the details of formal raw material outlook.

But right now, I think it's highly likely to assume it will be north of $200 million as the raw material cost increase next year.

We'll take our next question from Curtis Nagle of Bank of America.

So just wanted to quickly focus on vols in the U.S. So just as a first question, would you guys be able to comment on what drove weakness in the past couple months of the year, so for August and September?

And looking forward to 4Q, so you're going to be at the -- at least, the industry is going to be at the lower end of the 4% to 6%.

That still implies, I think, something like a 6% increase at the low end for this year, and stack was around 10%.

I guess, what gives you the confidence that you should see such a big acceleration in the fourth quarter?

Yes, it's Marc.

And maybe, first of all, the 4% to 6% guidance, yes, that is still intact.

Having said that, it will be clearly at the lower end of that spectrum.

So we're kind of probably more trending towards the 4% as opposed to the 6%.

The reason why we're confident in that industry forecast is simply the sellout, keeping in mind that the number we referred to in the 4% to 6%, that's the sell-in of the AHAM statistics.

The sellout has been pretty steady also over the last couple of weeks and gives us confidence that we're still within that range.

Okay, fair enough.

And then just a quick one on Latin America margin.

It looks like in terms of for the guide down you've given for the year, there is a -- there will be decline in 4Q.

What's behind that?

Yes, Curtis, this is Jim.

There's a couple of things.

It's one, obviously, we stated that materials has had a continued pressure there.

But the new thing is that the mix within the business in the back half of the year has shifted, we think, temporarily to more washing and less refrigeration, which our market share is stronger in refrigeration as well as our margins are stronger in refrigeration.

So it's mainly what we believe is a temporary shift in mix within the industry there.

Effectively, a continuation of trends you saw in 3Q is what you're saying?

Exactly, yes.

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

Marc, I wonder, as part of your trade case filings, you indicated that you were losing money in washers.

And I guess I'd be interested in your thought process now that this is starting to take shape and I think starting to look like this may ultimately work in your favor.

How should we think about how the outcome here, if it's favorable to your interest, would impact that washer business and what that could mean to North American margins?

Yes, David, of course, it's probably too early to speculate about the final outcome because, of course, also the magnitude for remedies that have a big impact on that question.

Having said that, and this has been documented in the ITC hearing, we had damages and injuries, so we lost money in large residential washers.

The question is depending on the remedy, how much volume we can pick up and how much can we improve our margin.

And so it's entirely driven by the amount (inaudible) which we'll get.

So I would say let's wait until January, and then the earnings call, we can give you a better forecast about what this really means for our washer business.

Does it imply that -- I mean, if you're losing money there, it's hard to believe that just -- the kind of volume that come into play here could restore a sufficient level of profitability in that business.

It would seem to imply that pricing is necessary, as an outcome of this.

Is that fair to say?

David, let's just say we will take the right business action once we know the level of remedy.

But even to your point, if you have -- if you invest in your products and you put in a lot of capital in factory and you don't get the right leverage on this capital, that means you lose a lot of margin.

So volume leverage, depending on the kind of product, has a significant impact also on the margin here.

But yes, I mean, it is true also the extreme promotional intensity by LG and Samsung has created significant damage.

We'll take our next question from Ken Zener of KeyBanc.

So I think the dominant sentiment around your stock has been related to North America, yet your margin guidance at the lower end this year doesn't really support that.

So Europe and execution, I think, are actually the key determinants of your earnings revisions this year as well as concern, certainly my focus, for next year.

So to that extent, when you're talking about material inflation, a, I mean, is it disproportionate in Europe, what we're facing this year in terms of the impact on margins, how would you break that out by region, I guess?

Can we just assume sales weighted or is there extra headwinds you're facing in Europe related to material costs?

Well -- and Ken, this is Jim.

I think if you would have looked at what we saw within the third quarter here, it's about equal or about relative for EMEA compared to the rest of the globe.

The only region that we've seen maybe what is a disproportionate share has been within Asia and within China.

So I'd say materials has been the same proportion.

