Whirlpool Corporation (WHR) Q4 2010 Earnings Call Transcript

Greg Fritz – Director, IR Jeff Fettig – Chairman and CEO Michael Todman – President of Whirlpool International Marc Bitzer – President, North America Roy Templin – EVP and Chief Financial Officer

Eric Bosshard – Cleveland Research Joshua Pollard – Goldman Sachs David MacGregor – Longbow Research Sam Darkatsh – Raymond James Michael Rehaut – J.P. Morgan Laura Champine – Cowen and Company Todd Duvick – Bank of America

Good morning and welcome to Whirlpool Corporation’s fourth quarter year end 2010 Earnings Release Call. Today’s call is bring recorded. For opening remarks and introductions, I would like to turn the call over to Director of Investor Relations, Greg Fritz. Go ahead, Sir.

Thank you, Ty and good morning everyone. Welcome to the Whirlpool Fourth Quarter and Year-End Conference Call. Joining me today are Jeff Fettig, our Chairman and CEO; Mike Todman, President of Whirlpool International; Marc 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 Corporation’s future expectations. Our 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. We believe that these measures are important indicators of our operations as they exclude items that may not be indicative of, or unrelated to our core operating results. We also think that the adjusted measures will provide you with a better baseline for understanding trends in our underlying business. Listeners are directed to the appendix section of our presentation beginning on Slide 28 for the reconciliation of non-GAAP items to the most directly comparable gap measures. Our remarks today track with the presentation available on the investor section of our website at www.Whirlpoolcorp.com. With that let me turn the call over to Jeff.

Well, good morning everyone and thank you for joining us today. As you saw earlier this morning, we released our fourth quarter and year-end financial results. These results you can see on Slide 4. For the full year, sales came in at $18.4 billion, which were up $1.4 billion versus last year. On an adjusted basis, EPS was $9.65 per share compared to $5.01 in 2009. We generated free cash flow of $502 million during 2010 and overall we are pleased with the progress that we made towards all of our value creation objectives last year. Slide 5 summarizes the highlights of the year. We saw a return to growth with our net sales rising about 7.4% versus last year. We improved our operating results for a year, I think a clear indication that our brand value creations strategy continues to drive profitable growth. We delivered significant, in fact record levels of consumer relevant innovations, managed cost and executed well in the marketplace. In total, we improved our financial position. We (inaudible) by strengthening our balance sheet and by reducing debt by just under $400 million. And we returned the shareholders in the form of dividends of $132 million, while maintaining a $1.4 billion cash balance. Overall, we made good progress to reducing our overall leverage as a company in line with our stated objectives. On Slide 6, summarize our current outlook for 2011 that geographies across the world. This year we continue to expect positive demand growth around the world. In the U.S., we see our full year shipments to be up approximately 2% to 3%. Marc Bitzer will discuss the North American industry growth rates in more detail in a moment. But last year, industry demand grew the first time in four years and we expect this trend to continue in 2011. In Europe, we see industry growth demand improving by 3% to 4% for the full year and we've seen appliance demand has grown for the last four consecutive quarters across the region. We continue to see strong underlying economic fundamentals in Brazil and other Latin America countries. And we're forecasting industry growth in Latin America in the 5% to 10% range. And finally, we can expect to continue to have healthy growth in Asia with expected 6% to 8% growth rate for the year. Turning to Slide 7, you can see the key drivers which we see affecting our business in 2011. First of all, we expect our cost reduction and productivity initiatives to have a significant positive impact on margins in 2011. We once again achieved very strong gains in cost reductions and productivities during 2010 and I expect this to continue this year. In addition, we will have higher unit volumes and very importantly, we're driving very strong consumer product innovation for our global brand portfolio, which will contribute to improve growth rates and operating profits. From a price mix standpoint, we have announced or implemented price increases in most major regions and markets around the world. For the full year, we expect these increases to result in, for the full year, a flat to slightly higher price mix and importantly reverse the unfavorable trends, which we saw during the second half of 2010. We continue to manage currency risk and expect currency impacts to be manageable at today's levels for the year. And finally, we expect raw material inflation to drive higher cost and therefore have an unfavorable impact on operating results. For a full year, we're estimating material costs for the year as an unfavorable impact of $250 to $300 million. We've taken into account all of these factors. Our guidance for 2011 is that we expect to deliver EPS in the range of $12 to $13 per share and free cash flow of $400 to $500 million. I would point out that our free cash flow guidance includes an expected U.S. cash pension contribution of approximately $300 million. Roy Templin will go into more detail on this outlook in a few moments. This year we remain very focused on delivering higher margin innovations, realizing significant cost productivity and achieving profitable growth, which will be driven by some recovery in demand and developed economy, continued strong growth in many of our merchant markets. We also expect to expand our operating margins this year, despite the significant global inflation and we will generate good levels of free cash flow, which will drive further strengthening of our financial position. So at this point of time, I'm going to turn it over to Marc Bitzer for an update on our North America operations.

