Good morning, welcome everyone to Whirlpool Corporation's 2019 Investor Day. Thank you for coming to the New York Stock Exchange, for those of you online, thank you for joining our webcast. With us today are Marc Bitzer, our Chairman and Chief Executive Officer, and Jim Peters, our Chief Financial Officer, along with members of our global executive team. Our remarks today track with a presentation available on our website at whirlpoolcorp.com. Before we begin, just want to remind you that we will be making forward-looking statements, including non-GAAP measures. You can look in the appendix of the presentation for important information about those items. As we look at the agenda, we will spend about an hour and 45 minutes on the presentation, followed by a question and answer session with our executive team. We ask that you hold questions until that time.
With that, I will turn the presentation over to Marc.
Good morning, everyone. First of all, thanks for coming here. I know it's a rainy day outside. I understand there's some New Jersey Turnpike issues, we're glad you made it. Really great to be back here at this great institution. Really fascinating building also. Before we actually get started, I actually want to take the opportunity to actually introduce our global executive committee. I know day by day, you typically interact with Jim or myself, while you appreciate it, you probably appreciate even more to get to know the rest of the team, which will actually rely and share a presentation also today, we have the entire team here also for Q&A. Let me just, actually, we'll probably just go here in the sequence of the slides. Brega, you want to start?
Good morning. My name is João Brega. I'm the president of Latin America, working for 24 years in Whirlpool.
Roberto.
Good morning. Roberto Campos, Global Program Organization, three years in the company.
Good morning. My name is Liz Door. I run the Global Strategic Sourcing Organization. I've been with the company eight years.
Good morning. I'm Kirsten Hewitt, the Chief Legal Officer at Whirlpool. I've been at Whirlpool for 23 years.
I know Jim. Carey. Go. You want to go?
Sure. Good morning. Joe Liotine. I lead our North American business. I've been with the company for 15 years.
Carey.
Good morning. I'm Carey Martin, and I am the CHRO for Whirlpool, and I've been with the company for six years.
Good morning. Gilles Morel. I lead the EMEA region, and I've been in the business for the last seven weeks.
Good morning. Sam Wu. I lead Asia Pacific region. I joined Whirlpool two and a half years ago. Before that, I ran Siemens also for Asia Pacific.
With that in mind, let's just get started now. You've seen the agenda. Let me first talk about what we will not talk about today. This meeting of this Investor Day is not meant to give you an update on our guidance. This is not a quarterly earnings call. I'm very straightforward on guidance. We issued the guidance end of January. You all know we had actually a very strong Q1. We feel very confident about where we are from a business, from a guidance perspective. I know there has been some rumbling around tariffs. What we said in January, it's already factored in, and that's the same statement today. We feel very good about where the business is, where the guidance is. There is no update.
If you came for just an update on guidance, I have to disappoint you because we're on track, period. The second thing, which is not about, we're not going to comment or speculate about mergers, acquisitions, or divestitures. Of course, you can ask us and we can comment about things which we have already announced, where we are in the process. I think you appreciate we will not engage in speculation about what could be there down there a couple years down the road. What this meeting is about is actually, we want to tell you as executive committee why we strongly believe Whirlpool is a good long-term investment. That's basically what this meeting is about. The essence of that is actually captured in that slide.
The reason why we feel very strongly about our long-term future as a company and as an investment is basically built on three main pillars. One is our sound or very solid or super strong structural position, however you want to put it, which is around a global leading scale. I think we have by long shot the best brand portfolio in the industry. It is our legacy, our track record of innovation, and our best cost, which is not just scale, but also the tools which are available to us in terms of taking costs out. That's a structural element, I will just explain that a little bit more. Equally important, we believe by region, also in strategic transformation, there are some very big value creation opportunities.
From a region perspective, we do believe North America, as you've seen, we have very strong margin over the last two quarters, even in a somewhat down market. Frankly, on the market, we are actually reasonably positive and bullish about the long-term market perspective. We believe there's still a lot of runway left in this market, and you've seen our margin generation even in a somewhat soft environment. Europe, now that the Indesit integration is behind us, we do see significant opportunities to expand our margins, through cost measures, but also go-to-market measures, we're going to talk about that. In Latin America, you know we had for decades a very strong business, in particular in Brazil, which is the biggest market out there. We finally see the Brazilian market coming around, which always helps us significantly. We're actually very upbeat about the Latin American perspective.
Lastly, Asia, where we have a very strong India business in a growing market, we have a China business where we have a very strong cost base, product platform, product factory opportunities for kind of not only for China but also for export. Couple that with what we have on the right side with strategic transformation. This is something which frankly we don't typically talk about in an earnings call. We as a team embarked, actually last year, on a fairly long strategic journey, which call it transformation is, it's essentially about three major pieces. One is how the nature of a product which we sell changes going forward. It is about connected appliance, but it's not only about connected appliance, because connected appliance is just technology. It is about what kind of product and service we sell in the future.
The second part is about the consumer journey, which has seen, throughout the world, we've seen some pretty dramatic changes over the last 10 years in that space. The third element is what that all means for our value chain, how our value chain changes going forward, and also how we can use many of the same tools, be it data analysis or everything else, on getting more productivity in the value chain. Then we're going to talk about all these aspects. To put the same perspective in numbers, this is on this slide where you see our commitment to long-term value creation, and let me just take you a little bit through the numbers. EBIT, our long-term value creation target is a 10% EBIT. On free cash flow, it's a 6% plus, and then ROIC is a 12%-14%.
Now let me give you a little bit more color, Jim will later on cover a lot more detail behind this. Let me show you also the margin more. 10% is the number which we had out there two years ago also. We do firmly believe, and we confirm it today, that this business is absolutely capable of delivering 10%. Frankly, we lost probably two years. Lost two years because macroeconomic challenges, be it cost inflation, and yes, we also lost time with the European integration. The business as such is absolutely capable of delivering 10% EBIT. Free cash flow for those of you who follow us for many years, previously we had 5%-6%. We believe this business, through earnings power, plus also for sustained opportunities to reduce working capital, we can drive 6% plus free cash flow on a sustained base.
The third element is ROIC. ROIC is a measure which, of course, we look at very closely internally. We have externally not given commitments or firm numbers in terms of where we want to take the business. You see here on the left side, in our definition of ROIC, it's 9.4% last year. To make a little side note on this one, as you know, there's many definitions on ROIC out there. We take a fairly conservative definition of the ROIC, we can give you all the detail later on. In that conservative assumption, we do believe we can expand ROIC by three to five points. Through a combination of the R, the earnings power, we also believe there's several opportunities to reduce our fixed asset base. ROIC is a key measure for us.
Some of you know, Jim will also show that later on, it is also half of our long-term compensation. It's something which we focus on very strongly. On the right side, you see how we plan to use the cash. The one thing which is reasonable, predictable at Whirlpool is the funding of a business. CapEx, we typically invest around 3%. Also, if you look at the last 10 years, there's not been a lot of spikes up and down, I think you should expect that also going forward. Dividends, historically our guideline, our guidance was 25%-30% trailing 12 months earnings. We can update that to around 30%. You're also seeing that we kind of raised yet again the seventh year in a row of dividends, that's just a reflection of around 30% trailing net 12 months.
Share repurchases. We had last year a fairly elevated level of share buybacks, and we say here continued. What we mean with that specifically, we of course will buy back shares. We also will take close consideration of our debt metrics. We said publicly, we want to get to around the two gross debt leverage. Right now it's still 3.6. As some of you know, there's still a temporary loan related to Embraco sale and the Indesit purchase in there. Once that reverses, we should get a lot closer to the 2s by the back half of the year. Jim, again, will show that a lot more detail later on. While we balance the debt metrics, that's also how we look at the share buybacks.
What it specifically means, you should expect probably moderate level of buybacks until we reach that leverage, and then we can have a different discussion about that or can expand it also. Put that all together, both the earnings and cash flow and our capital allocation. Yes, we do aspire and aim for a top quartile TSR and put the math together. Yes, that translates into roughly 10% EPS growth. Put it all together and, of course, with certain parameters and assumptions. With that in mind, let me, and actually also Giulio Teni will join me here. Let me for the first 30 minutes spend some time a little bit our structural position, again, a little bit of recap.
More importantly, let's start talking about what we're doing in the company, around the company, which sets us up for a great future going forward and how we transform the company. Again, on the structural position, most of you are very familiar with our story. I still believe it's a very important element because whenever you buy a Whirlpool share, you get the structural element. It is a unique asset which we have in our company. It essentially is grounded on four main pieces. One is the global leading scale. You will see later on scale on many dimensions, be it in the factories or be it in the countries, which is still a key driver of our overall profitability. We pride ourselves as the strongest brand portfolio in the industry. We have six brands above a billion-dollar revenues.
