Whirlpool Corporation (WHR) Q4 2007 Earnings Call Transcript

Gregory Fritz - IR Jeff Fettig - Chairman & CEO Mike Todman -- President of WhirlpoolNorth America Roy Templin - EVP and CFO

Sam Darkatsh - Raymond James David McGregor - Longbow Research Michael Rehaut - JPMorganSecurities Eric Bosshard - Cleveland Research Laura Champine– Morgan, Keegan& Company Jeff Sprague - CitigroupInvestment Research

Good morning and welcome to Whirlpool'sFourth Quarter and Year End Earnings Call for 2007. We will now turn the callover to Mr. Roy Templin, Executive Vice President and Chief Financial Officer.

Thank you Curtis and good morningeveryone. Before we begin our opening remarks I would like to take a minute andintroduce our new Head of Investors Relations, Greg Fritz. Greg comes toWhirlpool Corporation with both sell-side experience as well as corporateexperience, with Greg's most recent role being with Stoneridge Incorporated,where Greg was the Director of Corporate Finance and Investor Relations. I'dlike to say, we are very excited to have Greg on our team and we look forwardto his contributions in our Investor Relations role over the coming years. And also I'd like just to take amoment to thank Larry Venturelli. I think many of you know Larry has actuallyplayed dual roles here for a period of time, both as our Corporate Controllerand our Head of Investor Relations. So, we would like to thank Larry for allhis extra work as well. And at this point, I will turnthe call over to Greg for our opening statements. Greg?

Thank you, Roy and good morning. Welcome to the WhirlpoolCorporation fourth quarter and year-end conference call. Joining me today are Jeff Fettig,our Chairman and CEO, Mike Todman, President of Whirlpool North America, and RoyTemplin, our Chief Financial officer. Before we begin, let me remindyou that as we conduct this call, we will be making forward looking statementsto assist you in understanding Whirlpool's future expectation. Our actualresults could differ materially from these statements due to many factorsdiscussed in our latest 10-K and 10-Q. During the call, we will be makingcomments on free cash flow and non-GAAP measure. Listeners are directed toslide 41 for additional disclosures regarding this item. To begin today's call,Jeff will provide an own review of the quarter and the outlook for 2008, Mikewill discuss our North American operations, Jeff will then cover InternationalOperations and Roy will review our financial performance and outlook. Our remarks today track of thepresentation available on the investor section of our website atWhirlpoolcorp.com. With that let me turn the callover to Jeff.

Well, good morning everyone andthank you for joining us today. As I am sure you have seen earlier thismorning, we did release our financial results for both fourth quarter and thefull year. Overall in 2007, we deliveredboth record sales and earning per share and what was as we discussed throughoutlast year, a very challenging global economic environment. The two majorchallenges that we faced all during the year, first the US appliancedemand, where we saw year-over-year demand decline by almost 6%, which was thelargest decline we have seen in over two decades. And secondly, we hadapproximately $600 million in higher material and oil-related costs. In factduring the last three and half years, we continued to see unprecedentedmaterial cost inflation, which has increased our input costs since 2004 bynearly $2 billion. During 2007, we did accomplish avery major milestone by completing the Maytag integration. We achieved our costefficiency goals one full year ahead of our plans, when we first announcedthis. We also improved our costproductivity performance across the globe and generated more than $2.5 billionof revenue from our innovation pipeline. So, overall we are pleased with our2007 results particularly given these economic challenges that have taken place. I will now turn to the slidepresentation, starting with slide 4. Whereyou will see that our annual revenues increased 7% to $19.4 billion, ourearnings from continuing operations came in at $8.10 per share, which was up28% over 2006. And as we have seen over the last several years one of the keydrivers of our financial performance and revenue growth has been our ability togenerate higher average -- global average selling prices, which you can see onslide 5. During 2007, our ASV is increasedby more than 7%. As I mentioned we delivered over $2.5 billion in revenues fromprojects, which came out of our innovation pipeline. As we exit 2007 ourpipeline remains very strong and we estimate we have now about $4.5 billion ofnew product revenues from projects and we anticipate continued innovationdriven growth as we go forward. These innovations continue notonly to fuel our growth, but also improve our overall margins. So, we are verypositive about our new products come in to market early 2008, especially on newMaytag launches, which Mike Todman will talk about in a moment. Turning to our balance sheet, wehave made great progress in strengthening our overall balance sheet and reducedour debt by $243 million during 2007. We also returned $502 million to ourshareholders in the form of dividends and share repurchases. On slide 6, we list the majortrends, which we expect to see in 2008 and these are the foundation for the keyassumptions, which we build into our plans and guidance. First, as we have seenthroughout 2007, we expect to see genuine weak and negative demand in our largemature economies that are the United Statesand Europe. We expect continued strong demandin our key emerging markets like Latin America, Indiaand China.We will see increases in continuing material commodity inflation and finally wecontinue to expect volatility in movement in our global currency markets. Given this economic backdrop, asseen on slide 7, we believe we are in position to continue our strongperformance in this economic environment 2008. We have been successful innavigating through some of the issues due to several key durables, which Iwould like to mention. First of all our business is verygeographically diverse. Currently, about almost 50% of our revenues comeoutside the United States.Our International markets were experiencing higher growth rates and expandingprofit margins, which is helping to mitigate a weaker US market. Secondly, we have industryleading, global consumer brands in most major markets around the world, andthey continue to increase consumer investments and a very strong cadence ofinnovation. The third reason is our globalcost platform and steel is unmatched in the appliance industry. And we believewe have very significant opportunity to generate continued productivitythroughout our global supply chain and infrastructure. And finally I would saythat, we feel very good. We have an experienced global management team in placethat have successfully managed conditions before and we expect that tocontinue. So, looking ahead to 2008, whichis shown on slide 8, we expect to see the front there; the details of ourestimates are the following. First of all we expect the US market will declinein 2008 from 3% to 5%, we will go through the details about that later. Weexpect our International businesses in total that continue to grow withpositive demand trends. In Latin America and Asiawe expect to see industry demand in the 5% to 8% range and 5% to 10% rangerespectively. While in Europe, we expectoverall demand to be flat versus 2007. The general trends that we haveseen in the last several months continue to point towards negative industrydemand trends in the United Statesand Europe. As such, we expect those marketswill be down more in the first half of the year with moderate recovery ingrowth in the later part of the year. Turning to our input cost, we estimatematerial all related cost will increase by approximately $350 million in 2008. Turning down to slide 9, whichreflects and lists our priorities for the year. We plan to offset both weakindustry demand and higher material and oil-related cost by leveraging our strong portfolio of brands andbuilding on the positive market share momentum, which we saw in the latter halfof 2007. Our plans include significantlyhigher investments in innovation and advertising. We expect 2008 will be ourone of our strongest years ever for new product launches, which adds to alreadystrong consumer brand preference for our key brands. Secondly we will deliveragain very strong consumer brand preference for our key brands. Secondly, wewill deliver again very strong global productivity as we continue0 to optimizesteel and the efficiency of our global operating platform. The third area, which I wouldmention, which is consistent with recent announcement that we have made, whichincludes the closure of LaVergne, Tennessee facility, Reynosa, Mexico and Newton,Iowa in North America. Wecontinue to adjust our cost structure and capacity to efficiently address thecurrent demand environment that we are seeing going forward. All thesedecisions always are difficult, optimizing our operating platform is criticalto ensuring our cost leadership position that we currently enjoy. And finally in response to thecontinued material and oil-related costs environment we have announced in orimplemented cost-based price adjustments in most major markets around theworld. Given the unprecedented materials inflations we have seen over the lastthree and half years, now going into the fourth year, we have taken theposition that current inflation and costs must be passed through the marketplace and that is the plan that we are executing today. So as we step back and put allthis together, I would summarize our expectations and our 2008 performances asfollows: We expect moderate revenue growth, we expect material cost increases,higher restructuring cost and increased brand investments will negativelyimpact our margins by a little over two points, which we expect to more thanoffset through very strong productivity, the benefits of the reduction in ourcost structure from the announced manufacturing changes we have already made,positive brand and product mix driven by our innovation and cost-based priceadjustments. The successful execution of ourplans will lead to a positive revenue growth, improved profitability andimproved free cash flow. With that for 2008, we are giving our first guidance,which were we stated that we expect our earnings per share to be in the $8.50to $9 per share range and free cash flow to be between $600 and $650 million. With that I'll now turn the callover to Mike Todman to discuss our North Americabusiness.

