Q1 2021 Whirlpool Corp Earnings Call

Good morning, and welcome to the Whirlpool Corporation's first quarter 2021 earnings conference call.

Today's call is being recorded for opening remarks, and introductions I would like to turn the call over to senior director of Investor Relations Roxanne Warner.

Thank you and welcome to our first quarter 'twenty 'twenty, One conference School Joe.

Joining me to be Marc Bitzer, our chairman and Chief Executive Officer, Joe and Jim Peters, Our Chief Financial Officer.

Although remax city truck with a presentation available on the investors section of our website at Whirlpool Corp Dot com.

Before we begin I'll 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 turnkey and other periodic reports.

We also 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 results from our ongoing business operations.

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

Listeners are directed to the supplemental information package posted on the 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 a 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 with that I'll turn the call over to Marc.

Thanks, Roxanne and good morning, everyone before we discuss our first quarter business results I'd like to take a moment to discuss the volatile industry dynamics and our decisive response plan.

In the first quarter global semiconductors, and RASM shortages amplified existing supply constraints.

<unk> impacted our product availability.

River, we are faced with rapidly rising inflationary pressures, primarily in steel and resins.

To address these issues, we swiftly responded with necessary actions to protect margins and product availability.

We announced significant cost based price increase in various countries across the globe ranging from five to 12 per cent.

Additionally, we reset our supply chain model to constraint driven logic constantly adjusted production based on component availability.

I strongly believe that we have the right actions in place to protect our operating margins. These actions propelled our Q1 results and give us high confidence to significantly increase our full year ongoing earnings per share guidance by 18% to a range of $22 50 to $23 50.

Now turning to our first quarter highlights on slide five.

We delivered strong revenue growth of 24% driven by sustained consumer demand and previously announced cost based pricing actions.

Additionally, we delivered record ongoing EBIT margin of $12 four per cent, the third consecutive quarter of double digit margins.

We generated positive free cash flow per $132 million as a result of strong earnings and lower working capital levels.

Lastly, we successfully delivered on our long term gross debt leverage target of two times.

Turning to slide six we show the drivers of our first quarter EBIT margin.

This mix delivered 575 basis point of margin expansion, driven by reduced promotions and previously announced cost based pricing benefits.

Additionally, we delivered margin improvement of 375 basis points from net cost related to a carryover impact of structural cost take out actions and higher volumes as we begin to compare against the impact of COVID-19 in the prior year.

These margin benefits were partially offset by raw material inflation, particularly steel and resins, resulting in an unfavorable impact of 225 basis points.

Lastly increased investments in marketing and technology and continued currency devaluation Latin America impacted margins by a combined 125 basis points.

Overall, we're very pleased to be delivering on our long term EBIT margin commitment and we're confident with positive momentum will continue to drive outstanding results throughout 2021.

And now I'll turn it over to Jim to review our regional results.

Thanks, Marc and good morning, everyone turning to slide eight I'll review, our first quarter regional results in North America, we delivered 20% revenue growth driven by continued strong consumer demand in the region.

Additionally, we delivered another quarter of record EBIT margin driven by strong volume growth and the flawless execution of our go to market actions.

Lastly, we continue to optimize our supply chain operations, resulting in modest sequential share gains.

The region's outstanding results continued to demonstrate the fundamental strength and agility of our business model.

Turning to slide nine I'll review, our first quarter results for our Europe, Middle East and Africa region.

Strong demand and share gains in key countries drove a third consecutive quarter of double digit revenue growth in the region.

Additionally, the region delivered year over year EBIT improvement of $36 million led by increased revenue and strong cost takeout.

These results again demonstrate the effectiveness of our ongoing strategic actions.

Turning to slide 10, I'll review, our first quarter results for our Latin America region.

Net sales increased 18% with revenue growth, excluding currency of 35% led by strong demand across Brazil and Mexico.

The region delivered very strong EBIT margins of eight 5% with continued strong demand and the early impact of cost based pricing actions offsetting significant currency devaluation.

Turning to slide 11, I'll review, our first quarter results for our Asia region.