Thanks Jeff and good morning everyone. Let me start by giving my perspective on North America’s performance for the year. As shown on Slide 9, which generated record brand share gains in the fourth quarter and fully. This performance validates the power of our brand and our product innovations. And we continue to provide strong value to our trade customers for our trusted brands. Our ongoing innovation investment resulted in a great year of product launches in North America. And our new products have been very well received by consumers. In addition, we're pleased to see that 2010 marked the first time we saw growth in four years. On Slide 10, you'll see North America’s performance in the fourth quarter. Net sales of $2.6 billion were down 1% from the prior year. And our adjusted operating margin was 1.7% compared to 5.6% in the prior year. The results are unfavorably impacted by one, the negative price mix in a very promotional environment, two, higher material costs and three, lower production volumes, as we started to balance our inventory positions (inaudible) and demand. On the other hand, favorable cost production, unit volume had improvement and lower incentive compensation partially offset the unfavorable items. As a result of an inflationary environment and the unfavorable product mix, we have announced a significant price increase in the U.S. on most of our products and brands. And we're very confident that the actions we have taken in the areas of cost reduction, price mix and new product innovation will put the business back on track to improve our operating margins as we move through 2011. On Slide 11, you can see a sample of just a few of our new products that we launched in Q4. These products have been favorably received in marketplaces and contributed to our record level of new innovations in full year. These launches include Kitchen Aid brand dishwasher, featuring a modern version of a reset handle found in models from past decades. The Maytag brand Maxima (inaudible) and our latest fab innovation have been recognized by a leading consumer magazine. In January of this year, we received top ratings for 11 of our latest top and front-loading models. We also plan to add advantage washers. We're rated number one in the front and top loading categories respectively. With the Maytag Maxima, which you see in the picture taken the number two spot in front load. We also launched the Maytag brand Gemini Double Oven freestanding range, featuring two separate ovens and the industry's largest capacity. In 2011, we will continue to introduce consumer relevant products but strike a positive balance between our product price, mix and share. And finally, turning to Slide 12, I would like to turn to our industry outlook. As I mentioned earlier, we had our first year positive demand in shipment turns in four years during 2010. Both full year, we expect U.S. industry shipment of major appliance to increase approximately 2% to 3%. We're seeing signs of stabilization, new housing starts and improvements in the existing home sales. When you look at the year however, it is important to note that we have a very difficult comparison in the first half of 2011 as we compare against the cash for appliances program impact of 2010. We are anticipating slightly negative industry growth trends in the first half, which will be more than offset by positive trends during the second half of the year. From a full year perspective, we are optimistic the industry remains on a path to recovery and to still remain well below long-term trend demands. Now, I'd like to turn it over to Mike for a review of our international operations.

Thanks Marc. And let me start a 2010 review of our international business on Slide 14. Overall, our international business performance was strong for the year. During the fourth quarter sales in our international businesses accounted for just under 50% of our total company sales. Our operating results benefited from our ongoing cost reduction and productivity efforts and solid volume growth in our emerging markets. We generated unit volume growth and improved operating margins in Europe. In Latin America, we saw strong growth rates for the full year despite the strong year ago comparisons, enabling us to further extend our leadership position in Brazil. We generated strong operating margins along with this growth. Our Asia business experienced significant growth throughout the year, while due to material inflation our margin performance was mixed across the region. Turning to slide 15, in the fourth quarter our European sales declined 4% year-over-year to $922 million, with unit shipments increasing 6%. Excluding the effects of currency, sales increased approximately 4% compared to the prior year. The region reported an operating profit of $29 million during the fourth quarter compared to an operating profit of $19 million in the previous year. The profitability improvement was driven by continued cost reductions and productivity improvements, as well as higher unit volumes. The improvement was partially offset by lower price mix and higher material cost. Overall, we made solid progress improving our profitability in Europe and will look to build upon and accelerate this trend in 2011. Slide 16 shows a summary of our Latin American fourth quarter results. The region reported sales of $1.4 billion, an 18% increase from the prior year period, as appliance unit shipments increased approximately 15%. Excluding the impact from currency, sales increased approximately 17%. Adjusted operating profit reached $193 million compared to $142 million in the prior year. The profitability improvement is primarily related to the increase monetization of BEFIEX tax credits, cost reduction and productivity initiatives. These favorable items were offset by higher material cost, lower price mix and unfavorable foreign currency fluctuations. Our fourth quarter results in Asia are shown on Slide 17. Net sales increased 9% during the quarter to $204 million, up from $188 million in the prior year period, as unit shipments increased 4%. Excluding the impact of currency, sales increased 4%. Operating profit reached $4 million for the quarter versus the $6 million generated in the prior year period. Favorable volume growth and productivity was offset by higher material cost. Turning to Slide 18, you'll see just a few of our international product launches during the quarter, including a line of Whirlpool brand, energy efficient, frost free refrigerators in our Latin American region. The refrigerators feature improved aesthetics, more freezer space than previous models and the ability to adjust interior temperatures with exterior controls. The Bauknecht brand, Cosmos in Europe, featuring a brushless motor that consumes up to 50% less energy than comparable Bauknecht goods. And the Whirlpool brand , Charisma 6th Sense dryer, featuring faster drying time and an A class energy rating. In 2010, we had innovative product launches in every major categories around the world. We entered 2011 with a continued commitment to strategically strengthen our position in all markets through our global brand portfolio and a diverse and innovative product offerings that meet the unique needs of consumers around the world. Now, I’d like to turn it over to Roy Templin for his financial review.