Thanks, Jeff and good morningeveryone. Let me start by giving my perspective on North American performanceduring 2007. Clearly as Jeff mentioned, 2007 was a challenging year for our USbusiness. We completed the integration of the largest acquisition of companyhistory, faced the toughest appliance demand environment in 25 years andabsorbed significantly higher material and oil-related costs. Despite these challenges, weexited the year with fourth quarter results, which included operating profit of$175 million, representing a 41%improvement over 2006 and our operating profit margin increased 1.7 points fromthe prior year. Our market share improved significantly from third quarterlevels in all of our branded products, especially Maytag, increased share fromthe last quarter. Our fourth quarter resultsbenefited from strong acquisition, efficiency realization, improved product mixand productivity improvements. Results were partially offset by significantlyhigher material and oil-related cost and lower industry demand. Overall ourfourth quarter industry appliance demand was down approximately 6%, however,our North American sales declined by only 1%. Our performance compared to theindustry was positively impacted by a favorable product mix. Before providingour outlook on 2008, given the current demand environment, I would like toprovide a little background on the US appliance industry and thefactors which impact demand. As you can see on slide 13, itshows the progression of new housing related demand in United States. You can see over thepast three decades, new housing construction continues to decline as thepercentage of overall appliance demand. During the 1980s, new housingconstruction represented approximately one quarter of all major appliancedemand. Since the 80s new housing -- the new housing portions of the industrydemand has consistently declined, and now stand at approximately 15%. In factsince 1980 the other components of US T7 appliance industry demand such as replacementand discretionary have grown at a compound annual rate of about 3%. This is anotable trend as we look to the future. On slide 14, you will note thatduring 2007 the combination of new and existing home sales representapproximately 30% of total appliance industry demand. More importantlyreplacement demand represents just under 50% of US demand with the balance of themarket tie to discretionary purchases which tend to increase with consumerconfidence and the strength of new market place innovation. Turing to ouroutlook, we are forecasting USindustry demand to decline by 3 to 5 percentage points in 2008. On slide 15, we have broken upthe components and our assumptions for 2008 US industry demand. First,replacement demand consistently added 1% to 2% to industry growth each year forthe past three decades, and we fully expect this trend to continue in 2008.Many of these purchases are related to the replacement of units that consumersare either unable to find or are uneconomical to repair. Our forecast calls for the newhousing demand to reduce industry growth by 3 points in 2008 based upon a 20%decline in new home completion and approximately 25% decline in new housingstart. We also expect the existing home component of demand to reduce industrygrowth by about 2 percentage points. This expectation is based on a13% decline in existing home sales. Historically a 6% change in new homecompletions or existing home sales is translated into a 1% decline in theindustry demand. The purely discretionary component of demand is expected toreduce industry volume by about one point. Based on these current estimatesof the key economic variables, which impact the US appliance industry, as I statedbefore, we believe that the industry will decline approximately 3% to 5% in2008. The current outlook points to a more challenging environment during thefirst half of the year. Given the challenging demandenvironment, our 2008 priorities are as follows: One accelerating growth of theMaytag brands, two successfully launching new product innovations supported bybrand investments, three offsetting material and oil-related costs tocost-based price increases and strong productivity and four cost structurechanges to balance production and demand. I will now briefly touch onthese. As you recall, as shown on slide 17, our initial plan for Maytag isfirst to complete the integration and improve the businesses cost structure. Wehave fully completed this phase of our plans. During 2007, we began positioningMaytag to grow. As I mentioned earlier, we had positive share trends exiting2007. We are now in the growth place of our clients. An example of this isshown on slide 18, in which we illustrate our brand revitalization for thefront-load laundry category. As you can see, 2008 provides significantly moreinnovation across more price points than Maytag has ever had historically, andwe are supporting this and other launches with significant consumeradvertising. Two, we are accelerating newproduct innovations for all of our other brands and continue to grow our brandsthrough new product introductions. Throughout the year, we will introduce arecord level of innovations shown on slide 19, under our leading brand names,including 72 new product launches. These launches will be supported withsignificant consumer brand investments throughout the year. Three, our North Americanoperations will continue to introduce cost based price increases and deliverstrong productivity to offset material and oil-related related cost increases.And finally four, as recently announced we will make appropriate cost structurechanges, to better balance production-in-demand, as we continue to drive costproductivity throughout the organization. With that I will now turn the callback over to Jeff for his comments about our international operation.

