Chris Conley - Whirlpool Corp. Jeff M. Fettig - Whirlpool Corp. Marc Robert Bitzer - Whirlpool Corp. James Peters - Whirlpool Corp..

Megan McGrath - MKM Partners LLC Sam J. Darkatsh - Raymond James & Associates, Inc. Robert Wetenhall - RBC Capital Markets LLC Kenneth R. Zener - KeyBanc Capital Markets, Inc. Denise Sara Chai - Bank of America Merrill Lynch David S. MacGregor - Longbow Research LLC Alvaro Lacayo - G.research LLC Eric Bosshard - Cleveland Research Co. LLC.

Good morning, and welcome to the Whirlpool Corporation's Third Quarter 2016 Earnings Release Call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the conference over to the Senior Director of Investor Relations, Chris Conley. Please go ahead, sir..

Thank you, and good morning. Welcome to the Whirlpool Corporation Third Quarter 2016 Conference Call. Joining me today are Jeff Fettig, our Chairman and Chief Executive Officer; Marc Bitzer, our President and Chief Operating Officer; and Jim Peters, our Chief Financial Officer.

Our remarks today track with a presentation available on the Investor 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 10-K and our other periodic reports as well as on slide one of the presentation. Turning to slide two, we want to remind you that today's presentation includes non-GAAP measures.

We believe 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 the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations.

Listeners are directed to the supplemental information package posted on our Investor Relations section of our website for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. At this time, all participants are in listen-only mode. Following our prepared remarks, the call will be open for analyst questions.

As a reminder, we ask that participants ask no more than two questions in the first round and time permitting, we will address any follow-up questions after everyone has had a turn. With that, let me turn the call over to Jeff..

Well, good morning, everyone, and thank you for joining us today. As you saw on our press release this morning our operational execution offset some significant external challenges that we saw in the quarter. But we did deliver record results for the third quarter.

During the quarter currency continued to be volatile and negative, and we saw some softness in the appliance demand, most prominently in the UK and the U.S. Despite this volatility we were able to deliver record results and year-to-date our earnings have increased by 18%.

In North America and Latin America, we expanded margins while gaining market share which was done by leveraging our leading brands, launching innovative new products and delivering strong ongoing cost productivity. And finally, consistent with our balanced capital allocation approach we repurchased $100 million of our common stock during the quarter.

Overall, the fundamentals of our business remain strong and we continue to adapt our operating plans in order to deliver strong results. I'll now turn to slide five where you see our third quarter results. Our revenues ex-currency increased slightly.

Our ongoing business earnings grew to a record $3.66 a share and this came through a combination of acquisition synergies, unit volume growth, and ongoing cost productivities. And we improved our free cash flow for the year. Turning to slide six we have an update on the external environment and some of the challenges that we're facing and offsetting.

We have seen what we believe is a temporary softness in industry demand in U.S. particularly you saw it early in the quarter in July and August with some rebound in September. We believe this is due to consumer confidence weakening primarily due to the focus around the U.S. elections. In addition, the promotional environment in the U.S.

has elevated during the quarter, especially in the washing machine category. There, certain import competitors continue to unlawfully dump product and we're responding with continued investment in our strong brands, launching new, innovative products as well as our fair-trade actions.

For the year in Europe our integration is on track and we're delivering cost synergies in line with our plans and our previously-discussed margin recovery actions in Europe are progressing and we do expect to see the positive impact of these actions over the next couple of quarters, somewhat later than we originally thought because we continue to see currency and demand volatility particularly in the UK market.

Overall we expect to deliver a record performance this year with approximately 15% ongoing EPS growth over a half a point of ongoing EBIT margin improvement and good improvement in free cash flow. On slide seven, we've updated our 2016 guidance to reflect these changes.

We now expect to deliver ongoing earnings of $14 to $14.25 a share and to generate approximately $700 million in free cash flow. Turning to slide eight we show our balanced capital allocation approach which has not changed. We continue to appropriately fund our business and expect to invest between $650 million and $700 million in capital this year.

As I mentioned we did repurchase $100 million in share repurchases during the third quarter and we do intend to continue repurchasing stock in the fourth quarter. So in total we remain committed to delivering our long-term value-creation objectives through our operational execution and a balanced approach to capital allocation.

So with that, I'm going to turn it over to Marc Bitzer to review our global operations..

Thanks, Jeff, and good morning, everyone. Turning to slide 10 we will review our performance in North America. Net sales increased 2% versus prior year and grew 3% excluding currency and we expanded our ongoing operating margins to a third quarter record of 12.1%.

Our operating margins were driven by strong ongoing cost productivity programs and unit volume growth which more than offset approximately $25 million in unfavorable currency impact in Canada and Mexico.

During the quarter we gained over a point of market share versus the prior year as consumer demand for our brands and products have continued to be strong. As demonstrated by our performance we remain focused on driving both revenue growth and margin expansion. Turning to slide 11.

