Whirlpool Corporation (WHR) Q1 2011 Earnings Call Transcript

Jeff Fettig - Chairman and Chief Executive Officer Marc Bitzer - President of Whirlpool - North America Gregory A. Fritz - Larry Venturelli - Principal Accounting Officer, Senior Vice President, Corporate Controller and Chief Financial Officer of Whirlpool International Michael Todman - Director and President of Whirlpool International

Todd Duvick - BofA Merrill Lynch Michael Rehaut - JP Morgan Chase & Co Kenneth Zener - KeyBanc Capital Markets Inc. Sam Darkatsh - Raymond James & Associates, Inc. Robert Kelly - Sidoti & Company, LLC David S. MacGregor Joshua Pollard - Goldman Sachs Group Inc. Tom Nikic

Good morning, and welcome to Whirlpool Corporation's First Quarter 2011 Earnings Release 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. Please go ahead. Gregory A. Fritz: Thank you, Misty, and good morning, everyone. 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; Marc Bitzer, President of Whirlpool North America; and Larry Venturelli, Corporate Controller and Chief Financial Officer for Whirlpool International. Roy Templin, our Chief Financial Officer, is unable to join the call today because of a family medical emergency that requires his attention. 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 the many factors discussed in our latest 10-K and 10-Q. Turning to Slide 2. 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 are unrelated to, our core operating results. We also think that the adjusted measures will provide you with a better baseline for analyzing trends in our underlying business. Listeners are directed to the Appendix section of our presentation on Slide 26 for a reconciliation of the non-GAAP items to the most directly comparable GAAP measures. Our remarks today track with the presentation available on the Investors section of our website at 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 first quarter financial results and these results can be seen on Slide 4. For the quarter, sales grew to $4.4 billion in revenues which was a 3% increase from last year. Our earnings per share were $2.17 versus $2.13 a year ago. Our first quarter results do reflect a number of factors impacting our business operations, and I would like to summarize those factors. First is demand. Overall, global demand was largely in line with our expectations, with our shipments being impacted by a very positive response by consumers to our new product innovations. Second, material and oil-related increases were significantly higher and had a negative impact on our margins. And lastly, our Price Margin Realization was down 2.3 points versus last year but did improve by 0.9 of a point to the fourth quarter of 2010. Overall, our margins and sales were largely in line with our expectations for the quarter. Our ongoing cost reduction efforts and continued innovation investments during the quarter did positively impact our results. These actions helped to mitigate the significant material cost inflation that we saw. I think it's important to note that on a sequential basis, as I mentioned, our price/mix was positive and our margins expanded by 1.2 points versus the fourth quarter last year. And we clearly expect to build upon this trend throughout the balance of the year. I'll now turn to Slide 5, where I'd like to review our industry demand expectations in our key markets around the world. In the U.S., first quarter demand was slightly negative with industry shipments declining about 1%. This is essentially in line with our previous expectation of negative demand in the first half of the year followed by positive demand in the second half of the year. And as we mentioned on the last call, this was largely due to the first half 2010 comparisons, which had higher demand driven by both the Cash for Appliances program and the housing credit program. We will be comping against the strongest months versus last year, in April and May. And as such, we expect to see negative U.S. industry shipment trends during the second quarter followed by year-over-year growth improvement in demand in the second half of the year. And for the full year, we still keep the same growth forecast that we talked about before. Turning to Europe. We continue to see steady industry demand growth from the 2% to 4% range. In Latin America, the first quarter demand was flat versus last year. We, here, too, have some challenging comparables, particularly in Brazil as the appliance tax holiday ended during the first quarter of 2010. We continue to expect full year industry demand to increase in the 5% to 10% range. And in Asia we saw a continued growth, although we did see some slowing in the growth rate of demand during the first quarter as we saw unseasonably cold-weather in India, which is the largest market for us in Asia which impacted our shipments during the quarter. Overall, however, we continue to see good demand fundamentals across the region and we expect this will result in a full year bond increase in the 6% to 8% range. Turning to Slide 6. I would like to discuss the key drivers which we see affecting our business for the full year in 2011. As we mentioned last time, we continue to see -- face some challenging macroeconomic environment in terms of raw material costs. We have now forecast and expect raw materials and oil-related cost inflation to be in the $400 million to $450 million range. This represents $150 million increase from our previous expectations. We do expect to fully offset these increases by continued strong and improving productivity throughout the year. As you know, and as we've seen in the past, many of our productivity initiatives ramp up through the year, and we expect to have a very strong second half of results from these productivity initiatives and other cost-reduction actions. The second factor, which will enable us to offset these material cost increases, are many of our previously announced global cost-based price increases which take place or go into effect largely throughout the second quarter of this year. These increases, coupled with the benefits of margin improvements from our new product innovations, will result in improved price mix results in the second quarter and positive year-over-year price margin realization in the second half of the year. So in summary, putting all these factors together, we're reconfirming our previous full year earnings guidance of $12 to $13 a share and free cash flow guidance of $400 million to $500 million. As I stated earlier in the year, I believe we have a very strong foundation in our global operations and I believe more opportunities than ever before create value for our shareholders. Over the last couple of years as we have emerged from the global recession, we've significantly strengthened our financial position and expect to continue to do this -- continue to improve upon this in 2011. Based on this strong financial position, last week, we increased our dividends to shareholders by 16%. This is a reflection that increasing our returns to shareholders is clearly in our business priorities in 2011 and beyond. At this point in time, I'd like to turn it over to Marc Bitzer for his review of our North American operations.