We have a strong track record of innovation, and we're funding innovation. Even in bad times, we did not take our funding down. We invest roughly about $1 billion every year between CapEx and engineering. We pride ourselves on having best cost position, not only because of scale, but also how we work and approach certain tools and how we drive productivity going forward. If you take a little bit closer look at this one. The first one on leading scale. Again, this is just the scale in the countries. I think that's actually a very important chart for us which. It's probably one of the strongest assets we have from a structural position perspective. These are our top 10 countries in order of revenue size. These are our top 10 as we internally look at them.
In seven of these ones, we are the number one, in some cases by a long shot. The reason why that's so relevant is country scale matters. Put it differently, if you would plot our profitability by country versus our relative scale position, there's a strong correlation. Country position, country scale matters big time. Having seven out of the top 10 countries on the number one position is a big deal. That is probably maybe one of our strongest assets as a company. Second one is a brand portfolio. In the past, I sometimes have been asked about, "Well, wouldn't you want to have just one or two brands?" That's interesting, but if you aspire in a country to, let's say, more than 50%, 20% market share, it's hard to serve that kind of market share or business with just one brand.
Actually, our brand portfolio allows us to target a very diverse consumer spectrum, allows us to target very different consumer needs, and I would say our brand portfolio is pretty much one of our really key assets in this industry. Without going through a lot of details, it is also a nice spectrum between value, mass, and premium. We can play the entire ladder fairly well with our brand portfolio. The third element, without going too much into the details, there's a lot of talk about innovation. We've been 108 years in the innovation business. If you look at a lot of the pictures out there, you could argue the majority of innovation in this industry came from Whirlpool. We take a lot of pride, but we also recognize, having 108 years of track record is not a guarantee of the future.
That's why we invest significant amount. As I mentioned before, it's roughly about $1 billion every year between R&D and CapEx. We have around 4,000 engineers who do nothing else but think about kitchen and laundry innovation, and product development. That's a commitment also for future. You also know, for those of you who follow us closer, even in economic difficult times, we never scaled back on our investments in innovation. The fourth element, the best cost position. What I want to highlight here, it's not just a scale reflection. The scale is what you see a little bit on the left side, and this is just showing the factories. It is scale plus tools and capabilities. First, let me start actually on the left side with factories.
Again, you have similar pictures, not just for factories, you have the same thing also in logistics and some other elements. In our industry, most people would consider a 1 million-3 million unit factory a very large factory, by any definition. We're talking about factories which are close to a mile long. We have 17 large factories. We have six what we call mega factories. These are 3 million-5 million unit factories. Believe me, across the entire world, the entire industry, there are not that many mega factories. We have 12 factories still with less than a million, which are either specialized or we serve a specific country. We have 12 smaller factories. If you do the math between all these ones, you can say basically pretty much 80% of our entire production volume comes from fairly large factory. Scale is a big element.
Again, this just shows the factory scale, but the other element is the productivity tool. Two years ago, we started as a company where we engaged in a, what we call a global Whirlpool Production System, which in essence is world-class manufacturing tools, which actually helped as a really key catalyst to drive sustained forward productivity, in a way where frankly, we have not reached in the past. The second piece, there's a lot of talk and there's a lot of opportunity around this, is product architecture. We serve many countries, we serve many markets, we serve many categories, many brands. By definition, you have complexity.
What we've embarked on a journey kind of pretty much two or three years ago, a journey towards simplifying that with a smart way in how we approach product architecture and modularity, i.e., find a way to not only manage the complexity in a more cost-efficient manner, but also overall reduce in particular parts and component complexity and the architecture complexity. That is a key element and catalyst for our sustained productivity. We also have a number of very good tools, in particular on the indirect spend, which is in our industry also fairly significant. Put that all together, and this is again, that's just for the factories and the conversion. We strongly believe and we know it, we can get to 4% sustained net conversion productivity.
That is after all, salary inflation, everything else, that is in forward productivity, which we know we can get and which we actually achieve. Again, that's just on cost position. We can show you a similar chart in service costs or logistic costs, but of course, conversion cost is a big element. Let me shift gears and actually talk about how we're changing the company. The way you got to look at this is not a 2019 initiative. That is a multi-year initiative which we started as an Executive Committee. We're in year two of this one. In essence, it's about three major elements. One is being the leader in connected appliances and services. Let me just emphasize this one. It's not necessarily about just connected. Connected is a technology, okay? Which frankly is not rocket science.
It's a little bit more difficult to make safe connected appliance, but you can do that. It is about how you translate that technology into relevant consumer benefits. That is easier said than done. I.e., how do you make it in a way which provides true value to consumers that consumer pay for? Which ultimately even redefines or shapes what is it we're selling in the future. Because today what we're selling is pretty straightforward. It's an appliance. What kind of bundle of services are you going to sell in the future? How does it look like? That is a fundamental change in terms of how we look about the next three to five years.
To be also very clear, it is not a big element of a P&L today, but it's very obvious the change is happening, and the change will stay here, and it will certainly impact how business looks like in three to five years from now. The second part is this, what we call the winning the digital consumer journey. Sometimes you don't really appreciate how much has already changed and what it means for our company. To give you perspective, you actually only have to go back 10 years ago. 10 years ago, the number one source for consumers, which they looked at when they were about to buy an appliance, were newspapers. It was the ad on the weekend. You probably all still remember that. I know when you think today about this newspaper ad, it feels like medieval times. It's 10 years ago.
It was the number 1 source. Today, by long shots, it's digital. About 80%-90% of consumers around the world, it's not just U.S., go pre-informed in a purchase process, i.e., they have a digital research before. It's a race to consumer ratings. It is what you do in the pre-buy digitally, where we invested a lot of assets, where I think we made huge progress, but that's really a big battlefield. The second part related to this one is also what happens on the actual e-commerce and the transaction. Actually, U.S., as a global market, is almost a little bit behind. It's around 14%. Other parts of the world are quite a bit ahead, particularly China, some parts in Europe, where you see a 30%-40% e-commerce penetration.
That offers a whole different set of opportunities, either working with e-commerce partners or in some parts of our business also going direct, because you have different tools and different abilities where you can go electronically direct, which is, of course, a very attractive opportunity in terms of our future and how we directly interact with consumers. The third part is this value chain, what it all means for value chain, which has actually 2 aspects. One is what do streams number 1 and 2 mean for our value chain? All of a sudden, you look differently at elements like home delivery. You look differently at service and how you repair appliances. You just look different at value chain, and you come to different conclusions where do we want to be strong and where we don't need to have assets.
It's equally a lot of the tools which we use, in particular around consumer journey, et cetera, a lot of the digital tools, be it data analytics, AI, have a big impact on how we drive productivity across our value chain. In essence, these are the 3 major transformation streams which we work on very hard, which will create a very different business going forward and offers a lot of opportunities. Now actually we'll have Joe going a little bit more into detail of these work streams. Joe is running our North America business. Maybe as a side note, I know other companies have a chief transformation officer, chief digital officer. We don't. It comes out of conviction because I think deep transformational change happens in the business and through the business.
That's why all these streams are carried and driven by our executive committee, and I think that drives the most profound change and also the most successful change. With that, Joe?
Great. Thank you, Marc. Good morning. I'm going to go a little deeper on some of the topics that Marc just highlighted. The very first thing I want to show you is a video of where we're going with our laundry products in particular. These are our front-load launch. Some of this is in market today. Some of this stuff is coming in the future. It gives you an idea of what the combination of great products, great brands, and great technology with a purpose can do, the friction points it can remove for consumers, and really highlights the value we can bring to consumers. Please play the video.
Whirlpool is revolutionizing laundry with the brand's most innovative features to date. The Whirlpool Smart Laundry pair is designed to streamline the process, starting with the very first step. The Load & Go dispenser lets you skip adding detergent. Simply fill once and wash up to 40 loads. The Whirlpool app takes an even more innovative approach to the mundane task of laundry with loads of smart features. Tell Whirlpool when you'll be home, so it starts and ends the cycle on your schedule. Set the wash cycle once. When it's done, get a notification that lets you send the matching dry cycle straight to the dryer. Eliminate guesswork with the in-app stain guide. Pick your stain, get fabric pre-treat instructions, and send a recommended wash cycle straight to the washer. You can even assign tasks, like transferring a load to family members, right from the app.
The smart laundry features continue to impress after the last load. Simply sync the Whirlpool app with your Amazon account to automatically reorder detergent when you're running low. By staying ahead of trends, Whirlpool continues to shape the future of care. We're leading today's smartest, most purposeful innovations, we're not slowing down.
This is just an example of kind of what's coming. When you think about the friction points, the technology, and the products kind of all working together, building business partners, ecosystems, to really help each other with Amazon Fresh or Instacart or whoever it might be, we can really help consumers in their everyday life get a lot more done the way they want to in a very smart way, efficient way. Again, these products just launched earlier this year. More of it is coming later in the year, and in the subsequent years, it really gives you a good idea of kind of what we're going to do to the market and how that's helpful to consumers. The next example is really kind of not in the laundry, more on the kitchen side. What you'll see is we're launching different things and experimenting.