I will discuss some external factors affecting our North America region. As Jeff outlined earlier we have seen a temporary slowdown in U.S. supply and industry demand since our last call. We are confident that this dip in consumer discretionary purchases is temporary as consumer confidence has been impacted by the upcoming U.S. election.

We increasingly see solid consumer demand for our strong brands and new products, and expect to continue generating profitable market share gains. However, we have seen an increase in promotional activity in U.S.

especially on washers which corresponds with significant inventory stockpiling by certain competitors at the end of the second quarter who we believe are continuing to unlawfully dump products. This higher promotional intensity had a significant negative impact on our washer margins in the third quarter.

We continue to pursue our fair trade case for washers manufactured in China and anticipate a final ruling in early 2017. Additionally, we have recently announced cost-based price increases primarily on washers to allow us to recover the cost of our investments in new and compelling products.

We expect that these actions along with focus on value-creating promotions and strong productivity programs will offset negative margin impacts from continued dumping by certain competitors. We fully expect to deliver strong results in fourth quarter and remain on track to achieve our long-term goals.

Turning to slide 12, we discuss key drivers of the U.S. appliance industry. The fundamentals underpinning U.S. supply and demand are healthy.

During recent periods we have seen steady growth in key macro indicators including housing starts in both new and existing home sales, as well as improvements to other relevant indicators such as consumer sentiment and unemployment.

While some of the individual monthly data is volatile, the trends overwhelmingly demonstrate strong demand for housing, increasing levels of employment, real wage growth and long-term improvement in consumer sentiment. We've seen 15 consecutive quarters of appliance industry growth in U.S.

and all of these underlying macro trends support continued growth to the U.S. appliance industry in the coming years. As such, we believe that the current industry slowdown is a temporary shift consistent with what we're seeing in the retail environment for household goods and we remain confident that the multiyear cycle of U.S.

demand growth will continue in 2017 and beyond. Turning to slide 13, we outline our 2016 operational expectations for the North America region. We now expect the industry to grow 3% to 4% for the full year. Through the end of the third quarter the industry is up a little over 3.5%.

We continue to expect to grow at or above industry rate with targeted investment in our strong brands and new products as we have done consistently throughout the year. We continue to execute strong cost productivity programs and we remain focused on achieving growth in our adjacent businesses.

We now expect to deliver 11.5% to 12% margin in 2016, an increase over the prior year. Beginning on slide 14 we will review the third quarter results for our Europe, Middle East and Africa regions. Sales were $1.3 billion, down 9% versus prior year.

Excluding the impact of currency, sales were down 6% as we saw demand softness in certain key countries particularly in the UK. Ongoing operating margins were 3.7%. Our margins were negatively affected by approximately $40 million in unfavorable impact in our UK business from a devaluing British pound and softening demand environment.

Turning to slide 15, we provide an update to our previously-deployed actions in Europe. The integration of Indesit continues to be on track and we fully expect to deliver planned cost synergies in the fourth quarter and into 2017.

Consistent with what we've seen since the Brexit decision, currency continues to be a headwind and demand in the UK remained soft, causing our previously-announced cost base price increase to be implemented slower than anticipated. Our platform integration manufacturing transitions remain on track.

However, we reduced manufacturing volumes in response to this lower demand, most of which occurred in the third quarter and we now expect roughly half a point margin impact for the full year. As a result, our margin expansion in Europe is slightly delayed.

In summary, we believe we have the right actions in place to manage through volatility and deliver our long-term goals. On slide 16, our 2016 priorities for the European, Middle East and Africa region remain largely unchanged, with a continued focus on integration activities, ongoing cost productivity and growth from adjacent businesses.

Similar to the third quarter, we plan to manage inventory levels as we continue product and brand transitions in the fourth quarter. Our industry guidance remains flat to up 2% for the full year. We now expect to deliver 4.5% to 5% operating margin for the full year and remain confident in our long-term margin guidance of 8%.

I will now discuss our Latin America results on slide 17. Sales for the quarter were $800 million, an increase of 7%; excluding the impact of currency, sales increased 2%. Our third quarter operating profit totaled $45 million and margin increased 150 basis points versus the prior year.

Despite operating in a challenging demand environment, we expanded margins and delivered strong revenue growth through continued investments in our brands and products.

We gained significant market share while also improving price mix in Brazil and we continue to benefit from substantial fixed cost reduction actions which we began implementing last year. On slide 18, our priorities in Latin America have not changed.

We remain well prepared to manage through volatility as we've done consistently over the past several quarters through cost productivity, significant market share gains, and positive price mix. For a couple quarters now we've been monitoring the difference between sell-in and sell-out volumes in Brazilian markets.

At this time, because we've seen our trade customers build some inventory, we are expecting an inventory correction in the fourth quarter, and as a result we now expect the Brazil industry to be down 10% to 12% for the full year. We now expect to deliver 6.5% to 7% operating margins for the full year.

Now we turn to our third quarter results for the Asia region, which are shown on slide 19. Net sales were $338 million versus $346 million in the prior-year period. Excluding the impact of currency, sales increased 2%. Our ongoing operating profit was $17 million compared to $27 million in the prior-year period.