Thanks, Jeff, and good morning, everyone. Let me start by giving my perspective in North America's performance for the quarter. As shown on Slide 8, we saw our unit shipments up 4% from the first quarter, [indiscernible] which was down slightly less than 1%. During the quarter, we saw a continued healthy momentum in our brand and overall market share. And also during the quarter, we have somewhat reduced our promotion intensity and we have implemented our cost-based price increase, which has been in effect since April 7. Despite low production levels to correct high inventory, we have solid productivity gains in Q1. On Slide 9, you'll see North America's performance in the first quarter. Net sales of $2.3 billion were up slightly from the prior year and our adjusted operating margin was 2.3% compared to 6.2% in the prior year. Results are favorably impacted by cost reduction, productivity initiatives and foreign exchange fluctuations. The factors offsetting results were one, lower year-over-year product price mix; and two, higher material costs. It is important to note that we had favorable price/mix on a sequential Q4 to Q1 base. On Slide 10, you can see just a few of our new products that we launched during the quarter. Before I highlight these new launches, I would like to briefly discuss some recent product leadership recognition. In January, as evidence of our North American leadership position, we received top ratings for 11 of our latest top and front-loading washing models by a leading consumer publication. The Whirlpool brand Ceres and Vantage washers are rated #1 in the front- and top-loading categories, respectively. The Maytag Maxima taking the #2 spot in front load. In addition, our cooking category saw a rating sweep of #1 in recommended double-oven freestanding ranges in the recent rankings by a leading consumer publication. Our Whirlpool, Maytag and KitchenAid brands received three powerful ratings from a leading consumer magazine in February, receiving top ratings on select double-oven range model. Now turning back to some of our recent new product launches and these include a Whirlpool brand induction cooktop, which utilizes its electromagnetic energy to generate instant heat to only the cookware touching its surface. Occasionally, brand four-door French Door bottom mount refrigerator, featuring an external refrigerated drawer and the largest of its kind. Also shown here is our KitchenAid brand dual-fuel range that was launched in the fourth quarter and was just named the #1 30-inch dual-fuel range by a leading consumer publication. I'm also pleased to tell you that the Harris Poll has just identified KitchenAid as the Brand of the Year for major appliances, small appliance brand based on a study of 25,000 U.S. consumers. These recent rankings are just hard evidence not only of the strength of our brand portfolio, but also the value we bring to consumers through consumer-relevant innovations, designed to meet their specific needs. Now before I turn over to Mike, let me highlight what we're focused on the remainder of the year. As Jeff mentioned, our full year U.S. industry forecast for 2% to 3% growth is unchanged. We expect Q2 industry demand to show slight year-over-year decline, largely due to challenging comps, given the Cash for Appliances program in the previous year. We continue to expect positive comps as we move into the second half of the year. Our Q1 operating margins improved on a sequential basis, and we remained focused on continuing and accelerating this trend through the pricing actions, which we have previously announced and a strong focus on driving additional productivity gains. Now I'd like to turn it over to Mike for his review of international operations.

