Whirlpool Corporation (WHR) Q2 2012 Earnings Call Transcript

Joseph Lovechio - Senior Director of Investor Relations Jeff M. Fettig - Chairman and Chief Executive Officer Marc Bitzer - President of Whirlpool - North America Michael A. Todman - Director and President of Whirlpool International Operations Larry M. Venturelli - Chief Financial Officer

David S. MacGregor - Longbow Research LLC Sam Darkatsh - Raymond James & Associates, Inc., Research Division Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division Michael Rehaut - JP Morgan Chase & Co, Research Division Joshua Pollard - Goldman Sachs Group Inc., Research Division

Good morning, and welcome to Whirlpool Corporation's Second Quarter 2012 Earnings Release Call. Today's call is being recorded. For opening remarks and introductions, I'd like to turn the call over to Senior Director of Investor Relations, Joe Lovechio.

Thank you and good morning. Welcome to the Whirlpool Corporation Second Quarter 2012 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, our Chief Financial Officer. Our remarks today track with the presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 8-K, 10-K and 10-Q, as well as in the Appendix of this presentation. Turning to Slide 3. 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 results from our ongoing business operations. We also think that the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operation. Listeners are directed to the Appendix section of our presentation beginning on Slide 34 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. With that, let me turn the call over to Jeff. Jeff M. Fettig: Well, good morning, everyone, and thank you for joining us today. As you saw in our press release from earlier today, we delivered a strong improvement in our Q2 operating results. We continue to deliver on the commitments that we outlined at the beginning of the year, and we're reaffirming our full year guidance. Overall, I believe we executed well during the quarter and the first half of the year, and our margin expansion initiatives remain on track. In total, these actions fully offset weaker than expected demand, unfavorable currency and material inflation during the quarter. Our North America and Latin America businesses continue to perform extremely well. In North America, our ongoing business operating profit more than doubled year-over-year. Our cost and capacity reduction initiatives are on track to realize the expected $200 million per year cost savings benefit this year. And we continue to see very good -- a very strong price/mix improvement during the quarter, which has been enabled by our innovation, which is winning in the marketplace; our strong global consumer brand portfolio, which is enabling us to mix up our mix; and our continued support of our brands through ramped up investments. Turning to Slide 6. Overall revenues for the quarter were up 3%, excluding the impact of currency and BEFIEX, driven by strong product price and mix. Our diluted earnings per share from ongoing business operations improved to $1.55 per share compared with $0.81 in the prior year, and our underlying free cash flow significantly improved year-over-year from ongoing business operations. On Slide 7, you can clearly see our continued positive trend of both price/mix and margin expansion. During the first half, we made very strong progress towards our full year margin target. And we expect to improve our margins to 6% to 7% during the second half of the year and reach our full year operating profit margins of between 5.5% and 6% in line with our original guidance. Turning to Slide 8. Globally, we now expect second half industry demand to improve versus first half levels. We have revised several of our regional forecasts on a full year basis. Our full year U.S. industry demand is now forecasted to be flat to down 2% for the year. In Latin America, the Brazilian tax holiday was extended through the end of August. And with this extension, combined with good underlying economic fundamentals throughout the region, we now expect demand growth to increase from our original guidance to the range of 5% to 7%. In Europe, we continue to see an industry decline for the year in the range of down 2% to down 5% for the full year. And of course, as you know, the European markets continue to face very challenging macroeconomic conditions, which are impacting consumer demand. We are managing our business accordingly with cost and previously announced price actions along with very disciplined inventory management in this weak demand environment. And finally, we now expect full year unit shipments in Asia to be flat to up 2%. Slide 9 shows our key business drivers for the year versus our original guidance. As I just outlined, demand was weak in the first half of the year and currencies were volatile and had a negative impact on operations. Raw material inflation was in line with our forecast, and we continue to expect a range of $300 million to $350 million for the year. However, if current raw material trends continue, we would expect this to move towards the lower end of the range. We continue to expect to fully offset all of these items with positive price/mix, driven by our cadence of innovation and improving productivities, which we fully expect in the second half of the year. As I mentioned, our restructuring costs and capacity asset reductions are on track, and we will realize those benefits as they ramp up in the second half of the year. So overall, throughout the first half, we're on track to deliver our EPS and free cash flow guidance, and we're reaffirming that guidance for the year. So with that, I'm going to turn it over to Marc Bitzer to talk about our North America operations.

