Whirlpool Corporation (WHR) Q1 2010 Earnings Call Transcript

Gregory A. Fritz – Director of Investor Relations Jeff M. Fettig – Chairman of the Board & Chief Executive Officer Michael A. Todman – President Whirlpool International & Director Marc R. Bitzer, Ph. D. – President Whirlpool North America Roy W. Templin – Chief Financial Officer & Executive Vice President

Josh Pollard – Goldman Sachs Eric Bosshard – Cleveland Research David MacGregor – Longbow Research, LLC. Jeff Sprague – Vertical Research Partners Laura Champine – Cowen & Company Michael Rehaut – JP Morgan Sam Darkatsh – Raymond James & Associates, Inc. Todd Schwartzman – Sidoti & Company

Welcome to Whirlpool Corporation’s first quarter 2010 earnings call. Today’s call is being recorded. For opening remarks and introductions I would like to turn the call over to the Director of Investor Relations, Greg Fritz. Gregory A. Fritz: Welcome to the Whirlpool Corporation first quarter conference call. Joining me today are Jeff Fettig, our Chairman and CEO; Mike Todman, President of Whirlpool International; Mark Bitzer, President of Whirlpool North America; and Roy Templin, our Chief Financial Officer. 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’s future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10K and 10Q. Turning to Slide Two, we want to remind you that today’s presentation includes non-GAAP measures. As many of you will note, we’ve added some additional non-GAAP disclosures this quarter. We believe that these measures are important indicators of our operations as they exclude items that may not be indicative of our core operating results. We also think that the adjusted measures will provide you with a better base line for analyzing trends in our underlying business. Listeners are directed to the appendix section of our presentation beginning on Slide 27 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. Our remarks today track with the presentation available on the investor’s section of our website at www.WhirlpoolCorp.com. With that, let me turn the call over to Jeff. Jeff M. Fettig: As you saw, earlier this morning we released our first quarter financial results. These results are summarized and you can see them on Slide Four. Overall, I believe we had a very strong quarter with sales reaching $4.3 billion which represents a 20% increase versus last year. If you exclude the impact of foreign exchange translation revenues increased approximately 11%. Our earnings per share was $2.13 per diluted share compared to $0.91 in the prior year. Overall, I think we saw strong operational performance in each of our regions and I’m very encouraged by the 18% increase in our global unit volumes that we had during the quarter. Our adjusted operating margin improvement was 3.2 points over the same quarter last year. Also for the quarter, free cash flow improved by approximately $300 million year-over-year. Our overall results reflect our lower breakeven point, our continued investment in innovation and our ability to expand our global product offerings. By continuing to drive our operating priorities throughout the business, we’ve been able to expand our operating margins at the same time we’re accelerating growth. Now, turning to Slide Five, I’d like to provide you with an update on our regional demand outlook revisions for 2010. While there is still some degree of uncertainty in many facets of the global economy, we continue to expect growth throughout this year in almost all the markets around the world. In the United States, we saw much stronger demand in the first quarter and we now expect major appliance demand to increase between 3% and 5% versus the previous guidance of 2% to 4%. Assuming this will occur, which we believe it will, this would mark the first full year of positive growth in consumer demand that we’ve seen in the US market in over four years. In Europe we continue to expect conditions will remain relatively challenging compared to other parts of the world and while our overall demand appears now to be stabilizing and we did post a modest increase in unit volume during the quarter, we continue to expect flat demand for the balance of the year. In Latin America, the underlying fundamentals remain very strong and we’re now forecasting industry growth of approximately 10% versus the previous estimate of 5% to 10%. We expect industry growth to remain positive as the year progresses though our outlook does imply a slowing of the rate of growth in the region over the balance of the year compared to what we saw in the first quarter and of course, the year-over-year comps start to change after the first quarter as we saw growth in the later part of last year. Finally, we now expect our served markets in Asia to grow in the 5% to 8% range versus our previous guidance of 3% to 5%. We continue to expect India to show strong growth trends during 2010, somewhat offset by lower growth rates in some of the other markets. Turning to Slide Six, you’ll see the key factors impacting our business for the year which we showed previously. We believe our cost reduction and productivity will continue to drive improved earnings while higher unit volumes will contribute overall to both the improvement of our overall revenue growth and help the expansion of our margins. We continue to anticipate price mix and foreign currency impacts will generally be neutral to our operating results for the year. Finally, we continue to expect material and oil related cost inflation will negatively impact our operating results during the year. While you’ve seen the recent trends in raw material prices which have been higher, we expect material cost inflation to still fall within our $200 to $300 million range that we previously provided although now we see it towards the higher end of that range. Given this backdrop, we now expect to generate earnings per share for the year in the range of $8.00 to $8.50 per year versus our previous guidance of $6.50 to $7.00 per share. Our free cash flow guidance for the year is now $500 to $600 million compared to our previous guidance of $400 to $500 million. Roy will go in to more detail later on in our outlook later in the call. At this time I’m going to turn it over to Mark Bitzer