Thanks, Marc. Let me start with the first quarter 2011 review of our international business on Slide 12. During the quarter, we saw the following trends for our regional businesses: In our Europe, Middle East and Africa region, we saw continued gradual improvement in the market conditions, although the market in Western Europe remains challenging; in Latin America, unit volumes were essentially flat due to the comparison of the IPI [Impostos sobre Produtos] tax holiday, which ended during the first quarter of last year. We, therefore, expect the volume trend to improve in the second quarter and in the remainder of the year. The fundamental drivers in Latin America remain intact. And in Asia, demand remains positive, although we will continue to monitor the impact inflation has on consumer spending. In addition, unseasonably cold weather in India has delayed purchases of their treatment products and refrigerators. Given the significant material cost inflation we are experiencing, I wanted to discuss our price/mix trends across the international businesses. On a year-over-year basis, we did experience a modest decline in price/mix. However, on a sequential basis, our price/mix improved by over a full percentage point. This improvement reflects our strong focus on managing our key operational levers to mitigate the challenging cost inflation environment. Turning to Slide 13. In the first quarter, our Europe, Middle East and Africa sales improved 1% year-over-year to $743 million, with unit shipments increasing 2%. The region reported an operating profit of $25 million during the first quarter compared to an operating profit of $27 million in the previous year. Results were unfavorably impacted by lower product price/mix and higher material cost, partially offset by cost reduction and productivity initiatives. On a sequential basis, we experienced an improvement in price/mix, despite the expected year-over-year decline. Slide 14 shows the summary of our Latin America first quarter results. The region reported sales of $1.2 billion, an 8% increase from the prior-year period, with appliance unit shipments essentially flat from the prior year period. Excluding the impact from currency, sales increased approximately 2%. Operating profits totaled $174 million compared to $167 million in the prior year. The profitability improvement is primarily related to increased modernization of certain tax credits and cost reduction and productivity initiatives. These favorable items were offset by higher material costs. Our first quarter results in Asia are shown on Slide 15. Net sales increased 8% during the quarter to $208 million, up from $192 million in the prior year period as unit shipments increased 3%. Excluding the impact of currency, sales increased approximately 6%. Operating profit of $11 million for the quarter was essentially equal to the prior year period. Favorable volume, growth and product price/mix was offset by higher material costs. Turning to Slide 16. You'll see just a few of our international product launches during the quarter. These products have been well received in the marketplace and we expect the rapid uptake of innovation to continue throughout the rest of the year. A line of Brastemp brand retro refrigerators and ranges in Latin America, featuring the distinctive visual appeal of the 1950s with modern functionality and sensibilities. The Whirlpool brand Ceres washing machine in China featuring deep cleaning performance and LED lighting in the washer tub for nighttime use. And a Whirlpool brand 3-door refrigerator in China, featuring a consumer designed red glass door and a Class 1 energy label. Now I'd to turn the call over to Larry Venturelli for his financial review.