Thanks Mike. During 2007 ourinternational operations delivered another year of record revenue growth andoperating profits. For the full year revenues grew by 19% and our operatingmargin expanded by 2.3 points. Slide 22 shows the revenue growthand profitability trends of our international businesses since 2004. And youwill know that all three regions have shown strong revenue growth, combinedwith significant operating profit expansion, over the last three years, andthat would more than double the operating profit margin from approximately 4%in 2004 to nearly 9% this year. Our international growthopportunities remain very significant. Our results increasingly show that weare successfully growing our innovative consumer products and brands throughoutthe world. For our European business, which is shown on slide 23, we delivereda record full year and fourth quarter revenue and operating profit. Revenuesfor the quarter reached $1.1 billion, increasing 12% from the prior year, localcurrency revenues were approximately unchanged. Industry unit shipments for theregion declined 1% year-over-year during the fourth quarter. Our improvement[rather] in the industry is led by the region's top selling Whirlpool brandcombined with the new innovative product offerings that we brought out duringthe latter part of last year. Record fourth quarter operatingprofit totaled $73 million, increasing 22% from last year and we hope theresults reflect improved product mix and productivity. Partially offsetting theimproved operating profit performance was significantly higher material coststhat we saw year-over-year during the quarter. In Europe,our innovation cadence remains very strong and we continue to leverage ourglobal operating platform and our global innovation pipeline. On slide 24, I'll turn to Latin America business, where we also reported recordfull year and fourth quarter revenue in operating profits. Revenue increased30% to $1 billion during the quarter, excluding the impact from currency, salesincreased by approximately 12%. Industry unit shipments ofappliances in the region grew by about 11% during the quarter. And for the fullyear, our shipments exceeded industry growth. Operating profit increased 73% tothe all-time quarterly record of $156 million during the quarter and marginsexpanded to almost 15% from the 11.2% reported last year. Increased unit shipment, improvedpricing, strong productivity and an asset sell gain of $50 million were allpositive factors during the quarter. Results were mainly affected by highermaterial costs. Our results in Latin America doreflect the strong market conditions throughout the region, but alsoimportantly our very strong consumer brand position, which has been supportedby innovation and a very advantageous cost structure. Latin America, as we've communicated in the past, has been the fastestgrowing appliance region worldwide during the last five years, averaging about13% annual growth. These strong economic fundamentals, combined with lowappliance penetration in many of our key product categories within Latin America, bode well for what we expect to be strongfuture growth. As we know, we hold by far thenumber one consumer position throughout the region, particularly in Brazil and Argentina. We are rapidly growingour positions throughout all 32 Latin American markets. Today Brazil represents 60% of our LatinAmerican revenues, with the rest of the market also growing very rapidly, whichprovides us with very balanced portfolio of markets, throughout the region. Our Asiaregion, which is shown on slide 25, reported quarterly sales of $155 million,which were up 26% from the previous year. Excluding currency, sales increasedby approximately 13%. And this was driven by our successful new innovationlaunches and improved mix within India, which is our fastest growingmarket in the region. We reported a $4 million operating loss during thequarter, as we continue to make significant growth investments particularly in India and China. Overall our presence in Asia continues to grow. We are leader among westernbrands in China.We hold a very strong number two position in India. In 2008, we expect also to see arecord level international innovation in the market place. As you can see, justa sampling of this on the slide 26, throughout the international market, we'lllaunch 174 new products under our leading consumer preferred brand names. Theglobal leverage from our innovation pipeline continues to accelerate ourability, to bring great new product innovations to all of our global consumers,faster, better and with less overall investment. Now for the outlook, let me turnto slide 27. In Europe, we expect industryvolume levels to be flat with 2007. We are seeing some industry softness withinWestern Europe markets, as a result ofdeclining consumer comp. However, emerging Eastern European market, continues toremain positive and should somewhat mitigate negative industry trends in themore mature market. And as we've have seen in North America the near termconditions appear to be more challenging, as such we do expect to see declinesin the first part of the year, offset by moderate improvement later in theyear. Turning to Latin America. Based on our current economic outlooks, we anticipate forthe entire region, industry volume growth in the range of 5% to 8%. The LatinAmerican economies remain strong and our position in the market is verybalanced and strong throughout. In Asia,we anticipate continued growth in the 5% to 10% ranges. As our India and China operations continue to extendour reach and product offerings. We do expect for all of our internationalbusinesses to have higher material and oil cost during 2008. And here too we'veimplemented cost based price increases in selective markets. We expect costproductivity and the impact of new innovative product offerings to offset thesehigher input costs. Overall, I think it we are verywell positioned to continue to deliver improved results in our internationalbusinesses in 2008. And at this time I'm going to turn it over to Roy Templin.