for his review of our North American operations. Marc R. Bitzer, Ph. D.: Turning to Slide Eight, I would like to briefly go over some of the highlights during the quarter. We saw solid improvement in industry volume, we had a favorable impact during the quarter from healthy replacement demand and the cash for appliances program. This was particularly visible in March and to date the industry remains robust. From a full year perspective, we still see a modest positive contribution from the cash for appliances program and have incorporated this in our outlook. As Jeff mentioned, we have raised our full year outlook slightly to 3% to 5%. From a market share standpoint, we delivered a strong increase in our share compared to last year. This improvement was driven by significant improvement in our branded share growth and partially offset by an unfavorable impact from the expected lower OEM share in the quarter. During Q1, we have had numerous new home builder contracts. Some of our notable wins include new business with Ashton Woods, Beezer Homes, Equity Residential, Shea Homes and Toll Brothers. We feel that we are making good progress in gaining a larger presence with new home construction. As home construction returns we believe we will be very well positioned to fully participate in the industry upturn. On Slide Nine, we detail first quarter results for North America. Our net sales have increased 7% to $2.3 billion and excluding the impact of foreign currency exchange, sales improved 5%. Our unit shipments increased 11% while US industry demand for key seven appliances improved 6%. On an adjusted base, our operating margin was 6.2% compared to 4.8% in the prior year. This profit growth was driven by cost and productivity initiative and higher volumes partially offset by lower price and mix. On Slide 10, you can see some example of some of the products we introduced in the quarter including a Whirlpool brand tall cup dishwasher for the value conscious consumer segment which sold exceptionally well during the first quarter. It holds up to 12 place settings, features a one hour wash cycle and is the most energy and water efficient in its class or you will see also a Whirlpool brand [Calvary] high efficiency top load washing machine which features the largest capacity in the market and a low water wash system that uses less water per load yet delivers better cleaning performance. Lastly, in the middle you see a KitchenAid brand French door refrigerator featuring a large capacity, a full door LCD screen that displays use and care information and offers a kitchen timer, access to suggest ingredient substitution and USB support. In summary, we’re off to a very good start. We have positive momentum as demand levels improve, our strong productivity throughout the business and we’ll be launching a number of our new product innovations in the second half of the year. Now, I’d like to turn it over to Mike for his review of our international operations. Michael A. Todman: Let me begin with a general overview of the international operations on Slide 12. During the first quarter we saw a continuation of the favorable trends in our key emerging market businesses. Latin America and Asia reported strong results as these regions continued to report solid economic growth, particularly in Brazil and India. More importantly for our business, consumers are increasingly benefitting from the quality of life improvements that our products provide. European market conditions remain challenging during the quarter, however, we did begin to see moderate demand improvement in Western Europe during March. As the region begins stabilizing our focus remains on continuing to improve our cost structure. Turning to Slide 13, our European sales improved 6% year-over-year to $739 million in the quarter with unit shipments increasing 1% from the prior year period. In local currency sales declined approximately 2% from the prior year. The region reported an operating margin of 3.6% as a results were driven by cost and productivity initiatives. First quarter results from Latin America are summarized on Slide 14. The region reported sales of $1.1 billion, a 65% increase from the $689 million reported in 2009 as appliance unit shipments increased 50%. Excluding the impact from currency sales, sales increased approximately 40%. The sales increase was driven by strong demand across most of our served markets in the region and favorable foreign currency exchange. On and adjusted basis, operating profit increased $167 million compared to $83 million reported during the prior year period. Our first quarter results in the Asia region are shown on Slide 15. Net sales increased 60% during the quarter to $192 million up from $120 million in the prior year period. Excluding the impact of currency, sales increased approximately 49%. Unit shipments also increased 49% during the quarter. Our increased unit shipments are being driven by continued strong growth in India as well as growth from our expanded product offering and strong product sales in China. Operating profit during the quarter was $11 million compared with $5 million reported in the prior year. The operational improvement was primarily related to higher unit volumes. These improvements were partially offset by lower priced mix. Our international businesses also produced a strong cadence of product introductions in the quarter. On Slide 16 you’ll see just a few of our international product launches including a line of built in steam ovens in Europe, the first echo efficient refrigerators in India, with these premium frost free refrigerators coming in in both two door and three door models, and water purifiers in Latin America that can be both installed and maintained by consumers. Our global innovation pipeline continues to be strong and we are meeting the needs of our consumers everywhere in the world in more ways than ever before. In summary, for the international business we are seeing strong demand in the key emerging markets which is supported by a strong product offering and increasing consumer demand while productivity improvements are offsetting higher material costs in those markets which is contributing to improved operating margin and we are seeing a