Thanks, Mike, and good morning, everyone. Beginning on Slide 18, I'd like to summarize our first quarter results. For the quarter, our sales grew 3% to $4.4 billion, appliance unit volume increased 2.7% from the prior year, led by North America. We continue to benefit from higher productivity and cost reduction initiatives during the quarter. The rate of improvement, however, was unfavorably impacted by lower production levels as we worked to balance inventory levels. We monetized $66 million of BEFIEX credits compared to $41 million in the prior year. It's important to note, however, that during the prior year, we experienced a reduction in BEFIEX monetization due to the IPI tax holiday legislated by the Brazilian government which expired on February 1, 2010. These favorable effects were more than offset by lower price/mix and higher material costs. Turning to the income statement on Slide 19. You'll note that our gross margin contracted 90 basis points to 14.1%. The most significant unfavorable impacts on our gross margin were lower product price/mix and higher material costs. These were partially offset by cost takeout and productivity actions, and as I previously mentioned, higher BEFIEX credit monetization. SG&A expense totaled $380 million compared with $371 million in the prior year. The majority of the dollar increase in SG&A was related to foreign currency translation, as a percentage of sales, SG&A was down slightly from the prior year. Restructuring expenses totaled $8 million during the quarter and resulted from cost-reduction actions in Europe and North America. For 2011, we continue to expect to record restructuring charges of between $75 million and $100 million. Our GAAP reported operating margin declined approximately 40 basis points to 5.2% and on an adjusted basis, our operating margins contracted approximately 1.7 points. There's one additional item I'd like to highlight. During the quarter, we recorded a $7 million benefit as a result of lower-than-expected costs associated with the product recall we announced in 2010. This resulted in a benefit of $0.06 per diluted share in the quarter. Turning to Slide 20. I wanted to briefly discuss interest and sundry expense. While several individual line items roll under this caption on the income statement, the key year-over-year variance was lower foreign currency exchange gains in the current year quarter. Now turning to our tax rate. We recorded an income tax credit of $24 million, corresponding to an effective tax benefit of approximately 15.5%. The first quarter benefit was greater than the prior year due to higher tax credits. And during the first quarter, we recorded $54 million of energy tax credits and for the full year, we expect between $300 million to $350 million of tax credits, and expect to record an effective tax benefit at approximately the same level as our full year 2010 benefit. Finally, we reported diluted EPS of $2.17 per share compared to $2.13 per share in the prior year. And on an adjusted basis, diluted EPS was $2.11 per share compared with $2.51 per share in the prior year. Moving to our free cash flow results on Slide 21. We recorded a free cash flow use of $336 million during the first quarter compared to $74 million in the prior year. The main variances from the prior year relate to lower cash earnings and unfavorable working capital variances. The working capital variances compared with the first quarter of 2010 were predominantly the result of unfavorable accounts payable variances due to production reductions implemented to reduce our inventory balances. These unfavorable variances were partially offset by lower capital spending, which totaled $115 million and was 21% below the prior year level. The reduction was largely due to the higher level of major product launches that occurred in the first quarter of 2010. For 2011, we continue to anticipate our capital spending to be between $600 million and $650 million. Now turning to Slide 22. I'd like to discuss our 2011 outlook. As you read this morning in our press release, our EPS and free cash flow outlook is unchanged. While there are many moving parts in our outlook, the most significant unfavorable trends have been in the areas of material and oil-related costs. The market prices for base metal and oil-related commodities have risen sharply since the beginning of February. Assuming that the recent price levels hold, we would anticipate an unfavorable impact approximately $150 million greater than our prior outlook. We expect to offset this increase in commodity cost through higher productivity and cost reduction initiatives. Overall, our volume assumptions and price/mix assumptions remain relatively unchanged from our prior guidance in February. Turning to free cash flow. We continue to expect to generate free cash flow on the range of $400 million to $500 million during 2011. Our assumptions of U.S. cash pension contributions of approximately $300 million also remains unchanged and we made a significant portion of this contribution at the beginning of April. Finally, turning to Slide 23. I'll close my remarks by discussing the cash flow priorities for the business. As you may have noted, we continue to make strong progress towards our near-term goal of returning to the BBB rating level. In fact, Fitch raised our rating to BBB during the first quarter and Moody increased our outlook to positive. Given this progress and our current outlook, we raised our quarterly dividend by over 16%. We will continue to balance funding all aspects of our business, including capital expenditures, return to shareholders, pension contributions, current debt maturities and potential legal contingencies to ensure the best long-term value creation for our share orders. Now I'll turn it back over to Jeff.

Thank you, Larry. To summarize, through the first quarter, I would say that we're largely on track to deliver our full year 2011 forecast which when achieved would represent record performance for our company. As I previously mentioned, we do still see a rather volatile global economy with changes taking place in all parts of the world. Overall, demand trends are choppy as they have been for the last couple of quarters but with a continued overall upward improvement trend. Material and oil-related costs, as we've mentioned here, have rapidly escalated. In many cases, to new high levels and this is despite an overall moderation in global growth. These costs trends remain our primary challenge in 2011 and again to address these trends, we continue to drive very strong productivity cost reduction actions and we're very confident we'll have another very strong year of productivity improvements. At the same time, we have announced price increases in most parts of the world and expect these actions will have a positive impact on our business beginning in the second quarter and increasing through the second half of the year. And finally, I think very importantly, we remain very committed to growing our revenue through our continued strong gains of new product introduction under our leading global brands. We see even in today's environment consumers who want and will pay for truly relevant innovation. These actions we believe will enable us to achieve or exceed our revenue growth target of 5% to 7% and earnings growth target of 10% to 15%. In addition, we expect to deliver another strong year of free cash flow in 2011. Achieving this will enable us to deliver record level overall performance for our shareholders. At this point in time, I'd like to open this up for any questions that you may have.

[Operator Instructions] We'll take our first question from Ken Zener with KeyBanc Capital. Kenneth Zener - KeyBanc Capital Markets Inc.: Marc, you mentioned reducing promotion, can you just kind of walk us through perhaps the different levers that you're likely to see or we're likely to see as consumers, so we might still see the same 10%, 15% retail, the discount, but perhaps the price is higher or perhaps the manufacturer is not contributing as much to that retail effort?