Thanks Mike and good morning everyone. Beginning on slide 20, I would like to summarize our fourth quarter results. For the quarter, our sales grew 3.7% to $5.0 billion. Appliance unit volumes increased 7.6% from the prior year, led by 15% growth in our Latin America region. All other regions reported mid single-digit volume increases during the quarter. We continue to see a significant benefit from our productivity and cost reduction initiatives during the quarter. In addition to this, we monetized $81 million of BEFIEX credits compared to $17 million in the prior year. During the prior year, we saw a significant reduction in our BEFIEX monetization due to the IPI tax reduction, legislated by the Brazilian government, which expired on February 1. We also saw a year-over-year improvement from lower incentive compensation expense and recognized a $10 million or $0.08 per diluted share gain from the sale of an asset in the current quarter. These favorable effects were more than offset by lower price mix and higher material cost. Turning to the income statement on slide 21, we reported net sales of just over $5 billion. Our gross margin contracted basis points to 13.2%. The most significant unfavorable impacts on our gross margin were lower product price mix and higher material cost. These were partially offset by cost take out and productivity actions and higher BEFIEX credit monetization. SG&A expense totaled $441 million compared with $427 million in the prior year. The increase in SG&A spending was related to higher infrastructure spending on strategic initiatives and increased revenue generation spending. SG&A expenses were 8.8% of sales during the quarter, which was equal to the prior year level. Restructuring expenses totaled $16 million during the quarter and were the result of cost reduction actions in Europe and North America. For 2011, we expect to record restructuring charges between $75 and $100 million. Finally, our reported operating margin declined 10 basis points to 4.0%. On an adjusted basis, our operating margins contracted approximately 60 basis points. Turning to slide 22, I wanted to briefly discuss interest expense. The most significant increase in interest relates to a favorable tax settlement in Brazil during 2009. Excluding the prior year tax settlement, interest expense was down slightly year-over-year due largely to lower overall debt levels and a lower average interest rate. Lower interest and sundry expense was a result of a reduction in legal cost and contingencies and the non-recurrence of a $13 million charge in the prior year related to previously capitalized transaction cost. Turning to our tax rate, we recorded an income tax credit of $46 million during the quarter, corresponding to an effective tax benefit of approximately 35%. The fourth quarter credit was an improvement from our previous expectations due to lower pre-tax income, higher BEFIEX credits and a favorable impact of fourth quarter tax law changes here in the U.S. Finally, we reported diluted earnings per share of $2.19 per share compared with $1.24 per share in the prior year. On an adjusted basis, diluted EPS was $2.11 per share compared with $1.67 per share in the prior year. Moving to our free cash flow results on slide 23, we generated free cash flow of $502 million during the year compared to $1.1 billion in the prior year. The main variance from the prior year’s record results relates to changes in working capital levels from the prior year-end. Overall, our free cash flow was below our expectations. The most significant driver of this variance relates to inventory. While we made some progress in reducing our inventory balance during the fourth quarter, we did not, excuse me, we did continue to have some excess stock at the end of the fourth quarter. For the full year, our capital spending totaled $593 million, which was in line with our previous expectations. Our 2010 capital spending, as a percentage of sales was equal to the prior year at 3.2%. For 2011, we expect our capital spending to be between $600 million and $650 million. Turning to Slide 24, I would like to discuss our 2011 outlook. As you read this morning in our press release, we expect to generate earnings per diluted share between $12 and $13 for the fully. Given the recent tax legislation, the U.S. energy tax credit program was extended through 2011. As a result, we expect to earn approximately $4 per share of these credits during 2011. We have included this amount in our outlook and expect our corresponding effective tax rate will approximate our 2010 rate. As Jeff mentioned previously, we expect unfavorable material and oil related cost of approximately $250 million to $300 million during 2011. We expect to more than offset these costs through our cost reduction and productivity initiatives, favorable unit volume contribution and slightly higher price mix. Turning to our free cash flow, we expect to generate free cash flow in the range of $400 million and $500 million during 2011. We have assumed U.S. pension contributions of approximately $300 million within this estimate. Finally, turning to Slide 25, I'll close my remarks by discussing the cash flow priorities for the business. In the near time, we are focused on returning our credit ratings to pre-recession levels. During 2010, we executed well against our priorities and paid down just under $400 million in debt while funding our capital expenditures pension and maintaining our dividend. As we move into 2011, we continue to see these priorities unchanged. We have repaid just under $400 million of debt during 2010, which helped us improve our overall leverage ratio. Over the next 15 months, we have $650 million in debt maturities and we expect to make a cash pension contribution of approximately $300 million this year. While we continue to focus on improving our leverage ratio, we will consider these maturities and contributions as a part of our normal capital structure review. Overall, however our cash flow and credit rating priorities remain unchanged from our previous priorities and we will continue to prioritize our cash flow accordingly. Now, I’ll turn the call back over to Jeff.