stabilizing European market in which our cost focus is now contributing to improved operating earnings. Now, I’d like to turn the call over to Roy Templin for his financial review. Roy W. Templin: Beginning on Slide 18, I’ll walk you through the summary of our first quarter performance. Our net sales marked the second consecutive quarter of strong year-over-year increases with our first quarter units increasing approximately 18% in the prior year. Our revenue was also favorably impacted by foreign exchange translation which accounted for approximately eight points of the year-over-year increase. The favorable impact was primarily related to a stronger Brazilian Real and the Euro compared with the prior year. Looking at our margins during the first quarter, the positive year-over-year increase was primarily from our productivity and cost reduction actions as well as higher sales volumes. These favorable impacts were partially offset by lower price mix. Finally, before we take a look at the income statement in detail, there are a couple of items that I would like to highlight that impacted our first quarter. The first is a $75 million accrual for a supplier related quality issue. Second, we recorded a $29 million curtailment gain related to a post retirement benefit plan. Finally, we monetized $41 million of BPX credits during the first quarter. Turning to the income statement on Slide 19, we reported net sales of just under $4.3 billion, an increase of 20% from the prior year. Our gross margin rose three tenths of a point to 15.0%. As I mentioned previously the most significant favorable impact on our gross margin improvement related to our cost and productivity actions which were partially offset by lower price mix. SG&A expense totaled $371 million. Foreign currency translation and the non-recurrence of the prior year curtailment gain accounted for approximately 80% of the dollar variance compared with the prior year. As a percentage of sales SG&A declined to 8.7% from 9.2% in the prior year. Restructuring expenses totaled $20 million during the quarter and were largely related to cost reduction actions in Europe and a previously announced facility closure. We continue to expect to record restructuring expenses of approximately $100 million during 2009. Finally, our operating margin expanded one point from the prior year to 5.6%. On an adjusted basis, our operating margin was 6.7%. Turning to Slide 20, I wanted to briefly discuss interest in sundry expense. The main favorable variances from the prior year’s level relate to foreign exchange and higher interest income from our overall higher cash balance. Turning to our tax rate, we recorded an income tax credit of $3 million during the quarter, corresponding to an effective tax rate benefit of approximately 2%. The first quarter credit was below our previous expectation largely as a result of higher pre-tax income. Given our revised earnings outlook we are currently estimating our full year tax rates to approximate zero plus or minus 5%. Finally, we reported diluted earnings per share of $2.13 per share. On an adjusted basis, our EPS totaled $2.51 per share. Moving to our first quarter free cash flow results on Slide 21 and as Jeff mentioned earlier, we had a strong year-over-year improvement. This improvement was driven by a year-over-year increase in cash earnings and a lower amount of working capital investment as we increased our production levels. These items were partially offset by higher capital spending levels during the quarter. Turning to Slide 22, we summarize our net liquidity position. As you can see from this table, our net liquidity position remained over $3 billion at the end of the quarter. Our cash balance was just under $1.2 billion and we had full availability under our revolving credit facility. Given our strong liquidity position, we are planning to repay our $325 million 8.6% coupon note which is due on May 1st to further improve our credit metrics and generate interest expense savings. On Slide 23, you can see a summary of our revised full year outlook. We are now expecting to report earnings per share in the range of $8 and $8.50 per share. This outlook includes approximately $0.10 of net expenses related to the $75 million accrual for a supplier related quality issue recorded in the first quarter and a $62 million gain related to the full year impact of an [OPAD] curtailment gain. As Jeff reviewed previously, we expect to have a more favorable impact from increased global volumes as well as our ongoing cost reduction and productivity initiatives. From a headwind perspective, we continue to see cost inflation as our main challenge this year. Given the recent trends in some raw material prices, we now see our material costs trending towards the higher end of the $200 to $300 million range for the full year. Turning to our cash flow outlook, we are projecting free cash flow between $500 million to $600 million up from our previous expectation of $400 to $500 million due to higher cash earnings. Now, I’ll turn the call back over to Jeff. Jeff M. Fettig: Let me summarize. We are pleased with our progress and results so far in the first part of this year. As you know over the last two years we have been challenged with both significant volume and production declines due to lower consumer demand and as we’ve discussed many times over this period of time, we’ve taken very strong steps to structurally align our cost structure and improve our asset utilization. Slide 26 illustrates what we have done and I think importantly what we’re continuing to do. I believe our first quarter results reflect the impact of what some demand growth enables us to do with a very efficient cost structure. Going forward we are remaining very focused on cost reduction and cash generation as we did last year and in addition we will benefit from revenue growth due to both our strong new product innovations which we’re bringing to the marketplace throughout the course of this year and improved demand levels. I truly believe this combination will produce very strong operating results and we look forward to continuing these trends as we go forward. I’m going to end here now and I’d like to open this up for questions and answers.