In Asia, we delivered strong year over year net sales growth led by demand across the region and share gains in China.

Additionally, we delivered significant EBIT expansion across both India, and China led by go to market and continued cost productivity actions. However, uncertainty remains as COVID-19 cases continued to surge in India.

Turning to slide 13, Marc and I will discuss our revised full year 2021 guidance I will now turn it over to Marc to begin.

Thanks, Tim.

So while macroeconomic environment remains uncertain, we are confident with sustained strong consumer demand and our previously announced cost based pricing actions will offset the impact of global supply constraints and rising input costs.

We are raising our guidance for net sales growth from 6% to now 13%.

And EBIT margin from 9% to now approximately 10%.

In addition, with higher earnings we now expect to deliver free cash flow of approximately 125 billion.

Instead of $1 billion.

Finally, we're also raising our EPS guidance significantly to $22 50 to $23 50, a year over year increase of 25%.

Turning to slide 14, we show the drivers of our revised EBIT margin guidance, we expect 600 basis points of margin expansion driven by price mix as we continue to be disciplined in our go to market strategy and capture the benefits of our previously announced cost based pricing actions.

We continue to forecast net cost take outs to favorably impact margins by 150 basis points as we realize the carryover benefits of our 2020 cost reduction program and ongoing cost initiatives.

The global material cost inflation in particular in steel and resins will negatively impact our business by about $1 billion.

We expect cost increases to peak in the third quarter.

Increased investments in marketing and technology and unfavorable currency, primarily net in America are expected to impact margins by 75 basis points each.

Overall based on our track record we are confident in our ability to navigate this uncertain environment and deliver approximately 10% EBIT margin now.

Now I will turn it over to Jim to highlight our regional industry and EBIT margin expectations.

Thanks Marc.

Turning to slide 15, we show our updated industry and regional EBIT guidance for the year, we have slightly increased our global industry expectation to 5%, reflecting the demand strength in North America.

We have updated the EBIT guidance of our North America, and Latin America regions to reflect the benefits of pricing actions and continued demand strength. This brings our EBIT guidance for North America to 15, 5% and Latin America to approximately 8%.

Lastly in March Golan launched its formal partial tender offer for a majority stake in whirlpool China.

Our EBIT guidance for Asia assumes galanis partial tender offer is successfully closed in the second quarter.

Based on this assumption, we would expect to see approximately seven months of Whirlpool, China revenue and EBIT removed from the region's results.

This is approximately $300 million in net sales and approximately $15 million of EBIT loss.

With the deconsolidation of Whirlpool, China business and continuation of our profitable India business, we anticipate an increase in Asia as EBIT margin to 5% plus.

Turning to slide 16, we will discuss the drivers of our 2021 free cash flow.

With expectations for stronger top line growth and improved EBIT margins, we increased our cash earnings guidance by $250 million from a working capital perspective, we expect to see inventory build throughout the year as we compare against record low levels in 2020, and unlock bottlenecks in our supply chain.

Lastly, we now expect $150 million from the sale of a majority of our shares and Whirlpool China. In addition to the continued optimization of our real estate portfolio.

Overall, we now expect to drive free cash flow of approximately $1 two 5 billion.

Or five 7% of sales in line with our long term goal of 6%.

Turning to slide 17, we provide an update on our capital allocation priorities for 2021.

We continue to expect to invest over $1 billion in capital expenditures and research and development, highlighting our commitment to driving innovation and growth in the future.

Additionally, with a clear focus on returning strong levels of cash to shareholders, we increased our dividend for the ninth consecutive year.

Also we have increased our share buyback program by $2 billion bring.

Bringing our remaining authorization to $2 4 billion.

Lastly, we have delivered on our long term gross debt leverage goal of two times now on slide 18, I'll turn it back over to Marc to summarize our key messages.

Thanks, Jim and let me just recap what you've heard over the past few minutes.

We are highly confident in our ability to manage through the supply constrained and cost inflationary environment.

We have consistently demonstrated our ability to be agile take decisive actions and deliver strong operating results despite challenging market conditions.