Thank you, Roy. Turning to Slide 27, only to take a moment to review our outlook relative to our mid term value creation objectives that we shared last fall. We expect our revenues to be in the range of our mid term objectives of 5% to 7% with growth this year. As you can observe from our industry demand assumptions, this is largely driven from our merging market businesses, as our developed market still have not returned to what we would consider a normalized level of demand. Over time, however we do expect the U.S. Housing market, with new construction, resale’s and remodeling to begin to return to more normalized levels. And ultimately, I believe this will accelerate our developed market growth rates in North America. But our 2011 forecast reflects only a modestly improving housing market and still at year record lows from a historical perspective. Turning to profitability, we expect to grow our operating profit and expand our operating margins during 2011 and make good progress towards our goal of delivering at least eight plus percent of operating profit as a percent to sales. We expect to grow our operating earnings at the high end of our 10% to 15% goal during 2011. And finally, turning to our long-term free cash flow target of 4% to 5%, as we've mentioned our outlook of 400 to 500 is below this objective but I would say we also look at the fact that this includes $300 million in U.S. cash pension contributions, which is much higher than it's traditionally been. If you remove that contribution, we do expect to improve our free cash flow performance as a percent to sales to be at the lower end of our 4% to 5% range, with significant improvement over 2010. So I'd summarize and say we're vey focused on delivering higher margins, realizing significant cost productivity in achieving profitable growth. We expect positive but uneven demand around the world. Raw material inflation is driving costs higher but we expect to fully mitigate these costs with improvements in cost productivity, the benefits of our very strong innovation and our recently announced price increases. Overall, based on these assumptions we expect to have a record year performance in 2011. At this point in time, this ends the formal comments. We'd like to open it up for questions.

Thank you. (Operator Instructions) And our first question comes from Eric Bosshard with Cleveland Research. Go ahead, please. Eric Bosshard - Cleveland Research: Good morning. Can you give a little bit more color on the price mix situation in the U.S. in 4Q perhaps relative to 3Q and relative to your expectations of 4Q and then how you expect that to behave in 2011?

Marc, why don't you answer that.

Eric, it's Marc Bitzer. So let me give you a little more color on the price mix in North American Q4, which was in a way we expected. So on a sequential basis, because that was your question, Q3 versus Q4 deteriorated largely driven by a very big element of the promotions around Black Friday holiday period, which extended more than a day, more than a week. It's basically almost the entire quarter. There was a long pre-buy period. And the overly promotional element in our sales in Q4 were higher than expected and brought our price mix lower than expected. So in a sequential basis it was worse than what we had accounted for. So very different situation year-over-year and sequential on the price mix. On the questions going forward, we had indicated we have announced some price increases to our trade partners. And in Q1, we also obviously will not have the impact of this Black Friday promotion element in there, which takes some burn off the pricing pressure. Eric Bosshard - Cleveland Research: And I'm sure it's something Roy will give us a little more numbers but I guess from a bigger picture perspective, as you move away from this in the first half of '11, how do you think this impacts your units and your market share performance?

Eric, it's Marc Bitzer again. So first of all, bear in mind Q4, we ended on an all time record market share. So obviously as you enter the period of price increases, you know coming from traditional strength or market share gives you certain confidence on the market share. So that just gives us a lot of momentum as we go into Q1. So overall, in Q1, we don't expect the promotion entity to be as extreme a market base as it was in Q4. So I don't think that will come at the expense of market share. And in Q2, we'll have to see.

Eric, let me give you a little bit of color to your point with respect to some of the numbers. Price mix impact on margin in the fourth quarter, year-over-year was minus 3.2 points. North America was a little worse than the global amount. But obviously, the international businesses were better, with respect to their price mix impact on margin. From a top line sales perspective, when you look at the sales recs, price mix globally in the sales recs was minus 4.6 points in the sales reconciliation. So those are the global impact and again the relative numbers with respect to what happened in North American International. Eric Bosshard - Cleveland Research: And then just the last question on this issue. Look at whichever those numbers you want to choose. And I appreciate that you ended 4Q on a record market share and better volumes than you expected in 4Q. But I guess, is if you reverse the price mix, I would think it would have a corresponding influence on your market share performance on your unit performance? How do you assume that works in 2011 and especially in the first half of '11?

Eric, this is Jeff. Let me maybe give you just one other perspective because this is an important point. This fourth quarter U.S. promotion period of, a lot of people will talk about Black Friday, Black Friday became a week and then it became two months and I think a lot of the decisions that were made about that at every level, mainly manufacturer retailer, et cetera, were largely made six to eight months before when the environment in the U.S. was very different. There was good growth, material cost was at relatively stable levels and a lot of these plans were put in place. And the fact of the matter is, the environment in the fourth quarter, really was very uneconomical. Total revenues sold in this industry were probably below 2008 levels, given demand and declining prices. So, I don't think it's, at least from our view, it's not economically feasible to stay there. As Marc said, we're not promoting after November. So that promotion set driven on our part comes back to us in Mike's price mix in the first quarter. The second part, I guess I would just say too is, we had the most impactful innovation in the market we've every brought in the last four months of last year. That is driving our business very strong right now. We just got top ratings in all of the consumer magazines for washing products. People want to buy them. So we have good, what I would call, consumer driven demand for our brands right now and we want to make money selling them. Eric Bosshard - Cleveland Research: Great. Thank you.

Yup.

And our next question comes from Joshua Pollard with Goldman Sachs. Go ahead, please. Joshua Pollard – Goldman Sachs: Hey, the first question is on your guidance. Just want to know very quickly whether or not you're including the $75 to $100 million of restructuring and your $12 to $13 of guidance? And then if you could also talk about, on the margin front, are you expecting, I respect the 4Q over 1Q comparison that you guys are talking to, but as you look at the whole year, are you somehow expecting next years Black Friday to have a different promotional environment, such that you'll have a positive price mix in 2011 versus 2010?