Thanks, Jeff, and good morning, everyone. Let me start by giving my perspective on North America's performance during the quarter. Starting on Slide 11. First of all, you see our revenues and margin for the region grew significantly during the quarter as margin expansion is due largely to our previously announced and fully implemented cost base price increases and an overall improved price/mix, which has been now a consistent trend for the past 4 quarters. In addition, our cost and capacity reduction initiatives are delivering benefits as expected for the region. And during the quarter, we saw a record working capital, driven by aggressive inventory management, which means we took down production volumes, which had a negative impact on profitability. Turning to Slide 12. You see net sales of $2.5 billion increase 4% from last year, driven by favorable product price and mix. Our ongoing business operating profit was $186 million, which more than doubled as compared to $76 million in 2011. Overall, ongoing business operating margin was up more than 4 points year-over-year. Turning to Slide 13, you can see just a few examples of our innovative products. The cooking products you see are just a couple of examples of how we are growing our premium cooking business. Earlier this year, we opened a new manufacturing facility in Cleveland and Tennessee to continue to provide the world's most innovative cooking products, including ranges, ovens and cooktops. Turning over to Slide 14. While today, we are providing our perspective in second quarter results. It remains important to highlight the significant opportunity while our businesses' underlying industry demand start to slowly improve. Today, demand is at recessionary low levels, and yet we were able to restore operating margins at 8%. And yet, we expect only relatively modest demand growth in the second half. However, we are beginning to see some early but consistent signs of housing recovery, which makes us increasingly optimistic about a more structural demand recovery. And obviously, with operating margins now already at 8%, there is significant opportunity once demand returns to more normal levels. And now I'd like to turn it over to Mike for his review of our international operations. Michael A. Todman: Thanks, Marc. I'll begin with an overview of our international environment during the quarter on Slide 16. Overall, we have solid performance in our Latin America and Asia regions. We saw improved product price and mix across our international businesses as we continue to launch consumer-relevant innovations in every product category around the world. Europe remained challenging during the quarter with continued weak consumer demand across the Eurozone. We took aggressive actions during the quarter. Our cost reduction initiatives for the region are on track, and when combined with previously announced cost-based price increases, are expected to deliver sequential margin improvements and a return to profitability in the second half and into 2013, although the demand environment remains uncertain. During the quarter, we saw volatile movements in the global currency markets, particularly in Brazil and India. We continued our disciplined approach to inventory management, and we expect to see some improvement in emerging market demand trends going forward. If you turn to Slide 17, you'll see our Latin America second quarter results. Sales were $1.2 billion compared to $1.3 billion in the prior year. Excluding currency and BEFIEX, sales increased more than 8% on slightly higher volumes. Operating profit for the quarter totaled $103 million compared to $166 million in the prior year. Favorable product price and mix was partially offset by unfavorable currency and lower monetization of tax credits. On an adjusted basis, excluding the Brazilian tax credits, our operating profit for the quarter totaled $101 million and approximately 9% of sales compared to $87 million and approximately 7% of sales in the prior year period. Turning to Slide 18. As we previously discussed, we have focused on higher margin products in Brazil. As you can see illustrated here, excluding a less profitable category, in this case microwave ovens, our T8 appliance units for our business in Brazil grew 7% versus last year. Our decision to shift the business has positively impacted price and mix and profit during the quarter. Turning to Slide 19. In the second quarter, our Europe, Middle East and Africa sales decreased 18% year-over-year to $692 million with unit shipments down 7% compared to the prior year period. Excluding the impact of currency, sales decreased approximately 7%. The region had an operating loss of $26 million, down from the $20 million profit in the prior year period. Favorable price/mix in the quarter was more than offset by unfavorable country mix, volatile currency and significant production takeout to adjust for market demand and reduce our inventory levels. Today, inventories are in good shape, and we do not expect that to be a headwind going forward as long as demand remains at current levels. We also continue to execute our restructuring plan, and we expect that our actions will allow us to return to profitability in the second half. Our second quarter results in the Asia region are shown on Slide 20. Net sales decreased 7% during the quarter to $241 million, down from $257 million in the prior year period. Excluding the impact of currency, sales increased 6%. The region's operating profit of $14 million improved sequentially and was essentially flat to the prior year. Overall, favorable product price/mix and consumer preference for our new product launches, particularly in India, was offset by volatile currency and unfavorable material cost. In local currency, India achieved record sales and operating profit for the quarter, and this confirms that our consumer-relevant innovation is winning in the marketplace. Turning to Slide 21. You can see just a few examples of our international product launches during the quarter. These products show just a glimpse of how we are advancing our global brand portfolio in more than 130 markets around the world. Finally, we continue to see tremendous growth potential in emerging markets, where product penetration levels remain low as you can see on Slide 22. Despite the temporary slowdown, we expect to see a return to growth in these emerging markets as more consumers are able to purchase appliances and benefit from the quality and convenience they provide. The potential in developing countries is tremendous if we consider the population and economic growth trends combined with these low penetration levels. Now I'd like to turn it over to Larry Venturelli for his financial review. Larry M. Venturelli: Thanks, Mike, and good morning, everyone. First, let me start by putting into context first half performance relative to our full year guidance. As you recall and shown on Slide 24, we are guiding to annual GAAP EPS of $5 to $5.50 per share and ongoing business operations EPS of $6.50 to $7. For the first 6 months of the year, we have earned GAAP EPS of $2.60 per share, essentially the midpoint of annual guidance, and ongoing business operations EPS of just under $3 per share. As you know, we do not provide quarterly earnings guidance. It's important to note, however, that our first half earning results are ahead of the plan we established entering the year. These results are driven by our ongoing operating profit margin, which has essentially doubled from the second half 2011. Our run rate continues to support the full year guidance we've provided several months ago, which we are again reconfirming today. Our lower tax rate, which I will discuss in a moment, is