I firmly believe that we have the right actions in place to protect our operating margins, which is once again demonstrated in our record Q1 results.

With increased demand and price mix expectations, we significantly increased our guidance for revenue EBIT and earnings per share and free cash flow.

Lastly, we remain unwavering in our commitment to drive strong shareholder value and return cash to shareholders. Now we will end our formal remarks and open it up for questions.

Thank you at this time if anybody has a question. Please press star one on your telephone keypad.

Your first question comes from Michael Rehaut from JP Morgan Your line is open.

Thanks, Good morning, everyone and congrats on the results.

First question I had was on the.

Real impressive progress I think.

Around the North American top line and you talked about.

Driving those results were.

Continued improvements in supply chain, allowing for some modest share gains.

I was hoping you could talk to that.

Fact that it appears that you obviously grew maybe attaching excess of the market.

But.

From a volume perspective.

Obviously, our price mix components. So maybe number one you can talk about your volume growth roughly.

And how youre thinking about share right now if you were able to match the AAM shipment growth and number two how you think about your excess backlog.

The area that I see.

At the end of the year you were at 78 weeks.

If you were able to make any progress there.

And.

Given some of the continued challenges in the supply chain and the extraordinary.

Industry growth.

If thats pushed out now by let's say a quarter if that backlog still remains fairly elevated.

Michael It's Marc So let me try to answer both of your questions.

First on Mannar top line, obviously, we're very very pleased with the 20% growth in Q1.

And it suits.

<unk> run rate.

Certainly much better than Q4 and Q3, so we feel we have a right momentum.

To be clear on two parameters, we gained moderate share sequential Q1 versus Q4, however on a year over year base, we have not gained share just to be clear.

We will also in America. The reason why we don't provide unit volumes anymore, having said that after 20% Barrett you said, a healthy component of price mix.

<unk> roughly in line with what we show for the Corporation.

But theres also underlying growth.

Now the comparison to <unk> <unk> six or <unk> seven that's part of the reason why we stopped communicated with volume first of all as you know even in the a M numbers varies quite a bit of noise about the calendar days.

Very complicated to get into and to it's always a question about with <unk> 5067, having said that.

We feel good about where we are right now from a run rate in Q1, both on volume and revenue.

And we're pretty confident we can sustain that.

Growth relative to the market on a full year base now.

Now to the second part of a question on the excess backlog.

I think if I heard you correctly you were seeing.

We are one quarter away from resolving the backlog we're not.

<unk> implants, and now let me give you a much more qualified prospective on this one.

In our January earnings call I think we were referring to seven or eight weeks of order backlog.

<unk> had its peak pretty much around October November last year.

And then slowly started to moderate towards January and that's why we felt that we are on track to kind of bring that down quite a bit which obviously.

Obviously, we absolutely want to do because with consumers waiting for our product.

So two things happened since or actually three things one is with consumer demand did not only stay strong.

<unk> group.

And that's why we updated our full year expectation on industry keeping also in mind, when we referred to with full year industry numbers. So these are certainly constrained industry shipments I think beyond constrained consumer demand will be well above the 6%, which we guide right now.

So so.

So <unk> you have demand, which didn't flow down actually got stronger too you had two major events on the supply chain one both the Texas Winter storm, which unfortunately impacted big part of our petrochemical production.

And subsequently resins and what it means for our for our supply chain to you had the semiconductor issue, which I know a number of industries has been already major headache in Q4, and Q1 because of a different sourcing strategy, which we have we were largely mitigating these effects.

But like the nature of any hedge you can't escape it forever and that semiconductor shortage was amplified off by again, a little bit of a Texas winter storm, because there's one or two important factors for us and you have a Japan fire, which also unfortunate impact us. So so you put a constraint of Colby constrained supply chain plus.

Semiconductors plus resins.

Against the stronger consumer demand it.

Its stress on the system and what it ultimately translates into the back orders and Ford Stephen will remain elevated for some time to come I would expect right now.

Admittedly, it's very difficult to forecast it but right now we should assume it.