As you mentioned, our bigger steps to improving the margin here begin with the exit, the integration activities and the finalization of many of those activities and stabilizing our supply chain, which will be in much better shape by the end of 2018, and that's probably our bigger -- will drive a bigger expansion of our margin within 2018.

Okay.

And that's obviously the bulk of my question is going to be around this execution, Marc and Jim.

The 8-- 7%, 8% goal you guys gave for 2020 originally, and I was just looking at your Analyst Day from '14, that was supposed to be an '18 goal.

I'm sure you guys recall that.

It kind of reminds me, like (inaudible), when they bought Black & Decker, they had this $6 target, and they missed it by multiple years, and now the company is doing quite well.

What is happening over in Europe?

I mean, you knew there was 12,000 components; SKU, 7,000 was your goal.

Can you just perhaps walk us through, and I mean this very respectfully, like just how has the landscape changed today given the results versus, let's say, 6 months ago and 9 months ago?

I mean, you must have had a roadmap.

And where did we take a turn to leave us at 50 basis points margin because that's the biggest driver for next year's earnings.

And it's difficult to have a clearer view on how that's going to slope up right now, in my opinion.

Ken, let me maybe take this one.

First of all, if you ask me today, we are reconfirming that our long-term target for Europe is 7% to 8%.

Now our European team would exactly give you the same answer.

And obviously, we're kind of not happy with where we are this year.

The reason for this one, and Jim alluded to this one, is we knew about the integration complexity, and that is a very huge complex undertaking.

The good thing is, I would say 90% of our product left from factory moves and brand transitions are behind us.

On the system side, we have now pretty much 70% behind us.

So yes, to some extent, we knew about it, I would say the compounding effect of several integration streams, which make it very difficult.

Once you add on this one the challenges which came, in particular, with U.K. and Russia, which were currency-related, that just made it too much for the team.

And that's why we have a performance which we have, and we're committed to turn it around.

I would also want to point to, again, we're not giving today the guidance of '18 and the components, but it's clear that Europe will be an important but certainly not the only driver of an improved performance next year.

And we'll take a follow-up question from Samuel Eisner of Goldman Sachs.

Just looking into next year and free cash flow, I think you guys have a couple of different things that are impacting those, hoping to get some color on.

I think last quarter, you talked about moving some investment spending that would benefit this year.

Presumably, that's a little bit of a headwind for next year as you roll out the new product suite.

I don't know if CapEx would go up if you actually get the right remedy on the ITC ruling.

I think you talked about that in the individual ITC ruling that you have projects that you could ultimately do from day 1, tax rate implications and then also investments to drive the $150 million of cost-out.

So I'm curious if you can give any kind of color on how you're thinking about free cash flow into next year, given those moving pieces.

Yes, Sam, this is Jim.

I think the first thing on free cash flow when we talk about CapEx, we still expect to stay within our longer-term capital allocation guidance range of 3% to 3.5% reinvesting within our business.

So even with any projects that spending may have moved on, we continue to look for opportunities to be more efficient in our capital spend, and we're confident that we'll be within that range on a go-forward basis.

Working capital, as we've talked about, we believe there's -- for next year, there's continued opportunities within working capital, especially within inventory.

As we look around the globe, we believe that will be a continuing source, not to the level that it was this year, but it will be a continuing source of improved free cash flow.

And then on the tax rate, as I mentioned, while our GAAP tax rate for the full year, we expect to be in the 16% range, our cash tax rate is actually closer to the low 20s at many a time.

So I think next year, there's not a significant change in terms of the tax rate impact on our free cash flow.

And we have a follow-up question from Sam Darkatsh of Raymond James.

Two follow-up questions.

First off, are you still anticipating the $100 million in marketing and brand support spending to come back next year?

And then my final question is, productivity looks like it was cut from $400 million to $350 million this year.

Was that a timing issue?

Does that get pushed into '18?

What's the early read on productivity next year?

So Sam, on the marketing and technology spend, again, we intend to continue to invest in that area.

