Whirlpool Corporation (WHR) Q2 2013 Earnings Call Transcript

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

Sam Darkatsh - Raymond James & Associates, Inc., Research Division David S. MacGregor - Longbow Research LLC Eric Bosshard - Cleveland Research Company Michael Jason Rehaut - JP Morgan Chase & Co, Research Division Denise Chai - BofA Merrill Lynch, Research Division Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Good morning, and welcome to Whirlpool Corporation's Second Quarter 2013 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 2013 Conference Call. Joining me today are Jeff Fettig, our Chairman and CEO; Presidents Mike Todman and Marc Bitzer; as well as 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 operation 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 29, 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: Good morning, everyone, and thank you again for joining us today. As you saw in our earnings release from earlier this morning, our second quarter results reflect strong revenue growth in every region around the world. And as I've outlined in the last several quarters, we continue to manage all the drivers that impact our margins and that once again had significant margin expansion during the quarter. These results mark the sixth consecutive quarter of the year-over-year ongoing business operations margin expansion. Given the strong underlying trends that we see in our business, we are raising our full year ongoing business operation EPS outlook to $9.50 to $10 per share, up $0.25 from our previous guidance; and our free cash flow to between $650 million and $700 million, up $50 million from our previous guidance. Our second quarter results are summarized on Slide 6. Excluding the impact of foreign currency and BEFIEX, our revenues were up approximately 6% versus last year. Our diluted earnings per share from ongoing business operations improved 53%, up $0.82 to $2.37 compared to $1.55 last year. And as we continue to drive higher revenue growth and expand margins, our expectations for cash generation are firmly on track. All of our actions regarding our use of cash are aligned with our previously committed priorities, which are funding -- appropriately funding the business, particularly focused on new product innovation, which we're doing, refinancing our long-term debt. We did increase our dividend in April by 25%. And recently, during the second quarter, we resumed our share repurchase program. Turning to Slide 7, you'll see our industry assumptions have changed within the regions as compared to our previous outlook. In North America, we're increasing our industry demand assumption to be up 6% to 8% for the year as we continue to see very positive trends in U.S. housing, as well as pickup in really all segments of the market from a demand perspective. In Europe, we expect now to see flat to minus 2% industry demand for the full year as weak demand environment continues across the Eurozone. And for Brazil and other Latin American countries, we are forecasting a lower but still positive industry growth for the year. Now we see it ranging from 1 -- up 1% to 3%. And finally, we're forecasting the industry to be flat from the prior year in our Asia regions. But in total, given these changes, our overall global industry demand assumption has increased for the year. One last note before we get into our regional and financial results. During the second quarter, we've realigned our senior leadership structure here at Whirlpool. Marc Bitzer now has responsibility for our developed markets, which are North America and Europe, while Mike Todman's focus is on accelerating our growth in emerging markets of Latin America and Asia. These changes reflect the similar nature of the opportunities that we see in different parts of the world, and we are providing the appropriate leadership focus to realize these opportunities. So at this point in time, I'd like to turn over to Marc for his review of North America and European operations. Marc R. Bitzer: Thanks, Jeff, and good morning, everyone. Let me begin on Slide 9 by reviewing North America's performance in the second quarter. Starting with the top line, net sales of $2.6 billion for North America were up 5% for the quarter, driven by higher volumes. Ongoing business operating margins were 10.1% for the quarter, with operating profit of $262 million compared to $186 million in 2012. Higher sales, ongoing cost productivity and cost and capacity reduction benefits continued to be positive drivers in the second quarter, offsetting higher material cost. Overall, our ongoing business operating margins expanded by 2.5 points year-over-year. The consistent and disciplined execution of our actions resulted in the seventh quarter of year-over-year ongoing business operations margin improvement. And we continue to be pleased with our structural improvements in margin and the market's response to our innovative new products. We are comfortable with our structural market share in channels and products that clearly create value as we were able to grow our sales and expand our margins in this quarter. As in the previous quarter, we did not aggressively participate in non-value-creating promotions. Now let me take a moment to talk about our expectations for the rest of the year, as shown on Slide 10. As Jeff indicated earlier, we are increasing our full year industry guidance to up 6% to 8%. Positive trends in U.S. housing continue, including both new construction and existing home sales. In addition, we see demand for replacement purchases, as well as improving consumer confidence. Therefore, we expect continued growth as we progress throughout the year, and we continue to invest in innovative new products. We are seeing the benefit of our cost and capacity reduction initiatives, as well as our ongoing cost productivity programs. And we're focused on growing beyond our core business. I will now talk to the second quarter results for our Europe, Middle East and Africa regions, as shown on Slide 11. As you can see, our results continue to reflect a very challenging market environment in the Eurozone. However, our second quarter sales increased 6% year-over-year to $731 million, driven by higher volumes, and our operating profit improved by $21 million. Higher sales, benefit from cost and capacity reduction initiatives and ongoing