Q2, Q3, we'll be on similar elevated levels and right now it looks like Q4, we should see some moderation on this one.

It was a long answer, but I think it's probably helpful to give you a little bit more perspective on all of these moving parts of the supply chain.

And your next question will come from Sam that cash from Raymond James Your line is open.

Good morning, Marc Good morning, Jim how are you Sam Sam.

Two questions actually regarding the raw the raw material inflation guidance.

The first would be normally would ask this question in April but these are not normal times.

I'm thinking about fiscal 'twenty two.

Rmi.

All commodities prices and what have you were to remain status in perpetuity just flat from here on out.

What are you what would you guess as to what fiscal 'twenty to Rmi looks like right now.

And then the second question.

You had a terrific obviously, a terrific price versus rmi spread in the first quarter was three five points of difference between $5 75 to two 5%.

How do you envision that spread.

In Q2 and Q3.

As your lead times are obviously industry lead times are obviously still extended I would think that that spread would continue.

Did it give us a sense of how you envision those two those two metrics if okay. Thank you.

Sam Good morning, It's Marc let me first maybe starting on the raw material of them and maybe Jim can also offer his perspective.

I don't start at 22 because of that as far out in the current environment to be very honest with so much uncertainties associated with that but let me give you our perspective on the dynamics of our raw materials seem to unfold.

And also first of all emphasizing.

The big difference between absolute levels of raw materials and increases the year over year. So I.

When I refer to increases year over year, we do expect a continued increase in Q2.

Also a strong increase in Q3 and probably the increases seem to likely peak in Q3, and then we'll start monitoring it from Berlin down.

The level of moderation hybrid will still mean and level of absolute raw material cost, which will be significantly increased and I think that's also largely what we will carry into 'twenty, two but again Bruce.

Chairman I Hope you appreciate the last 10 weeks the world has dramatically.

The change in raw materials.

And I don't think we're in a stable environment right now, but that's right now our best scenario again Q2 further increase Q3, peaking Q4, probably slightly moderating in terms of increases, but still being on a on a very high absolute level yeah.

And Sam I would align with Marc on that debt.

That's kind of the pattern, we see so if you think about it year over year, a big part of the materials cost that we're seeing inflation right now will obviously be in the number and so as we look towards 2022, that's why we can't really give a.

Any guidance at this point, nor would we but we do think will remain at least on a higher material environment for a period of time and then your question on the spread from Q2 to Q3 less than what you see from an overall price mix perspective, as we've shown the first quarter kind of aligns with the guidance, we've given for the full year. So.

What it says is as you go through but materials are still a little bit lower and that's to the seasonality that Marc talked about as we go throughout the year materials will be more of a headwind, but we expect the pricing to take hold and that will be a bigger driver of the price mix versus the reduced promotional environment that now that year over year is coming down.

A benefit but the two offset each other and that's why we believe will be flat.

Price mix throughout the year.

Sam It's Marc again and also.

Actually Ed I read the headline of your note. This morning, where you say assuming price can offset rmi.

I think it's the core of everything I think the.

The little differentiation I would make is as opposed to saying assuming it's we have been offsetting rmi and price in Q1, and we will do so going forward and that's why we guided to five points material negative on a full year base and six points of pricing again, it's a have been and we will.

Your next question will come from Susan Mcclary from Goldman Sachs. Your line is open.

Thank you good morning, and also congratulations on a great quarter I know, there's a lot of hard work going into that.

My first question is just going back to the inflation point can you talk to us a little bit about what changed since we heard from you at the end of the fourth quarter, you took a big step up going from 250 to 300 to the $1 billion just talk us through what's different there and then also how should we think about that.

The possibility that we get further changes as we move through the year. How confident are you in this $1 billion guide that you've given us now.

Yeah. Susan this is Jim and I'll start off in line Mark kind of add in what we would say at least on your second question. There in terms of confidence. This is what we see right now and based on our best forward looking estimate the best information we have.

And obviously.