Ongoing operating margins were 4.9% as continued demand softness and price mix challenges in China more than offset continued record performance in India. Turning to slide 20, you will see our 2016 priorities for Asia. We are focused on marketplace investment, on our core product offerings, driving stronger mix.

The brand transition from Sanyo to Whirlpool is progressing and we are now focused on increasing awareness of the Whirlpool brand. As a result of these actions, we're confident in our ability to deliver our long-term margin goals in the Asia region. Now I'd like to turn it over to Jim Peters..

Thanks, Marc, and good morning, everyone. As Jeff mentioned, we delivered another quarter of record results despite operating in a challenging external environment. Turning to our third quarter results on slide 22, net sales were $5.2 billion.

We achieved record ongoing earnings of $3.66 per share primarily driven by strong delivery of acquisition synergies, unit volume growth, and ongoing cost productivity programs. Currency had a top line impact of approximately $40 million and reduced EBIT margins by approximately one point. Some currencies have strengthened against the U.S.

dollar most notably in Canada and Brazil however, we are hedged at rates more reflective of last year's environment and as such we are not seeing the full benefit of those currencies strengthening in our operating margins.

Our third quarter tax rate was driven by the timing of tax settlements and planning activities and we now expect a 19% tax rate for the full year. Overall we are pleased with our results through the first three quarters of 2016 and are on track to deliver strong full-year results.

On slide 23 we provide an update on the progress of our restructuring and acquisition integration activities. Through the third quarter we have incurred restructuring expenses of $116 million and delivered $165 million in benefits. We continue to expect $200 million in expense and $200 million in benefits for the full year which is ahead of plan.

I will now discuss our expectations for full year EBIT margin expansion on slide 24. As Marc discussed in the regional reviews, we have seen elevated promotional activity in the U.S. since our last call as well as delayed benefits of our previously-announced, cost-based price increases in the UK.

Both had a negative impact on our price mix which we now expect to be flat to slightly negative for the year. We are also slightly reducing our ongoing cost productivity due to the impact of softer global demand on production levels.

As a result of these changes we now expect to deliver approximately 7.5% EBIT margin for the full year, more than half a point expansion over the prior year. On slide 25 we share some details of our free cash flow results and capital allocation actions through the third quarter.

Our free cash flow improved versus prior year, primarily due to improved earnings. We expect full year free cash flow of $700 million which is inclusive of $150 million of restructuring cash outlays and $155 million associated with legacy product warranty actions in EMEA.

Consistent with our strategy we continue to execute a balanced approach to capital allocation by funding the capital needs of our business and returning cash to our shareholders. We have executed $425 million in share repurchases year-to-date and we plan to buyback additional shares in the fourth quarter, consistent with our prior statements.

Turning to slide 26. We are adjusting our full-year guidance as discussed earlier. We are confident in our operational plans and expect to deliver up to 15% growth in ongoing earnings per share and approximately $700 million in free cash flow in 2016. Now I'd like to turn it back over to Jeff..

Thanks, Jim. Turning to slide 20, I'd like to summarize our discussion today. We have deployed strong actions to offset the operating challenges we faced in the third quarter. We do expect to deliver another record year including about a 15% EPS growth and strong free cash flow.

On slide 29 you'll see our long-term value creation strategy which remains unchanged. We are committed to being the best global branded consumer products company in the world. We believe our ability to generate earnings growth and free cash flow is very strong.

We have the leading market positions in three of the four regions out of the world, a very strong platform for our continued growth and our brands are very well-established and reach over 90% of the appliance consumers globally. So we are confident that our strategy will continue to deliver significant value.

Finally, on slide 30 I want to make a few comments on our 2016 operating performance and over a longer period of time. Over the last five years we have delivered record results including – counting 2016 with over 20% annualized earnings EPS growth, despite what I would describe as challenging external environment.

And in the last two years we've absorbed over $6 per share impact from global currencies weakening against U.S. dollar in a very unprecedented manner. Additionally, we've seen significant demand declines in our major emerging markets which are Brazil, Russia and China. This had a $2 impact per share over the last two years.

But within this environment we were able to grow our earnings by 10% in 2015 and we expect to grow them additionally by 15% this year, and all the while driving strong free cash flow. We've used that cash to reinvest in our business, increase our dividend, pay down debt, and buyback nearly $700 million in stock.

Today managing through economic volatility is the new normal and it's part of our everyday operating management system. We believe that we continue to demonstrate our ability to navigate through those challenges and because of that we remain confident in our ability to effectively manage our business in this type of environment.

So in total, we believe we have significant opportunities to continue creating shareholder value going forward. So with that, I'm going to end our formal remarks and we'd like to open it up for questions..

Thank you. We'll take our first question from Megan McGrath with MKM Partners. Please go ahead. Your line is open..

Good morning. Thanks for taking my question. I guess first a little bit of a practical question on the U.S. market. In relation to the washers business, and you indicated, pardon me, that you're going to – you've started cost-based price increases. But you've dealt with this before in the past in terms of this dumping behavior.