The countertop oven on the left, we unveiled that at CES. That's a countertop oven that has all the performance benefits of a typical oven. In addition, it has image recognition, it has app integration, really just kind of bringing us forward in terms of what's important to consumers and making their lives easier, faster, more efficient. All three of these products actually work with Yummly. The middle picture is a Whirlpool connected suite that we've launched in the last, let's say, 12 months. Out in market today. Variety of different products, microwave, freestanding range, built-in oven, all connected, all working with one another, machine to machine, app to machine, into the cloud, and with partners.
All this data is helping us really serve the consumer to do a lot of things better. The last one, which is the most exciting probably as it's the newest, is just launching right now. That's a typical KitchenAid oven that has all these powered accessories that go inside the oven into a proprietary port that can help you grill, steam, or have a heated baking stone. You have all the performance benefits of a fantastic KitchenAid oven plus all of these things. This again, elevating the experience to consumers to the next level. No one else is doing anything like this. They all sit on top of Yummly, and Yummly is not just a recipe app company for us. It really is a lot more than that.
It can do recipes, it can do guided meal prep, it can do app-to-machine interface, it can sequence and set algorithms in advance of when the consumer needs it. It can preheat your oven for you based on the recipe that it knows you're cooking. It can sequence the temperatures in the oven based on the type of food you're cooking and the recipe at hand. Really kind of taking the experience to the next level, letting consumers get a lot more out of our machines, excuse me, really have an experience that I think is helpful. They can spend their time the way they want to with their family or doing other tasks, maybe not spending as much time in these transfer processes that they get no utility out of. We're very excited about this.
More to kind of come, all three of these are in market, and we've won quite a bit of attention and awards for these early on. Yummly. Yummly is going to do a lot for us. It's going to be the operating system, the platform for how we engage. We've been making hardware for a long time, the way we've talked about it is we made cubes that either made things hot, cold, or wet for 100 years. While we're certainly going to make these cubes in the future, they're the anchor point. They're the reason why we have permission in the kitchen and the laundry room to help consumers. In addition, Yummly is going to be an agnostic portal where consumers can enter. They don't have our products, or they may have our products.
The benefits of having both our hardware and our Yummly app and really working with that in concert across the entire kitchen or laundry room will be tremendous in terms of taking away friction, in terms of making them more successful at whatever they're doing, in terms of really the supply chain and knowing what's important to them and making sure they have the right ingredients and/or detergents or whatever it is at the right time. This next video just shows maybe one more performance aspect of Yummly that we've already launched. It's in market today on the app, it shows how we can do image recognition either on your counter or in your refrigerator or in your pantry to know, hey, what ingredients you have, and as a consequence, do you want to cook this recipe? We can offer recipes based on the ingredients you have.
We can understand your preferences, dietary or allergies or whatever they might be, offer suggestions based on that, combined with the ingredients you have at hand. That really starts to solve things for consumers. What's for dinner? Well, it starts with, what do I have? This next video will kind of give you a little bit of insight there.
Whirlpool smart appliances just got even smarter. Select appliances now work with the Yummly app to deliver one of the most innovative mealtime experiences in existence. The app's connected features assist in every step of the process. First, set up your taste profile. Find recipes that match your tastes, allergies, and preferences. Yummly's proprietary food genome and food intelligence technology understands recipes at a deeper level, you'll only see the ones you want. Yummly can also recommend recipes based on ingredients you have on hand. See something you need? Add ingredients to a shopping list, Instacart will deliver them right to your door. Yummly lets you schedule when you want to eat and notifies you when it's time to cook. The app guides you through select recipes with step-by-step video tutorials, syncs with Whirlpool to send cooking instructions to your oven, alerts when your food is ready.
Whirlpool continues to be what's next for home appliances. We're breaking boundaries in the category with leading-edge innovations that set us apart.
Again, just another small glimpse on what's coming in. We've been very consistent, focused on use cases, and focused on what's important to consumers, so purposeful innovation. You'll see that in these performance and features that we're offering. It's very clear we're solving needs, not just adding technology for technology's sake. A little bit more about Yummly, kind of more the characteristics. It's got 26 million-plus registered users, 10 million email subscribers, nine million monthly active, and three million visitors per week. It is the leading recipe app out there today. It has a fantastic 4.8 star rating on iOS. It really is well-received. We've taken all the great things they did, and over the last, let's say, 18 months, really kind of ingested it and began to integrate it with our hardware and our overall partners in our ecosystem.
Consumers will now start to feel that in market as they buy new products, really in 2019 for the first time in a material way. We're very excited about what this platform as an operating system does for us and really what it does for consumers and how that works and really kind of builds overall in this kind of impact in the ecosystem of the kitchen. Again, it's not just recipes, it's not just image recognition, it's not just machine-app dialogue. We're actually making Yummly even more compelling to go into. We're adding premium features with chefs, Richard Blais and Carla Hall and even Andrew Zimmern. They're a part of our process. They're adding content, they're adding videos, they're adding how-tos. They're partnering with us to make sure the content itself is super enriching.
How we use the technology should be also very enriching and engaging to consumers. This is also now in market today. Very new, so we're still kind of growing it, but in market today. In terms of our leadership, Marc touched on this. This is an important element to our strategy. We've been recognized externally very consistently for what we're bringing. The approach, the thoughtfulness around really friction points or engagement points or really utility for the consumer, and we've won all kinds of awards. If you take a moment to look and read at what they've said about us, those aren't the things people would have expected were talked about for Whirlpool five years ago, 10 years ago. They are the things we expect people to say about us five years from now, 10 years from now.
We're very committed to making sure this aspect of our business grows in a very structured, fundamental way to enable our other businesses to grow as a consequence. The ramp-up. How fast is this going to happen? What does this really mean in terms of in market? You'll see these are the products for just the U.S. We've sold lots of other connected products across the globe. Specifically for the U.S., this is the amount of units we've sold in accumulative fashion and what we expect for both 2019 and 2020. You can see the scaling aspect here is very quick, and the installed base matters because it sets up how much engagement, how much density we have with engagement, and the pathways and the data.
With scale, with installed base, there are lots of benefits as a consequence of that that really can enrich our partnership ecosystem as well as our own machine to app and digital ecosystem. 2019 is a pretty significant increase, and 2020, I would say, is when we really enter the new material world in terms of how much is connected in a very big way. Maybe one last video, and this video is more to talk about around the globe. All of the different regions are working on innovation. Innovation isn't solely related to IoT or technology. As a company, we've been innovating to the slide Marc presented earlier for 108 years. Innovation needs to come organically across all dimensions.
Some of that is in our traditional products, some of that is in technology, some of that is just in feature benefits that consumers are really asking for and desiring. This video will detail a bit of that. As you can see, our innovation really is coming from all across the globe and in all kinds of different fashions in terms of product technology design. We're really excited about what this brings as a portfolio to the company and each of us regional leads will also share more about our business going forward. Moving more into the digital consumer journey side of things. Data really is at the center of really everyone's business.
What we're also doing to really drive the right information at the right time for the right consumer, and we're understanding all the different connection points, and we're doing a better and better job of taking data and moving it to the right places and using it for the right decisions. Really all across the consumer decision journey, that data brings to life our decision-making and really helps point us to be more effective, more efficient, and more impactful as we talk and engage with consumers. If you think about it just from a structure standpoint, this slide is a little dense, but just more meant to illustrate we have lots of different data inputs across a variety of different things, from brand properties to service, call center, industrial.
We have our technology stack that we think is best in class that does the processing, cleansing, organizing of it, and then we disperse it and run it through the pipes to the right places. We're doing a much better job taking that data, being a lot more sophisticated and advanced with analytics and really targeting consumers better, using it from an industrial standpoint better, and I'll give a little bit of a detail in the upcoming slides on what that means.
The point here is that it really is a thoughtful process for us to make sure we're getting the most out of everything we know, every place we can, which really has helped us, I think, grow quickly from a marketing standpoint, from a consumer engagement standpoint, and from an industrial standpoint. That what we know about the consumer has changed quite a bit in the last five years. We used to know certain things based on general population research. We used to know certain things based on if consumers registered their product, but that frankly happened a little infrequently. We used to know certain things, we could buy certain data from certain places, but it was hard to put it all together. It was hard to build a profile in a very clean way, in a very high accuracy-based way. Today, that's not true anymore. We can do that.
We know a lot about Jane Doe in the pre-buy experience. We know a lot about Jane Doe in the post-buy experience. We're putting that together to make sure we're anticipating the needs of the consumer in advance of when they need it, and that's really helping us become more sharp, more effective with everything we do because we're not running the averages as much. We're a lot more targeted. One-to-one marketing, one-to-one engagement, really CRM throughout the loyalty loop, when one group knows what the other group has done, it kind of builds off that. It's a lot more realistic and a lot more developed than it was just five years ago. As a consequence, we can send very targeted emails.