We've updated that now, but we wouldn't expect to see something in flight at the rate we've seen within the first quarter here, which leads to your what's your first question was is from back in January till now what we've seen is a significant increase in steel prices and I think you'll hear many producers out there talking about that over the next few weeks as they've seen that but also to <unk>.

Some of the things Marc talked about earlier, especially around what's causing some of the.

Issues within our supply chain of a lack of residence and all of that that also caused as you think about the Texas storms and the rising oil prices and that has caused a higher <unk>.

Cost within our resin space also so steel and resins are probably the two biggest drivers and then you think about all the components. We have that may contain pieces of that so it's pretty broad based.

Throughout our supply portfolio.

Yes, Susan just to Echo what Jim missing as you as you know.

Our two biggest components and with direct purchase as Stephen resin Okay.

Steve If you look at the spot price since steel just relayed last eight weeks has seen a dramatic increase take North America, they've been up to $1500. We saw levels unheard of now we do not buy at spot, but ultimately, but we our contracts are shaped up.

Can't escape spot trend forever and so ultimately you see also something around this one.

And rest of it is I think is second biggest volume, which is obviously a reflection of.

Higher oil prices into these constrained coming out of Texas. They certainly don't lead to lower prices. So put these two together plus then with subsequent or cascading impact. It has on strategic components, which we buy because our suppliers also have to pay per seat et cetera.

So you put that altogether that led to that fairly dramatic change now with regards to a question about the confidence level.

Now I can only characterize that is our very best estimate at this point.

I wouldn't characterize it as extremely pessimistic optimistic I think it's a well balanced.

But of course, I mean in the current world, which we're living right now.

There's always uncertainty I mean, we saw the last eight weeks, but.

No.

I do believe it's fair to assume.

Volume is about the right number for this year.

Thank you. Your next question will come from Eric <unk> from Cleveland Research. Your line is open.

Good morning.

David.

A little bit of clarity if you could.

Price mix promotion I know you put all of them in a bucket.

But just interested in.

What the slope of the curve of each of those looks like and specifically what I'm trying to get a sense of is it seems like the north American price increases began in <unk> and I'm not sure when the peak benefit arrives there, but it seems like more of Thats in front of us and so it was a little surprised that the 575 basis point in that bucket in this first.

Order it feels like it can get larger than that as we work through the year, perhaps there is some assumption about a change in promotions through the year, but if you could just expand a little bit on the assumptions within.

Those three contributors that would be helpful.

Aggregates, it's Marc and.

And as you know, we're not typically breaking down how much of a price mixes promotion how much is list and how much is really a SKU mix and it's always a combination of all three factors.

If you look at the I would say bill last nine months of three quarters, where we had significant positive pricing that came both from mix because we got coming out of this immediate crisis in Q2, we get more and more mixed benefits and frankly also the.

The strong reduction of promotional investments.

I think that now in Q1 getting increasingly augmented with the effect of price increases, which we have already some markets, but frankly in Q1, you still have quite a bit of effect of reduction of promotion.

Now coming with Q2, and Q3, where we already slow down promotional last year of course year over year, you will have less of that it doesn't mean that we go back to promotion. It just you don't have an additional positive benefits.

As you go into Q2 Q3, that's when you will see much more impact of list price increases throughout the year.

And then related to that the promotional plans.

Are getting billed for fourth of July and Theres, probably some perspective on what the back half of the year might look like with promotions.

Can you just give a sense you referenced that not quite back to where they were.

But what are the what are your plans what are the retailers plans, where is that going relative to where it was last year and where it was historically.

Okay Eric.

As you know, we don't given in our guidance or our perspective on future price and future promotion I think the two things, which I would just in general terms make as a comment.

We've now for multiple years had a promotion strategy, which was strongly based on value creation of them can we create value. We promote when we don't we don't.

Coupled with this one is coming back to the early comment, which I made too.

To Michael about the supply chain, our supply chain will be constrained.

It doesn't make sense to promote products, which you cant produce so.

Now again the.

Promotion plans will always change, but right now I think we're assuming we're supply constrained for an extended time period and as such.

