Whirlpool Earnings Call Insights: Regional Price Mixes and Brazil Outlook

Whirlpool Corporation (NYSE:WHR) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Regional Price Mixes

Sam Darkatsh – Raymond James & Associates, Inc.: 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 expecting price mix to be up about 0.5 point, which suggest 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 – Chairman and CEO: Yeah. Sam. We would be happy to on some of their reports. I think there is some confusion out there on that. Let’s first off, let Larry talk about globally and then Marc and Mike specifically talk about (LAR) and we’re very pleased with where we are especially.

Larry Venturelli – EVP and CFO: Let me talk about the margin improvement in the Company. So, both, we have both revenue and margin expansions 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 expect. Price/mix at the margin held up very well globally.

Sam Darkatsh – Raymond James & Associates, Inc.: North America?

Marc Bitzer – President, North America: First of all, also le met start, we’ve demonstrated over the past seven quarter that we balanced price/mix and volume in a very value creating ways and we will continue to do so. When I look at some of the reports this morning, to Echo what Jeff was saying, we have to structurally differentiate between ASCs to pay for the ticket value and the price/mix impact on margins. Now ASVs are impacted by number of factors such as the industry mix, how much we’re rolling our non-core business, etcetera. That is different from impact of price/mix on margin. And actually impact of price/mix on margins is way, way lower than what was reported this morning in terms of reports. So, otherwise we could not have lifted our operating margins by 2.5 points. So, again the price mix impact from the margin side is significant less as it would be impacted by the ASV.

Michael A. Todman – President, Whirlpool International: Sam, this is Mike Todman. For Latin America we actually have – it’s very similar if you look 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 margins, so again just distinguishing between the two.

Jeff M. Fettig – Chairman and CEO: Let me begin, because I think this was a big point of understanding that’s important. We are pleased with where we are on price mix as it impacts the margin. We got to distinguish between ASVs and price mix. They are two 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 had to cover on two other points in our – parts of the world like Brazil and India, our high inflationary areas, we have already announced second half price increases, so we will benefit from that. I think the general theme of growing mix through innovated new product launches continues. So hopefully that clears that up…

Sam Darkatsh – Raymond James & Associates, Inc.: My follow-up question – thank you for that color by the way was helpful. I noticed that – 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 – what – why is that?

Marc Bitzer – President, North America: Yes. I think we said for the program 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 would say we are still in that range, but could potentially be a little bit higher but at this point in time I wouldn’t raise it about that, but it could be a little bit higher than that by the end of the year.

Jeff M. Fettig – Chairman and CEO: (It’s always been our theory) production for the balance of the year and year end inventories as well.

Sam Darkatsh – Raymond James & Associates, Inc.: So theoretically the incremental sales volumes that you would be selling would largely be coming out of inventory as opposed to incremental production?

Jeff M. Fettig – Chairman and CEO: 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 Venturelli – EVP and CFO: Just one other comment on that, Sam, the realization is that those credits – our tax assets on the balance sheet, they are non-cash this year.

Brazil Outlook

David MacGregor – Longbow Research, LLC: I wonder, if you could just talk a little Brazil. There has 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 are really clear of that now and business has normalized. You have got the (indiscernible) bankruptcy. In terms of a, your Latin American industry guidance down, but presumably your share goes up as you pick up those things from that event. Then you got the renewed stimulus down there, which if you could talk a little bit, the impacts of those three and with respect to the stimulus there is a perk in by driving volumes to the console brand as opposed to (indiscernible). If you could just talk about those moving parts to give us a sense of how Brazil plays in the second half. I would appreciate?

Michael A. Todman – President, Whirlpool International: Sure. Well, David, as you’ve mentioned, there was a little bit of unrest, the unrest in Brazil that had an impact, but primarily that that’s been in June and we saw in the first several weeks of July, we’ve actually seen a return to a more normal industry demand environment. Actually, I would say, first to just 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 them, some of the other items that you talk about, the stimulus we are yet to see, what impact that that’s going to have. Obviously, we assume that it would 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 will want to be able to go buy in the forward in the Brastemp brands, so we do expect some positive out of that. In terms of our ability to pick up market share, we’ve show 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 MacGregor – Longbow Research, LLC: So when you talk about the stimulus, you sound relatively tentative, you are saying you have really seen much evidence of that yet. Here like your industry guidance of 1% to 3%, do you not have any of the stimulus in that 1% to 3% for ’13 (LatAm)?

Michael A. Todman – President, Whirlpool International: At this point we don’t because if there is in some of the other stimuluses, it’s difficult to predict what the impact is going to be on the total industry. So, you know our perspective is right now, we’ve revived it down just based on the activity that just happened. And at this juncture, we feel good about where we’ve got it…

David 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 – President, Whirlpool International: We have seen some pickup in both listings, and as you can see we’ve also seen some pickup in our market share.

David MacGregor – Longbow Research, LLC: Then just to be clear, the upwards revisions to your earnings guidance $9.50 to $10, does that include any of the share repurchase activity, the interest rate.

Larry Venturelli – EVP and CFO: 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. This 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, the higher end of our margin and then we are offsetting some unfavorable currency also.

David MacGregor – Longbow Research, LLC: Last question just Canada, Mexico, within the North American numbers, is there any way you can give us some sense of the delta there culture there sequentially?

Marc Bitzer – President, North America: As you know we are not breaking down the kind of the Mexico piece. I can make as an overall comment is, right now Mexico and Canada follow a slightly different dynamics than U.S. The Mexican market is still down actually surprisingly to a large extent which obviously impacts us and because we report Mexican and North American regions. Canada as a market is holding up but does not yet show (indiscernible) momentum of U.S…

David MacGregor – Longbow Research, LLC: So can you compare that 8.2% growth in units to North America to AHAM-6 and just give us what the apples-to-apples comparison would be?

Marc Bitzer – President, North America: David there is too much other element flows (improved), because first of all that’s T6. We also have a lot of business between what we call T6 and T12, a non-core business (indiscernible) which we typically don’t break down.

David MacGregor – Longbow Research, LLC: Yes. I think people are just trying to make some sense this morning of what the (indiscernible) would be from AHAM-6 to that number?

Marc Bitzer – President, North America: What I can tell you is our overall market share also market share in T6, I mean as we have said before, we are at structurally – comfortable with our structural market share position. If so, if you look at kind of the everyday market share, we are very comfortable. I would be lying if I don’t tell you, but our market share did not a little bit over promotion periods, but we are not overly nervous about it. The market share dipped for two or three weeks that was exactly around July 4th. We did not feel that it would be any value creating if we would (indiscernible) and now it’s bouncing back.

A Closer Look: Whirlpool Earnings Cheat Sheet>>