We know how long you've had a product, maybe how many service calls you had or haven't had, or maybe the fact that you have two products, but a third might not be our brands, and we can engage the consumer that way. We can set up our website, based on measuring high-value tasks and dwell and all these technical things to make sure we're actually putting content on our sites for what they're looking for in advance of them telling us. We can do a lot better job with our SEO, our search, and making sure we're targeting the right things and using the right words and setting up the right content from a video or advertising standpoint. Lastly, we can make sure our products are what they need based on what they're looking for, what they're asking for, and what they're searching.
all that comes together to be a much more meaningful engagement with consumers. From a digitization standpoint in the industrial side of things, it's not unique to the upfront marketing and CRM side solely. There are lots of advantages for a company like ours that's a big industrial company to really take data through the system and get us a little bit sharper, a little bit more accurate in everything we do. From a machine learning standpoint and automation and robotics, we're moving down that path, industrial robots, collaborative robots, and really driving that, getting them smarter and smarter in our big industrial footprints, which is really exciting. The one on the right, augmented reality. It's amazing how we train our employees today in our plants. We use light-guided systems.
Their very first day, they're on a mock assembly line, and lights are showing them what to do. They're building dexterity and experience in a very safe environment in a very quick way to learn. A green light means you did it right. A red light means you didn't do it right. We're training our employees in very, I think, sophisticated and frankly, engaging ways. It's a much better way to learn for our employees. Light-guided, visual inspection, image recognition are becoming commonplace in our industrial footprint, and it really is helping us take out costs, be more efficient, really get the performance out of machines that we're looking for. From a value chain standpoint and quality, it's also helping us in a couple different dimensions. We're designing products better.
If consumers don't ever use a feature, or have a lot of, I'll say, issues with a feature, we can redesign that, and we can get ahead of what they're looking for. In manufacturing, our test coverage, our ability to measure performance, our ability to measure variation or supplier quality, whatever it might be, goes up. Step function changes in the moment, real-time in the factory, not after the event as an audit or some problem-solving. Lastly, in homes, if products are connected and we're getting data with high frequency, high volume, we know what's working. We can maybe measure tolerances. We can measure performance and calibration of different components in the machines. As a consequence, we can get ahead of things. We can reduce service visits.
We can identify parts that need to be replaced, not guess to bring three parts, just bring the one part that's correct. We can sometimes engage with a consumer via chat or web or whatever it is to solve a problem without having to visit, which is usually the best-case scenario for everyone because we don't waste time, and we don't interrupt their day. Lastly, every time we go to a consumer's home, we should be able to solve things at a higher and higher rate so that we go there once and we solve the problem with high satisfaction, and we maybe even solve or some opportunities they didn't know they had. We can really, I think, be a lot more knowledgeable as we enter those discussions than we have in the past. Logistics and kind of the final mile.
An online purchase comes with an opportunity to engage the consumer and know what they want. What time do they want a delivery? Is it an afternoon? Is it a morning? What day do they prefer? Once we get that information with a lot of specificity about qualifying them, "Hey, is it an old house? Is it a new house? Are we removing something? Are we not removing something? Are we running water?" We can ask a lot of questions and become much more informed before we get there in a structured way. We can optimize our routing, making sure we have the most efficient delivery systems, the most anticipatory of traffic or weather or pinch points.
We can really kind of see it real-time and so can the consumer. Is this delivery coming on time, or is it late? Did something happen? Really engage the consumer in a way where there's no surprises and customer satisfaction is at a really, really high level. If we do that well, we think that builds loyalty long term. This is a very big opportunity to start that discussion with the consumer. These are kind of the big areas of what we want to talk about within each of the regions. We're really excited about our innovation, we're really excited about technology, we're really excited about the Yummly operating system as a platform, and it kind of manifests itself in each of our regional roll-ups.
This first slide is kind of a summary of all the regions, and then we'll go across each of the leaders and share where we are. I'll obviously talk about North America. From a revenue standpoint, in 2018, we were $11.4 billion. Our EBIT margin was 11.8%. Our share was approximately 36%, and the industry size, about 50 million. Our long-term expectations and goals are 2%-3% revenue growth, 13%+ EBIT margin, and 2%-3% industry size growth over the long term. I'll kind of detail a little bit more about the drivers to how we're going to get there. We get this question a lot on industry and kind of what's happening, certainly, if you take a long-term view, there's a pretty clear line across how it's performed. We think that pretty clear line is generally the right story.
Yes, we've had a little bit of disruption in Q4 and Q1 in terms of a little bit softer industry, a little bit more volatile. That's certainly true, but generally speaking, if you look at the components of demand, you'll see that we still feel pretty good about its long-term trend. The preceding 70 years, 80 years was approximately 3%. 2019 forecast that we've published and have talked about is a -2% to 0% for the industry. Approximately 2023 forecast is about 2%-3%. If we break down the demand buckets, because it's important to understand, I think, the bigger drivers, and there's more ways to segment this, but generally speaking, these are the bigger buckets between replacement, new construction, and discretionary.
Generally, those buckets have been kind of the same in terms of its structure, but its sizing has changed quite a bit. Replacement has grown quite a bit over the last, let's say, few years. That's a function that we'll kind of elaborate on in the upcoming slides. Appliances, in a replacement fashion, get replaced approximately every 10 years, plus or minus, different categories perform a little different. The increase in install base kind of helps add stability to the overall industry kind of characteristics or dynamics. New construction has historically been, let's say, 15% to 20-some percent. It's at 15% now. We think there's opportunities there that it will outpace a little bit what it has done recently, and I'll detail that out in some upcoming slides.
Discretionary's about 30%, that really has some elements around remodel and just discretionary purchases that consumers can pick and choose. We think, generally speaking, that the factors that go into discretionary spend, employment rate, consumer confidence, household remodel spends, broadly, are all kind of favorable as well. If we just go a little deeper on replacement and you look at the chart on the right, you'll see kind of the replacement market over the vault of the industry over the last couple of years, replacement is kind of a little bit of an explode. If you look at 2008, 2012, that was the kind of trough period in the industry. If you look forward at the box to the right that's kind of highlighted between 2018 and 2022, that's the 10-year kind of window.
Assuming generally it performs the same, we're kind of in the trough today. We're not through the trough, but we're definitely in it. We think, generally speaking, and the data supports, that it's not going to have a lot of variability from where we are today. It's certainly not going to be a big area of growth from a replacement standpoint. Generally speaking, we're kind of in it today. We're experiencing today. There's going to be some of the erosion or depressed industry that we've seen in Q4 and Q1 certainly contribute to it. There are other factors that we'll lay out as well. We're watching this, but generally speaking, this feels like it's as we expected.
If you look at the next bucket, which is really more on kind of discretionary and the 30% of the industry, if you look at consumer confidence, it's upward sloping, upward trending. We expect that to continue. If you look at homeowner improvement and repair expenditures, again, upward sloping and also a contributor. Those are going to build or feed into the propensity or likelihood of someone to have a discretionary spend. Again, we think that should outpace and grow versus where it was. We think that's a positive for us, certainly. The last one is really on kind of new construction and what we expect. There's lots of arguments to be made, but generally speaking, the gray area on the chart indicates kind of a normal amount of starts. We think we've been below that normal level for quite a few years now.
There's a lot of reasons for that. The trough put a lot of pressure on builders. A few years back, they were very sensitive. The labor market's extremely tight, it's hard to get labor. There's reasons for that. Regardless, we believe the housing stock has not kept up pace with the needs. We think household formations kind of say the same story. There's certainly discussion about will households form the same way they always have with millennials and things like that, I think the data shows maybe a slower or later, but not a dramatically different in aggregate composition. Again, we think this is going to be a positive factor in the future. We think prices have also maybe depressed some of the new housing.
As supply comes a little bit stronger and prices moderate a little bit, we think that's a bit of a boost to this segment of the overall demand creation. If we talk about maybe our brands. Over the last, let's say, 6 years, we've been around 33% branded share. Our portfolio of brands, what Marc alluded to earlier, is really is an asset for us. We believe we cover 97% plus of the U.S. market, as an example, with these brands. You can look at demographic, geographic or attitudinal, we think we cover. That's a really good position to be in. No matter what kind of happens from a consumer preference standpoint, we believe our brands can occupy, really all those needs from a consumer standpoint, either in price point or in technologies or in equities. It really doesn't matter.
Frankly, the data has kind of supported that. Our Q1 is at a similar level, at 33%. We expect that to kind of continue and help us grow in a market, irrespective of things changing. The trade landscape's also changed quite a bit. There's been a lot of discussion about how this is going to change in the future and how it has changed in the past. This goes back 18 years, there's big changes here. Significantly, independent retail, Sears, Home Depot, Lowe's growth, have been very big. We've managed to stay fairly ahead of most of these changes proactively. In the example of Sears being one clear one here lately. Frankly, just in general, we want to be positioned to be very successful, irrespective of channel or customer.