cost productivity more than offset higher material cost and foreign currency. Operating margins improved 310 basis points compared to the prior year period. And we will continue to evaluate and take all actions necessary to ensure a profitable position in Europe despite the weak market demand. Turning to Slide 12, you can see just a few examples of our leading innovative products in these 2 regions. The Whirlpool brand 6th Sense induction oven, KitchenAid brand's Pro Line Series 16-cup food processor and the top-rated Maytag Maxima front-loader. Now I'd like to turn it over to Mike for the review of our Latin America and Asia operations. Michael A. Todman: Thanks, Marc. If you turn to Slide 14, you'll see our Latin America second quarter results. Sales, excluding currency and BEFIEX, increased approximately 8% on higher volumes. GAAP operating profit for the quarter totaled $135 million compared to $103 million in the prior year. On an adjusted basis, excluding Brazilian tax credits, our operating profit for the quarter totaled $111 million, up 10% over the prior year. Higher sales and ongoing cost productivity more than offset higher material cost and foreign currency. We continue to drive margin expansion as our ongoing business operating margin increased 0.5 point to 9.3%. On Slide 15, we saw a slowdown in the industry, particularly at the end of June with the unrest in Brazil, so we have slightly lowered our full year industry demand assumption for the region. However, July demand seems to have returned to normal levels. Despite this volatile external environment, we continue to gain market share and expect our business to outperform, resulting in continued strong revenue and earnings growth. We continue to leverage innovative new product launches, execute ongoing cost productivity programs and grow beyond our core businesses. Our second quarter results in the Asia region are shown on Slide 16. Net sales increased during the quarter to $246 million, up from $241 million in the prior year period. Excluding the impact of currency, sales increased approximately 4% on higher volumes. The region's operating profit was $14 million, flat from the prior year, with higher sales mainly due to market share gains and ongoing cost productivity, offset by raw material cost and foreign currency. Slide 17 shows a few examples of how we continue to capitalize on the opportunities for growth with product leadership in Latin America and Asia. For this quarter, we've highlighted the Brastemp brand Ative! Smart Cook range, the Whirlpool Agitronic washing machine and the Whirlpool Ares Combo washer and dryer. Now I'd like to turn it over to Larry Venturelli. Larry M. Venturelli: Thanks, Mike, and good morning, everybody. Our first half results with higher sales and higher margins have us tracking ahead of internal expectations, and as a result, we are raising our full year guidance today. The company continues to manage well through short-term volatility in demand and currencies across the world. Importantly, the underlying fundamentals of the business remain very strong. Turning to Slide 19, you can see we now expect to deliver annual GAAP EPS in the range of $10.05 to $10.55 per share and annual ongoing business operations EPS of $9.50 to $10 per share. Our 2013 free cash flow is now expected to be in the range of $650 million to $700 million. Before I move on, as a reminder, Slides 29 through 36 in the appendix provide you with a reconciliation of our reported GAAP operating profit and EPS to ongoing business operations for 2013 and 2012. On Slide 20, you will note that we continue to drive our margin expansion actions for the first half, driving a 180 basis point improvement in ongoing business operating profit margin. Price/mix was positive for the first half of the year, and we expect to realize 0.5 point for the full year. Our cost and capacity reduction initiatives contributed 1 point, consistent with our full year guidance. Net cost productivity was positive for the first half as our actions more than offset first half material cost inflation of approximately $75 million. Cost productivity is on track to ramp up throughout the year as we continue to deliver higher volumes, fully offsetting $150 million to $200 million of year-over-year material cost inflation. We expect net cost productivity to deliver up to 1 point in margin for 2013. Our increases in marketing, technology and product investments are expected to reduce margins by approximately 1 point for the full year. As we manage all of these margin expansion drivers, we continue to expect to deliver an ongoing business operating profit margin toward the high end of our previous guidance of 6.8% to 7.2%. The combination of revenue growth and margin expansion will lead to a strong second half performance. Moving to the financial summary on Slide 21, overall, our second quarter revenues increased across all regions, driven by higher volumes. Reported net sales were $4.7 billion compared to $4.5 billion last year. Excluding the impact of both currency and BEFIEX, sales were up approximately 6% compared to the prior year. We expect profitable revenue growth to continue throughout the year with increasing demand. Second quarter ongoing business operating profit increased over 50% to $335 million, up from $222 million in the prior year, driven by higher sales, ongoing cost productivity with volume leverage and cost and capacity reductions more than offsetting higher material cost and an unfavorable currency. The graph on Slide 23 illustrates expenses associated with the cost and capacity reduction program. The program continues to do very well. For the full year, we still expect our program expense to be approximately $185 million, and the program remains on track to deliver $175 million of benefit this year. We remain firmly on track to deliver the full $400 million in benefits we previously communicated through 2013. On Slide 24, you can see that our actions are aligned with our cash priorities. We continue to fund the business, which includes capital expenditures. We refinanced our long-term debt and are contributing to our pension. We are returning to shareholders, as evidenced by the 25% increase in our annual dividend announced in April. Now given the strong underlying trends in our business, we recently resumed our share repurchase program and have $320 million remaining under our existing board authorization. Given our free cash flow outlook and strong balance sheet, we are growing our investment capacity, and we'll continue balancing funding for all aspects of our business to ensure the best long-term value creation for our shareholders. Now I'll turn it back over to Jeff. Jeff M. Fettig: Thanks, Larry. Let me be brief in the summary. Turning to Slide 26, we're very pleased with where we are at mid-year. For the quarter, we grew both unit revenues -- units and revenues in every region around the world, and we have strong momentum throughout the business operation. Our margin expansion actions continue to drive strong benefits. We continue to invest in consumer-relevant innovation for our leading global brands. And as you saw, we increased our full year EPS and free cash flow guidance. We also, again, increased our dividend by 25% in April, and as Larry mentioned, we have now reinitiated our share repurchase program. Going forward, we'll continue to take strong actions to do 3 things: one, grow our business; secondly, continue expanding our margins; and third, actions that create value for our shareholders as we deliver on our roadmap for both growth and value creation. So with that, I'd like to stop and open this up for questions.

[Operator Instructions] We'll take our first question from the site of Sam Darkatsh from Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Two primary questions. I'll make them brief. First, it would appear, at least in the second quarter, Jeff, that your price/mix, specifically in North America and Latin America, was down a few percentage points. Could you talk about that specifically in terms of how much was price and how much was mix? And then in the second half, it looks like you're expecting price/mix to be up about 0.5 point, which suggests that it's going to sequentially improve pretty meaningfully. Could you talk about that, if you could? And then I have a quick follow-up. Jeff M. Fettig: Yes, Sam, I would be happy to. In some of the early parts, I think there's some confusion out there on that. Let's first -- I'll have Larry talk about it globally and then have Marc and Mike specifically talk about LAR. We're very pleased with where we are at price/mix. Larry M. Venturelli: Yes, Sam. This is Larry. Let me talk about the margin improvement in the company. So both -- we had both revenue and margin expansion in Q2, very important. If you look at the drivers at the margin for the profit improvement, we were up 2 points, restructuring was about 1 point, productivity was about 2 points, and that was offset by about 0.5 point of material cost inflation. Price/mix at the margin held up very well globally. Jeff M. Fettig: North America? Marc R. Bitzer: Yes. Sam, it's Marc Bitzer. First of all, let me start. We've demonstrated over the past 7 quarters that we balance price, mix and volume in a very value-creating way, and we will continue to do so. When I looked at some of the reports this morning, and to echo what Jeff was saying, we have to structurally differentiate between ASVs, which is based on the ticket value, and the price/mix impact on margins. Now ASVs are impacted by a number of factors such as industry mix, how much we're growing our non-core business, et cetera. But that is different from the impact of price/mix on margins. And actually, the impact of price/mix on margins is way, way lower than what was reported this morning in some of the reports. So otherwise we could not have lifted our operating margins by 2.5 points. So again, the price/mix impact on the margin side is significantly less as would be implied by the ASVs. Michael A. Todman: And Sam, this is Mike Todman. For Latin America, we actually -- it's very similar, if you will, to North America in that the ASV change is very different from the price/mix impact on margins. And so we actually gained share in every category, but we gained share in some of the lower ASV categories more than some of the others. And so that had an impact on the ASV. However, we actually had a year-over-year increase in our price/mix on the margin. So again, just distinguishing between the 2. Jeff M. Fettig: Let me again -- because I think this was a big point of understanding that's important. We're pleased with where we are on price/mix as it impacts the margin. We got to distinguish between ASVs and price/mix. They are 2 different things. For the quarter, we had about a minus 0.5 point price/mix as we define it, and we feel good about our forecast for the year, being up 0.5 point. I'd only add color on 2 other points in our -- parts of the world like Brazil and India are high inflationary areas. We've already announced second half price increases, so we'll benefit from that. And I think the general theme of growing mix through innovative new product launches continues. So hopefully, that clears that up. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: My follow-up question -- it was helpful. I noticed -- this might be a nuance that doesn't really matter, but I noticed that you didn't change the expectation for U.S. energy tax credits for the year, yet you did take the U.S. industry expectations and theoretically, your own also higher. How -- why is that? Larry M. Venturelli: Yes, Sam, I think we said for the program to be about $120 million for the year. Obviously, we took into consideration with that the production that would generate that. That category continues to do well, so I'd say we're still in that range. It could potentially be a little bit higher, but at this point in time, I wouldn't raise it above that. But it could be a little bit higher than that, I think. Jeff M. Fettig: It's always depends on where we are at the year end, production for the balance of the year and year-end inventories is what I'd say. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: All right. So theoretically, the incremental sales volumes that you'd be selling would largely be coming out of inventory as opposed to incremental production? Jeff M. Fettig: Well, we always deplete inventory in the second half of the year, so yes. And again, it's not -- again, it will be based on what we produce by year end. Larry M. Venturelli: And just one other comment on that, Sam. The realization is that those credits are tax assets on the balance sheet. They are noncash this year.