offsetting the unfavorable currency impact on our business. Operationally, our EPS guidance for the year remains solid and unchanged. As you can see on Slide 25, we continue to expect 5.5% to 6% ongoing operating profit margin for the year, which translates into a 300-basis point improvement. With our first half results on plan and close to the low end of this range, we fully expect margins to continue improving during the second half of the year. Let me spend a minute on our year-over-year margin improvement. For the first half of the year, the drivers of our performance have been price/mix, which is up approximately 4 points and is currently tracking higher than original expectations. We continue to expect positive price/mix in the second half of the year. However, we will be comping against prior year price increases. Another positive margin contributor has been benefits associated with our cost and capacity reduction program, which continues to remain on plan. We expect benefits to be somewhat higher in the second half of the year. Material cost inflation was approximately $175 million in the first half. And given industry demand levels, we did take actions during the second quarter to reduce production to ensure inventories remained at appropriate levels. The production cuts negatively impacted our conversion productivity. As you can see on Slide 25, our second half margins are expected to be, as Jeff said, between 6% to 7%. This sequential improvement is expected to be realized by the combination of improving productivity, given a solid midyear inventory position, higher volume in the second half of the year, productivity program ramp up and lower material headwinds, continued price/mix improvements from recent price increases. And finally second half margins will also benefit from higher restructuring benefits, as well as seasonality of our portables business. Now turning to free cash flow on Page 26, and consistent with our expectations, we did have a cash outflow for the first half of the year of $540 million. It's important to note that current year cash flow includes the final installment of $275 million associated with the Brazilian collection dispute. We also note that adjusting for items impacting comparability, our underlying ongoing business cash flow improved over last year's first half. Now we continue to expect to generate positive free cash flow between $100 million and $150 million for the year. With legacy legal liabilities and the majority of our restructuring cash outlays behind us after this year, we are very well positioned to generate significantly higher free cash flow in the future. Let me spend a couple of minutes on our second quarter results, which further solidified our full year guidance, as well as some general topics. But before I begin, as a general reminder, Slide 36 and 37 in the Appendix will provide you with a reconciliation of our reported GAAP operating profit and EPS to ongoing business operations for both 2012 and '11. Included in this table are second quarter adjustments to drive our ongoing business operations and performance, removing the impact of restructuring expense, BEFIEX tax credits, as well as the impacts from benefit plan curtailment gain, the antitrust resolution, investment impairment and adjustment to normalize the second quarter tax rate, which I will discuss in a moment. Turning to the financial summary on Slide 27. Let me make a couple of observations. While reported net sales declined 5%, it's important to note that net sales from constant currencies and excluding BEFIEX credits were up more than 3%. Our ongoing business operations operating profit improved by over 40%, driven primarily by positive price/mix and cost and capacity reduction initiatives, a very solid performance given lower industry demand, unfavorable currencies and higher material cost. On Slide 28, I'd like to make a couple of comments. First, prior year GAAP results included the Brazilian collection dispute and antitrust settlement, benefits from energy tax credits, as well as significantly higher BEFIEX credits. These items are presented for your reference on Page 38. Second, regarding our 2012 tax rate, in the first quarter, we reported an effective GAAP tax rate of 27%; for the second quarter, it was 4% on a GAAP basis, which is lower than our full year expectations and driven by a timing of our tax planning. We now expect our full year tax rate to be 25%. For our ongoing business operations EPS, our second quarter tax rate is 22%. Now this reflects an adjustment to bring our first half tax rate to 25%. Slide 29 illustrates our cost and capacity reduction charges. The program remains on track, and there are no changes from previous guidance. We are on track to deliver $200 million in benefit in 2012 with an additional $200 million of benefit in 2013. Let me turn now to the monetization of BEFIEX tax credits, where we monetized $2 million in credits compared to $79 million last year as a result of the IPI tax holiday in Brazil. As of June 30, $215 million credits remain. Given the most recent extension to August 31, we continue to expect to monetize $60 million to $80 million this year, unless the program will be extended for a third time. If the program would be extended to the end of 2012, we would expect to monetize $40 million to $50 million for the full year. One other item I'd like to note is on May 1, $350 million of 8% notes matured and were repaid. On June 1, we completed a 10-year debt offering of $300 million of 4.7% notes. Before I close on Slide 30, I want to review our short-term cash flow priorities, which remain unchanged funding the business, including capital expenditures and pension contribution; dividends, as I previously mentioned, funding the remaining legacy liabilities, which are largely behind us after this year; and debt repayment. Now I'll turn it back over to Jeff. Jeff M. Fettig: Thanks, Larry. Let me sum up by saying that we are pleased with our execution of the strong actions to improve our operating margins for the first half of the year, and we are on track to achieve a record year of margin expansion throughout our global business. And I think it's important to point out that we're able to do this in a period where both in North America and Europe are at or near recession lows in terms of demand and Asia is showing -- showed the weakest negative demand growth we've seen in many, many years. But I think looking forward, more in line with our strategy, there are many positives that we're starting to feel better about. We are positive about what we're seeing in the U.S. with housing trends. We're seeing a foundation beginning to form in that sector, which we think will benefit us over time. We do have significant future opportunities for our business in emerging economies such as China, India and the countries throughout Latin America. We continue to see improvements in price/mix driven by our leading global brand portfolio and best-in-class innovation in our product launches, and we do know that innovation sells in good markets and in difficult markets. We will accelerate and we are investing to accelerate our innovation in both existing core business and adjacent spaces to further accelerate revenue growth and increase shareholder value. Our ability to expand our operating margins and the conclusion of the legal -- the legacy liability payments position us very well for generating strong free cash flow in the second half of the year and going into 2013. So overall, we're positive about the progress we're making to continue to build our position as a strong global brand and consumer products company. With that, I'm going to end the formal remarks and open up for Q&A.