I don't think we have very aggressive plans.

And your next question will come from Michael from RBC Capital markets. Your line is open.

Marc Jim Thanks for the color. So far really helpful. My question is another one around costs, but thinking about logistics you have maintained your expectation for net cost to provide 150 basis point net tailwind, we've obviously seen auto moving pieces on transportation and logistic.

As well in terms of inflation. So can you kind of talked through.

Underneath the surface.

Or are there incremental changes that you are able to find.

Additional productivity or cost outs to offset that just any any sort of qualitative or quantitative commentary you could provide there would be great. Thanks, Mike.

Mike This is Jim and maybe I'll kind of start with this and say that.

Thank you kind of already alluded to to what were using here is we do see increased logistics costs like many other.

Manufacturers out there. However, we've also been able to take advantage of other opportunities within certain cost buckets within our P&L net net cost obviously.

As a whole bunch of different areas, there and so as we look at right now what we would say is that our production volumes are very healthy obviously with the level of revenue that you see today and additionally, as we look at the cost actions. We took last year in the amount of carryover and the benefit we're able to retain that is at or above the level that we saw previously so.

Those are the kinds of things that we're using to offset which is which is what is a higher logistics cost environment.

Got it thanks.

And your next question will come from David Macgregor from Longbow Research. Your line is open.

Yes, good morning, everyone and congratulations on all the progress and really kudos on navigating through these supply channel issues.

Impressive execution.

I guess I wanted to just step back a little bit with my first question and just ask about with all the progress and growing the North American margins. What's your latest thinking in terms of a longer term normalized margin for the North American business.

Yes, a lot of moving parts here and a lot of forward visibility, but just trying to think about sort of a steady state with everything to be able to accomplish in terms of the cost out and everything else. How we should think about kind of a steady state normalized margin for the North American business.

David It's Marc.

I mean, if you step back a little bit in time and also the last couple of years.

Tom.

Whenever we hit a new record margin in North America. We were asked about is that the peak.

And that question has been pretty steady for the last three or four years and I think.

Our North America team has impressively demonstrated we can push it forever.

So now we increased the full year margin guidance to 55 plus.

And I think epidermis team work and demonstrate how much of a plus can be over time now obviously as with Europe passes with a lot of as you said moving parts and big elements.

We will then have to redefine what is a really long term steady state margin objective for North America, but I would say the progress of <unk>.

The last couple of years has certainly encouraged us to think differently about both can be steady state margins in North America, and I would expect that.

In the next Investor meeting, which we will at the appropriate time announce then we will beat rents when we will give a perspective of our long term guidance margin guidance.

And just to add to that David I think the one thing that I would like to highlight for folks too that you would've seen in 2020 in Q2 with North America as we had a significant volume loss in our margins still stayed above 12% in there so to Mark's point I think we have a very healthy business. There that can now deal with many of the the volume shifts and the volatility in other <unk>.

Areas.

And as we look forward, we expect that to continue to be a significant contributor.

Okay. Good and then second question for me is just with regard to Europe and can you just talk about some of the progress over there.

You may have been able to achieve recently in terms of new listings in price increase traction and so on and so forth. That's what the incremental margins seemed a little light but.

But overall certainly directionally the margins are moving.

In the right direction. So can you just talk about some of the elements of your progress there.

So David I mean first of all.

Q1, again showed a really nice year over year progress keeping all that in mind.

Q1 is seasonally weakest quarter in Europe.

Didnt make a profit in Q1 in Europe for the last three years and we made a profit now admittedly. This is not the same level as Latin America, North America, but it is a profit in the really impressive improvement.

Also with two 5%, which would guide for this year to be honest that's perfectly in line with what we had in mind as our turnaround plan now we all know that is not the end state, but it's not the final target, but it's exactly in line with what we had in mind for our turnaround plan that is largely driven yet the European team also demonstrates good discipline in cost.

We will also face the same cost inflation in Europe as we are in North America, maybe not the exact same magnitude, but it's almost the same.

And frankly, we got nice progress in regaining market share in several key countries in Q1.