Josh. It's Roy. Let me take the first part and the simple answer to your question is yes, we have included the 75 to 100 in the guidance.

And on the second part Josh, we can't project what's going to happen November of 2011. I would just stick to my comment, 2010 was value (inaudible) and I don't think that's sustainable. Joshua Pollard - Goldman Sachs: I guess that another way of asking the question is, could you break out sort of the components that get you all to margin expansion? When you talk about the unfavorable commodity mix, 250 to 300 million, you take the midpoint of that versus 2010 sales, you get a reduction of about a point and a half? And I'm trying to understand from where you guys are ending the third and fourth quarter? What gets you back into positive territory for 2011?

Josh, it's Roy. Let talk. We're not going to give specific line item guidance. Let me talk to you sort of from a high-level perspective and then Jeff, Mike or Marc maybe can append to my comments. But when you think about operations, as we step forward from '10 to '11. The way I think about it is that there are three major pieces to the positive side. One is, as we said in our scripts, a higher volume on a global basis and the impact from that contribution margin from that. The second area we're assuming is, is flat to slightly positive price mix. So we've got some benefit in there for that. And then the importunities, which gives direct reference to your comments on material costs, is that we have assumed in our guidance, given our plans that we will have more cost take out than we will have in material cost increases. Now Josh again, a couple of things to keep in mind. Jeff's talked for a number of calls about all the components that go into that cost take out so think about all those items, plus 2011 is the year when we will be to our total run rate from the cost savings that we will benefit from all the restructuring we have done in the recent past. So this year, we're assuming $270 million of benefit from the restructuring we've done. So all those components together, get you the operating side. And then again, in fairness of full disclosure, the other key item, as I said in my script, is energy tax credit this year, we're in the low 200's to 225 roughly. But we have assumed $300 million in the guidance for next year. So there's a benefit from that.

Josh, the other perspective I would give you is that our number one priority and focus is margin expansion. So that's how we're prioritizing our investments, our decision-making. Our expectations in all regions around the world are expected to improve. As you look at the growth rate we've indicated, clearly Latin America is growing the fastest. And it has already double-digit operating rates so that's a natural mix improvement in our total margin. And of the price increases, we either implemented or announced the highest, that we publicly announced are in North America, which we're fully committed to achieving. So that along with, again what I would call another very strong year of cost productivity and those two combined, we feel confident will offset the material cost inflation and provide for margin expansion. Joshua Pollard - Goldman Sachs: Okay, so let me just ask one quick follow-up. You guys gave the cadence of the growth you expect first half versus second half in North America considering the comps. Would you guys care to give the cadence of your 2011 price mix by half, considering that you're looking for it to be up? And it seems like your first half comps, considering what you're seeing sequentially in the second half of the year, are going to be difficult? I guess the other quick one is, on the BEFIEX, could you just give a balance, an outlook? Thank you, guys.

Josh, first of all on the growth. We did talk about the North America. We are going over large year-over-year comps in Q1, and so our expectation is that will be the lowest comps, perhaps even negative for the first quarter or first part of the year, as Marc said. But you also have to look at the other parts. We see Latin America rate continuing. The rate they've been on. We see Asia continuing on the rate they've been on. We see Europe continuing on the rate they've been on. So we don't see the same comp issue for and by the way, a very important point, our international businesses are now roughly equal to our North America business. So we do have that geographical balance. Secondly, the pricing is really hard to give that. I mean some, what we've talked about is either already executed or announced in or for execution so we don't talk about any future pricing beyond that. So it really is market specific. I think the biggest one, is the one Marc talked about, where we had an appropriate increase has been announced for April 1 which we're committed to executing. We've had some markets start in November, December and some of the emerging markets. I mean its a little bit of everything but your basic premise is that margin improvement from pricing will grow throughout the year is true.

Josh, it's Roy. Two things. One, again in terms of sort of calibrating, again the price mix impact, I talked about three positives. The volume in you price mix and the cost take out but please appreciate price mix is by the far the lowest of those three. I want to be clear on that. Second thing, in response to the second part of your question. We have assumed $200 million of BEFIEX credit in this guidance.

And our next question comes from David MacGregor with Longbow Research. Your line is open. David MacGregor - Longbow Research: Yes, good morning everyone.

Good morning, David.

Good morning, David.

Good morning, David. David MacGregor - Longbow Research: You talk about flat to barely positive price mix for the coming year. You've talked about these substantial innovations during the market. You've got a price increase coming through. Help me reconcile why it's only slightly positive price mix?

Yes David. Very, very quick. It's, (inaudible) negative. So first you have to make up the negative run rate and so if you think of Roy's number. You talked about 3.2. I meant that's coming into the year. If we did nothing that would be for certainly three quarters, that would be our run rate, which we're going to reverse as fast as possible. So we're, as we eliminate the negatives and then start adding to it, that's how we get to modestly positive. David MacGregor - Longbow Research: Okay. Are you at all concerned about the fact that the Korean manufacturers haven't gone along with this price increase?