And again it's Marc Bitzer and let me just try to respond to that from a North America perspective. As we said in our previous earnings call, we expect and anticipate that during Q1, we would reduce our promotional activity compared to Q4. I mean Q4 obviously marked a very, very promotion intense period beyond just the Black Friday holiday period. We have done that and yet we have significant lower promotion expense in Q1, resulting ultimately in a slight improvement of our sequential price/mix. The effect of a price increase are obviously not captioning to one because that was only effective April 7, and we knew that going in. It's obviously a bit more difficult to expect what retailers will do and they determine their own set of promotions. At the same time, we have also announced a so-called new MAP [Minimum Advertised Price] policy, which somewhat limits the promotion intensity on our brands in the marketplace. Kenneth Zener - KeyBanc Capital Markets Inc.: Okay. And I guess related to the dramatic -- the 54% increase that we've seen in material costs from just a few months ago, can you, obviously, holding guidance, it seems like some of the positives were that the U.S. tax credit might have creeped up a little bit. I assume BEFIEX is sitting the same at $200 million. So can you talk about how you're able to accelerate the material or the productivity and price initiatives to offset that material cost and still hold the restructuring costs the same?

This is Jeff, I will do that. First of all, we said in early February, the energy tax credits would be approximately $300 million. This was based on legislation that passed very late in December. Clearly, 2.5 months later, we have a better view of the models and products and how they're selling so that's why we -- nothing has really changed other than we have a little bit better visibility to put a range around that approximately $300 million which we have, which is $300 million to $350 million. But that aside, the BEFIEX is in essence roughly the same. We look to offset -- grew through operations the $150 million increase in raw materials. And it is a combination of accelerating what was already a strong level of productivity, we think we will get even more out of that, initiating new cost reduction activities, which we have either done or are putting in place. And since we talked in February, we have announced in many markets around the world, more price increases in different markets globally. So I think it's really -- the direct answer to your question is we do expect to offset that through both productivity and the additional price increases that we have announced across the world.

And we'll take our next question from Sam Darkatsh with Raymond James. Sam Darkatsh - Raymond James & Associates, Inc.: A couple of quick questions. First off, what was the year-on-year material inflation in the quarter? And then how does that progress to that inflation on the P&L as we go through the year?

Yes, Sam, it's Larry. Year-over-year from a material headwinds perspective, the headwinds essentially were about $94 million on a year-over-year basis. And they will essentially, if you think about it evenly across the 3 quarters, it's going to be spread relatively evenly.

Yes, it's roughly done -- first half is roughly the same and second half is roughly the same proportion to sales. So probably $45 million, $55 million. Sam Darkatsh - Raymond James & Associates, Inc.: And two more quick questions. First off, is there a chance of steel resetting in 2011 if it continues to rise or that's not an issue?

Well, Sam, steel is still largely a regional marketplace and as we discussed in the past and North America and Europe, we typically enter into annual agreements with -- could be a flat price, could be some parameters and so on. Those are intact and Latin America and Asia are daily, weekly, monthly purchases. So I don't see anything to suggest that we'd see a radical change in our steel assumptions. Sam Darkatsh - Raymond James & Associates, Inc.: Last question and I'll defer to others. You noted in the quarter that you took some production down to get the inventories a little bit more in line, can you help us reconcile that with the fact that the inventories are still both on a year-on-year and sequential basis, moving considerably higher than sales are?

Well, Sam, first of all, this is Jeff and then before I give you the particulars. But yes, we talked about the particularly somewhat slower market in the fourth quarter, particularly North America last year, we took out a significant amount of production which had a negative impact on our earnings in the first quarter. I think overall we reduced production close to 600,000 units in the quarter. And exit the quarter, I think in pretty good shape. Larry, you might give the particulars on that, the seasonal products and that sort of stuff.

Yes, Sam. If you kind of look from Q4, inventories increased $150 million. A couple of things to keep in mind is about 1/3 of that is strictly due to foreign currency, with the euro and rial strengthening. Third is, as you know, we've got higher costs and the remaining 1/3 is seasonal inventory build, primarily in our international locations. And you also know that normally in the first quarter, we will build between $150 million to $200 million of inventory. You'll know that we built significantly less this quarter. As Marc mentioned in his script, we did take some down days within North America to get the North American inventories down a little bit more. Sam Darkatsh - Raymond James & Associates, Inc.: So Larry, where would you peg inventories by year end then?

I think the targeting -- that 2 6 area would be about where we're targeting, Sam.

Of course, depending on sales and costs and so on. But our inventories are pretty good shape coming through -- Q1, if assuming our demand assumptions are correct, we're in pretty good shape going into the second quarter. And the other thing to remember is a year ago, we had serious component shortages and we were actually under inventory, particularly in North America.