We'll move next to David MacGregor with Longbow Research. David S. MacGregor - Longbow Research LLC: I wonder -- let's see if I can get you to talk a little about Brazil. There's obviously been a lot going on down there. You have the civil unrest that was disruptive to June. If you could talk a little bit about whether we're free and clear of that now and business has normalized. You've got the Mabe bankruptcy. You took your Latin American industry guidance down, but presumably, your share goes up as you pick up listings from that event. And then you've got the renewed stimulus down there, which you can talk a little bit, the impacts of those 3. And with respect to the stimulus, does that hurt you next by driving volumes to the Consul brand as opposed to Brastemp [ph]? Can you just talk about those moving parts and give us a sense of how Brazil plays in the second half for Whirlpool? I'd appreciate it. Jeff M. Fettig: Sure, sure. Well, David, as you mentioned, there was a little bit of unrest, the unrest in Brazil, that had an impact. But primarily, that's been June. You saw it. In the first several weeks of July, we've actually seen a return to more normal industry demand environment. Actually, I would say, first, just to kind of step back, we feel very good about both the medium- and long-term prospects in Brazil because we think the fundamentals are right, and frankly, the penetration levels are still low. In terms of the impact of then some of the other items that you talked about, the stimulus, we've yet to see what impact that that's going to have. Obviously, we assume that it will be positive, and it is likely to be more in the Consul brand than Brastemp. But we also know that a lot of consumers, even in that range, want to be able to go buy and afford the Brastemp brand, so we do expect some positive out of that. In terms of our ability to pick up market share, we've shown in the second quarter that we were able to, with some of the problems in Mabe. And we expect that trend to continue throughout the remainder of the year as we continue to launch some new innovative products into the marketplace. So we're feeling pretty good about our position in Brazil and our ability to grow that business. David S. MacGregor - Longbow Research LLC: So when you talk about the stimulus, you sound relatively tentative. You're saying you haven't really seen much evidence of that yet. You revised your industry guidance to 1% to 3%. Do you not have any of the stimulus in that 1% to 3% for '13 Latin America? Michael A. Todman: No, at this point, we don't because just as in some of the other stimuluses, it's difficult to predict what the impact is going to be on the total industry. So our perspective is right now, we've revised it down just based on the activity that just happened. And at this juncture, we feel good about where we've got it. David S. MacGregor - Longbow Research LLC: Okay. And then do you have any growth in your Latin American listings from the Mabe developments in your guidance? Michael A. Todman: Yes, we have. We have seen some pickup in both listings. And as you can see, we've also seen some pickup in the market share. David S. MacGregor - Longbow Research LLC: Okay. And then just to be clear, the upwards revision to your earnings guidance, $9.50 to $10. Does that include any of the share repurchase activity that you anticipate? Larry M. Venturelli: Yes, David. This is Larry. The increase in our guidance is entirely operationally driven. What we did include in there was the repurchase activity we had in the second quarter, which was about $30 million. So that is what's included within the guidance revision. So again, very largely driven by the revision in industry assumptions and growth, higher end of our margin, and then we are offsetting some unfavorable currency also. David S. MacGregor - Longbow Research LLC: Okay, last question. Just Canada and Mexico within the North American numbers, is there any way you can give us some sense of the delta there sequentially? Marc R. Bitzer: David, it's Marc Bitzer. As you know, we're not breaking down kind of Canada and Mexico. I mean, just what I will try to make as an overall comment is right now, Mexico and Canada follow slightly different market dynamics than U.S. The Mexican market is still down, actually, surprisingly, to a large extent, which obviously impacts us because we report Mexico in the North American region. Canada market's holding up but does not yet show the positive momentum of U.S. David S. MacGregor - Longbow Research LLC: So can you compare that 8.2% growth in U.S. and North America to AHAM 6 and just give us what the apples-to-apples comparison would be? Marc R. Bitzer: David, there's too much other elements it will include because, first of all, you know that T6 will also have a lot of business between what we call T6 and T-12, the non-core business in Mexico and Canada. We typically don't break it down. David S. MacGregor - Longbow Research LLC: Yes, I think people are just trying to make some sense this morning of what the read-through will be from AHAM 6 to that number. Marc R. Bitzer: Now what I can tell you is our overall market share and also market share in T6, I mean, as we said before, we're actually structurally comfortable with our structure and market share position. So if you look at kind of the everyday market share, we're very comfortable. I will be lying if I will tell you that our market share did not drop a little bit over promotion periods, but we're not overly nervous about it. The market share dipped for 2 or 3 weeks. That was exactly around July 4. We did not see this will be any value creating if we would participate in that, and now it's bouncing back.