(Operator Instructions) Your first question comes from Josh Pollard – Goldman Sachs.– Josh Pollard – Goldman Sachs: It sounds like despite the improvement you’ve had in both the top line and EBIT margins you all still seem unsatisfied with the margin profile. Can you talk in a little bit of detail about what percent of the $95 million or so in cost saves you projected for 2010 you’ve already captured here in the first quarter? Then, can you talk a little bit about by region what you guys are doing to drive even better profitability? I think the US is clear that you’re driving the price mix in the back half of the year but if you can dig in a little bit on the other regions it would be extremely helpful. And, I have a follow up. Jeff M. Fettig: Let me give you just kind of broad based comments here which is true for all parts of the world. First and foremost we continue to be very focused on cost reduction productivity initiatives. Typically, and this year is what I would call so far a typical year, these ramp up throughout the course of the year as you execute projects and that sort of thing. Obviously, increased volume and production is immediate because we see that in the conversion costs, so that’s really dependent upon that. But, I would expect we would continue to execute very well in productivity and if anything probably accelerate the rate of productivity throughout the course of the year. The flip side of that is of course material costs. We said it’s in the $200 to $300 million range. Probably at the higher end of that range as we see it right now, those two will probably ramp up as we go throughout the course of the year. Regarding volume, volumes positive to our margins so you saw the outlook, we’ve increased that so that should help and then PMR or price mix if you will, first of all we’re very pleased with the results we saw in Q1. Year-over-year comparisons are tough because we had such a big increase Q1 of last year but sequentially from Q4 we’ve actually improved our price mix. We’re seeing very strong mix in our business. I think we have some very impactive product introductions throughout the course of the year which are high volume which should have a positive impact on the mix. That’s why even with a negative first quarter comparison on price mix we think for the full year it will be generally neutral. Again, how we get there is slightly different per region only because environment is different but I would say in general those are all the same characteristics we’re focusing on everywhere. Roy W. Templin: Josh in reference to your $95 which I think you’re talking about the program we announced in 4Q 2008, we continue to be on track with respect to that. We still think we’ll end up with a run rate of $275 million of benefits as a result of those actions. To the second part of that question, we had just under $60 million of benefit in the first quarter and as we look forward to the next three quarters we see $60 to $65 million of benefit in the next three quarters as well. Josh Pollard – Goldman Sachs: My other question is on Latin America. We continue to hear very positive things in Brazil via our channel checks there, even after the stimulus expiration and we recognize they’re 30 to 40 days that you have of additional time to use that. What are you assuming happens in the back half of the year or in other regions within Latin America that gets you to only 10% full year growth in that region? Michael A. Todman: Let me take that, let’s go back to last year, this is a stimulus program in Brazil and I’ll focus on Brazil right now. Through this IPI tax holiday really began in late April, that’s when it was initially initiated. So if you just think of the first quarter of last year it was not impacted by the stimulus program so this is really a quarter this year running through that. If you remember, it ended in January but there was inventory in the pipeline and so that inventory has kind of come through the system. As we look forward therefore, what we think is we’re going to see some moderation in the growth because we’re now at fairly high levels and so that’s why we’re saying the growth for the balance of the year is going to be more moderate but think about it’s more moderate on already pretty high levels as that stimulus program kicked in over the remainder of the year. The last point I’d like to make is just the underlying economics in Brazil and frankly for many of the other Latin American countries is pretty strong. So we’re seeing kind of positive momentum throughout those markets although maybe at a slightly moderated rate.