Thank you, Jeff, and good morningeveryone. And for those who know me I apologize I am fighting a cold, so I amgoing to try real hard to project as well as I can over the phone this morning.Before I begin, and as a reminder during the first quarter of 2007 the companyadopted changes to its segment reporting, consistent with realignments made toour regional business operations. Regional results for 2006 havebeen reclassified to reflect these changes and are shown on slide 40. Beginningon slides 29 and 30, I will walk you through a summary of our fourth quarterperformance. During the quarter, we reported revenues of $5.3 billion, up 7%from the prior year, primarily driven by strong international performance andfavorable exchange rates. Our fourth quarter result alsoreflects strong operating profit margin improvement, compared with the prioryear. Our gross margin expanded 1.7 points to 15.7% for the quarter. Theimprovement in gross margin primarily resulted from strong productivity andMaytag efficiency gains, which combined added 3.5 points to our marginimprovements. While positive price mix contributed just south of 0.5 point. Partially offsetting these gainswere increased material and oil-related cost, which resulted in approximately$130 million or about 2.5 points in margin reduction. We also improved SG&A as apercentage of sales by over a 0.5 point during the quarter, primarily due toMaytag efficiency realization and cost control. As a result of the items I justdiscussed, operating profit increased 74% during the quarter and thecorresponding margin expanded 2.4 points to 6.2%. This operating profit marginmarked the highest level post Maytag acquisition in the face of significant USmacro economic challenges, as well as significant material and oil-related costinflation. As for Maytag, as you'll recallour original goal was to achieve $400 million in acquisition relatedefficiencies by 2008. We have both exceeded that goal and completed theintegration ahead of plan. We realized $180 million in efficiencies in thefourth quarter and $460 million for the full year 2007. With the integration nowbehind us we will no longer breakout Maytag's specific efficiencies. Furtheroptimization of the remaining Maytag infrastructure will be included in ournormal productivity initiatives. Turning back to our fourthquarter results, I would like to highlight two discreet items included withinour financials. First, we sold an idle International facility, which resultedin a pre-tax gain of approximately $15 million. This gain is included withinour Latin America operating profit. As part ofour global operating platform optimization, we continuously evaluate ourexisting asset base. We have migrated production overtime to what we do refer to as best cost locations and as a result somefacilities have become idle and eventually monetized. As you know, each year weincur structuring expenditures and monetizing idle facilities has helped tooffset a portion of these cost. You will note on slide 31, thatwe experienced a larger year-over-year increase within interest and sundryexpense during the quarter. The main component of our higher expense reflectsan increase for legal reserves of approximately $17 million. We also incurredhigher non-income based taxes during the quarter. Moving to our tax rate, we havereported an effective tax rate of 16% for the quarter, which was well above theprior year's rate of a 2% credit. The increase in rate compared with the prioryear is mainly due to two discreet items recorded in the prior year pertainingto global audit settlements and legislative changes. Our full year effective tax ratewas 14.5% and was better than our previous expectations due primarily to therecognition of certain tax planning benefits that were triggered by foreignlegislative changes and regulatory approvals. In addition, given the markettrends in the quarter, the rate benefited from higher earnings in foreignoperations, which have a lower overall effective tax rate relative to ourdomestic operations. Going forward into 2008, we expect our effective tax rateto be in the mid 20% range. Finally, we incurred operatinglosses from an equity investment of approximately $8 million after tax duringthe quarter. We do not anticipate recording further equity losses in 2008. Slide 32, highlights our workingcapital performance during the quarter. As you can see, we have made strongprogress in all areas of our working capital management, as working capitaldeclined to 10.4% of sales, compared to both the 13.2% reported in the thirdquarter and the prior year amount of 11.0%. We have made strong progress inreducing inventory from third quarter levels, although not to the extent of theoriginal plan, due primarily to weaker than expected industry demand within theUS.Our team remains focused on continuing to improve working capital performanceduring 2008. Now, I would like to take amoment to discuss our 2007 free cash flow performance on Slide 33. For theyear, we generated $521 million in free cash flow, well below our previousexpectations, free cash flow improve to 22% from 2006 on a strength of higherearnings, improved overall working capital and lower global tax payments. Cash flow was negatively impactedby current year payments associated with the Maytag product recall announcedlast year. Our capital expenditures totaled $536 million in 2007, down $40million from the previous year, driven by continued global capital efficiencyinitiatives and lower acquisition integrations spending during the currentyear. We continue to improve ourcapital efficiency as demonstrated by our fixed asset turns, which haveimproved approximately 28% over the past five years ending 2007 at 6.0 turns.We expect 2008 capital expenditures to be approximately $600 million. Turning to slide 34, wesummarized cash return to our shareholders during 2007. As you can see wereturned more than 500 million to shareholders in the form of dividends andshare repurchases. At the end of the year, we had $97 million remaining underour current share repurchase authorization. I will end my comments with our2008 guidance, which has shown on slide 35. Based on current economic andindustry conditions, we anticipate full year 2008 EPS in the range of $8.50 to$9 per share. Within this estimate, we expect up to a $100 million inre-structuring charges. Additionally, we expect to convert these earnings intofree cash flow in the range of $600 million to $650 million. I will now turn the call backover to Jeff.

Thanks, Roy. Once again I would say that overall weare pleased with our 2007 performance in a challenging economic environment, wedelivered record results. We believe this performance highlights the strengthof our global business model. We have a strong portfolio of consumer preferredbrands around the world. We have great teams of innovation and a very strong globaloperating platform that we leverage eachdrive resulting in all of our businesses around the world. Today, our global position isnumber one in the global market place. We are leveraging our leading consumerbrands for growth. We continue to effectively translate our innovation in theprofitable growth and we will continue to utilize our global operating platformto drive very strong level productivity worldwide. With this I believe that ourcompany is never been better position to succeed. We have a strong platform forthis today, which is why we expect to deliver a record year performance in thechallenging business environment 2008. I am going to end here and I willnow open this up for questions. Operator lets proceed with the Q&A portionof the call.

(Operator Instructions) Our firstquestion comes from Sam Darkatsh. Your line is now open. Sam Darkatsh - Raymond James: :

Good morning, Sam.

Good morning, Sam.

Good morning, Sam. Sam Darkatsh - Raymond James: If just little more clarificationcan be reached on the earnings per share walk from '07 to '08; I know you don'thave much left under your existing share repurchase authorization Should I thenassume that the share count would remain flat in our assumption from Q4 levelsin fiscal year 2008. So, any share purchase activity would by definition and beincremental?

That's correct Sam. I knowbecause of the averaging that goes on in the diluted earning per sharecalculation. It's tough to track the share buyback versus the shares issued,but if you were to look at the basic absolute levels of shares. We came out ofthe year at about 78 million shares outstanding. So, if that helps you withyour model, but again I understand with all the averaging going on, it's hardto see those numbers. Sam Darkatsh - Raymond James: Great, and then I understand thatyou're not going to be breaking out efficiency cost from Maytag's perspective,but what were the integration costs in fiscal year 2007? And I'm guessing thatthe vast majority of that will not repeat in 2008. Could you remind us whatthat was in '07?