Yes, that's a great point. You remember Jeff said, really low inventories in Latin America and North America as we entered the year and we spent a good part of the first half of the year building inventories up for availability. So that's another reason why you've seen a higher year-over-year inventories.

We will take our next question from Josh Pollard with Goldman Sachs. Joshua Pollard - Goldman Sachs Group Inc.: We're all aware of the U.S. price increase but could you quantify the price increases in each of your regions and the realization that you've seen so far?

Josh, typically, we wouldn't quantify them in a dollar amount. I guess, I would just say that [indiscernible] they're buried. We talked about an 8% to 10% in the U.S. starting in April and ramping up through the quarter. We've added 7 price increases in India already since November. Every market is a little bit different. I guess the way I would look at it is the overall net realized price increases and the expectation of being able to drive productivity offset material costs and then delve into earnings would kind of give you a good idea of how much price we think that is. But certainly, we expect it for the full year to be positive. We start off with the first quarter negative versus last year, and we expect to have that positive for the full year. So without trying to be -- I'm not trying to be cute here, it's just for competitive reasons, we don't give out the exact number per region in the market.

This is Larry, just a little bit of color and I think Jeff and Marc mentioned this. If you look at Q4 to Q1 and you look at price/mix, you saw the improvement of around 0.5 point. I would say you had stronger improvement within international and then the North America, we saw an improvement also. So that I'll give you an indication at least sequentially and again these price increases are just going into effect also. Joshua Pollard - Goldman Sachs Group Inc.: And then I guess a follow-up to that question is, are you guys willing to talk about the level of realization that you're seeing so far on your U.S. price increase? And then the second part of my overall question that's in and around margins is, can you walk through the 3 largest cost productivity measures and how much each of them are saving the company this year? I ask because the biggest concern among your potential investor is how exactly the company plans to offset the $400 million to $450 million increase in materials.

Josh, it's Marc Bitzer. Let me first take U.S. pricing. As we have publicly announced, we have a price increase of 8% to 10% that was announced late January, early February. This effect in April 7. Bear in mind, that price increase does not affect every single SKU and for certain OEM products which are excluded at this point or have separate timelines. So obviously, only a portion of that falls through a net price realization. As we announced before, we, basically, in our invoicing, live April 7. Yes, we do see it in invoicing and we're very confident that we will stick to it.

Josh, this is Jeff. On the cost productivity, I'd make a couple of comments. First of all, we've had now for a number of years, as we have significantly improved the rate of productivity have a global cost productivity program permanently in place in all of our global operations. So the fact of the matter is, we're getting costs productivity through every part of the business both product, material, logistics, quality, SG&A and so on. So at a macro level, it's across all the U.S. for the top 3. And I'd say first and foremost is our materials because it is -- the biggest cost center is material productivity. We get this through new product designs, which you've seen a lot of. These products, I've said in the past, not only are better performance, better energy, better designs, but they're typically 10% to 15% less material cost content. The second, coupled with both new product designs and the existing design is global commonality of parts which reduces complexity, reduces inventories, reduces costs per unit, and we continue to get great benefit from that. The third I would say is conversion. We continue to be highly productive in our factories on an equal volume-to-volume basis. I would say we're operating at record levels of conversion productivity in most parts of the world. And of course, we're getting still benefits flowing from past restructuring actions. So I would say our predictability at a gross level productivity is very high. The surprise early in the year has been on the raw material inflation, which we've seen and we've seen coming throughout the quarter and we've adjusted for it. Joshua Pollard - Goldman Sachs Group Inc.: And then the last question would just be BEFIEX for the year, you said similar but with $66 million coming through in the first quarter, it seems like either there's an anomaly in the first quarter or you guys are on pace to do something substantially above $200 million, is there upside risk to that $200 million?

Josh, it is -- again, the way BEFIEX work in Brazil it's based on volume of certain product categories and different product categories earn or have attached to them the IPI tax credit. So it really depends on volume and mix of product and there are significant variances. So I would just say that Q1 was actually lower than Q4. It was higher than last year because we had a full month rule, where we didn't have any. So on a comparable basis to last year, it's about -- the run rate is about the same. So the number, the $200 million is not an exact number, it could go up or down based on overall demand and mix. So at this point in time, we don't see anything there that could change the general guidance we gave, which is around $200 million. Gregory A. Fritz: Operator, can we go to the next question please.