Your next question comes from Eric Bosshard – Cleveland Research. Eric Bosshard – Cleveland Research: In North America I think you said that units were up 11 and up six market which was an even wider favorable gap than 4Q and we know the OEM, the Sears impact is sort of grown and now where it is. Can you just talk about how you’re accomplishing this and the sustainability of this and also speak to if there’s any supply issues that are having any impact on this as well. Marc R. Bitzer, Ph. D.: Yes, you’re right in your observation, we picked up market share in Q1 on a year-over-year base and sequentially versus our very strong Q4 we’re pretty much flat on a total share base. However, even sequentially we’re on a brand share base quite a bit up versus Q4 which basically shows you as we said before fully mitigated any potential OEM losses which are by now behind us. So from a market share perspective OEM losses are pretty much a non-event. That is largely driven by increased floor space pretty much across all retailers, in particular on our branded side. There’s not one channel we would point out, there’s a number of parts across all channels which expanded our floor space. So we feel overall very good about our share momentum coming out of Q4 in to Q1, in particular on our branded side. Yes, as you have observed, that has led to some availability issues in some parts of the business. It’s been a consistent strong demand behind our products throughout Q4 and Q1. We ran in to some component availability issues which we expect to be fully recovered by the end of Q2. Eric Bosshard – Cleveland Research: Secondly, the comment on price mix negative for the last couple of quarters and the comment that you expect it to be neutral by year end, can you just talk about why it’s been negative and what improves it? And also, touch on the thinking related to pricing increases as your input costs could move higher. Jeff M. Fettig: I’ll talk about that globally. You probably recall first quarter last year we had a very positive price mix, I think it was about three points. So, the starting point is we’re comping against a very strong comparison. We’re down two points versus Q1, so two points versus that up three last year. We’re up about a point from Q4 so sequentially we’re improving our price mix. You may or may not recall but in Q3 last year and a little bit in Q4. We did say that we did do some structural price repositioning and particularly in the North American market place on certain very competitively intense categories. We did that, you saw the momentum we got by doing that both in Q4 and Q1 but at the same time we continue to drive mix and we had a again, a very favorable mix period improvement almost over a full point versus even Q4. So the trends are I would say pricing stable, mix growing as we start comping against last year’s numbers that’s how we’ll get to be neutral plus or minus a little. In terms of pricing now, I can say is we’ve done pricing and we talk about some markets like India where we’ve had very high material cost inflation. I believe we announced two price increases so far one in December and one a month or so ago. Some of the emerging markets have slightly different dynamics with both material cost and pricing and we’re managing them appropriately. Eric Bosshard – Cleveland Research: As you look at higher input costs as we move through the year and potentially in to 2011 as you indicated, is pricing an alternative to help offset that, a realistic alternative? Jeff M. Fettig: I can’t talk about forward pricing plans but I would just say we’ll look at everything.

Your next question comes from David MacGregor – Longbow Research, LLC. David MacGregor – Longbow Research, LLC.: I guess just a couple of questions on costs, the steel mills are now talking about passing through their 75% to 100% raw material cost increases to their contract customers through raw material surcharges and some of them even talking about that on their first quarter calls. I guess to what extent have you anticipated this in your guidance and what gives you some assurance that you might be able to deal with this from a competitive standpoint or from sort of a balance and negotiating power in the channel standpoint better than you were able to in 2008? Jeff M. Fettig: Well David, I guess first of all steel is still largely a regional market. Through Asia and Latin America we basically negotiate daily, weekly, monthly and so that’s already reflected and by the way so was last year. We manage that through a combination of all the things that we do. Negotiation through cost take out through pricing, etc. again, as we’ve shown to date. So then you have North America and Europe, as we’ve talked in the past the large majority of our needs we typically contract with multiple suppliers. We pretty much know the range of outcomes, certainly for the balance of this year and we’re comfortable those are well represented in our guidance. The surcharge and all that talk I don’t really have any comments about that. David MacGregor – Longbow Research, LLC.: But there are no surcharges anticipated in your guidance at this point? Jeff M. Fettig: Well, where we have contracts we expect the contract will be fulfilled. David MacGregor – Longbow Research, LLC.: Second question, it seems like with the numbers that are coming out which are pretty impressive. You’ve got to be running at a pretty high level of efficiency within your organization right now. In other words, to what extent should we soon anticipate plants coming back on line, people being rehired, adding new shifts. Jeff M. Fettig: It’s already happening. David MacGregor – Longbow Research, LLC.: Can you give us some sort of quantitative guidance on to the extent that we should be modeling that in? Jeff M. Fettig: It’s a little bit hard because it’s by product, by factory and by market. I would just say literally we’ve added shifts. We’ve got some facilities now in both Latin America and North America running 24/7. We’re very I would say aggressive about ensuring our supply. We’ve had some availability issues in certain products, that has not been an assembly issue it’s been a component supplier issues which we’re working our way through and hopefully we’ll have that behind us. Overall, given demand levels in the case of the United States was down 35% from 2005 to 2009, we’ve had a nice step back up 7% or so. I mean, we’ve got plenty of capacity and we’re adding back folks as we need them. David MacGregor – Longbow Research, LLC.: Last question, just on the stimulus program, 11% volume improvement in the quarter is pretty good. How much of that do you think was related to the stimulus program versus how much was good underlying recovery in demand? Marc R. Bitzer, Ph. D.: I think it’s a combination of both. It’s difficult to quantify exactly what portion each aspect has. I would overall say that the stimulus program drove more traffic in to stores than was originally anticipated by the retailers and us. Despite a fragmentation across different states, but it drove quite a bit of attention. I think what is most encouraging in the states where the stimulus program has now passed, the demand level has stayed on a fairly elevated level. So there is good sell through, good inventory moves and that all added in to overall demand in the first quarter which we see still maintaining. Jeff M. Fettig: As you know, some of these state-by-state, some lasted for hours, some lasted for day. But, to Marc’s point I don’t think it was actually that which has positive impact, I guess we kind of see it at a broad level it was bringing consumers back to the marketplace which was probably the biggest positive impact.