We'll go next to the line of Eric Bosshard with Cleveland Research. Eric Bosshard - Cleveland Research Company: Two questions. First of all, a little bit of color on the full year guidance. You obviously had a great first half and adding the repurchase, and it looks like you've increased your productivity assumption from the good progress you're making there and the upside in U.S. volumes. And then the increased guide of $0.25, I'm just wondering if you can give a little color on the puts and takes beyond the $0.25 for what looks like is shaking up to be a very good year. Larry M. Venturelli: Yes, sure. I mean, there are really 3 components. We do the math on our industry assumptions. From last time to this time, we would say that we would expect growth in the industry and certainly, our growth to be 1% higher than we originally expected. The second piece of that is if you've seen, our first half margin is very strong. We normally have a seasonality build, and we would expect to show a higher revenue growth in the second half of the year with a higher margin in the second half. And so we're guiding now towards the higher end of that range. And then partially offsetting that, quite frankly, is the unfavorable currency that we've seen. We had -- for instance, we had $25 million or $0.25 a share of currency hit year-over-year in the second quarter. So we've incorporated that in. And as I mentioned before, we have initiated a share repurchase. And the only thing we put into the guidance has been what we repurchased so far, which is $30 million, but largely driven by the strength in the operational performance of the business through the first half. So we've earned about 45% of our annual earnings, which is very consistent with what we would expect the company to earn based on the guidance in the first half relative to the second half. Eric Bosshard - Cleveland Research Company: And then secondly, I'd love the ASV dynamic, I would love to just understand a little bit more if this was a change from what we've seen for the last 4, 6 quarters, especially in North America. And my question is, is this something that should be sustained? Is this something that we're going to see continue? And then related to that, why is this a different dynamic than what we've seen previously? Marc R. Bitzer: Eric, it's Marc Bitzer. Let me just refer to the ASV dynamic as they happened so far. And obviously, we can't comment on future ASV trends. What you see right now, first of all, there's an industry part. As the industry has been showing much more growth momentum than we saw before, the different segments in the industry picked up at different paces. And if you would drill down the details of the T6, and if you even go through certain price segments, there have been quite a bit of different dynamics across the different price segments. And then that's basically just floating through our system. In addition, in our what we call the non-core business, it's a fairly significant portion of our business, and we're driving there higher growth than in the other businesses. That typically comes to higher -- lower ASVs, I'm sorry, but higher margin. So you see also that dynamical flowing through here. So to what extent that extends in the future, we don't know and we can't comment on this one. But I want to reiterate what we said before. We're laser sharply focused on price/mix impact on the margins. We've managed it very well so far in combination with volume, and we will not change the course here. Larry M. Venturelli: And just again, just to build on what Marc said, I mean, the focus here is on growth, which we showed in the first half, and margin expansion at the same time. So hopefully, that answers your question. Jeff M. Fettig: The only other comment I'll make, Eric, is, I mean, again, we've fully anniversaried all of our last-year price increases. So there's been no new like-for-like price increases so far this year. So the real dynamic is mix. Mix, I think, as the market expands, you're going to see growth at every price point. And that can shift a little one way, a little bit another. It's -- we think this is not abnormal. And then a quarter like this quarter, where you had all the last 3 weeks of June shipments for those who promoted 50% off over 4th of July and things like that, that distorted things a little bit. Again, as Marc said, as we have in other activity, normal promotional activities, we were very stable, share and mix through probably middle of June fell off with all these import shipments. And then July, it's quickly rebounded back. So I think it's pretty much consistent with what we've been seeing. Eric Bosshard - Cleveland Research Company: So your reduction and your full year price/mix guidance, if I'm interpreting it right, is just reflective of what happened in June. That's not a "go forward, things are different" type of guidance? Jeff M. Fettig: It's 0.5 point on $19 billion business. So I mean, could it go 3/10 one way or -- yes. It could move -- I mean, last year was so -- we had such positive. We're up 4.5 points [ph] price/mix for the full year, in a year where we took significant price increases around the world. In the developed markets this year, we've not taken price increases. In the inflationary markets, we have taken price increases. So the mix dynamic I don't think is changing at all. Larry M. Venturelli: Yes, and the other important thing to build off what Jeff said is with the volume growth, we start to see the leverage, which is also very positive. Jeff M. Fettig: The other side of this is with a little volume growth in North America, you start to see the power of all the productivity and the lowering of our fixed cost that were taking place over the last 2 years and so on. So the productivity lever is delivering very strong. Larry M. Venturelli: Yes, and the only thing I'd mention on the top line, keep in mind that there's 1 point to 1.5 points of negative currency in the top line when you're looking at the ASVs.