If we do that well, whatever grows or shrinks, we're generally going to be competitive in that environment, and we've demonstrated that. Irrespective of a Sears change, our performance has been very strong. Irrespective of a Lowe's or Depot growth, our performance has been very strong. We're trying to stay ahead of those things. The one that comes up quite a bit is the direct-to-consumer kind of e-commerce marketplaces. We're also doing things to stay ahead of all those landscape-type changes to make sure, again, we're very good at what we do and very successful in those channels. If they grow, we're ready to grow in those channels as well.
From a value creation standpoint, if you look at kind of a 10, 11-year window, ongoing EBIT and net sales on the bottom left, you'll see we generally have grown our EBIT rate over post-2011 on. Really, back in 2010, 2011, the company took some very difficult structural changes to make sure we were going to be healthy from a structural standpoint with people, with plants, with infrastructure generally. That positioned us to be a lot more nimble and a lot more healthy, then we could move as necessary to accommodate and anticipate the market. We've done a good job of that, generally speaking. We've generated both growth and EBIT appreciation. We have lots of tools to do that. We can do that with product launches and mix. We can do that with trade landscape anticipation, and frankly, execution.
We can do that with growing D2C as that continues to grow. Our consumer service and home delivery really is best in class, and we think that is a differentiator for the company. If we have great service, great home delivery and others don't, consumers will have a better experience. Retailers will want to have business go our way because it'll actually be a better, easier sell for them. We've invested quite a bit in these areas. Our competitive advantage on factory scale. To Marc's earlier comment, we have mega factories. We have large plant facilities that are highly scaled, highly efficient, and getting more and more sophisticated with every step. Then lastly, disciplined fixed cost management to the learnings we had back in 2010 and 2011.
Having a very lean infrastructure really does help us kind of be ready to anticipate whatever it might be that changes before us. With that, I want to turn things over to Gilles.
Thank you, Joe. Good morning and good afternoon to the investors in our European region. Before talking about the future of Europe, I want to start with a recap of our Indesit acquisition, its completion and its impact. At the end of 2014, we acquired Indesit to expand our product offering in the laundry category, to increase our presence in Russia and in the U.K., to also enhance our brand portfolio with brands like Hotpoint and Indesit, and also to combine our technology leadership in one company to offer the most innovative products throughout our region. It has been an ambitious and a very complex integration, but we can say as of now that it's complete. We have significantly reduced the complexity of our business by combining and reducing the number of architectures and platform we have, by reducing the number of SKUs we produce.
We have also reduced significantly and optimized the footprint. We have consolidated across manufacturing facilities, warehouses and offices. An important consolidation of our footprint. For complexity reduction, we have also worked intensively on our system, on our legal entities, and we have reduced the number of employees. You also know that if basically we have delivered the case that we said at the start of the process, and that's the green dot here. In the same time, we have faced some challenges during the integration and a more complex time with systems and logistics, and this has resulted in product availability issues, in loss of floor space and in loss of sales. Internal challenges. Which has been in parallel with external challenges, especially with the ruble and the pound, and putting really our business under pressure in EMEA.
Also mask many benefits of the integration that had been completed. As a result, the last two years, we ended up with operating losses. The Indesit integration is complete, has given this, but also has put us in a position that is, from a structural point of view, strong. Out of the top five market in EMEA, we have leadership position on four. The U.K. and Russia, we have country position number one, and this came through the integration. In France and Italy, we have also strengthened our leadership through the integration. Even if we lost shares in the last two years, these are the 2018 ranking. We have, from a market, a country position point of view, a very strong structural position.
From a product point of view as well, the laundry category, we are leading through the progress we make in cooking, and you saw, from the EMEA region, the beautiful W Collection that is being launched now in Europe, and I mean, starting in my new kitchen in Milan. We have seen as well great progress with Bauknecht, and this has been recognized, particularly, and we're very proud of this, through some of the design awards, one of the most prestigious we have in Europe. We received six awards this year. 11 products through brands like KitchenAid, Whirlpool, Bauknecht, Indesit, have been recognized. We have a strong product position, and we see also going in all the categories, good expansion. This give us post-acquisition, post-integration, a strong structural position in Europe.
From this strong structural position, together with what we have, and Joe has showed some of these in the past few minutes ago, coupled with strong action, and I'm going to detail this in a minute, we believe we can regain leadership of category growth and restore margin not only to the past level, but also to the competitive level. This is the work of our earnings from the 2016, 2018, to the longer term. We believe that through the short-term and midterm action that we are taking, also some of the longer-term action that take a bit more time to implement, and will create also value over time, we can reach approximately 8% earnings in EMEA. I'm going to describe in the next slide the action that are critical to support this development.
As we announced in the quarter three earnings call, we want to refocus our business. We announced we will exit from the commercial operation in Turkey. We will exit as well the Hotpoint small appliances. As today, I can tell you, we are on a good track to have this completed by the end of this quarter. We'll also continue to explore the potential sales of the South African operation, all this to refocus our business. We also announced an effort on the fixed costs and the $50 million, and this is on track as we speak. We're not going to stop there. This is critical to deliver the first green element you saw in the previous chart, this is definitely we will continue evaluating further cost opportunities.
What was very critical, and where we are on track, this was when I was talking about loss of floor space, renegotiate our contract, regain the momentum with our customers. As we speak, this is happening, and we, since quarter one, have a volume growth of about 6% when the industry is basically flat in Europe. This is something that need to be strengthened, continued for the years to come, but definitely, it's also, from the short term, essential to bring Europe back to profitability. Of course, we look at optimizing our asset base. We look at our Return on Invested Capital. The assets that are not performing, yes, we will evaluate and will further assess our factory footprint. That's clear. That bring us, when we do all this, to level of profitability that was at least the historical level, if not higher.
We want definitely to go further. We believe we can go to the next level to hit the benchmark of the industry in Europe. This, we want to accelerate our margin generation through the built-in business and our premium mix. Built-in is critical. It's a bit less than half of the industry volume in Europe. It's a vast majority of the profit in Europe. Here, we have strong growth opportunity. They take a bit more time to catch because this is long-term contract, this is customers that you need to gain and gain confidence, and when you had service issues in the past, you need to rebuild this confidence.
As we speak today, we have good traction in regaining long-term customers and in expanding in our built-in kitchen business, which is not only through the customer relationship, but also with all the product innovation that we bring. I do believe that with the brand portfolio that we have, we have also opportunities to invest and support the more premium side of our brands. The Whirlpool really expand with KitchenAid in Europe as well. This will bring us, in the longer term, to approximately 8% earnings level. After two months in the business, I can assure you of three things. I've met people in Europe who want to succeed, who want to deliver this turnaround and be in an area where they can be proud and deliver success for Whirlpool. People who have the capabilities and we have also the capacity to attract new capabilities.
I'm confident about the people we have in Whirlpool globally and in Europe to deliver these plans. About the brand portfolio, honestly, I'm excited about the brand portfolio. We have not yet untapped all the possibility we have in this brand portfolio. I'm coming from an industry where we're investing and leveraging a lot of the brand. With what Marc has shown, the KitchenAid, the Whirlpool, Hotpoint, Bauknecht, Indesit, we can really bring and create value to our brands. Finally, the product. We have exciting product. We have, through connected appliances, through the service, lot of things that in our pipeline. As I speak today, I know I need to be humble. It's only seven weeks, as I said, in the business. I spent time in the factories, in the market, engaging with the team.
We are convinced, I am committed to this strategy and this action plan that will lead Europe to a level of earnings which is in the competitive benchmark and will be approximately 8%. With this, hand over to Brega for Latin America.
Thank you, Gilles. Good morning to all. We are going to talk about Latin America, before we go into more details, I'd like to emphasize that different from the last 60 years, from now on, Latin America is going to be a pure appliance player, because we are not going to have Embraco manage and consolidating our numbers in the future. Talking about the region and give you a perspective about the territory and the countries that we are operating, I'd like to emphasize the largest five ones. You can see that even though we are, as a region, are not a upside economic scenario, we still have a very robust market. Brazil is the second-largest country that Whirlpool operates. I'd like to give you more color about Brazil.
When you look at this picture, I have to tell you that if you are a Brazilian, you realize that you are a survivor. Also, you can see the flip side in a positive way that the potential that we have in front of us. Without a doubt, Brazil, in terms of demand, touched the bottom. What we are looking for and what we are going to see from now on is a takeoff. I'm not saying that we are going to have a cruise flight. We are going still to see some bumps because Brazil is a young democracy and we're still facing some issues, without a doubt, we are going to see Brazil growing as a country, economy, as a result of that, our appliances, demand is going to be higher.
You can see that we are being conservative in the best of our knowledge that we are seeing, but the potential is there. We are, without a doubt, we're seeing a much higher upsides than downsides in terms of Brazil demand. How we are preparing to face that and to enjoy this growth. I'd like to just to make a comparison to show you the power of our brands. When you talk about Brastemp, you're talking about KitchenAid stand mixer. So that's the power for our brand, Brastemp. We have, among the top three, two brands, the most powerful awareness and preference in Brazil. Also, as Joseph Liotine showed before, the way that we are seeing the consumer journey in the future is we are leveraging that data.