I don't. I guess you'd have to ask them. I don't know what they've done. David MacGregor - Longbow Research: I'm just asking if you're concerned about your ability to collect a price increase in light of the fact that they're not going along?

I feel good about our ability to execute this because I know that in multiple product categories, we have tremendous consumer demand for our new innovations. David MacGregor - Longbow Research: Okay. Roy, is there any way you can help us understand the extent to which the hedging programs may have helped offset (inaudible) cost inflation in your guidance mixture?

Well again, David let me answer it broadly and then Jeff, if you want to append to my comment. If you look at, again, we've got in our guidance, 250 to 300 with respect to the impact from material cost increase. I know you've all asked on a number of occasions how much of that might be protected with respect to either hedges or collars or cash or contracts, et cetera. Roughly speaking David, there's about 40% of our total buy that is exposed to variation and roughly 60% of the total buy in some way, shape or form is protected by one of those elements that I mentioned. David MacGregor - Longbow Research: I guess that's helpful. Thank you and then with respect to cost reductions. You're getting raw material cost inflation so where are you getting the decreases? Is it headcount reduction? Is it the unit of production DNA?

Yes, David. It's really all across the business but really some of what I've described in the past. But first and foremost, it comes through, smart, more efficient product design. So we're more efficient in use of material in our new products. Everyone of our new brands that we bring into the market generally has less material contact than the one we had prior. We talked in the past and we continue to mine global component organization. We continue to make great advances in our factories in terms of great manufacturing and savings and less labor hours per unit. We see big, our quality, we've had tremendous improvements on our already industry leading quality rates. And that ultimately leads to cost reductions in the costs of quality. Logistics cost, even though the oil and fuel related to it is going up, you know as we look now or are starting to grow some volumes on our infrastructure there, we get leverage off of that. And candidly we had a global cost leadership system embedded globally and every piece of the business contributes to this on an ongoing basis. So it's hard work. It's what we do everyday but I don't, we've been on this just for the third straight year and we fully expect to deliver. David MacGregor - Longbow Research: Last question. Thanks for that answer. Last question, just January off to a pretty weak start here. I guess the first three weeks were off about 20% year-over-year industry wide. Will we see more production curtailments from you in the first quarter?

Well we don't. I just said, outside of the U.S., we haven’t seen any thing happen normal in our run rates that we saw before and Marc, you can mention whatever you want to say.

David it's Marc Bitzer. What we saw in Q4 is that their trade inventory position at the end of the year was elevated. Basically, as you know we were, the industry data that we referred to as selling a shipment data to a trade partner was sell through to a consumer front for entire Q4 or below that selling number. So we know the trade partners, may trade personnel were at an elevated inventory position at the end of December and we see a correction of that in January. Some of these trade partners have (inaudible) January or February. That is not completely surprising as we saw an elevated position building in December. Our sense to sell through is not as bad as will be suggested from the numbers you used.

David, conversely the consumer sell through was not as good as people speculated in Q4. Actually we think better than people speculated in Q1. David MacGregor - Longbow Research: So there won't be any production curtailments in North America in the first quarter?

David, it’s Marc again. I mean, to Roy's earlier point of the inventory position. We started balancing our inventory levels, we actually saw demand coming down and that process is not yet completed. So it's more our long-term optimization balancing of the inventory position which we expect to continue in Q1.

And we will, yes we do have and will have scheduled down days David.

And that's all included in our guidance.

It is included. That's correct. David MacGregor - Longbow Research: Okay. Thanks very much, everyone.

Thank you.

Our next question comes from Sam Darkatsh with Raymond James. Go ahead, please. Sam Darkatsh - Raymond James: Good morning, gentlemen. I'm proud to say that I think I helped your quarter a little bit. I bought a Kitchen Aid fridge this quarter and we're very happy with it.

Thank you. Sam Darkatsh - Raymond James: So a couple of housekeeping questions as many of my questions have been asked today and answered. First off, with respect to David's last question regarding production plans. For 2011, I guess if my math holds, you're anticipating global unit shipments growth of about 4%. Are you anticipating for the year production in excess of that, similar to that, below that? How should we look at your production plans versus your shipment plans?

David, first of the global number is about correct and as Roy mentioned, we had in days, two or three days. Probably more than where we were optimally like to be at the end of the year. Of course the year before, when demand picked up very quickly, we had less inventory than we wanted to have. So there's always the balancing that's going on and the situations are somewhat different all over the world. We have some parts of the world where we're doing everything possible to keep up production with demand. And then we've had a market like the U.S., where demand grew 10% in the first half of the year and was flat in the second half of the year. So, that volatility does create some two or three months worth of changes in what I would call both production levels and inventory levels. And so for the full year, I mean sitting here today, yes we want to finish next year at the right inventory levels that we think we should be at with the right availability levels to our trade customers. So I'm not frankly worried about having two or three days more or less inventory. Sam Darkatsh - Raymond James: And that's where you would take the excess data, at two or three days?

Sam. We would, I would tell you we have three excess days and to help you sort of calibrate that, for a corporation you've got low 40s of the value of a day and that will help you sort of calibrate in your mind. Sam Darkatsh - Raymond James: Thank you. Second question. The cash tax benefits of the U.S. energy tax credits versus the stated P&L, are they similar of how should we look at that from a cash flow standpoint?