Absolutely. We'll take our next question from David MacGregor with Longbow Research. David S. MacGregor: I guess just ask the previous question maybe a little bit differently, your competitor on their earlier call this morning indicated they're getting 4% traction in North American pricing. Are you doing better than that?

David, it's Marc Bitzer. I can't comment on the competitors quote on pricing. I know what we announced and I know what we implement in April 1 -- or April 7 and that is so far perfectly on track. David S. MacGregor: Okay. Can you talk about the earnings per share impact of the curtailments in the first quarter?

Of the curtailment, David? David S. MacGregor: Yes, please.

So you had $29 million and I think you want tax effect of that from a curtailment perspective, it's probably about $0.23 gain last year, we don't have this year. David S. MacGregor: And on the promotional environment, Marc, you had mentioned that your intention is to dial down the promotional activity. I'm wondering if you really can control that. If we end up in more competitive sales events around Memorial Day and July 4, are you really going to be able to dial it down and risk losing share? Or is the share more important to you and you just have to respond to competitive actions?

David, it's Marc. First of all, as a matter of fact, we, in aspect, no way control that, the retail effect of pricing and we have through our co-op advertising policy certain incentives that they adhere to with what we call a MAP policy based on the promotion environment, the promotion calendar. Having said that, we, in our core advertising policy have reduced the promotional activities to 10% off or 15% off ENERGY STAR and that has gone live April 1, as has been communicated. But again, a retailer can override that or change that but then they run risk of losing certain co-op advertising support. Having said all that, we do expect with all these price increase that we've seen in Q1, that some of the promotions end of Q4 have been moderated. And I think the year will show how the rest of the year would turn out.

And David, this is Jeff, we've been, I think, pretty clear in our earlier call and our priorities expand our operations margins. And particularly in environment where raw materials have been escalating like they have, we're not chasing share, we're gaining our share which, by the way, is very strong in the U.S. through the success of our new product innovations and not on spot promotional activities. So that's kind of the path we've committed to and we're going to stay to. David S. MacGregor: Okay, last question, just if you could give us your thoughts on consolidation in Latin America in retail and the extent to which that's expected to adversely impact your business in the second half of this year?

David, this is Mike Todman. We actually, the consolidation occurred actually last year and what we have done is expanded our distribution across all of retail. So the fact of the matter is we've been able to manage both sales and volumes, even given the consolidation and frankly, the new combined entity is still a very strong partner for us. And so we don't expect to see any significant change in our business because of the consolidation. David S. MacGregor: So there wouldn't be any negative repercussions in terms of the profitability of that business, they wouldn't lean on you for more promotional support or any of the other ways that this could play out?

No. And David, I mean I'm not going to talk about any contract negotiations we have with them. But the fact of the matter is, we're keeping the right balance in our business across [indiscernible] result.

And David, the only thing I'd add is again as a reminder Brastemp and Consul are the #1 and #2 most preferred brands in the Brazilian market. They are, too, the constant chains of innovation, great preferred brands and continuous innovation are, I think, the key elements to make sure that you both are able to grow your business and maintain or improve your margins. And it's no different now than it was before.

And we'll take our next question from Michael Rehaut with JPMorgan. Michael Rehaut - JP Morgan Chase & Co: First question, just want to make sure I have the numbers right on the price/mix negative year-over-year impact. In the first quarter, in North America, for 1Q and can you remind us for 4Q?

For North America? Michael Rehaut - JP Morgan Chase & Co: Right.

Yes, on a year-over-year basis, let me walk through it for you from an operating profit perspective. Operating profit down about 1.5. Positive side of that is productivity was up over 2 points. We mentioned earlier that we had onetime charges last year contributing to about 2 points this year. Price/mix was negative by about 4 points and then material headwinds was negative a couple of points also on a year-over-year basis.

But for the overall comparison, we said for the full -- year-over-year, which was our highest price/mix level last year.

Right. We're down... Michael Rehaut - JP Morgan Chase & Co: So on a sales basis for first quarter, price/mix was negative 4 points, you said?

Yes, Mike, it's Marc Bitzer. Both negative year-over-year 4 points and a sequential base target 4.6, 4.7 in that ballpark.

And globally it was negative 2.3 and positive 0.9 on a sequential basis. Michael Rehaut - JP Morgan Chase & Co: Okay. The second question on share, I was wondering if you could drill down a little bit more, so you were up 4% in volume versus the industry, slightly negative, I believe, and so if you could kind of maybe get a little more granular in terms of where you're getting that share. I know in the past obviously the branded businesses has done the majority of that or all of that, but is that still the case and maybe if you could go in terms of which channels are you seeing the most success in?