Now the European market also has been very strong in Q1, but I think even against the strong market we grew market share.

As I said repeatedly in the past the biggest element of progress, but we need to continue to demonstrate progress Ralph.

Throughout the next couple of years is on the building of the kitchen business in Europe, where it's always takes a little bit longer to regain market share.

But I think we have had some nice.

Really impressive wins already in Q1 around the kitchen business.

And your next question will come from Ken Zenner from Keybanc. Your line is open.

Good morning, everybody good morning, Ken Good morning, Ken.

It's just amazing margins in North America.

So a lot of hard work there.

What are the things that discussing with clients outside as you know you have your five brands in North America.

Some of your competitors that are more mono brand.

Are we with this backlog still persisting and supporting very strong net pricing.

Functions in the U S.

Are you seeing that in particular categories and I haven't been parsing out AAM, but I mean.

Freezer sales up.

Things like that I mean is there really a dramatic shift.

The mix of products, a freezers for some other types as opposed to.

With homeowners having record near <unk>.

30, 40 year equity levels in their house.

Are they just spending more could you give us a little feel on how that higher home equity is translating to demand in your businesses. My first question.

Hey, Ken its Marc.

Let me try to answer it first of all.

On the mix of product and then maybe a broader comment on our fundamental nature of demand, which we're seeing.

The mix of product of course in Q2 and to some extent Q3 last year, we saw a lot of call. It COVID-19 emergency products, okay, but microwave small fritch.

Our replacement products because of ultra broke down.

That mix has gradually shifted and continues to shift towards a richer mix I E people are investing in the whole various disposable income and people are upgrading our investing so it's not that the COVID-19 purchase anymore quote unquote, it's really structural investment in the home.

And that's a good thing to see.

The broader comment I want to make.

In the past some people were referring to asking us about what you see right now demand is that pull forward.

Frankly, I don't think pull forward described adequately what's going on because pull forward implies bears a fixed amount of the year as you get out of an appliance and if you buy this year you don't by next year and that is not an adequate description I think we need to think more in terms of appliance from consumer perspective, how much use how much mileage how many cycles you get out of an appliance.

And what last year showed with people spending so much time at home the consumption was higher literally but consumption.

What happened last year and what happens this year if people spend so much time at home the appliance consumption is higher so it's not a pull forward, it's an accelerated use which drives a lot of demand and which we expect also to continue for quite some time.

Okay.

Right, it's really interesting because I mean, I tried to fixing my dishwashing it wasn't trading something reset and it did rather quickly which is good.

But it seems like that at home really is a tailwind well into 2022 as well and I think you've been very clear day guidance at the second half margins domestically.

Well normalized something in that sub 15, but where we are in FY 'twenty. Two remains uncertain do you think the promotional activity that were comping.

That's already in next year's numbers are last year's numbers is that something that is there any reason promotional activity wouldn't return in your opinion given what's happened in the last 12 months in terms of competitors domestic capacity or categories.

It seems like you've really helped yourself up in the margins by your cost actions in the past.

Slide 10.

Let me maybe first start on the demand.

We do believe and I am not particularly referring to North America, but it's similar in other regions. What we're seeing right now is that demand is sustained and multiyear.

Demand trend, it's not a blip, it's a strong upcycle.

And in particular for North America, you have.

The general consumer trend of investing in the home people also going forward will spend more days at home just think about all these flexible work policies people will spend more time at home, which ultimately drives higher investments in the home and accelerated use of appliance in the home.

Couple that with the housing market in the U S.

I think some people refer to a golden age of housing housing demand will not slow down in the next couple of years, if at all will increase.

So put them together you will have multi year strong consumer demand in U S and.

And you heard us before talking about consumer demand to be honest and all the years I've been doing the earnings call as a public year by most bullish about mid and long term consumer demand trends in North America. So I'm not worried about consumer demand I'm a promotional environment.

Environment I can only repeat what I said before we have our policy by policy is unchanged icon comment what our competitors are doing.

And have owned in meta pure speculation, but right now its.