Yes, I can, Sam. The one-timecosts in the current year were $37 million versus the $89 million we had a yearago. Sam Darkatsh - Raymond James: And that will not repeat in '08?

Well, if you remember, Sam, the chart that we published May23rd and we've actually published going forward. We always estimated that,there will be a small amount of P&L charge in 2008. I think the estimates$5 million of P&L we got, but again nothing significant. Sam Darkatsh - Raymond James: Okay. And then productivityexpectations, Jeff in '08, normally it's about 2% to 3% of COGS; is that withinthe realm of expectations? Or with the lower volume, would productivity comeoff a little bit or how should we look at that?

Sam, in terms of with breakingall the parts, I'd say, we expect to drive, compared to historical standards, avery strong level of productivity. Two points I'd make, one we have factored inthe lower demand in that estimate in the US. Secondly, to Roy's point, any residual benefit from Maytagis included now in that productivity number. But I'd say that it would be atthe higher end of your historical range. Sam Darkatsh - Raymond James: And then, final question thatI'll defer to others, I noticed that there wasn't a whole lot of sharerepurchase activity in Q4, despite the fact that it was a fairly fact that itwas a free cash flow generating quarter. Keeping dry powder perhaps foracquisitions or could you help us to why you might be a little reticent rightnow, in terms of buying the stock back at current levels.

Sam, this is Jeff, I'll answerthat. First of all, we are very consistent I think throughout the year, secondquarter, third quarter, fourth quarter and in terms of our purchases all over$100 million in purchases. As we said, share repurchase has been, as we talkedabout last April, and remains a very high priority for us. We do have $70million or $97 million of authorizations still available to us and you shouldexpect that continues to be a high priority for us. Regarding use of cash, ourpriorities, if we look at on an ongoing basis, are the same. First is to fundthe business to deliver to operating results and cash. We've given you thosenumbers, so there is nothing abnormal there and we feel that’s fully includedin our guidance. Second is, as we talked about inthe past, we paid debt and our pension obligations, we've got our debt levelsdown, basically here our cost are pretty Maytag type levels, so we did a goodjob and in that, we are year ahead of our plans in terms of the debt reductionand when we fully fund our pensions and any additional pension contributionsare included in our forecast. Third, returning to shareholders,which is share repurchase and dividends. That remains a very high priorityparticularly given current share valuation levels. And then fourth, is looking atstrategic opportunities, again I would say that as we've talked about in thepast, we were always looking to three to four or five these around world, someof them paying out, some of them don't. So we will look at those on a one onone basis, but we don't see that as a huge transaction with these or more ofthings that fit into our global operating structure. So that's pretty much how we seeit, how we prioritize and again those things I mentioned already are built intoour guidance. Sam Darkatsh - Raymond James: Thank you so much, keep it up.

Our next question comes fromDavid McGregor. Your line is now open. David McGregor - Longbow Research: Yes, Good Morning everyone. Jeff,you mentioned price initiatives, I think, Mike mentioned price initiatives aswell. I was just wondering if you could give us a sense of where you are so farin the year; do you see competition following along? Where around the world areyou pursuing pricing initiatives and does a negative volume expectation for theyear temper your expectations on these price initiatives?

Dave, let me talk aboutinternational markets, that’s in my comment I just talked about.Internationally, I kind of break it down into three regions, Latin America, Ithink, we’ve been doing all along a very good job, of both driving strongproductivity and our ability to appropriately pass through cost-based priceadjustments. We continue to do that and I think that’s one of the reason whyour ability to do that in those markets is going pretty well. In Europe,it’s a little bit of a mixed picture depending on market transitions. I wouldsay, as you exit 2007, probably more, that the price declines that we see inthat for many years had lessened and I think there are some markets where priceincreases and certainly positive mix improvements are taking place. And weexpect to do both in 2008, based on what we’ve announced. In Asia, it’s a market by marketsituation, Indiais a big market for us. There we are, again we look both at price increasesannounce and improvement mix. Chinais more an improvement in mix as we basically overhauled our whole product lineto that market place. So, there’s a number of ways toimprove margins, cost-based price increase are just one of many but that’s thepicture internationally, and I feel very good about where we are today, interms of pursuing, implementing and achieving those and I’m sure, let me turn over to Mike Todman, I’msure what he was ever seeing in the U.S market.

Yeah, David, let me start gettingto the perspectives on the price - cost-based price increases. First of all, wehave announced cost-based price increases and we clearly expect that they willhold in the market. What we have done and what we continue to do is just makesure that our brand carries the right value. But secondly, the way we getprices is through new product introductions and innovations. And as I mentionedin my opening remarks, we have got 72 product launches that we scheduledthroughout the year. For both those factors, we feel pretty confident thatwe'll be able to realize the cost-based price increases that we have taken tothe market place.

And David, the last thing I wouldpoint out here is, again I go back to globally witnessing over $2 billion ofinput cost for the last three and half years. It will increase another $350million or so this year. We have seen adjustments being made through the wholesupply chain. A big part of our material cost increase in this year iscomponents, as we have suppliers who no longer absorb these increases andfrankly, in some cases, we risk losing a supply base that we need to continuethe business. So, the same as it moves from thesupply chain is true at being the main factor in market development. It’sobvious that's where we are. Margins are very low compared to where they werefour years ago. We have done a good job with productivity and in otheractivities and offset about three-fourths of this. But we are coming to thepoint with this continued [commodity] inflation in our view and that, wecommunicated publicly, as we expect to pass these through to the market placein order for us to continue to invest in innovation and the things thatconsumers really want in our business. David McGregor - Longbow Research: Did you sense that your competition is of a similar mind?

I can't really comment on your actions David, I will justsay everybody likes materials, so everybody probably got a problem. David McGregor - Longbow Research: Yeah, I am just wondering if youcan guide for your sales and marketing organization that your competitors havealso pursued pricing initiatives.