Again, a couple of things Sam. If you look in a cash flow statement, and it's sort of, it's a tough line to review but there's a line there that I think it says deferred taxes and other. Embedded in that line though Sam, is a bad guy for the overall tax credit on the P&L. So if you had clear visibility to see what did we book in the way of tax provision, what did we pay in the way of cash taxes, you would find that we reverse out the income statement effect from the energy tax credits because as I've said on prior calls, those are non-cash in the current period. So we book the tax asset for those. Those will be used to offset otherwise payable taxes in future periods. But they are not a cash credit in the current year. Sam Darkatsh - Raymond James: What I'm getting at, is for 2011 though, for tax expectations. For the $4, how much of that gets monetized in cash and how much of that gets pushed out to 2012 and beyond?

It would all be in '12 and beyond. There will be no cash benefits from those. They're non-cash tax credits in 2012 or 2011, excuse me. Sam Darkatsh - Raymond James: So it will all or 2012? So the end cash flow guidance?

2012 and beyond, Sam. I want to be very clear. 2012 and beyond. Sam Darkatsh - Raymond James: So the $4 on the P&L does not show up in the cash flow statement until 2012?

And beyond. Sam Darkatsh - Raymond James: Okay and last question, just a clarification. How much at the end of Q4 was remaining under the BEFIEX program? Did we find the cause?

540. We'll file our 10-K in February 16 but it'll be 540 million in the 10-K Sam. Sam Darkatsh - Raymond James: Thank you much.

You're welcome.

Our next question comes from Michael Rehaut with J.P. Morgan. Go ahead please. Michael Rehaut - J.P. Morgan: Thanks. Good morning everyone. First question, I was hoping if you could just review, you talked about gaining branded share but I was wondering if you could just review maybe branded but also overall share for 2010 and 4Q, let's say in 2010 overall in North America? Was your overall share up or down? And maybe break it out between OEM and brand?

Mike. Just to be clear, we don't give on a routine basis the overall share number. We can give you directions and give you some indications of our branded share but before Marc answers that, we do not regularly give out the exact market share numbers. But with that Marc, why don't you answer that.

Mike, it's Marc Bitzer. Again, I'm referring to U.S. branded and overall market share. Our overall market share was steady year-over-year and was a composition of continued down OEM share and significant elevated branded share. The branded share, particularly driven by Kitchen Aid, whirlpool and Maytag. All these three brands were on a very, very healthy shape overall. But one reference point I can give you. In our financial analyst presentation we basically showed the reported market share. Our Q4 share will be above that run rate, what we showed in the financial analysis by roughly one to two points.

Our branded market share is at an all time high, post the Maytag acquisition. Michael Rehaut - J.P. Morgan: Okay. I appreciate that. Second question on raw materials. If you could just kind of give us what the overall 2010 number was and looking into 2011 the 250 to 300, if there's anyway to kind of give us a sense of maybe how much of that do you expect to be led by steel versus other, either plastics or oil related, just to give a sense of the breakdown there?

Sure Michael. The total, first of all, the first part of your question. This is Roy. 217 million was a total impact for 2010 and as you know, that's roughly 85% of that in the back half of the year versus the front half. I'll let Jeff talk about the composition.

Mike, in terms composition of our business. There's three big ones, which account for more than 80% of the total material cost. Steel, resins, which we use in plastics and base metals such as copper, which is at an all time. All three of those buckets are going up. Steel is the largest simply because it's the largest purchase but proportionately all three are going up. And that's where the increases are coming from. Michael Rehaut - J.P. Morgan: And for steel, in your assumptions for the overall headwind, are you using current steel prices or over the last couple of months, because obviously over the last two, three months, steel has had a pretty nice move? Just trying to get a sense if you're using let's say January?

Michael, as you know steel is basically a regional market. As we've said in the past, in North America and Europe you should expect that we have contracted our rates in some form, either an exact price or within a range or whatever. As we traditionally have done in Latin America and Asia, it's a weekly, monthly buy. It goes up and down. So I would say our forecast is based on our absolute best view today. Michael Rehaut - J.P. Morgan: Okay. If I could just squeeze one last one. You mentioned that you have in North America, I believe you said your price increases are scheduled for April 1. But that at the same time the first quarter you don't expect the negative hit from the Black Friday promotions that extended throughout 4Q. Is there any way to give us a sense of what that particular negative headwind was in 4Q just to get a sense of looking into 1Q? What that would look like without that hit or just talk about that hit more specifically?

Mike, it's Marc Bitzer. We can't get into too much forward-looking speculation about what may or may not happen on Friday. In principle you are right, we're taking two components of us lifting price mix in North America. One is just a simple discontinuation of a promotion in Q4. That is not a question that, it's just a question of us deciding or participating or not participating. And we made already that decision and that is in effect. That will help our Q1 run rate from a price mix. Don't confuse that with the year-over-year comparison but in our run rate of sequential, yes we do expect improvement coming out of this one. And you should assume by the big (inaudible) of all of Q4 versus Q3 deterioration was driven by the promotion intensity. The second part has been the price increase. And yes that is in effect in April 1 and we do expect, determine behind the price increase.)