We'll go next to the site of Michael Rehaut with JPMorgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: First question I had was about Europe. Marc, with your expanded responsibilities for that region, obviously, it's been an area where you guys have done a lot of work to get back to profitability, and the region remains very challenging. Is there anything that we should expect in terms of how you're going to approach that region in terms of -- I know you kind of said earlier you continue to look and fix the cost structure. Is that something that we should be expecting in terms of additional actions over the next 2, 3, 4 quarters, to get that back to, perhaps, a mid-single-digit operating margin? And is that kind of your goal over the next year or 2? Marc R. Bitzer: Mike, it's Marc. Let me first start from the tail end of your question. As you know, we don't give a regional guidance on a quarter-by-quarter base, but we do expect Europe to come to breakeven. We can't tell you exactly which quarter, but, I mean, that's, of course, our, I would say, short-term objective, that we get Europe as quick as possible to breakeven or above. Overall, I would say the European marketplace is still very challenging. What impacts us in particular is that our exposure is particular strong in countries which are now impacted the most, and that just hurts us right now. Having said that, we are all convinced that even in the current environment, you can make money in Europe, okay? And that's what we are focused on. When it comes to how we deal with that, it's, I would say, by and large, not too dissimilar with what we've been trying to do in North America the last couple of years. We have to address the fixed cost. If the market demand is not there and probably will not rebound in the short term, we will address fixed cost. We have announced actions already previously. We announced some additional actions to calculate unit [ph] fixed cost. And as I said earlier, we continue to evaluate all actions necessary and possible to address the fixed cost. That's just one part. And of course, we will also manage the price/mix situation very carefully in a value-creating manner. So long story short, despite the market environment, it is our firm expectation to bring Europe back to breakeven as quickly as possible and above breakeven. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Appreciate that. And Larry, a question for you on the share buyback. We noticed that year-to-date, you guys have issued about $60 million worth of shares. I assume through different employee option and other types of programs, and then you repurchased $30 million. How do you think about the share repurchase relative to your overall account? Is this going to be something more to just combat creep, or would you expect, of course, on an opportunistic basis, maybe to get back to the share count that you had in 2012, plus or minus? Larry M. Venturelli: Yes, I think with the current authorization, Michael, mathematically, right now, you'd probably get back to the dilution. So the way we look at this, we're generating much more cash in the second half of the year. And along with other priorities, we'll continue the repurchase program. And then we'll update everyone quarterly as far as where we're at against that. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: When you mean get back to where you were against the dilution, do you mean, like, in the fourth quarter, you're at roughly $80 million, so maybe something back in that neighborhood? Larry M. Venturelli: Yes, I think we had about 2.3 million shares of dilution versus a year ago. And again, if you do the math on the $350 million, you will probably be able to get back there. But I'm not going to give an update on when we'll exhaust that authorization, but we will give you an update each quarter. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Great, I appreciate it. And one last one, if I could. Going back to the North America, the promotional activity, which you guys have appropriately tried to stay out of and been able to hold onto your margin, can you give us a sense of -- any more color around that in terms of -- if that's something that maybe is going to -- do you have any sense if this is going to continue in the back half of the year and what the drivers are of that? Marc R. Bitzer: Mike, it's Marc Bitzer. And obviously I can only comment on the promotions which happened. I cannot and will not give comment on future promotion. First of all, stepping back, just so you know, there's always been promotion in this industry, so there's nothing new about it. The 4th of July promotion environment was actually as we expected, and we early on decided to not participate in a very aggressive manner. I think if you look back at July 4, it's been very evident there have been 2 players who've been very aggressive. That didn't completely surprise us. We decided to not participate because it simply does not create value. So our strategy in promotions have not changed at all, and obviously, I cannot comment on what other competitors will be doing. I mean, we have evaluated in the past how aggressively we going there, and we will probably do that also going forward.