How, from a practical perspective, do you implement price increases in an environment where your competitors are lowering their prices aggressively?.

Megan, it's Marc Bitzer. Let me try to answer it – first of all, let me, first talk about what happened in Q3 in washers and what we're going to do about it going forward. First of all, in Q3 as we indicated in our remarks, we saw an increased promotional intensity in particular in washers.

I would say all the other categories have promotion intensity, but nothing earth shattering or surprising from our perspective.

In washers it was more intense, to some extent we were not completely surprised because we saw certain competitors stockpiling a lot of inventory at the end of Q2, and I think, we made a remark on that during the last earnings call. The negative impact on us is kind of twofold if you want to say so.

One, because obviously we cannot and will not participate in certain value-destructing promotions, so of course you lose the volume and thus the leverage on your overall production. Two is a mix element because if you basically have a high end of your range by certain competitors' pulldown very much, you lose a lot of mix.

To be more specific, take a typical front load washer, we have a line structure anywhere from $399 or $499, to $999 – not $399, $499 to $999. If certain competitors bring that down to $599 or even below, it's hard to build a line structure and therefore you lose mix. So we had a twofold negative impact on our business.

What we're going to do about it apart from continue to invest in new product and innovation, which we are announcing to the market, is to yes we have announced certain price increases because we felt that certain price levels just do not reflect the cost investments which we've put behind the product.

These price effects are – cost-based price increases are in effect for January 1. Thirdly, as Jeff also indicated, we are continuing to pursue the antidumping lawsuits. We remain confident in our ability to win on this one.

So, I think, the combination of all these three elements make us believe that we can fully restore our margins in the washer business..

Okay. Thanks. And could you talk a little bit more, your units actually were up nicely in the quarter in North America, so it does look like overall you might have gained share. It sounds like it wasn't in washers. I'm not sure if there was some growth outside the U.S.

Could you talk us through your unit growth a little bit in the quarter?.

Yeah. Megan, it's Marc again. First of all, let me also remind everybody on the call that our unit growth is not exactly reflective of T6 or T7 AM industry numbers. We've said that several times before.

So already on – call it the outside of the T6 or T7 volume, yes, we saw decent growth or solid growth in Canada, Mexico and also in our KitchenAid SDA business which had an above average unit growth, slightly negatively impacted our ASV's but overall helps our margins.

If you peel back the onion and you go back to T6 or T7 units, yes, we saw solid growth in refrigeration, in dishwasher, and also in our kitchen business, the cooking business, but of course in particular in the washer segment our market share progress was not satisfying..

Thank you. Next we'll move to Sam Darkatsh with Raymond James. Please go ahead, your line is open..

Good morning, Jeff, Marc, Jim.

How are you?.

Good, Sam..

Good..

Morning, Sam..

A couple of questions if I could.

Jim, could you help us with the earnings sensitivity of the pound, knowing that it weakened after the quarter? And then talk about, based on the fact that you're seeing maybe increasingly weak demand in the UK, your ability to offset that sort of pressure next year with subsequent price increases?.

Yeah, Sam. And to begin with as I talked about in the script earlier, in that, with the pound right now while we are seeing some weakness to it we still are hedged within the UK, and so we'll continue to see ongoing weakness in the UK.

But as Marc talked about earlier our price increases are now beginning – our previously announced price increases are beginning to take hold. And so I would say that as you look into Q4 we still will have an impact, a deteriorating impact to the pound, but it will begin to more be offset by the price increases at that point..

Sam, it's Marc. Let me maybe also give a little bit more context and color on this one. As we indicated in earlier calls our UK business at the time of the acquisition was roughly about $1 billion. So, it's a very significant business where we have historically a strong market position and a strong above-average operating margin.

If you just look at the pure currency, now Q3 over Q3 last year you basically have roughly 22% decline, so it's been massive. To Jim's earlier point, it has been a little bit moderated because of some hedging programs, but it's still going to – it's massive.

You also need to keep in mind that about 85% to – yeah, roughly 85% of the product which we sell in the UK are imported, or in other words produced on a euro base, so we basically have a full cost base impact on this one. So it's significant.

The $40 million impact which I referred to in the script is related to one, obviously the margin loss because of the high cost-base. And two, we implemented a price increase in September. We started to implement it, and yes, we saw significant volume reduction in the month of September. The combination of these two things were roughly $40 million.

So it's – by definition, it's a massive impact on our operating results in Europe in Q3.

To your question about the price increases and the progress, we had a small price increase in July, where we frankly had a hard time getting full traction, we had a number one September where we've seen the traction on the invoices, but yes, we still have a drag on the volume.

And we expect that drag to also be there through Q4 even though at a slightly lower level..

And again to Marc's point, probably over 95% of all the products sold in the UK are imported, so our view is that the pricing is critical for us to get our margins back, and I think others will have to decide what they're going to do..

In isolation, what's the EPS impact of just the pound for 2017, of where we are right now? Just trying to get a sense of that..