And we'll obviously look at the new product launches that we have coming for next year, and then we'll set the appropriate level of spend in that area.

But we do intend to continue to increase our investment, especially in our brands in key markets and then -- what's the second?

Let me first -- Sam, I want to clarify, the $150 million fixed cost reduction, that does not include brand investment and brand support.

We keep these items separate, which is explicitly related to infrastructure cost.

So just to avoid you any confusions, so this is out of the equation.

And then on the ongoing cost productivity, right now, in the back half of the year, and as we talked about, we did have some increased material headwinds.

But then on the ongoing cost productivity, as our volumes have been less than we expected in certain markets and we've had to adjust our inventory level, that has had an impact on the volume leverage benefits that we get.

And additionally, there are some opportunities for some of the cost takeout programs that we have that will continue, to your question.

There are some that we will be ramping up now, as Marc mentioned, but these are on top of our ongoing cost productivity, and you will start to see the benefits of those more into next year.

We have a follow-up question from David MacGregor of Longbow Research.

Marc, you talked about share gains in North America, and I just wondered if you could elaborate where within the price point, where within the line structure do you think you're winning your -- the bulk of that share?

David, it's Marc.

I mean, first of all, it's pretty much across the business, but we're particularly pleased with the progress that we have on Maytag, which, as you know, is largely in the laundry space.

We're very pleased with the progress on KitchenAid where we have a new kitchen suite out there.

So from a branded perspective, that's probably where you see today, by a long shot, the biggest share growth, which also implies from where it's sitting, given where the Maytag brand and the KitchenAid brand are sitting, that is, I would say, mass premium and premium segments.

So we're actually very pleased that -- what we would call internally, these are good share gains.

They don't come at the low end.

These are, I mean, one of our best-branded businesses which we have, and we're very pleased with that.

If I could just -- a quick follow-up.

I wanted to just ask you for your impression on the promotional environment.

We're 7 days away from the beginning of Black Friday, and how do you think that's going to play out versus last year?

And then just while we're talking about promotions, as the Korean manufacturers relocate to the North American market with their manufacturing, in due course, however long that might ultimately end up being, does this create a less promotional environment or a more promotional environment?

Or if you could just talk about your latest thoughts in terms of how that shift is likely to impact the competitive environment in the U.S. market.

So David, first of all, I can't speculate about what's happening around the Black Friday period.

What we can refer to is Labor Day and Columbus Day.

That has been a promotion-intense period, but not unlike what we've seen the last 12 months.

So it is kind of the same promotional ups and downs.

It doesn't change our stance on promotional actions.

We'll participate when it creates value for us, and we don't if it doesn't.

So that hasn't changed.

But I would say it's the same level of fairly intense promotional environment which we've been facing.

I don't know what that means for the rest of the year.

With regards to your question about the relocation of -- announced relocation, because it's not yet in effect, of LG and Samsung, again, that's difficult for me to speculate.

I would argue, given that this obviously has not been their first choice because they first moved to Mexico, then to China, then to Vietnam and Thailand, I would assume that the cost base is not as attractive for them as it's been in other places because now they're kind of -- they will be forced to play on a level playing field.

That's what it means.

So I would say the cost base is probably not as aggressive.

But I wouldn't conclude from that, that they'll change their promotional activities.

We got to see then how that all spells out.

This concludes today's question-and-answer session.

I'd be happy to return the call to Mr. Marc Bitzer for any concluding remarks.

Let me just summarize the key message from this call, and we're back on Slide 22.

First of all, we remain on track to our long-term goals for revenue growth and cash flow conversion, and we remain committed to returning strong levels of cash to shareholders.

Second, we're taking strong actions across all regions to offset the impact of sustained raw material inflation.

And finally and most importantly, we remain firmly committed to our 2020 value-creation goal for growth, margin expansion and cash conversion despite a challenging 2017.

So thank you for joining us today, and we look forward to speaking with you again in January.

Thank you.

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

You may now disconnect your lines.

And everyone, have a great day.