There is one fact that we cannot dispute is the consumer has the autonomy to buy whatever they want to buy. If they want to buy in a store, they go to the store, the offline. If they want to buy in a website, they go to website. If they go to buy direct from the manufacturer, they go, or they go to the marketplace. The consumer has this autonomy, and our job is to put our brand and our products always in front of the consumer. By doing that in 2018, we were in a top website home appliance players. We are the third one, the third largest one. We sell only three brands. The other ones sell the remaining competitors as well. How we are doing that? We are not operating on our own websites, but we also more and more growing in the marketplace.
Why we are doing that? Besides the power of our brands, we have one capability that's very important to emphasize. Brazil has 5.4 thousand cities, and Whirlpool has the ability to deliver door to door in 5.1 out of this 5.4. We are seeing that as a tremendous leverage and competitive advantage for us, continues to grow in this area. In 2018, direct to sales for us was accountable for more or less 15% of our Brazilian sales, and we continues to grow in that path. That's all that I have for Latin America and Brazil. I'm going to turn to Sam.
Thank you, Brega. Good morning, everyone. Turning to page 53, let me give you a quick introduction about Asia appliances industry. China is the largest country from the industrial size perspective, is about 65 million units. However, given the slower economy and also very high penetration level, we see little or no growth for the next few years to come. India is the second-largest market in Asia, with about 20 million units. As you can see, India still have a very low appliances penetration level. With a very strong economy, we do see India for the next few years will enjoy a very nice growth rate from the industry perspective. For other part of Asia, we are talking about Southeast Asia, Hong Kong, Taiwan, Oceania, Australia, New Zealand, so on and so forth. We see total size of the market is about 30 million units.
Zooming into our India business, which we have a very strong business in India. Over the last several years, this business has been creating significant value for the shareholders. We own 75% of this business, is a public traded company in India. Today, this company itself, Whirlpool India, is a $2.3 billion market cap. Because of the investors really value the business momentum. In the last few years, this business has been able to generate 14% year-over-year growth at above company average EBIT margin. For 2019, we feel pretty good about the business will continue generate 15% top-line growth at about 10% EBIT margin. Going forward, we see the key drivers for this business continue to prosper. One is a positive industry demand trend, particularly outside the laundry and refrigeration, which we normally refers to T2.
Also, we have a very strong Whirlpool brand awareness in India. Currently, our brand preference remains above current our share position. We still have a ways to get additional growth from this business. We expect strong future growth, continue drive channel distribution expansion. New product launches, including some of the product Joe showed you earlier, connected devices. Also maximizing mixed opportunities. Last but not least, is rapid expansion into new product categories, such as cooking and a few other areas. Next is our China business. On the one hand, we are very happy we brought China business back on track after a very disappointing 2017 results. However, our short-term expectation on China on the market expansion remain limited. One is the industrial demand, is very soft, especially in Q1.
The other one is we are investing heavily in the brand transition from Sanyo brand, which we acquired through Hefei acquisition, into Whirlpool brand. That transition will continue for the next few years. However, after saying that, I also want to talk about another aspect of the China business. Why it is important for Whirlpool Corporation. China continue provide a cost-efficient manufacturing base for the corporation. Our smart factory in Hefei, by the way, this is a real picture. We built from a no man's land by full operation in 18 months. That's a speed in China. This smart factory to deliver the best-in-class manufacturing capabilities for the corporation. In this site, we utilize Industry 4.0 practices as part of our global manufacturing 2020 initiatives. Because of this, we are able to continue drive operational excellence and also cost-efficient installed capacity.
We continue invest heavily in smart robotics, augmented reality, and IoT to enable real-time production planning and feedback. While at the same time, today, from this side, we are exporting 25% of the refrigeration, laundry, microwave oven, dishwasher products to Europe and to other countries within Asia. To summarize for Asia, given the strong momentum of India for the next few years, and also best-in-class manufacturing base in China. We strongly believe we can deliver the long-term goal of 3%-4% revenue growth and approximately 8% EBIT level from Asia Pacific region. With that, I will turn over to Jim to talk about capital allocation.
Thank you, Sam, and good morning, everybody. Real quick here, what I'm going to do is I'm going to walk you through, as Marc mentioned earlier, drill into some of the numbers that we shared, some of the financial goals and metrics. Hopefully summarize a lot of what the different regional presidents have talked to you about, and see how that comes together on a global basis. Again, if you look at our long-term value creation goals, which are very similar to what we've shared in the past here, is one of revenue growth on an annual basis of approximately 3%, eventually coming to a 10% global EBIT margin, which I'll drill into a little bit deeper in one of the upcoming slides.
As Marc mentioned earlier, our focus on return on invested capital, as we look at a goal of 12%-14% further out, and then our free cash flow goals, which we feel we're very on track to right now of a 6%+. I think the one key thing you also got to look at here is our annual expectation is for margin expansion. We expect to expand by about half a point to a point every year. Again, as we look forward, we know there's going to be some volatility we need to deal with and other things and timing of many of the actions we've described. We do believe that's the pace that you will see it at. Also, if you look at return on invested capital, obviously there's a large correlation with that to our returns or to our EBIT margins.
Also, as we look at some of the actions around asset optimization and asset use, as the timing of those rolls out, you'll see how that impacts our return on invested capital. If I look at our drivers of our ongoing EBIT margins, we've broken it down by what are the drivers on a global basis, but also what impact will the individual regions have to this. If you really look at the first piece on a global basis is just a recovery of demand. A big part of that is recovering the volumes we lost within EMEA. Also, as you've heard from many of the different regional presidents, especially in markets like Brazil and that, and India, where we expect the demand to continue to increase at a significant rate. That'll help drive that there. The second piece is new product introductions.
A lot of that comes, as you've heard from the regional presidents, but also as Joe talked about earlier, in our connected appliances and the new products we're launching in that space. You really see that the products that we're bringing out, these will drive an improvement to our mix, but also an improvement over time to our margins. Net cost inflation, or cost net of inflation. Really what we look at is, as Marc talked about earlier, the different things we're doing in the manufacturing space, in the product design space, and how those things add up. Joe talked about some of the benefits of the digital work we're doing and how it'll help us from a total cost of quality. Those things begin to come into there and set the basis for how we continue to drive ongoing productivity.
Obviously, we do assume within there we'll also have to offset some inflation in many of the markets, whether it be labor inflation, logistics inflation, et cetera. We do believe we have a path to that. If you've heard everybody talk about, Joe talk about the technology investments we're making, Sam talk about some of the brand investments we're making in China and other places. You see that we do also assume that we will have to up our level of investment in certain areas of the business to deliver on this strategy go forward. If you take it on a regional basis, you look there, as Joe talked about in North America, we really believe we have a strong business within North America.
We expect to see continued strong margins with slight expansion within there as we launch new products, as we take advantage of the things that we have in the marketplace today. You move to EMEA. As Gilles talked about, with the turnaround of EMEA, that can have a significant effect on our margins globally. We do expect to see that over the next few years, that turnaround begin to come to the bottom line here. Latin America, with the recovery of Brazil, now that it is a pure play appliance business, we do expect to see a benefit to our global margins from that. As you look at Asia, with our strong India business, as Sam talked about expanding the Whirlpool brand within China, we do believe that also will add cumulatively to our bottom line and our EBIT margins.
Cash flow to get to 6%. Big driver of this is the margin expansion, obviously. That's the biggest piece when you start off. The next thing is a focus on working capital. At the end of last year, our working capital levels were relatively low compared to historical levels. We've targeted ourselves to try and get to a working capital 0% of sales in the future. It's to do it on a structural basis so that we see this at what we call everyday lower working capital. How do we manage our inventories better? How do we make sure we're managing our payables and receivables?
On the inventory side, it's a lot about demand planning, there's also going to be some benefits that come from some of the things Marc talked about earlier as we make improvements in our production environment and how we design products. The fewer architectures we have, the fewer number of parts we need to go into many of our products, the fewer number of SKUs we have all lead to lower inventory levels over time. There are many structural things that we look at in there. The other thing is that as we look at it, there have been a lot of what I'll call significant one-time or non-recurring type cash impacts we've had in recent years, whether they be the level of restructuring that we had to do around the Indesit integration. As you heard Gilles say, we are at the end of that now.
We've got most of that behind us in terms of the integration is done, and most of the payments are now getting behind us for that. The pension contribution we made last year of $350 million, that eliminated five years of future pension contributions for us. We'll see that benefit coming over time. Within this year, we had the settlement of some antitrust issues within France that we've had to pay. Obviously, that's a one-time item. Again, a lot of those things are getting behind us, and we anticipate to begin to see the benefit in the next few years in getting to that 6% plus. Step change in our ROIC through, as it says, margin expansion, but also our focus on invested capital.