Michael, I'll also add. There's a number of moving parts. That's one. The year ago, consumer demand was really picking up and we had less inventory than we needed so we ramped up production as fast as we can. This year, as Marc said, consumer sellout was not as robust as people thought in Q4 so there's a little too much inventory. So we're sort of ramping that down. And then lastly, the timing of material cost and our own productivity. Those are kind of the factors we look at, at any period of time. Michael Rehaut - J.P. Morgan: Did the high raw material hit, you said the 217 was back half waited. Was 4Q worse than 3Q as well so that maybe also contributed to the market deterioration?!

For sure. 4Q was, half of our annual increase was in the fourth quarter. 4Q was $100 million, Michael. I apologize but we probably need to move because we've got several folks in the queue but. Michael Rehaut - J.P. Morgan: Appreciate it. Thank you.

Our next question comes from Laura Champine with Cowen and Company. Go ahead please. Laura Champine - Cowen and Company: Good morning guys. I wanted to ask about product productivity. I think you've been about a 3% rate of productivity improvement. What's your run rate now and what are the components within that?

Laura, this is Jeff. You ought to expect a similar level. Two years ago we radically ramped up the net productivity meaning after inflation, and all this kind of stuff. You and I expect that similar productivity this year, number one. Although the timing may vary a little year in and year out, the rate and the plans we've deployed last year for this year are fully underway. Again, a little bit to a similar, the largest portion will come from the productivity around our use of material. Because materials such a large cost. Again that comes from product redesign, that comes from components in our, it comes from continuing to revise our products. But the big kick always comes from our new product designs which we have a lot of that right now. So we're fully benefiting and will continue to benefit from that. The second area again, is our efficiencies, manufacturing, the factories. We use the logistics. We use it in warehousing. We use it just in every part of the business. We've done a good job of leveraging all of our fixed costs whether it be warehouses or SG&A or order volumes. So when we drive volume growth we're generally getting margins and productivity leverage from that. So I would say the tools are largely. The proportions somewhat change but the material productivity will be the number one every time. Laura Champine - Cowen and Company: And then on the investments that you made in energy efficiency, I mean the pay off in tax credits but also as being able to take advantage of some stimulus. Do you think there's any more demand stimulus coming this year and part B of that question is there a way to measure the returns that you're seeing on those investments in those product lines?

Well Laura, we do on a project-by-project basis for all of our capital projects so whether they're energy or innovation or anything else, we do measure those. I can't give you a broad answer on energy. I would say that first of all, we do invest a lot to have the leading energy efficiency products in the marketplace. We have a wide margin, more energy store models than anyone else. So it does take investment and most of the time it's added product cost. So you've got to recoup that in the marketplace. The way we see it we have to recoup the product cost in the marketplace. The energy tax credit is helping us justify the investment.

Laura, it's Marc Bitzer. In addition to, I think one important point is also, the stimulus program obviously helped drive up higher share and eased our product into the marketplace. After we expired these programs the actions had been on an elevated level. 2010 compared to 2009 that share of products about 10 points higher than before.

That's a good point and with rising utility costs in most parts of the country, I think the consumer awareness of this that was brought through the stimulus period was very beneficial. And that's why we're seeing what we think is probably a permanent price change. Laura Champine - Cowen and Company: Got it. Thank you.

And our next question comes from Todd Duvick with Bank of America. Your line is open. Todd Duvick - Bank of America: Thank you. Good morning. Appreciate your comments about the free cash flow priorities for 2011 and I just wanted to dove down a little bit further on that. In terms of getting your credit rating back to mid triple B. Obviously, we all know that's not out of your or in your control, so with respect to the specific priorities, paying down the debt, I'm wanting to know if you can tell us the $650 million that you talked about maturing over the next 18 months, are you saying then that's a priority for you to pay down the debt or that you're just considering the options in terms of refinancing or paying down the debt?

Todd, this is Roy. Let me answer your question. A couple of things. First of all, this is probably the fifth or sixth quarter in a row where I've talked about the importance about taking our credit ratings back to pre-recession levels. And if you hear Jeff or I, either one of us talk about this. It's all in the vein of financial flexibility and for us, financial flexibility comes from two fronts. One is a solid investment grade credit rating and the second area, which you see and have seen for some time, is we will carry more cash on our balance sheet than we've historically carried. My comments and my script were more in the vein of, as we look at our capital structure. Again, we'll keep this flexibility in mind from both fronts. But we will in fact consider that we've got the 650 in term debt payments and the pension contribution. As you know Todd, we're always looking at the lowering of our term debt over periods of time. It's something that Jeff and I do regularly. It's something we share with the finance committee of the board regularly in terms of our financial strategy. But it's all about maintaining the financial flexibility of the enterprise, which comes from both of those fronts.

And Todd, the other thing I would add to that is in the slide that Roy showed. In the first items, fund the business, pay down the debt and pay down or contribute to pension. Those are within our plan, within out guidance. So we will do those things. The fourth , which is very important, return to shareholders either dividend, share repurchase or looking at, what I would call ,strategic acquisitions have not been our priority. As we make progress on those other things, as we see more stability, as we go through the years, those could be becoming more important. We review those on an ongoing basis both as a management team and with our board and we'll continue to do so. Todd Duvick - Bank of America: Okay. All right. That's very helpful. Thank you for your comments.

Thank you Todd. Well listen everyone. Thank you for joining us today. We appreciate you participating and look forward to talking to you again in April.