It varies per market and to me,the best way to look and see what are MSRP selling at and just sell from retaildata. I don't think you take much stock and day-to-day rumblings in the marketplace. David McGregor - Longbow Research: Okay, great. Thanks very muchgentleman.

Our next question comes from MichaelRehaut. Your line is now open. Michael Rehaut - JPMorgan Securities: .: :

Hi Mike, good morning. Michael Rehaut - JPMorgan Securities: Just a question on the rawmaterials. You had mentioned that you are expecting $350 million for '08. I waswondering if you could kind of break that down; if possible by steel, energyand maybe plastic or resins?

Michael, in our business gadget go in order of site, ofpurchase steel was like our number one, oil and resins was number two,base metals number three and this strategic components bake up then in numberfour. I will say we are going to modest increases in steel. Concerning base metals; if youlook at the second half average, we basically hedge base metals, so we are alwayskind of in the middle of the market, but clearly year-over-year first half willcontinue that, but nothing like we saw last year But we are expecting theincrease there. Oil, we are assuming $90 barrel oil for the year and thatdrives resins, and also hits our freightand warehousing. But probably, and again it's beena little bit different every year depending on which things take off, but thisyear the biggest impact is what I mentioned is the component value change whereour suppliers; which is copper and steel and so on and so forth, also have beensqueezed to the point where we've had to Maytag the [kick pricing] and weneeded the supply and so we're seeing readjustment in that part of our valuechain. So that's probably actually the biggest crunch this year. Michael Rehaut - JPMorgan Securities: Also just taking a bigger pictureand looking at, certainly you had seen success in past couple of years withcost-based price increases, at the same time the demand side has weakenedpretty consistently over the last 18 months. And as you noted in your outlook'08, there doesn't seem to be a change in that trend. I was wondering if you could kindof comment on the level of promotional activity that's out there. I think you kind of commented atthat in the third quarter this was maybe an area of surprise or a negativeimpact, and how you see some of the competitors that are out there gainingshare or trying to gain share, rather affecting that balance as perhaps demandcontinues to fall?

Mike, one thing I want to commenton, I'll ask Mike to make his comments as well. But in terms of the USmarket, which I think you're primarily referring to, is we did really see somesubstantial pick up in the fourth quarter; certainly versus the third quarterand everything for us moved in the right direction. There has also been somediscussion about increased promotions in a challenging marketplace. I guessthere is a lot of noise out there in terms of our level of promotions and soon. There is nothing abnormal in the fourth quarter. As we go into the 2008,frankly, we have shifted the significant part of our focus to the productinnovation launches that Mike just talked about, which are substantial, numberone. And number two, shifted a lot ofpromotion to consumer raw advertising to really make innovations well known andfrankly create demand in the market place. Given where we are, given Maytagintegration is over, given our innovation across all of our brands, this is theright time for us to do that. So, we expect to win market share and compete byhaving the best brands, the best products and making sure consumers know aboutthem as apposed to price promoting in the market place. Mike is there any?

No. Michael, I think Jeff reallysaid it, we didn't have any abnormal activity in the fourth quarter and aswe've come into the year, we really have shifted a lot to be consumer directed,if you will, advertising to draw them into the market place. And if you look atour results, we actually had a very positive price mix in the fourth quarter,while we recovered and had significant improvement in our market share from thethird quarter to the fourth quarter. So, we feel pretty good about that and wethink that we can continue that trend as we go through 2008.

Michael, its Roy. Michael, just a sort of build on Mike'spoint, I think if you look at the company, I talked about the favorable pricemix in the fourth quarter globally. Mike is correct, he got about a half apoint within North America and if you step back to see more of the macropicture, as a company for 2007, we had just a little lower half point offavorable price mix as well. Just to help you calibrate the success we had in2007. Michael Rehaut - JPMorgan Securities: Last question, if I could, nowwith the Maytag cost saving cycle essentially achieved, I think you had saidthat you're kind of going back to general productivity expectations and thatyou're not going to actually break-up Maytag, apart from your overall productivitygains. Also, kind of conceptually, you are now with that much of a biggerfootprint and market share. Is there still, where are you are in terms ofproduct gains? Historically you said aneven 3% to 5% per year productivity gains. It might be a little repetitive ofSam's question, but net-to-net, do you still feel that there is a biggerplatform from which to get productivity gains or how do you see that?

I'll answer that. The answer isyes. Particularly compared to pre Maytag, I'll go down at number dimensions;one, our larger size of scale provides a bigger platform. Two, although we needa tremendous number of changes during the Maytag integration, it's still farfrom optimized and as you think about every new product we bring out is nowcompletely on a Whirlpool cost, structure versus the Maytag cost structure, andthat will continue for sometime until a 100% of the product line is completelyget over. We do have some facilities andyou saw one Reynosa in Mexico, which was not included inkind of the first ground of integration that's subsequent to that and when youhave some continued manufacturing optimization to do. And then on top of that,I'd say stronger than ever is the global common standardization, commonnizationof some of our product designs and component parts and that sort of things. So, I think there are a certainnumber of enhanced opportunities we have because of the size scale and scope ofMaytag. The other side is still the globalization level, which still has a lotthat we think we can benefit from. And then the third area is our ongoingrelentless improvement on things like [clean] manufacturing and in our internalskills, in order to drive and also add in the whole trait and warehousing thelogistic change. We are finding new ways to driveproductivity, so yeah, my expectation actually would be that we have moreopportunity today then certainly we did pre-Maytag to drive productivity. Michael Rehaut - JPMorgan Securities: Okay, thank you.

Our next question comes from EricBosshard. Your line is now open. Eric Bosshard - ClevelandResearch: Good morning.

Good morning Eric.

Good morning. Eric Bosshard - ClevelandResearch: A couple of things, first of allcan you give me a sense that $8.50 to $9 of guidance up, there are obviouslyhead winds from the tax rate and from last asset gains, I'm assuming thosenumbers, but can you give me what gives you the conviction of that improvementin the face of the demand head winds and some of these other factors?