Your next question comes from Jeff Sprague – Vertical Research Partners. Jeff Sprague – Vertical Research Partners: Jeff, I think in your earlier response to a question about price mix you were answering it on a global basis, the -2% year-over-year and plus 1% quarter-to-quarter. Can you just give us that read in North America. Marc R. Bitzer, Ph. D.: I can give you that for North America. The Q1 impact has been a negative on the price mix and that is largely as we expected very simply because we had last year in Q1 kind of the peak of our price increases post the August ’08 and January ’09 price increase. So some of that we expected. On a sequential base for North America our Q1 price mix is up in particular driven by the mix component. So kind of on a sequential base we’re actually pretty comfortable about the pricing run rate, year-over-year, that is what we expected in the first quarter. Jeff Sprague – Vertical Research Partners: Just understanding the difference between 11% unit growth and 5% sales growth it’s technically 6% but you’ve got Mexico and Canada and a bunch of other stuff in there so is 6% the negative price mix in North America year-over-year or is it a different number than that? Roy W. Templin: On the top line you’re correct but obviously from a margin perspective it’s much lower than that. Marc R. Bitzer, Ph. D.: In addition to that 6% is the key seven growth, obviously on 11% we have all our products in it as well which remember we saw pretty strong growth and Mexico and Canada as well. It is not a full apples-to-apples number. Jeff M. Fettig: The 11% includes Mexico and Canada which were higher in some non key seven product categories that grew much more rapidly. Jeff Sprague – Vertical Research Partners: Jeff, you mentioned conversion on volume and you gave kind of the directional chart on how to think about breakeven but just trying to normalize this quarter, I mean in your year-over-year incremental margins in North America I think were 27% or so stripping out the pluses and minuses. Obviously, price mix, materials, all that sort of stuff is going to swirl around that but is that the right type of ball park for us to think about now with what you’ve done to the cost structure on how incremental revenues might convert through the P&L? Jeff M. Fettig: To your point, there’s pluses and minuses to both but yes, I think the leverage we saw in Q1 is not unexpected given both the conversion that I’d also like to add our continued focus on driving our breakeven points down which we made again, more good progress in Q1 which we will continue. Jeff Sprague – Vertical Research Partners: Can you characterize how much lower your breakeven is? Jeff M. Fettig: The difficulty of that Jeff is it varies by product, by factory and by market. But, I would say it’s fair to say that if you look at our adjusted margin expansion and understand what price mix was, that kind of is a good proxy for how we’ve been able to expand our margins, is largely due to lower break even. Jeff Sprague – Vertical Research Partners: Then Roy, just finally can you give us a ballpark number on BPX utilization for the year? Roy W. Templin: Jeff, I said in the guidance we put out earlier in the year it was about $100 million and then in my script today you heard me say $41 million. First of all, let me be real clear, the $41 million should not be assumed to be sort of a run rate going forward. As you know when we had the two months in which to earn BPX on a lot of the products but keep in mind what Mike said in terms of exceptionally high demand, we also had a very rich mix. So as I look at BPX we would naturally be up from the $100 and I would say probably 20% to 25% above that number is what we would estimate now for the full year.

Your next question comes from Laura Champine – Cowen & Company. Laura Champine – Cowen & Company: Just to talk about your share gain, you addressed the price mix in North America was a bigger impact on top versus bottom so it doesn’t seem like you’re driving share through pricing actions. How much do you think your over exposure to the Energy Star program helped you and what are some other things driving, if there are any specific product categories, driving your branded growth? Marc R. Bitzer, Ph. D.: Yes, I would say the Energy Star exposure and us being one of the leaders in the Energy Star program helped significantly through tax rebates but it’s not only that. As I said before, our demand has kept up pretty strong even post the stimulus program so it’s pretty much across all product categories. We’re right now particularly also [inaudible] the cooking progress but it’s pretty much wide spread across most categories. I wouldn’t point out one specific category or one specific retailer, it’s pretty broad based.