[Operator Instructions] We'll take our first question from the side of David MacGregor. David S. MacGregor - Longbow Research LLC: I guess I'm struck by data that was out this week just indicating that Lowe's has lost quite a bit of market share year-over-year in the second quarter, and I'm just wondering how that might influence your North American business. And secondly, talk a little bit about how you become a little more retail agnostic, given the concerns about what may ultimately happen at Sears and your recent news -- good news at Home Depot, if you could just help us better understand that.

David, it's Marc Bitzer. As you know, we're not typically commenting on specific retailer strategies or issues. And in particular also, I think you're referring to track end data, which is not the only data source in the industry. So I would -- let me just try to answer from a broader perspective. I mean, it's not driven by a particular Lowe's or Sears perspective. We always -- we try to have a very good distribution position of all our brands across the entire country. In that context, that's probably also our Home Depot expansion, where our addition of the local brand fits into. So yes, we're trying to have our brands appropriately represented at many or most outlets in the U.S. so kind of be probably less exposed to an individual up or down of an individual retailer. David S. MacGregor - Longbow Research LLC: Okay, maybe we can continue that conversation offline. As well just in terms of the $200 million cost savings program you have going on, is there anyway to talk about how much of that actually made it to the bottom line or what the contribution to the bottom line was from the cost reductions in the quarter? Larry M. Venturelli: Are you talking about the restructuring, David? David S. MacGregor - Longbow Research LLC: Yes, I am. Larry M. Venturelli: Yes, for the quarter, from a benefit perspective, we had about 1%, which is about $46 million; for the first half, we're about $84 million. So we'll get another, let's call, $115 million plus in the second half. We'll be more weighted towards the second half of the year. Jeff M. Fettig: And David, on that, as Larry mentioned, we had very positive PMR. We had positive restructuring benefits. We had negative currency, and we had negative net productivity due to raw material increases and a significant reduction in production volumes as we kept inventories in line. What we think is different in the second half is we think the production adjustments are more or less very well balanced, and we expect productivity turn from a negative in the first half to a positive in the second half. David S. MacGregor - Longbow Research LLC: So what you're saying, that you don't expect production curtailments to be significant to margins in the second half? Jeff M. Fettig: No, we don't.