Sure, Eric. Let me give you alittle bit of color. And I'll break it up on the three parts. One is revenueand if you take the demand in the US and what we expect we can do a productsand brand, in market trend and so on and a kind of put all pieces in the worldtogether. We do expect moderate positive revenue growth globally for the year. Secondly, is the negative hit tomargins, as I said our material cost, restructuring, and the increased brandinvestments, although a lot of that brand investment were funding from otherinfrastructure cost changes. So, there is a decline against an increase. Butoverall, that's a little over two points of negative to hit the margins, theflip side and how we expect to offset it. The other things that Imentioned; number one is, very strong productivity. I believe net of rawmaterials this will be the strongest productivity we have been ever had for allthe reasons I've just mentioned. Number two, to both costs-based pricing andproduct mix. We do expect to recoup and improve our margins; at least thelevels that we have done better this year and that's true around the world. And then third, I'd say itcontinued, although perhaps a little bit slower, but still very positive internationalgrowth. Those things wethink will more than offset that would over 2 point of negative hit and thereare a lot of other things in our income statement. Let me give it to Roy a kind of give you --kind of a little bit more granularity.

Eric, first of all, you'recorrect in terms of conviction if you take a things, let me start with the lowoperating profit. You touched upon tax rate, where we think we go to the mid20s. Second item as you notice is other income, other expenses was a littlehigh this year. So, we've normalized that back to our typical run rate. So, you really come back to theoperating profit and if you normalize the operating profit you take out the twoasset gains that we talked about this year. And then you step back from this,you really have two things that are going on within our operating profit. Oneis what Jeff talked about his script. He had the negative 2.1 points coming offmaterials, restructuring in SG&A. And then that the second side,Eric, is the positive side and which embedded in our guidance, is in essencethree points of improvement from productivity, price mix and the incrementalrun rate on Maytag efficiencies for those efficiencies that we actuallyrealized over the course of 2007. Now a little bit of baselineEric, in terms of what gives you conviction, which was the first part of yourquestion. Productivity in 2007 for the company was two points of productivityas what we achieved in 2007. Price mix I mentioned earlier with, Michael was0.5 point. The Maytag is a little trickierbecause again as you know we've had strong year-over-year efficiencyrealization obviously, we wouldn't repeat that, but we do have, imbedded in ourguidance, some incremental benefit from those Maytag efficiency. Those threecombined are totaling three points, which gets you to our operating profit walkforward. That enables you to get to the mid-point of our guidance.

The last perhaps perspective, I'dput on is, if you look at 2007 and 2008, they have a lot of similarcharacteristics in the guidance that we gave in the beginning year and frankly,for most of you. We had two big changes in our assumptions, which drove ourguidance and that was, we earlier in the year, we really tough to choose onethese are $400 million range, they were in the $600 million range. That's $200million; that's full one point of operating margin. In the second pass we had, we call the first part of theyear right on industry demand in US been down about 5% and it goes down5.1%. What we missed was the impact of the financial credit crunch in prices;originally we thought the second half will be up 1 to 2% and the reality wasdown almost 6%. And so that big swing in demandcoupled with the $200 million cost increases is what challenged us in this backhalf of the year. Having said that, we've made adjustments throughout the yearto deal that still. Still largely delivered within the guidance that we gavein, and I think 2008, its similar, we kind a laid out what our assumptions are,those are our planning assumptions they can change. But we also made it into ourbusiness and tried to take the actions throughout the course of the year andalso made sure that we are changing along inline with the environment stilldelivering our guidance. So, I guess from that perspective, I think we have gota number of things that we are continuing to work on, that if theseenvironmental assumptions do in fact, three months or six months down the road,change, that we are working on enough things to adapt our business fairlyquickly and try to deal with it. Eric Bosshard - ClevelandResearch: Can you give us anyquantification of how much Maytag cost save carry over the risk going into '08?What you have not annualized to this point?

Eric I would estimate it to $50million to $100 million. Eric Bosshard - ClevelandResearch: Okay. And then the other questionis, you talked a lot in '07 about the cash flow 6 to 6.50 and it ended up itlooked like from cash from operations 200 million short in 4Q and seemed likethe inventories may explain some of that, but can you explain a bit the 200million deviation from your guidance in cash flow from operations in the fourthquarter?

I am sure I followed yourquestion Eric, in terms of the delta from our guidance. Eric Bosshard - ClevelandResearch: I think you had been [guiding of]cash from operations for the year and the reported number ended up being 927?That's what I was trying to figure, what explains that deviation in the fourthquarter relative to the guidance?

I am thinking, Eric, we were 100million off of what we had guided in terms of cash from operations and that wasprimarily driven by inventories and again for the most part that was inventoryshare in the U.S. where we did take a number of down-days, but as the marketshrank over the course of the quarter, we just ended up with about 2 excessdays of inventory on hand, that we had not planned. And then one day of theinventory that we consciously built to support our global footprinttransitions.

And I would add that it wasreally the early shortfall of that we saw late November, December. By then, itwas really too late to make any more adjustments in our inventory. So, thatreally was frankly the entire mess.

That was a mess. Eric Bosshard - ClevelandResearch: Right Thank you.

Are there questions?

Yes, our next question comes fromLaura Champine. Your line is now open. Laura Champine– Morgan, Keegan & Company: Good Morning, Jeff

Hi Laura Laura Champine– Morgan, Keegan & Company: I noted from your boiler plate,that, if I’m doing my math right, your business will see this decline to about8%, though your business in North America wasup a percentage point for the year. If you can, can you draw into how yougained share in the fourth quarter despite a pretty widely publicized declineand continued share loss of your biggest customer, and then as a follow on,what will you do in 2008 to try to become more channel neutral and diversifyaway from that weak link in retail environment?

Okay Laura, this is Mike Todman,and maybe just let me give you a look at our overall business. And I think wehave said throughout the year, and really as we executed in the fourth quarter,that we wanted to make sure that our brands won work at the distribution whereour consumers shop, and that we don’t specifically pick where consumers shopand so if we are there and we have the right product, the right innovation,then we will enjoy the market share that --- what I would say, therefore in thefourth quarter is, we saw a fairly good increase in our branded market share.So, outside of Sears in particular, and that’s just based on kind of the productlaunches that I talked about in the third quarter call that we executed in thefourth quarter. The other aspect of it, as wecontinue to go forward, what we again have said all along is, if you look atall these product launches that we are taking to all of our brands, our intentis just to have the right product, the right value, the right innovation in ourbrands where every consumer shops. And so at Sears with [M-mart] we will havethe right product offering there. If it is outside of Sears in any of the otherdistribution points, we may consider that we have the right product offering inour brands in those environments, and that's what we intend to continue to doas we go throughout the year. Laura Champine– Morgan, Keegan & Company: Can you comment on Q4, whetheryour share gains were weighted more towards the Whirlpool brand or the Maytagbrand, and also how are your client brands doing relative to those core marketbrands?