As we look at parts of our business, whether within EMEA, some of the actions we've taken to reduce our business there with some of the assets that really weren't creating value, and we've taken them out of the business. With the sale of the Embraco business, that actually was a good business, but again, as we looked at it go forward, and Brega talked about that earlier, we felt that that was an appropriate thing to move out of our portfolio. Lower working capital obviously impacts this, but also I'll talk about in a little bit here on terms of capital expenditures. Our capital expenditures right now are about 3% of sales. With the work we're doing around product architectures and that, it allows us to get more out of our capital spending than we did in the past.
Fewer architectures mean that you don't have to invest as much in tooling and machinery as you did in the past, but you can still launch as many new products as you had or more in the past. Again, a lot of different focuses there. The other thing is when you look at how we calculate ROIC, we include everything. We use a very simple metric where we take the total assets on the balance sheet, all intangibles, everything in, we subtract the non-interest-bearing current liabilities, and that's what we say is our invest. We don't try and manage it around and pull things out. We also use a constant tax rate, because we know that our tax rate fluctuates from time to time. If we look at it over an extended period of time, it gives us a good comparable number.
As Marc mentioned, externally, you may see people calculating it differently. This is how we do it, and we think it's the best representation of the assets we have in use in our business today. Our capital allocation strategy. Not a lot of change here from what you've seen in the past, but I do want to highlight a few things as we walk through. As I said, in terms of CapEx and R&D, they're both about 3% on an annual basis, so about 6%. Very similar to the past. Mergers and acquisitions, we look at it opportunistic, things that come up in opportunities. I'll go into it in a second. We have certain ROIC thresholds for different types of acquisitions that we look at, and I'll kind of walk you through that. Dividends.
Historically, we have always said that we would be about 25%-30% of our trailing earnings on dividends. Right now, we've probably been trending to the 30% level if we look at recent years. We are very confident in our ability to expand margins, very confident in our ability to generate free cash flow. We've really wanted to say, we're going to stay right around that 30% as we look more go forward. Share repurchase. Obviously, Marc said earlier, we will continue to repurchase shares, but maybe not at the levels we had in some of the recent years, as we focus on things such as our capital structure.
Marc talked about getting our debt to EBITDA down to about 2 times is where we really feel is the right level for us to be at in order to execute on certain opportunities that may come up in the marketplace as we look forward. Talked about our different threshold on acquisitions. If you look at strategic acquisitions, which have a much longer timeframe to them, we do believe that they should deliver at slightly above what our targeted ROIC levels are. They're going to have a period of time that it takes to integrate them and to take advantage of the synergies that they generate. We also look at some bolt-on M&A opportunities. With those, we have a much higher threshold because we believe and we expect the benefits to occur almost immediately as we do that acquisition.
We want to make sure that when we do those, we've got the right threshold, and we do believe it will be earnings accretive from the beginning of the acquisition. Again, I talked about the dividend earlier in here, you can just see the pattern of dividend increases that we've had. As I said, we expect to keep that at about 30% of our trailing earnings go forward. Very confident in our ability to generate free cash flow. We've consistently, even as you look back through some of the more difficult economic times, if you would've gone back before this, we've always held our dividend or raised it. It's been something that I think, go forward, we do believe that that's the right thing to do. Continue to repurchase shares. As you can see, going back to 2015 to now, we've done significant share repurchases.
Right now, as I said, with the focus we have on trying to get our debt and our capital structure to the level that we believe is optimal for us, we are still repurchasing shares, but at maybe a slower pace than we had in the last few years. We expect to do that at about $200 million-$300 million annually over time. Obviously, with the free cash flow targets that I talked about earlier, as we move on, we will continue to look at once our debt metrics are in place, what is the best use, whether it be acquisitions, share repurchases, et cetera. In the medium term, this is what you should expect to see. Targeting our gross debt to EBITDA of 2 times. Marc mentioned this earlier.
There's three simple pieces that come to this. One, when we receive the Embraco proceeds, we pay down the term loan we have. Two, with the expansion of our EBIT margins, it'll expand our EBITDA, obviously. Three, as we look at some of our debt that's maturing over time, we will make the decision whether to refinance or pay some of it down using free cash flow. Again, those are the three big drivers. I'd say that gets us to around 2.5. We look at that last half there and we say, "Okay, that's going to be looking at whether there's opportunistic M&A opportunities or whatever out there.
Let's make sure we balance that with the overall needs of the company." Whether that comes through EBITDA expansion or it comes through debt paydown, we are going to get there, but we just can't pinpoint today exactly how we'll get there. The other thing is, just to talk about some of these metrics, you can see how these tie into the compensation of the leadership of our company. This is not just with this leadership team here, but throughout our entire vice presidents and many of our senior directors in our company have compensation, and all of our employees on the short-term compensation have compensation that's tied to the performance metrics. You look at from a short-term annual bonus perspective, it's ongoing EBIT and it's free cash flow, and they are weighted evenly.
We do believe that obviously as we look at the value creation for this company, those are the two biggest drivers. I think we talked about that the last time we had an investor day, and we really looked at what's driven our valuation over time, and these have had the greatest effect on it. We look at long-term compensation, and we say, okay, our ongoing EPS in terms of over a three-year period of time, that also then incorporates in things such as our tax rate and our capital structure and other things and how that impacts our earnings. What's our return on invested capital? Again, we believe return on invested capital is a very good long-term metric to look at for our company, and it talks about the health of our business overall.
That's why we've really targeted our leaders with their long-term compensation, to have that as a key component of it. The other thing, if you look at here, is for our top executives, more than 80% of the compensation is pay at risk, whether it be through our short-term bonus pools and that, or through our long-term equity compensation that we receive. Again, we do believe very strongly in pay for performance, and we do believe that we should tie the pay, especially of our executives and our senior leaders in our company, to our performance against these metrics over time. With that, I think I've brought us to the end here, Max.
Thank you, Jim. That ends our presentation and takes us into the question and answer session. If you have a question in the room, I just ask you to do a few things. One, raise your hand and wait. We'll deliver a mic to you so that those online can hear your question. Two, please state your name and your company before you ask your question. Last, let's do one question each to start, and then time permitting, we can circle back. With that, David, I think we'll take a question right here. Okay, go ahead. Go and stand on mic, please.
Hi. Mike Dahl from RBC. Thanks for taking my question. I wanted to go back to an earlier point in the slides because it seems like the productivity side is a pretty core part of the strategy and how to drive margin, and there were a couple slides around the integration of automation and technology, automation in the production side, technology, and some of the logistics. Can you just give us a little more detail around where are we in that process? Can you help quantify how much does that represent of your productivity goals? Thanks.
Yeah. Maybe I can take it. Mike, first of all, this is a competitive industry, and you have to be cost competitive. I think we also demonstrated over the last couple of years, we are able to drive significant levels of productivity.
The point which we're trying to bring across, you don't get that going forward with just squeezing every little bit tighter. Of course, we have scale, which will always give us a benefit, but there are significant other tools which I mentioned. One was with world-class manufacturing, product architecture, modularity, indirect spend. What we showed on the augmented reality, these are just tools on how we drive, in this case in particular, in four walls, what we call the conversion productivity, i.e., the pieces, the cost generated in the factory, not necessarily for material, but in the factory. All these data analytics, the smart robots, human-assisted robots, they're all tools on how we get to that productivity. That's why we all state we have a number. We do believe, because we're seeing it, we can drive sustained net productivity of 4%.
Again, that's net because you always will have salary inflation, all kind of other elements. To tell you now how much of a 4% falls on augmented reality and data analytics, I don't know. Well, because it's so interwoven, but it's certainly a key element in terms of how we overall drive to the net productivity.
Good morning, and thanks for the presentation. David MacGregor at Longbow Research. I guess I had a question, but also a clarification. Just the clarification is on page 43, where you talk about the margin progression over time in Europe. Are you essentially guiding to a 3%-3.5% margin in 2020, as it would appear from the timeline you lay out on that slide? The question, I guess, is just how should we be thinking about normal operating leverage in Europe now that this is complete? What's the kind of margin progression we should be seeing in terms of incremental margin versus an incremental revenue growth? Thank you.
I'm trying to not put Gilles on the spot. What you should have taken away from that slide is not necessarily a 2020 guidance, a 2021 guidance. What you should have taken away is there are certain actions and levers, in particular on the cost and the asset side, which we would consider being in our control, which we can drive in the shorter term. With these actions in mind, you get to what Gilles called the historic levels or certainly, the 2%, 3%, 4% margin within a reasonable timeframe. Because we know that, we have fixed assets, we have fixed cost reduction, and we're also on progress to regain the volume. See it more in terms of these are reactions in our control, which also means, we are highly confident in the next two years we can fully utilize and leverage these opportunities.