We'll move, our next question is from the side of Sam Darkatsh. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Talk about why you're taking your U.S. expectations down in the second half. I think the second quarter came in pretty much what you were expecting, Jeff, and you were talking about some encouraging signs you're seeing in the end markets. So why be more sober on the expectations in the second half?

Sam, it's Marc. Let me try to answer that. Again, I think it's more a question of math and just about we took down the full year expectation to kind of -- well, the previous is that -- the previous guidance was 0 to slightly up but there's an emphasis on 0 more, and now we're seeing 0 to a minus 2. Again, that is basically more a question of math. If you would take a minus 2, that basically means the second half grows slightly less than 1 point. If you go to higher part of our range, 0 for full year, that would mean that the second half grew by 4.7%. And I think the truth will be somewhere in between. I also want to take the opportunity to emphasize more -- yes, we're still a little bit cautious about a strong dynamic growth in the second half, but we are more confident about the underlying long-term and midterm demand trends and particularly by the housing, the housing starts, rental market activity, which is the large of consistent signs which made us increasingly optimistic. So I think it's more a question of when as opposed to if. Jeff M. Fettig: And Sam, just -- again, if you look at the numbers and the normal seasonality, to Marc's point, so we're really forecasting the second half between 1% and 5% to get to that guidance, which is profoundly more positive than the first half. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: And would you expect the second quarter share trends in the United States to continue also? Jeff M. Fettig: Sam, first quarter, we were up. Second quarter, we're marginally down. We're stable. As we bring out innovations, we're gaining shares. So overall, share trends aren't big concern right now. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: My second question, you're going to have prodigious free cash flow in the second half of this year and then considerably more in the out-years than you saw this year because of the absence of a lot of costs. Looking back over time, you've had only 3 dividend increases over the past 20 years. You haven't bought any stock back really over the last 4 or 5 years, as I recall. Do some of those type of cash flow uses begin to become much more appealing to you? And how should we look at that prospect over the next 6 to 12 months? Jeff M. Fettig: Yes, Sam, for this year, Larry outlined our 4 priorities, and we've been executing to them all year and will continue to do so. As we get out of 2012, and I'm not here to talk about forecasting 2013 or beyond, but I would go back to the same list where clearly we regularly, with our board, sit down and review cash allocation. And certainly, as we get these legal liabilities behind us and we're generating -- our run rate from operations is very strong and will improve with earnings growth and, certainly, return to shareholder would be something we'd evaluate.

Let me turn to the next question from the side of Ken Zener. Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: Two things. I want to focus on U.S. demand as it relates to new construction first. Can you talk about how the competitive dynamics might be or are different there versus the retail channel based on your distribution capacity? So I think you and GE are more focused there versus retail where other competitors easily service that.