We said in third quarter again without – where you had the impact of the pound and you had the impact of lower demand, cost us basically $40 million, which is roughly $0.40 a share. So it was really big for a quarter. But going forward, two things.

One is the rate that we get our price increase, which we said it would take at least a couple of quarters for us to work this through our system. And to Jim's point, we have our normal hedging process in place which will smooth out some of the volatility, but we haven't felt the whole impact due to that..

Yeah. And, Sam, in our guidance where we talked about a 1-point impact due to currency throughout the year, what we've seen is the weakening of the pound but the strengthening of some other currencies that have offset each other. So we still feel that that is accurate for our full basket of currencies for this year..

Last question before I defer to others, the cash flow guidance was lowered more so at least by my math than the EPS guidance.

Are you drawing down inventories outside – I think you mentioned EMEA, you're drawing down inventories, but where should we anticipate inventories by year-end based on current plans?.

I think if you look at our guidance; again, our free cash flow guidance is more just reflective of the lower earnings. So being at the lower end of our earnings, we went to the lower end of our free cash flow guidance. Again, inventories we think will be relatively consistent year-over-year, so I don't think you're going to see a big change there.

They will come down significantly in the fourth quarter as we talked about and Marc talked about with some of the actions that we are taking..

Great. Thank you. Next we'll move to our Bob Wetenhall with RBC Capital Markets. Please go ahead. Your line is open..

Hi. Good morning..

Hi, Bob..

Thanks for taking my question. Hi, guys, and maybe it's for Jeff. Just start big picture, 2018 you guys have talked about earning $20 to $22 per share and today you were taking down your margin targets for this year or for the full year, and you also reduced cash flow guidance.

Is this kind of a temporary adjustment to the macro environment soft patch in the U.S.

and the UK? Or do you feel that current trends will make it a lot more difficult to get to your long-term EPS targets?.

Bob, again, it really relates to the time it takes us for recovery, as we talked about here. But nothing fundamentally has changed about what I would call our long-term strategic drivers of our earnings and free cash flow potential.

So, the goals we have out there are $23 billion to $24 billion, 9% to 10% EBIT, 5% to 6% free cash flow which would equate roughly to $20 to $22 a share, we still think our global operating model certainly has the capability of delivering that.

What we're dealing with right now, as you saw, is we're dealing with some fairly substantial external shocks that we have taken actions for, and some things like as Marc mentioned the demand in the U.S., we think will right itself in the coming months.

The UK is going to take longer and we've got to see the effect of this elevated promotional scheme in the U.S. So having said all that, I would say that the goals we feel good about. We're assessing the timing of those goals given where we are at this very moment.

In our January call, as we normally do, we'll give our 2017 guidance and provide you with a very thorough update on our long-range goals..

That's helpful. And thanks for giving me a little comfort around those long-term targets.

And maybe you could just drill down, if you try to segregate North America, what part of the headwind was just from increased promotional activity? And what part was due to general consumer weakness? It does seem like the consumer is freaked out a little bit around the election.

Do you think that's a transitory thing? And since the end of the quarter, just looking at your shipments do you feel the consumer is back in action and this is really just a lull in demand that will self-correct? Or is this something more like a change in the trajectory of what you anticipated?.

Hey, Bob. It's Marc. Let me just try to take it. First of all, in Q3 we still expanded margins in North America, so we moved from 12.0% to 12.1%. Having said that, it's obvious that a stronger environment and less promotion pressure our margin expansion would have been significantly different. That's very obvious.

So to your first question about the consumer demand, to some extent it's, of course, a little bit speculative answer, but we do see consumer span of attention right now shifting towards other topics and discretionary demand and ultimately, yes, we see what we think is a temporary softness of consumer confidence.

As you know, in our product in particular discretionary demand is largely driven by consumer confidence. Will that improve and recover after November 8? Probably not immediately, not the next day, but over time we expect to do so.

If you also look at the fundamentals and that what we've included in the presentation, the script, the fundamentals of the housing market are 100% intact. You can look at it from whatever angle, we just don't see a slowdown of a cycle.

So in the broader scheme of things, we see the consumer sentiment right now being of a very temporary nature and we do see a full recovery in 2017..

Thank you. Next we'll move to Ken Zener with KeyBanc Capital. Please go ahead. Your line is open..

Morning, gentlemen..

Morning, Ken..

Morning..

So a lot of different pieces moving here. I wonder if I could focus Europe on the margin reduction from the second quarter, roughly 100 bps times your sales would imply closer to a $50 million EBIT headwind or $0.50. And in the U.S.

your 50 bps margin reduction on that revenue base is roughly at $50 million EBIT, yet you didn't fully take down earnings as much as that margin reduction times sales would imply.

First question, not to be too positive here, but what is the offset to that margin times sales, which is a drag? Because it seems in your margin guidance you're actually getting a little less productivity..

If you look at our overall EPS guidance in that, and again it didn't come down at the same level, you did see as I highlighted earlier, a slightly better tax rate than we had before and that is compensating for some of the earnings offset there. Again, I think that's probably the biggest driver of the offset..