Laura it was both Whirlpool andMaytag, and I will tell you we had very strong performance in our [Iron] brand,and as we introduced that new product Kitchen Aid that I mentioned here, we sawthat consumers were buying those brands. Frankly, we had it across the board atall of our brands. Laura Champine– Morgan, Keegan & Company: Thank you.

Thank you.

And we have time for one morequestion from Jeff Sprague. Your line is now open. Jeff Sprague - Citigroup Investment Research: Thank you, good morning.

Good morning Jeff. Jeff Sprague - Citigroup Investment Research: Roy, you had a couple of comments about theprice and mix. I think that was about operating profit, not revenue. Just so, Ihave it, we all have it square, can you just, the revenue composition in North America in Q4. How it shakes out for Whirlpoolvolume price mix?

Okay, you are right. I am goingto reconciled revenue for you. Okay, you could hear earlier, I was talkingabout the margin impacting in my discussions with Eric and Michael. If you look at, I will start withConsolidated, Jeff, Consolidated Whirlpool sales were up 7%. If you look atcurrency, the currency impact of that foreign currency was 6.5 pointsimprovement. We had about 0.5 favorability of price mix and then we had minus 0.5for volume and that gets you to the 7.5 for Consolidated. For North America specifically, we had about 3.5 points of favorable pricemix in the fourth quarter, about 0.5 of rate and volume was about 5.5 negativeto get you just at minus 0.5. Jeff Sprague - Citigroup Investment Research: Great. And then could you justwalk us through the mechanics of why tax rate would go back up? It would seemlike some of the geographic forces that drove it down in '07 would still be inplace in '08?

Yeah Jeff, that's a goodquestion. Let me talk a little bit about that. And it's sort of a loadedquestion. I am going to give you little bit of perspective, and then I willcome back to your direct question. I think it's important to [propose] with twopoints, Jeff. One is that we've talked about, I guess now, over the last coupleof years, that we have been implementing a tax strategy plan to get our taxbase globally more efficient with respect to our operations. The second propose point is that,as you know, under the current accounting rules there are really two impact,sJeff, typically when you execute a tax strategy. And that is that under theaccounting rules for those things that involve the current period operations orfuture operations, you recognize the benefit of those strategies over period oftimes as part of your operating tax rate. The second important distinctionnow, Jeff, is when you execute tax strategies for those pieces or componentsthat relate to prior periods. Let me give you an example of what specifics to [workover]. If you execute a tax strategy that now enables you to utilize NOLs thatwere previously not able to be utilized, the component of that that relates toprior periods is run through the rate in the quarter that you execute the tax strategies.So, you get this much largest impact on the individual quarters then you wouldget over a blended period of time. For Whirlpool Corporation, if youlook at our normalized tax rate taking into effect our rates around the world,we have a normalized rate, Jeff , of about 30%. If you look at the rate versusthis year, we had about 15 points of benefit coming off of the tax strategythings that we did, that related to prior period positions that we now had theinformation on and therefore lowered our rates. So, that's the delta betweenour normalized rate of 30 and a roughly 40.50. Now let's walk it forward to yourspecific question. If you look at the things that we've executed on ourstrategy and if you look at the benefit that it will have on the rates goinginto 2008, we get about 5 points of benefit that we expect to achieve in 2008.And that take you from this normalized rate back to the mid-20s. Another pointI'd make, Jeff, with respect to taxes, I think it's an important distinctionthat, these things that we've executed are real from a tax cash perspective,these are not just book accounting entries, these are truly a lowering of ourcash taxes that we pay around the globe. Jeff Sprague - Citigroup Investment Research: Actually, that was going to be asecond part of my question. Actually, if you could give us a sense of what cashtaxes did in '07, and what you would expect in '08? You do have a prettysubstantial, call it 25% operating cash flow improvement bake in for '08. I amwondering if you could kind of give us some color, is it cash taxes or is itworking capital or what it is that would actually drive that strong of animprovement?

Well, Jeff the simple answer is,we did have lower cash taxes paid in 2007. Part of that was from our taxstrategy, part of that was related to refunds that we had on global scale. Wedon't expect significant change in that going in to 2008. Jeff Sprague - Citigroup Investment Research: Okay. So, the cash flowimprovement in '08 is more of a function of working capital?

Yeah, it's really coming off of afew components, Jeff. One is working capital, which is the single greatestcomponent. And again, if you think about my comments with respect to inventoryand where we ended the year that's a big driver there. It’s a little bit onhigher earnings, a third piece that's very important is the Maytag recall. Wedid expand $72 million of cash in 2007 related to that recall. You will recall,Jeff, that we estimated $82 million in total, so obviously a lot less cashcoming out next year. And then final point that Jeff referenced is, we doexpect $25 million more in pension contribution next year than we had in 2007. Jeff Sprague - Citigroup Investment Research: And then, just one final one, ifI could. I think a prior questioner assumed that there wouldn't be asset salesgains that worked as potential offsets to restructuring. Would you in fact, asyou are selling some of these facilities you are closing, in fact have someoffset?

Well Jeff, if you look at thechart in the back of the press release, you will note that we have $50 millionto $100 million assumed in terms of proceeds from assets sales, that's relatedto your point. In terms of again on asset sales, again we don't forecast thosegains, but if you look at our run rate over the last three years, you will findthat we have about $50 million, its the typical run rate of gains on assetssales. Jeff Sprague - Citigroup Investment Research: Great. Thanks a lot.

You are welcome.

Well thank you. And everyonethank you for joining us today and we look forward to talking to you in thefuture. Thank you very much.