From everything you've heard from us before in a supply constrained environment, you should assume we will not be very aggressive on promotion side.

And.

Just to step out a little bit here too and Echo what Marc said is obviously you had mentioned that our strategy on promotions to make sure that they are value, creating has not changed and we don't see that changing go forward. The other thing is I think as you think about these different dynamics go forward in future years, and while you can't exactly predict in what you can look at it.

As the actions that we've taken whether you know over recent years and our ability to offset these kind of things and deal with them has just gotten better and you know when we talked earlier about whether it was cost based price increases. We took in 2012 18 that we're taking now I think that's just a continued demonstration of our ability to adjust to the environment around us and still.

<unk> and expand our margins.

Thank you. Your next question will come from Curtis Nagle from Bank of America. Your line is open.

Great.

Okay.

Taking my question, maybe I'll, just pivot a little bit in terms of some stuff, we haven't talked about yet.

Thinking about I guess, just kind of any changes in terms of the behavior kind of help people.

Appliances, obviously, a couple of general shifted a lot more behavior online.

I think for a while now.

Volume journey per se.

Bid online maybe it goes to the store.

It goes from there, but in terms of just the number of people who are purely buying appliances online don't visit the.

The store.

That's their people lows whatever.

How has that changed.

In the past year or so.

What percentage is that now relative to.

A couple of years ago, and kind of where do you think that goes.

Curtis it's Marc so obviously be.

Consumer trends in terms of buying online or purely online.

Vastly different country by country. Okay. You have you have some countries.

Already almost 50%.

I can China, Europe, U K, where it's reaching 30% U S. On a multi year perspective has been more around 12%. Obviously last year was increased now to also clarify and there's a big difference between pure online purchase and kind of mixed because pretty much every consumers goes online anyhow to pre buying pre information.

Yes.

Of course, the pure online transaction has significantly increased in particular Q2 Q3.

But I would say in the U S less so than in other markets and Thats simply a reflection because many retailers remained open which has not been the same in other countries.

So I think bill that settled back a little bit to pre COVID-19 levels I would say not entirely I think you would but COVID-19 broad is a structural percentage point change in terms of how many people just buy purely online. So we may not see the Covid peak in terms of online sales going forward over the next in the midterm.

But it certainly will not go back to pre Covid, So I think coming out of this one.

And again, the dust has not settled but I would not be surprised if you see in the U S.

Online pure pure online transaction in the ballpark of 15% to 20% already this year.

Okay. Thanks, very much Marc and good luck for rest of Europe.

Okay. Thank you.

So I think that pretty much marks the end of our questions. So let me maybe just close here.

Usually when you close these kind of calls you repeat the confidence and European everything you said I'm actually going to keep that part pretty sure because.

As you saw before we increased our guidance from $8 55 to mid point 23 more than $4 50.

You don't do that if you're not confident we are confident and I hope we expressed with adequately in the last hour or so.

Rob will want to use with closer youre actually to thank our employees.

And give you a little bit color.

We always expect a lot from our employees.

But what our employees are right now delivering in committing is beyond the extraordinary.

What I mean with that is we have still.

Covid is still very real I know U S is getting out of the woods slowly, but it's very real throughout the world and on top of that we have these constraints and challenges, which you just talked about.

To give you a little bit picture on the Covid is very real.

We have factory Manav, we had to shut it down because we had to give your industrial oxygen to a local hospital because they ran out of normal oxygen.

We have India fully being hit by the Covid wave and we have several thousand employees in India. We have in the month of April 576 colleagues who've got possibly diagnose. So it is very real and that means a lot of pain and anxiety for a lot of volume fleet employees.

Employees, while at the same time and while we so easily and casual describe our supply chain constraints, it's hard to express what amount of stress that puts on an organization.

So I'm sitting here and I, just I want to tell our employees. It is not lost.

We certainly do recognize the extraordinary effort being put into this one and our organization is delivering and I just want to express my thanks.

And I guess net marks we end up.

Our Q&A. Thank you everybody.

Thank you everyone that well this will conclude today's conference call you may now disconnect.