And the only other thing, Ken, is obviously with the changes that we're dealing with, we really have a strong handle on fixed costs and so on, so we've also probably reduced some corporate overhead costs, but tax and corporate overhead are basically the offsets to that..

Okay. Appreciate it, guys.

Now just to get into the operational component, for the European 100 bps, can you isolate that relative to the – how much is this pound versus core market or your execution? And obviously there's price lags, but how much of that reduction is associated with the pound?.

we had a temporary slowdown in U.S. demand, we had a promotional environment in washers, and the Brexit-related impact. We don't have any other issues going on; these three. By definition, some of that drag we expect also in Q4 even to a less extent. So we do see a slight recovery of U.S. demand in Q4, not as bad as in Q3.

The promotional environment in U.S. it's probably going to last in Q4 but not beyond. The U.K. will be less but still somewhat impact in Q4, so that's from a macro level.

Now specifically to Europe, when you basically take the $40 million which I referred to earlier Brexit related, that is the entire or almost more than entire year-over-year drop, or in other words, we continue to make excellent progress on the cost take-out related to integration and the synergies, but it's been entirely offset by the impact which we had in the UK, and that's obviously been very impactful.

Whether that be also impacted in Q4? Yes, but to a lesser extent..

Great. Thank you. Next we'll move to Denise Chai with Bank of America Merrill Lynch. Please go ahead. Your line is open..

Great. Thank you. So just picking up on what you were saying just now, Marc, you said that the promotional environment in the U.S. would last through the fourth quarter but not beyond.

Can you comment on how washing machine inventories look at this point? Is there still an overhang heading into the fourth quarter? Or what gives you confidence that we'll see the promotional environment improve?.

Denise, it's Marc. Particularly on the question of inventory, there's two aspects which we need to look at. One is what is the likely inventory level of certain competitors? We knew coming into the quarter there has been a massive stockpiling coming in....

And that was evidenced by the Department of Commerce findings..

Yeah. So we do think but we don't have certainty that the large amount of that inventory has been literally burned through now. So there will still be some old inventory overhang into Q4. Now the other side of the equation is trade inventories. We do believe that the trade inventory was slightly low coming into Q4 or at the level ending Q3.

So it's not a massive impact, but we would expect, at least from our perspective, the trade inventories on Whirlpool brand, the Whirlpool Corporation brand of products to be 100,000 units to 150,000 units below where it would have been last year..

Okay. Great. Thanks.

And I know that your Q is going to be out later this afternoon, but could you talk a little bit about just directionally how gross margin was in each market and also if there was anything unusual in SG&A this quarter that we should be aware of?.

So if you look at gross margin across the globe, what you'll see is it's relatively flat compared to prior year, and it's in line with their where our operating profit is.

And so even if you break it down by the various regions, what you're going to see is that the change in gross margin is very similar to what you see in the change in operating profit today. So without going through the individual ones that's what you'll see, and I think Marc has already talked about the drivers..

Great. Thank you. Next we'll move to David MacGregor with Longbow Research. Please go ahead. Your line is open..

Yes. Good morning, everyone..

Good morning, Dave..

Just first question, I've got a couple questions for you, first is just on raw materials and if we saw some inflation this quarter, and how we should think about raw material cost inflation for 4Q?.

Dave, this is Jeff. No, actually I think, as we progress through the year through contracts or hedging or whatever, we're pretty stable in terms of the improvements that we saw for the full year in raw materials. So I wouldn't say there's any material change.

There will be less, as we indicated I think in the last call, that the second half although improving, because we're going against the year-ago base will be less of an improvement versus last year, but it will still be positive.

And then looking forward, there's a lot of moving parts, but I don't see anything in the environment that's extraordinarily unusual at this point in time. We're pretty locked in for 2016. We're still working on 2017, which we'll talk about in January, but for now I'd say it's stable..

Okay. The second question I guess the situation this quarter frames up the challenges you faced in trying to defend or gain share in a competitive space.

I guess my question is, how are you thinking these days about the possibility of substantially increasing your investment in innovation and also driving productivity on the current level of investment by holding your new product development organization accountable for a higher hit rate?.

Yeah. Well, we are investing very strongly for innovation. I think we've never been in a better spot in terms of the rate of innovation that we're bringing to marketplace. This is a globally competitive business.

Productivity is always strongly part of our global operating system, and when there's opportunities to see raw material costs, new product (40:06) and so on, we can deliver very strong productivity as we are right now.

Now, having said that, we've seen, and as you mentioned certain competitors who, in our case, in the case of washing, we believe strongly are dumping imports in the U.S. market and that's why we also are using our global trade mechanisms to try to address this situation.

But you should expect more innovation from us, you should expect ongoing productivity from us, and again, as I said before, we believe in earning market share, not buying market share..

Great. Thank you. Next we'll move to Michael Rehaut with JPMorgan. Please go ahead. Your line is open..