Your next question comes from Michael Rehaut – JP Morgan. Michael Rehaut – JP Morgan: First question I was wondering if you could go in to a little more detail if possible, I know you started to talk about it, I’m referring to the cash for appliances program. I know obviously every state is a little bit on a different timetable but generally speaking I was wondering if you could share your best sense of where we are in the program and if you do expect any type of fall off following the program? I mean obviously March was up 9% in AHAM shipments and you’re expecting 3% to 5% for the year. So it’s kind of a question on where we are and how it effects demand on a shifting type basis? Marc R. Bitzer, Ph. D.: First of all in terms of where we are in the overall program I would say at the end of the first quarter we were pretty much through 60% to 65% of the national program. As of today, we’re pretty much through 85% if you take the volume weighted average. What we’ve seen, pretty much as we indicated before, obviously with different degrees, but it was very successful in most states. But, as we said before, the demand stayed up pretty high in most states. People came back in to the stores, it brought quite a bit of traffic. We’re also seeing that retailers came very, very low on inventory levels in to the first quarter but it’s now more balanced. So you have a couple of elements coming in to this Q1 which we see also maintaining throughout Q2. We’ve basically seen elevated demand coming out of the stimulus program. Michael Rehaut – JP Morgan: Just the second question, some line items, I was wondering if you could Roy perhaps give guidance on interest and sundry expense for the year and perhaps next year? Also, with the tax rate, with some of the energy credits running out, you said that you expect a 0% tax rate for this year plus or minus, all else equal what would that be without the energy tax credits that I believe are set to expire at the end of this year. Roy W. Templin: First of all with respect to your first question you had on interest and sundry, I think I said earlier in the year $50 to $60 million in total and then I think I mentioned, it might have been Laura that asked the question last call, that you might build another $20 million or so in there in expect to the compressor fuel cost in terms of the full year. I would say there’s basically on change to that overall outlook with respect to interest in sundry for the year. On the second part of your question with respect to the tax rate, I’ll try to be as clear as I can, there’s actually 18 points of benefit in the current year tax rate as a result of the energy tax credits. You are correct, based on the current legislation they’re set to expire and that 18 point benefit would go away next year. Michael Rehaut – JP Morgan: Just one last one if I could, the raw materials you mentioned that you except to be at the higher end of the range given the change over the last few months, is it possible to share with us what you’re assuming then for steel prices in that closer to $300 million? Jeff M. Fettig: Not really because as I said we buy open market in Latin America and Asia and Europe we obviously can’t talk about our steel contracts. So the delta let’s say is oil and oil related. It depends on what assumption you take on base metals. Of course, we hedge a large portion of those but if the trend is going down we trend down, if the trend is going up we trend up. So it’s largely oil and oil related and base metal related trends that are probably different.

Your next question comes from Sam Darkatsh – Raymond James & Associates, Inc. Sam Darkatsh – Raymond James & Associates, Inc.: The $8 to $8.50 versus the prior guidance is a raise of a $1.50, how much of that $1.50 is due to enhanced first half versus second half expectations? Are you taking your second half expectations higher as well? We don’t see that kind of visibility because you don’t give guidance on a quarterly basis. Just directionally if you could help out? Jeff M. Fettig: Of course our business has a little bit of seasonality in it normally and you know what that is. The real variables as I said materials will probably get progressively worse. Our seasonality is generally progressively better. The full of our internal action I think and PMR will actually get progressively better so the real wild card is demand. We’re not taking Q1 demand levels and as we said we’re assuming they continue to be positive but not at the rate as in Q1 so that’s probably the biggest wild card out there right now. Sam Darkatsh – Raymond James & Associates, Inc.: I was getting at incrementally versus your prior expectations. Have you taken your second half internal expectations higher from where you were perhaps three months ago? Jeff M. Fettig: Well yes, I’d say everything is a little bit higher than it was three months ago but I’m not going to give a quarterly break out. But, compared to what we thought the beginning of February I’d say every quarter is higher.