Ken, it's Marc Bitzer. First of all, and once again coming back to the housing, when I refer to early signs of housing recovery, we're still talking about very low levels. But I think what is encouraging to see is that now start significantly out paces completions, which just is already in the 6 to 8 months a better perspective. Inventory is coming down. And I don't think we should underestimate the dynamics of the rental market as a catalyst for the overall housing market. There's just a lot of positive signs. I think without getting too much specific, and as you may often know the market share data on this what we call the building channel are not very well documented. But I would just argue, we have a very strong position in that channel. And in particular, over the last 2 or 3 years, through the gains of some fairly large long-term contracts, I think we're certainly better positioned coming out of the recession than we were coming into the recession. Jeff M. Fettig: And Ken, your basic question is correct. There is a very different market share structure in that channel than there is the retail channel. Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: Okay. Can you talk about -- you talked about lower volume impacting margins, all else being equal. Was that -- -- excuse me if I missed it, was that in the order of, let's say, 150 basis points in terms of gross margin or how would you frame that? Jeff M. Fettig: I'm sorry, Ken from the... Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: From the lower volume, how that impacted your margins, excluding cost and pricing, et cetera, what that absence will be in the second half or the headwind in the first half? Larry M. Venturelli: Yes, I'd say versus our expectations for the year, I'd say we expected, if you did the math, that overall industry volume would be flattish in our original guidance. And now I'd say you'd probably see it down 0.5 point in the industry. So from a production perspective, I'd say that costing is about 0.5 point. Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: And they were referring to North America, is that correct? Larry M. Venturelli: Actually, globally. We had to take out a lot of production in Europe and also North America. Jeff M. Fettig: Yes, yes, I would say it was most profound in Europe, secondly in North America.

We'll move next to the side of Michael Rehaut. Michael Rehaut - JP Morgan Chase & Co, Research Division: First question, just on Europe, I was hoping to dig in a little bit there. The revenues -- I thought you said that you benefited from price/mix, but I thought the units and revenues declined both 7%. So I was a little confused there. And also -- I was wondering if you could also go into a little bit more detail in terms of the return to profitability in the back half, if that's more driven by just maybe the year-over-year declines not bad as -- this is a pretty low watermark for revenues or if there are -- maybe you can describe the timing of the restructuring benefits. Michael A. Todman: Yes, Michael, this is Mike Todman. First of all, just addressing the first point, we did have constant currency 7% decline in our sales, which was equal to our unit shipment. But our country mix is less favorable, if you will, or more geared towards those markets that were more negative, and so that impacted us overall in terms of our European performance. Secondly, what we did in order to respond to that and respond to the demand environment is we significantly reduced our production in order to get our inventories in line, and so that is not something that we expect to see reoccurring in the second half. And therefore, that negative should go away as we come through the second half, and that's why we feel pretty confident on returning to profitability. Jeff M. Fettig: And in addition, price/mix should continue to improve as it has been, and you will see it. And restructuring benefits will ramp up and then, of course, what Mike said, will show up in productivity. Michael Rehaut - JP Morgan Chase & Co, Research Division: Okay. Secondly, in North America, you've made great progress there, and the ability to execute the price increases have obviously been huge in driving that better performance. Are there any price increases scheduled for the back half of the year? How do you think about pricing, let's say, on a go-forward basis? I know you're not going to be giving -- you don't give guidance per se. But on a go forward, now that you've got profitability in this 7% to 8% range, is further -- maybe thinking about bigger picture, further expansion more purely going to be driven by just volume and mix? And also, how much within North America should we expect the restructuring benefits to apply down into the North American segment in 2013? So few parts to that question, I apologize, but...

Mike, it's Marc Bitzer. Let me first try to address some of that. First of all, it's a pretty good point, as you highlighted, we are back to this 8%, which is a number which we communicated in the Investor Conference, and that's in a recessionary environments. So that's a good starting point. What I want to point out on the price increase, first in the past, first of all, I do believe we had a very, very strong execution in this one because it's not just in this price increase we managed our mix very well, which is typically something difficult to maintain once you go up with price increases. As you know, and we made that statement several times in the past, we simply cannot comment on any forward plans. We are, as a company, focused on the margin expansion and that's our course, and that's a course which we will stay on. Jeff M. Fettig: And Mike, I would add to that. We talked about our restructuring activities. We'll get $200 million of benefits to our P&L this year, and we fully expect another $200 million benefit to our P&L next year with the completion of these activities of which these will largely fall in North America and Europe. The second thing I would point out is that through our innovation, we continue to invest significant both capital and R&D. And we get -- on our innovation projects, we do get margin i.e. mix upgrades from that. So I guess the way I would put it is that if you look at demand, if you look at price/mix, if you look at restructuring, if you look at ongoing productivity, those are all the levers that we're focused on to drive and expand our operating margins both in North America and around the world. Some have a bigger impact during different periods of time, but we're very focused on -- we're not satisfied with today's margin levels. Anywhere in the world, we're very focused on expanding those margins. Michael Rehaut - JP Morgan Chase & Co, Research Division: One last quick one, if I could, just the tax rate for 2013. How should we think about that, given some of the changes this year? Larry M. Venturelli: Yes, I think, Michael, what we said before, we're -- from a guidance perspective, we'll provide that in -- when we release our fourth quarter earnings. But certainly from a normalized basis, mid-20s to high 20s will be the range that we'd be looking at, probably closer towards the mid-20s.