Hi. This is Neil (40:57) on for Mike. I appreciate the discussion around price increases and recent promotional activity, but maybe you could add a bit more color on how you see the elasticity trending, so that's both in the consumer and retail channels.

So it's obviously early to talk about 2017 raw materials, but how do you think the market could receive those higher prices?.

We've talked about this in the past. At the current prices, we're talking about there's no elasticity. The consumers are in the marketplace probably every 10 years for a product, the reference points is whatever they happen to look at this week online.

They have a budget, and whether it's a $399 washer or $1,499 washer, we offer models at every price point. So, again, I don't really believe in the case of the U.S. it has any impact at the levels that we're talking about on demand..

It's Marc. Just to clarify what Jeff was referring to. There is no price elasticity on U.S. industry demand perspective, i.e. you come down on prices, it doesn't change anything on our 2016 or 2017 industry guidance. There is, however, a short-term impact if somebody else promotes a front-load washer at $499, while our range starts at $699.

Of course, you feel that and that is what we referred to..

Okay. That's helpful. And I guess there have been some misconceptions around Haier-GE.

Do you see the industry a little more competitive with GE's business under Haier ownership or is it more of a continuation of being a strong competitor?.

It's Marc. So, first of all, it's obviously hard for us to comment on any competitor, because we don't talk to them. In simple terms, first of all, you've got to bear in mind the integration is still fairly fresh and so it's been just one or slightly more than a quarter behind it. And so far I don't see any different behavior.

GE has been a very tough competitor, and I think they will continue to be that. So we don't see a massive change in their behavior contrary to what sometimes has been speculated about..

Thank you. Next we'll move to Alvaro Lacayo with Gabelli & Company. Please go ahead, your line is open..

Good morning. I just had a question on North America. I saw the volumes were very nice but from a price/mix standpoint, maybe if you could provide a little bit more color on the moving pieces. I know that FX had I think about 1 point of an impact, then you talked about product launches and what's going on with washers.

But are there any other elements that are dragging on mix given that you've had all of these product launches? And I would expect some positive price/mix?.

Yeah, it's Marc again. So let me maybe just give a little bit perspective. Of course, first of all, in our unit numbers there's a lot of moving pieces. There's Canada, Mexico, there's different currency elements.

Having said that, if you want to pinpoint two elements which explain a slight ASV decline, average sales value decline, is one is what we related to earlier is the promotion intensity in washers.

And two, yes, we had a higher KitchenAid, small domestic appliance growth quite a bit above our average unit growth in the region, which negatively impacts the average sales value, but knowing that it's a very strong margin product it helps our profitability..

Great.

And then just on cadence for share repurchases in Q4, how much of that is thought about in terms of the updated guidance? And has there been any incremental share repurchases between 9/30 and today?.

Again, we don't comment on specific amounts of forward-looking share purchase. All we've said is we intend to continue to buy back shares in the fourth quarter and again our guidance is reflective of the share count that we are at today..

And we don't buy back shares during our quiet period..

Great. Thank you. Next we'll move to Eric Bosshard with Cleveland Research. Please go ahead. Your line is open..

Thanks. Two questions for you. First of all, on the market share and I hear the comment that KitchenAid small appliances had a good quarter.

Can you just give us some context of your growth relative to AHAM 6 flat in the quarter? Just trying to gauge a more accurate evaluation of your market share gains because it doesn't sound like the seven versus zero is the right compare? And then secondly, curious Jeff as you think about the benefit from the antidumping ruling coming in January, how we should be thinking about how that might influence the industry and your performance in 2017?.

Eric, it's Marc. Let me first try to answer from a share perspective. Overall, as we commented earlier, we roughly had a 1 point of share growth year-over-year. That is, of course, the result of moving different elements. First of all, if we split by product, our washer market share gain has not been there.

Actually, year-over-year it's been disappointing. Having said that, that also means in refrigeration, dishwashing and cooking we had almost more than 1 share point of growth, so that was actually very satisfying. Then you have your other component which is the branded versus non-branded part of our sales.

As you can imagine, when the not owned brand piece which is largely for big customer that has been coming down year-over-year while the branded piece has seen very strong growth in the entire Q3..

Eric, regarding the antidumping, first of all just a reminder on the process, in December it's expected the Department of Commerce will establish the final tariffs. And you may remember the preliminary tariffs were over 50% for one competitor and over 100% for another one. So they're substantial. So that will happen in December.

And then the ITC will make the final ruling on that dumping has caused injury to the washer business in the U.S. and we expect that ruling in January. So at that point in time and we do assume we're going to be successful here, then those competitors will either have to pay really high tariffs or they'll have to do something else.

And at the same time, and again I don't want to overemphasize this, but as Marc said, I mean, we had one competitor in the second quarter ship in months and months of supply in advance of trying to, as the DoC ruled, beat the cash deposits.

And unloading that inventory in the third and perhaps part of the fourth quarter has been a real strain on the operating margins and has caused a lot of injury to the washing business. So basically, I, again, I can't speak what competitors are going to do. I know we're going to run our business in an economical way.