Your next question comes from Todd Schwartzman – Sidoti & Company. Todd Schwartzman – Sidoti & Company: How much of that 18 points of energy tax credit benefits, what impact that go away, how should we think about the 2011 tax rate? Roy W. Templin: Think of it this way, I said basically 0% tax rate for the year and you can think of it as simply 18 points of benefit would go away so that particular item isolated would take you to an 18 point higher tax rate for next year, isolating the energy tax credits. Todd Schwartzman – Sidoti & Company: And relative to a normal 30% to 40%, mid 30s kind of rate how does that impact? Roy W. Templin: Well again Todd, I’ve said a couple of times in the past if you look at the fundamental underlying tax rate at Whirlpool Corporation on a blended basis given aspects of disparagement around the world, we would traditionally have 28% to 30% as sort of our standard tax rate. Now, you say how do you get to zero this year? The math is it is a little bigger than energy tax credits because you have energy tax credits at about 18 points. Recall that the BPX credits are not taxable, that’s about a six point benefit on our overall tax rate and then we get roughly four points of benefit from global R&D credits that we earn around the world. So that’s how you get from sort of the blended rate back down to zero and you can think of those as you look forward as well. Todd Schwartzman – Sidoti & Company: Regarding the first quarter demand in the US, how would you characterize demand at retail versus sales to home builders? Marc R. Bitzer, Ph. D.: I think you can attribute the entire growth to the retail side, to the replacement side. The homebuilder side, the home construction side, we still see that being depressed. Obviously, we saw a spike, as everybody knows, of existing home sales in Q4 but the new construction remains very sluggish and will probably remain through a large part of this year as well. So right now it’s entirely driven by the replacement side and the construction side is not yet picking up. Todd Schwartzman – Sidoti & Company: On the builders side sequentially from Q4? Marc R. Bitzer, Ph. D.: Obviously on the new construction in Q4 and Q1 it’s always difficult to make a sequential comparison because of extreme seasonality. I think if you take annualized adjusted rate basically you will see by in large flat, by in large but with some fairly significant regional differences. Todd Schwartzman – Sidoti & Company: But seasonally adjusted it’s flat? Marc R. Bitzer, Ph. D.: Yes.

Your next question comes from Josh Pollard – Goldman Sachs. Josh Pollard – Goldman Sachs: The shift from OEM to branded in Sears, was there a margin benefit in the first quarter as a result of that? Marc R. Bitzer, Ph. D.: To be consistent with previous earning releases and calls, we don’t give margin breakdown by channel or by branded. So I can’t get in to those details. Josh Pollard – Goldman Sachs: In that same vein I’ll thank you guys for the details on the tax, it’s extremely helpful. I do have one more additional follow up which is on your pension, can you guys talk about some of the longer term pension options? I know this year you don’t have to fund just because of some of the actions you made last year but can you talk about what you guys are thinking this year on a voluntary basis and then what some of the longer term options are that the company is exploring? Roy W. Templin: From a current year perspective let me sort of back up, as you’ll recall in Q4 last year we made a voluntary $74 million dollar contribution to the pension plan which was really the required minimum that we would have had in 2010 but we obviously prefunded that early. We are now estimating for US pension plans it will continue to on a voluntary basis probably fund about $35 million in to the US plan this year. With respect to options again, we typically don’t talk a lot about particular options. As you know, this is something we continually monitor. It’s part of our overall capital structure analysis as we look in terms of utilization of cash. We are $1.3 billion unfunded at the end of last year and roughly that same level at the end of the first quarter and we continue to chisel away at that as we make voluntary cash contributions. Josh Pollard – Goldman Sachs: My last quick follow up is for Mike, Mike what do you think your share is in Latin America today? Michael A. Todman: We just don’t give that exact share but we have the market leadership in Latin America and frankly, what we are very convinced of is that we’re taking share in just about every category right now, down specifically in Brazil and so we’re feeling good about that.

Your last question comes from Michael Rehaut – JP Morgan. Michael Rehaut – JP Morgan: Just a couple of hopefully quick question here to round it out. First the BPX, I was wondering if you could share with us the remaining balance of credits that you have? If you could give us that number in both Real and US dollars? Roy W. Templin: Well Michael I can give it to you in US dollars, $645 million is the remaining balance, you’ll see that when we file our 10Q this afternoon. Michael Rehaut – JP Morgan: Lastly, and I think this was talked about before but I just want to make sure I understand, the slowdown that you’re assuming in terms of your full year growth relative to what you saw in the first quarter, it looks particularly striking in Europe and Latin America in that the comps get a little bit tougher in the second and third quarters. 4Q ’09 is certainly a different story but if you’re putting out anywhere close to the growth in the first quarter it would seem that the guidance, the full year guidance is a little bit conservative. So I just wanted any color on that, any thoughts around that type of statement and if there’s something we’re missing here or if you’re just being a little conservative? Jeff M. Fettig: Well Michael, I would just say we’re up 20% in revenues in Q1. We’re not forecasting that for the balance of the year. Some of the comps, for example in Latin America, they are pretty significant comparisons because the market really took off after April and continued strong throughout the year. We had good growth in North America in the fourth quarter last year so I mean we do start having some comp differences. As I said, as you look at the variables if you will, we still think it is a gradual economy. Four months in to the year we’re not completely convinced that the growth trends are stable enough to say that they’re going to continue at these rates, it’s early. I think as I said earlier, the biggest variable is really demand. If demand is better we’ll do better. If demand is worse we’ll have to find ways to make it up. So I think demand you’ll have to be the judge of whether it’s conservative or aggressive. But that I would agree with you if the variable. We appreciate you joining us today and we look forward to talking to you again in July. Thank you very much.

This concludes today’s whirlpool corporation’s first quarter 2010 earnings conference call. Have a great day.