Mike, it's Marc Bitzer. Without getting too much into a detail because we don't want to share everything with our competitors, just in terms of share growth overall, yes, we had a share growth in Q1 both on a sequential and year-over-year basis. That is -- and that is a similar trend like in Q4, particular almost entirely driven by branded business. But branded business continues well overall, in particular with Whirlpool, Maytag and KitchenAid brands. The OEM side of our business has I would say stabilized relative to Q4 and we see right now is a stabilization of these trends. So overall, yes, we're very pleased with our shared guidance. I don't want to get into the specifics of which sounds of which product but we're predominantly still our branded business.

And our new product innovations are doing exceptionally well in this market. Michael Rehaut - JP Morgan Chase & Co: Great. One more question if I could. In North America, you mentioned that you've continued to reduce or dial back the production levels I believe in first quarter as well as you had in the fourth quarter. Is it possible to kind of quantify what that drag was in the first quarter if indeed you still had dialed back those production levels, what type of drag that was on the margin?

Michael, we don't typically give out -- we had a significant production take out to balance on inventories. We typically don't give out our dollar amount with that. But it had a significant negative impact on our conversion. So you should expect that if we stabilized production, we ought to have better margin. Michael Rehaut - JP Morgan Chase & Co: And when would that -- is that going to be occurring in the second quarter?

Again, our inventories are in good shape. But we did say demand will be down. So there won't be a material change. But I'd say the second half of the year, our demand scenario plays out. We'll have certainly on a -- compared to previous year, very favorable.

And we'll take our next question from Bob Kelly with Sidoti & Co. Robert Kelly - Sidoti & Company, LLC: I might have missed this, did you quantify the benefit from cost reductions, productivity gains in 1Q? And then secondly, could you maybe just talk about the phasing of your goal for this year for the next few quarters?

Let me answer the productivity question for you. In the quarter, productivity was positive, about 2 points on the margin. And the phasing ramps up throughout the year based on how our prices come through and we'd expect that to increase going forward. Robert Kelly - Sidoti & Company, LLC: Given the work you've done this far, are we still thinking -- I think the goal was $270 million in productivity cost-related savings for 2011?

I don't think we ever gave a productivity number. Robert Kelly - Sidoti & Company, LLC: Okay. Would you care to give one now?

What we did say was we expected it to offset our material costs headwinds.

And we'll take our next question from Tom Nikic with Cowen and Company.

This is Tom in for Laura Champine today. I was wondering if you guys have any sense of how much pull forward of demand there was ahead of the Q2 price increases, I guess industry-wide?

Tom, it's Marc Bitzer. As you would normally expect with the kind of price increases which will end out, yes, there were some pull-forwards. But I would say it was nothing out of a unnormal register of our previous price increases. Keep in mind 2 things out of my context. First of all, there are less and less retailers who can dial up and down significant inventory. There's many retailers have carry -- very little or no inventory. The second thing also bear in mind what we reported in previous earnings call, there was quite a bit of an inventory hangover coming from Q4 into Q1. The batch with generated demand was very soft. So I would say these two effects together pretty much offset each other.

Okay, thanks. And coming to BEFIEX, I'm not sure if you mentioned this, but did you give how much credits you have remaining or how many credits you have remaining?

We have $510 million remaining.

And at this time, we'll expect we have time for one more question. We'll take that question from Todd Duvick with Merrill Lynch. Todd Duvick - BofA Merrill Lynch: I had a quick question for you on -- you've got a note that's maturing in June, a $300 million note, and you have plenty of cash on the balance sheet to pay it off if you choose to. So my question is, do you plan on paying it off to work towards those upgrades as you've mentioned earlier? Or would you be in the market refinancing that at some point?

I think we're examining that now. I don't have a definitive answer, it could be a combination of cash and debt issuances. But at this point in time, we haven't made a decision. Todd Duvick - BofA Merrill Lynch: Okay, and then just one big picture question, there's been -- on the fixed income side, there's been quite a bit of I guess questioning as to why the Maytag bonds were just assumed by Whirlpool over the past quarter or so, can you provide any big picture color in terms of what was behind that action, was it to achieve some cost reduction efforts?

There was some internal planning activity that we have done and that's all it is. In fact, keep in mind, we've never issued anything under Maytag's acquisition so those are just legacy bonds from the time of acquisition.

Well, thank you again for joining us today. We look forward to speaking with you next time.

This concludes today's conference. You may disconnect at any time. Thank you and have a great day.