We're going to earn our market share through great products but we fully expect to make positive margins on them as well..

Okay. Thank you..

Thank you. We'll take a follow-up question from Ken Zener with KeyBanc Capital. Please go ahead. Your line is open..

Thank you, gentlemen. Given your view that the U.S. trends are temporary, Marc, what would lead you to think that it's not temporary I guess? I mean I saw the macro slide that you guys have in your deck, but what variables would lead you to think that things are kind of slowing versus these long-term rates that you look at for the U.S.

market specifically? Thank you very much..

Ken, it's Marc. Again, if you look at the fundamentals and first of all, on demand trends of housing, housing formation is intact, unemployment is getting better, income is finally arriving in middle and lower income levels, so you have a lot of – and mortgages and affordability is still very positive, so you have a lot of positive entrants there.

We always argued for last three years and I would still argue, entire, call it, housing boom has been a little bit constrained by the supply side.

There has not been enough developed lots, there have been issues about getting enough construction workers, there has been a severe supply constraint which also explains a little bit why the house prices came up so quickly. So that was the constraint which we slowly start see easing but not at a rapid pace.

So if you want to find any negatives, which could impact that, you can put up theories and of course if the Fed rates would come up too fast, too quickly that could have an impact, I don't think that's likely but I don't know.

But outside of this one, you would have to find any macroeconomic shocks outside the housing industry and appliance industry which could impact consumer confidence..

Ken, I would just add as Marc went through the fundamentals of appliance demand, all are still very strong and we think will be for some time. If you look at the trends, it was an odd trend. The first half was up 5% and July, August were down about 5%, that's a 10-point swing. You don't see that very often.

And then we look at other household product categories and we saw similar trends. So I think most of the data suggests that the consumer got cautious. Typically, that doesn't last for long periods of time, particularly when there's certainty ahead and that's why we have confidence we'll continue to see growth..

Great. Thank you. Next we'll move to Denise Chai with Bank of America Merrill Lynch. Please go ahead. Your line is open..

Thank you.

Could you tell us why you've lowered your CapEx guidance? Will some of those projects move to next year or is it currency or something else?.

Yeah, Denise, I wouldn't consider that a big change, it's just the timing of certain projects. When we started them, all the major innovation that we expected to get out this year we are. Obviously, we're managing things tightly, but we're certainly not cutting back on anything that we're bringing in the marketplace.

We've got a full pipeline ready for 2017. So this is just probably more timing than anything else..

Got it. Thanks.

And then could you talk a little bit more about European demand ex the UK? I mean if you just isolate the UK, how much were volumes down compared to the rest of Europe? And generally, how has the UK trended since Brexit?.

Denise, it's Marc. So first of all, let's differentiate overall industry trends from our own demand which we see.

I would say overall the European market and we don't yet have a final sell-in data for Europe, I would expect them to be closer to 2%, we already indicated 0% to 2% for full year and in Q3 I would expect it right now somewhere between 1.5% and 2% but it's too early because we don't have the final data.

Also, on the full-year basis I would say the entire European market still in 0% to 2%, probably ending closer to 2%. So the fundamentals of demand in Europe are not that horrible, it's the currency which impacts a lot. If you kind of peel back the onion, of course there's a lot of moving pieces.

I think first the most promising sign going forward, we start seeing some recovery in Russia and Ukraine. That's an early sign, but with the Indesit acquisition, we're very exposed to both UK and Russia and right now both markets very soft from currency and demand.

But we see Russia slowly coming back and now it's too early to yet call it a recovery, but I would say the early signs have been promising.

Now specific to our demand, for us the UK markets did better as a market than we saw in our demand that is directly related to us coming out with prices increase in September, which the rest of the industry did not fully follow, and that impacted our demand, that's a particular impact. Outside the UK I would say by and large, our demand is solid.

Probably the only other exception will be Middle East and Africa which is still impacted by a lot of uncertainty demand in that entire space..

Thank you. Next, we'll move to David MacGregor with Longbow Research. Please go ahead. Your line is open..

Yes. Thanks for taking the question. Jeff, you made a passing reference to the weaker private label business, JCPenney has entered the market, you were kind of conspicuous by your absence there.

What's the thought process around potentially partnering up with them and what that might look like from a timing standpoint?.

David, it's Marc. So yes, I referred to year-over-year down volume on the private label side of the business, that is true. Not entirely surprising, consistent with prior trends, more than offset in our branded business, so Whirlpool, Maytag, KitchenAid, are all going extremely well.

JCPenney, as we discussed earlier, we monitor them, we still consider it a pilot. It's not yet proven to be in our view fully successful and we will see, but we will monitor it and we always said we will ultimately have our brands where we believe the consumer distribution, consumer demand will be.

So this is not a final call or decision, we're monitoring it..

Okay. Well, listen, we're going to conclude the call here. Thank you for joining us. Thank you for the questions, and we look forward to updating you in January..

Thank you. This does conclude today's conference. You may disconnect at any time, and please have a great day..