Next to Denise Chai from Bank of America. Denise Chai - BofA Merrill Lynch, Research Division: I just want to know, when we think about your North America pricing, was there -- was the fact that maybe you were making more sales to homebuilders possibly a contributor to the ASV pressure and actually, how much of your sales went to this channel compared to the first quarter of last year. Marc R. Bitzer: Denise, it's Marc Bitzer. It's actually a very good question. The homebuilder has a pretty big impact on the ASVs, and if you would go in the homebuilders, there's even big differences across the different builders in terms of who sells more to the premium segment and who is more the mass segment. Yes, that has an impact on the ASV, among many other factors. So for example, if you have an industry growth which is stronger on mass top-loaders or even in dishwashers, you typically see an ASV impact. So there's a lot of factors floating through here. However, and I want to repeat what I said before, even the segments which I just mentioned, they are margin attractive. So homebuilders segment for us is margin attractive despite maybe a different ASV. Denise Chai - BofA Merrill Lynch, Research Division: Okay, got it. Also, you mentioned that you are now contributing to your pension. So can you give us, perhaps, a sense of the run rate or maybe how long you think it will take to close the gap there? Larry M. Venturelli: Pension is the question? Denise Chai - BofA Merrill Lynch, Research Division: Yes. Larry M. Venturelli: In the U.S., we have about -- at year end, we had a $1.4 billion net liability. So your question is a good question. We are contributing, I believe, $138 million this year, but there's -- another thing you have to also factor in is that interest rates, as you know, have increased. They're probably up close to 80 basis points from when we closed at year end. So if you would expect that rates would maintain at these levels, that would probably be -- it could be a $300 million to $400 million benefit on our net liability. And I'd say going forward, right now, given the current pension legislation, that $138 million is a good estimate going forward. Denise Chai - BofA Merrill Lynch, Research Division: Okay, great. And just one last thing. You mentioned that you're putting up prices in Latin America and Asia due to inflation there. Can you give us a sense of the magnitude? Michael A. Todman: Yes, we've announced the price increases in both regions of 3% to 5% for the second half of the year. Jeff M. Fettig: And then that is as an average. I mean, we evaluate this every month, every quarter based on inflation and currency movement.

The next is Ken Zener. Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: What a big inflection in U.S. demand. So that's the big picture, I think. People are obviously very focused on AHAM versus your units. I think it would, for the broad investment community, to the extent you guys could create an index, let's say, make it 100 at some point in time and just give us an up or down, I think that would be constructive for you guys in terms of getting rid of some of the noise. That's one suggestion I would have. Second, when your AHAM guidance is 6 to 8, in the first quarter, there was a difference between AHAM and demand. Can you give us your view of what that means for demand in both the quarter as well as for the year, or is there a lot of load-in? Marc R. Bitzer: Ken, it's Marc Bitzer. So what you're highlighting is a point which we referred to, I think, in the Q1 earnings call, which was about the inventory build of the retailers. And yes, we did see in Q1, we saw a slight impact of inventory build in the overall AHAM number. It's, of course, difficult to quantify it exactly, but it was probably to the tune of 1 point to 1.5 points of our overall market growth. There has also been, in the period leading up to July 4, some inventory build, which is normal as retailers load for their big promotion. So on a year-to-date base, I would say the 2 factors combined are in the ballpark of about 1 point. So it has an impact. We have a pretty good handle on it, and we factored all these inventory moves into our full year guidance. Jeff M. Fettig: And Ken, I would just add to your point. There's a lot of news coming from different sources about the marketplace. I think your first comment is right that the headline is, is we are seeing, we think, sustainable, profound demand recovery in the U.S. marketplace. Over the last 1.5 years, we've talked about being down 28% from the peak, that we were much lower, under the curve, 30-year growth curve, and never above it. And that someday, this market would recover, particularly housing becoming solid, on a solid foundation and growing, and that we might see double-digit demand growth sometime in the next 3 years. Well, it started sooner than we thought. It is recovering. We think it's sustainable, and we think it's a multiyear recovery. So to your point, that's the big picture. I guess to be candid, all the other stuff for us is -- there's a lot of information. Some retailers get their view what's going on to people covering our stock. There's industry shipment data coming every month, and so there's a lot of short-term reactions on these things. But at the end of the day, we give our guidance for the year, not for the quarter, and this is the clearest picture we see of the year. And we'll continue to update you on what I would call the fundamentals, but we're not going to get into the nitty-gritty market share by product, et cetera, et cetera. Given that it changes, we'll tell you the trends. But again, I would just maybe try to put that all together. We're very positive about demand. We're very positive about our ability to grow in this improving demand market while expanding margins. That is what we think is the value-creating way to do it. And for us, the rest of it is just noise. Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: That's good because I think the -- to the extent there's load-in [ph], I mean, if market share -- there'll be some variance there, but it does get to the fact of 6% to 8%, it looks like 9%, 9.5% volume North America, 3, 4Q on average, is what's required to get to the low end of your 6%, if that's your volume. And it does relate to the margin question to the extent that -- certainly, it's a surprise to see the negative price/mix, but you're discounting what we see -- and putting in that 50 basis point range and not necessarily the 300 price/mix, which gets to the question of how we really should think about the profitability of your business. Because if I do 9% growth 3, 4Q, we see effectively, very similar volume, 3Q from 4Q -- excuse me, 3Q from 2Q, and then a big spike in 4Q. I mean, is it reasonable to think about quarter-over-quarter volumes driving your operating leverage in that 15% leverage? Jeff M. Fettig: Yes, yes. Ken, let me answer it this way. I mean, Ken, we've had 5 years of mostly negative volatility, and we now had 2 quarters of positive upside on demand. You're absolutely right, though. I mean, if Q3 is the same as Q2 or is it accelerating, I don't know. But it could be higher. And as I said before, if the demand is higher, we'll do more. And we are -- but the fundamental proposition is really 3 things. One, higher demand is clearly developing. Two, certainly, for most of our businesses, but certainly, our North America business, more demand volume on a very lean fixed cost base is very good leverage, which you saw on the productivity level in the second quarter. And third, that our price/mix is going to continue to be very good due to our investment in new product innovations. So your basic thinking, I don't argue with at all. For 5 years, it's been hard to forecast it. And so we're just giving you what I call a sound baseline that we based our earnings on. Marc R. Bitzer: Ken, it's Marc Bitzer. Just in addition, echoing what Jeff was saying is, I think, in a lot of discussion, we need to differentiate between structural demand drivers, the structural market position versus promotion and noise, and I would call really promotion noise. We are -- and of course, we're not giving a 2014 guidance, but we're very bullish on the structural demand drivers in North America that is housing, that is replacement, that is consumer confidence. And I've seen the housing starts in June. Yes, they were a little bit positive, but that has not changed at all our view, our very bullish view on the structural demand drivers in North America. Second, our structural market position, in particular, in the contract channel and several of the high end segment is a very good one. So for example, we see very strong growth in our Jenn-Air and KitchenAid business, and we're very bullish about it. In that context, sometimes, the year-round promotion is a little bit overblown, frankly. It does not impact the structural drivers or position. We will always make [indiscernible] if we participate or not. Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division: Excellent. And I guess if I can ask my next question around cash flow, if we just say the 4% to 5% of sales, which will be roughly $1 billion at $20 billion in rev, my understanding is when you talked about buybacks today, and the net benefit of that, it was discussed earlier, but my understanding is roughly 30% of your business cash is coming in the U.S. pre-pension, which obviously reduces the overall amount available for dividends and buybacks. So can you address the bulk of this cash, how you're thinking about the deployment of it, joint venture, buying a company and more -- where you can't be so specific, talk about a pipeline, if you will? Because this is potentially is a major driver of earnings that is not in people's estimates. Larry M. Venturelli: Yes, Ken, it's Larry. I think we've kind of laid down our cash priorities, and return to shareholder is certainly one of those. M&A, we said before, is another one of them. Those are things that we consider. And certainly, that and funding the business are the things that we look at as we deploy cash for the company. As far as cash generating, you are right. At the end of last year, we had a little under 30% of our cash in the U.S., and what's outside the U.S., we look for tax-effective ways to bring that back. So I would say our balance sheet is in good shape. Our forecast of free cash flow is in good shape, and we'll update you as we go along as far as how we're deploying that. Jeff M. Fettig: Okay. Well, thank you. Listen, everyone. Again, just to sum up, we're pleased so far through midpoint of this year. We look forward to deliver a record year of operating results and look forward to talking to you next time. Thank you very much.

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