And we will take our final question, this one from the side of Joshua Pollard. Joshua Pollard - Goldman Sachs Group Inc., Research Division: Let me start with Brazil. I'm trying to understand how much of your 1.7 points of margin improvement came from getting out of the microwave business, ultimately trying to split the organic versus inorganic changes in your margins there. Michael A. Todman: Well, Josh, I won't split up specifically that. But clearly, getting out of unprofitable businesses has a positive impact to our overall margin. But having said that, we also had positive price/mix in the rest of our business in Latin America and our business grew. So really, all of those are contributing to the improvement in margin. Jeff M. Fettig: As well as yield, as we talked about throughout -- really beginning last year at this time, and we have announced and implemented selective cost-based price increases almost throughout our entire range over the last 12 months. So that's showing up positive mix from innovation. And to Mike's point, the absence of selling -- a significant part of that microwave business is well over half is loss making, and we've chosen not to participate in that. Joshua Pollard - Goldman Sachs Group Inc., Research Division: Yes. I'm just wondering is it a big benefit? I can't tell if the 8.8 that you got -- could you say that again? Jeff M. Fettig: It's material. Joshua Pollard - Goldman Sachs Group Inc., Research Division: Immaterial or material? Jeff M. Fettig: It is material. Joshua Pollard - Goldman Sachs Group Inc., Research Division: Okay, got it. My second question is in what areas should we expect the $115 million of remaining productivity gains from your cost program to flow through? I mean, it seems like the areas where you guys are expecting the most improvement in the second half is in your Europe margins overall, but I'm also noticing that your SG&A is up almost -- is up 5% to 7% or almost $40 million year-on-year in the second quarter. Can you talk about what areas investors should expect to see the reductions from your cost program? Larry M. Venturelli: Josh, this is Larry. A couple of things from an SG&A perspective, we did guide at the beginning of the year that we would have a higher SG&A for the year. And a part of that has to do with the higher employee benefits, the other part has to do with just increased investments in advertising and consumer support. From a productivity perspective and the balance in the back half of the year, a couple of things to keep in mind is one is that the second half volume for us historically, and will be this year, is higher volume. And we just mentioned, for the second quarter, we took out a significant amount of production. So you don't have the same headwinds from a conversion perspective as you did in the first half. Our inventories are in very good shape, so we'll have higher volumes in the second half of the year. From a productivity perspective on some of the programs, our cost change programs ramp up throughout the year. We've got programs going within the distribution network. Material content is within cost change. So things like that are what kind of builds throughout the year. And then along with that, we have restructuring we said was more back end weighted. So those are some of the things that help us improve our productivity in the second half of the year. Jeff M. Fettig: And Josh, you'll see the lion's share of that in the gross margin. Joshua Pollard - Goldman Sachs Group Inc., Research Division: And then if I can sneak one more in. Commodities at current levels, I'm not calling it guidance by any stretch of imagination, but how much of a benefit could you see in 2013? My simple math is you guys went from the high end of the range at the end of 1Q to the low end of the range at the end of 2Q. If you assume that $50 million, that you saved over a quarter, annualize that, could it be $200 million or is that thinking too big? Jeff M. Fettig: Josh, in February, we gave our guidance of $300 million, $350 million. At the end of April, we actually guided towards the higher end of the range because things were moving strongly in that direction. And we're reaffirming our guidance for the year now and said that if current trends continue, it could be towards the low end. So I mean, even within this period, there's quite a bit of volatility. It's just too early for us to give you any kind of outlook for 2013. There's a lot of moving parts as you very well know in raw materials. And as we get late in the year and that's -- or actually early next year is will be the earliest that we give guidance for 2013. Well, listen everybody, thank you for joining us today. We look forward to talking with you next time.

And this concludes today's program. Have a great day. You may disconnect at this time.