What Gilles told you earlier about the built-in and the premium freestanding growth, of course, we already work on this one, but that's a pretty long journey because it's product range, it's long-term supply, trade partner contracts. It just takes longer. It doesn't mean that we wait until the outer years. We start already now, but the full benefit you get in the outer years. To your question about the volume leverage, as we said several times in the earnings call
The volume leverage is completely different by product, by factory, because it depends on capacity utilization, et cetera. As a rough rule of thumb, in Europe right now in particular, you are talking about $20-$30 volume leverage per unit. It is significant. It is significant in particular in the phase where we've been last year, where you underutilized, because that's what we refer to what we descaled. We had several factories which were significantly descaled, and that's of course when you have a negative volume leverage. That's why we put a lot of emphasis on we have to restabilize and regain the volume to stop that deleveraging. Again, be careful about that number because it's very different factory by factory because it just depends on the capacity utilization, the fixed asset intensity by product types. It's a blend average what I just give you.
Okay. We'll stay in the middle here. Go ahead, Sam.
Okay. Thank you. Sam Darkatsh, Raymond James. Marc, I respect that you mentioned that you don't want to talk about prospective M&A or divestiture speculation, I'll make sure that I frame this delicately. You have, I'll call it a stretch goal of 8% operating margin in Europe. Even if you get to 8%, though, you've got $10 billion of tangible gross assets right now in Europe. Even if you get to eight, that's still a low single-digit pre-tax ROA. My first question would be, how much of the asset base can you extract over the next three, four, five years to make the ROA more attractive in Europe beyond just the margin exercise?
I guess holistically and however you want to answer this question, obviously feel free, just help educate us or remind us what the strategic importance is of Europe just to begin with for the company. You don't have, I don't believe, any material platforms that you're making there for other regions. Help us understand the strategic imperative or at least the importance of being in the theater for the company as a whole. Thanks.
Sam, let me maybe start pretty much at the outset of your question. There is no question, again, I'm not going to speculate on M&A and whatever else, there is no question, we showed that on the slide, that Europe is the most significant upside value creation opportunity for the company, period. That's why we just showed it in the margin walk is if you just do the math. If you also do the math correctly and include all parameters, everything inside, you also come to the conclusion, the most attractive way to do that is to fix it. It's also very clear, I would be lying to you if I would say anything different. There is a limited timeline, okay?
What I'm saying is we have to fix it within a reasonable time frame. If we don't do it, then we have another set of questions on the table. Again, believe me, that's our job to look at all these parameters on the math. The most attractive math is you fix it and you drive an adequate TSR, which comes with that. That is our journey. To your question about the assets utilization. A big part of already what we've decided on SDA Hotpoint, what we do in South Africa, and some other pieces, we do believe we can put Europe in a more, I wouldn't call it asset light, but certainly a lighter model. Because post-integration, we see opportunities even now when we go forward base, we can further reduce the invested asset base in Europe.
What we announced may not be the end of a journey because, that's what Giulio showed earlier, we do believe there are some opportunities to further reduce the asset base, and to kind of clearly get away from this $10 billion what you mentioned before. To your other question about the global benefit, we could now have a two-hour discussion about the global model and what benefit you get out of it. First of all, we've mentioned it several times, our global technology organization, which Roberto has, it's a global organization. You have cooking experts doing whatever induction cooking for rest of the world, or you have laundry experts pretty much around the world. Keep also in mind, in the '50s and '60s, a lot of the technologies were born in the U.S. and went east.
You have now more and more technologies be it laundry, be in cooking, which either were born in Europe and go west or are born in Asia. There are certain technology trends, I'm afraid you would miss the boat if you just sit on an island on one continent.
All right. Any questions in the middle? We'll kind of stick to the middle for a minute here. Anything else? Go ahead, please. Again.
Thank you guys for your efficient presentation. Breaks are always good, though.
That's fine.
If you look at the margin, Joe, I'm not going to focus on the regional piece, Joe, if you could answer this one or focus on some of the response. If we have a flat U.S., it's obviously today the way the market's going, who knows? That's your guys' estimate. Everybody else can have their own. Could you describe how you get kind of the, without volume gains, can you get the volume walk for the leverage? If you think about this year, how North America guidance played out, right? Falling material costs, but you guys didn't get as much volume productivity, kind of the corollary to that. My focus question is, how do you get the new product margin expansion? If you kind of have this world where you have falling material costs, but you can't get the deleveraging.
Where does that conviction for the longer-term guidance come from in terms of how that works through the income statement? Thank you.
In terms of volume, obviously, there's different expectations, and that's fine. We think we have a certain thinking behind it. I would say even in recent times, the last couple of years, we've demonstrated an ability to both get growth and generate incremental margin in that same kind of volatile, suppressed market. In terms of product launch, we're constantly looking at launching new products, and we flashed quite a few of them earlier. That generally can be incremental mix, that can be incremental segments we're not in. That can be incremental segments we create, like the smart oven, powered accessories, and things like that. Those are all, I think, opportunities. If you take that one step further and you say, well, with connected, Marc talked about what we want to drive in terms of product there.
That's certainly going to be a revenue generator, but so are services. As we do more and more home delivery, more and more service, more and more partnerships that are enabled by connected products or otherwise, those are all revenue drivers for us that are maybe early right now, but should mature in. If you look at our ramp scale that we showed in the presentation, we're kind of just starting that journey. We don't know, and we haven't necessarily experienced all the benefit of that. Those should all come in parallel, not in sequence of one another. That gives us some more assets, some more ability to drive revenue in the forward years.
Ken, maybe just adding to this one. I know some of you, not necessarily you in the past, obviously, used the P word, peak margin word, in the context of North America. Frankly, I've heard that question about peak margins, are we at peak margins for the last five years. For five years, we've been beaten what was previously considered peak margin. We continue to expand it. I know many of you had questions, can you get North America to 8%? Can you get it to 10? Can you get it to 11? We had solid 12% with a volume decline when we even took out inventory, took out production. I think that speaks already volume.
The other part, and I can't emphasize that enough, what Joe said is, part of the reason why I want to show you a little bit what we do on this connected product, what we do on winning purchase, our job is to create a different business model. Honestly, our job is to create a business model with different margin potential than the past. If we would have just continued selling appliances through all the channels which we know in an analog world, and we deal with the way it is, yes, you have a question about what's the volume leverage, et cetera. Part of that is also when you think about connected appliances and the services, just an example, what you saw on the integrated detergent delivery.
If you get a commission by the detergent supplier on the detergent delivered to the home front, that is a margin which we never had in the business, just as an example. Not necessarily North America, but also a number of parts of the world. Going direct is a different margin potential than the other business. Part of a strategic transformation is to create a business which has a completely different margin potential than we may have had in the past. That's why I'm saying, yeah, beyond product mix and what we can do there, the beginning pieces of what we see on this, both product and the purchase transformation, that starts showing just very different results, but it takes time to build it also.
Yeah. I think the one thing is, just to add at the very end, is not to forget within North America, we still have significant ongoing cost opportunities. As we talked about the world-class manufacturing, we're at the very early stages of that with many of our U.S. factories. We do see on top of the product launches, the margin expansion, mix opportunities there. Cost within the U.S. and North America, we still have significant opportunities over the coming three to five years around manufacturing costs, logistics costs, product development costs, et cetera, that'll continue to help expand the margins within that business.
All right. Over this side. Right side of the room, please.
Good morning. Thanks for taking my question. Curtis Nagle from Bank of America. I guess a question for you, Joe, just hoping we could walk through the math of replacement in the U.S. 10 years replacement on average. We're now cycling recession years where we saw pretty big drops in volume. If we're cycling those years on lower volumes, I guess why would we expect to see stable volumes? Shouldn't they go down given that we're replacing lower volumes? Or I guess, is there another way to think about it? Just as a secondary question, past couple quarters, volume's been pretty light. A variety of reasons I guess we can all speculate on. The rest of the year, I guess just what gives you confidence that we will see a reasonable ramp-up this year and into next?
Yep. In terms of the replacement, we depicted a few slides in the deck to kind of show the trough, in the recession years of 2008 to, let's say, 2012. Play that forward 10 years, that's 2018 through 2022. We're kind of in it right now. We have seen some depression as a consequence and volatility, I think that's accurate, but again, that's one of the drivers. The other two buckets we think have upside and continue to show strong fundamentals in terms of either employment or consumer confidence, remodel spend. That should help to mitigate some of that negativity that we see there. We're watching it very closely, obviously. The other part that we see is our sell-through with our customers, we think also gives some support to what that looks like going forward. That's not shipments. That's sell-through at the register. That's incomplete.
It's not the full industry. That also seems to be progressing kind of as we had anticipated. Those combined events make us look at it. Yes, we obviously have a range of 0% to -2% for 2019 for the industry. It's not exactly a very overly positive number to begin with. What we're saying, it's kind of going to be a little bit depressed as a consequence to what you highlighted.
Curtis, maybe just to add a little bit more color to this one, because I think there's also clarification. On that chart which you referred to with replacement, that shows the total market. It does not show the replacement volume on that one, because we want to show where the trough of the industry was and what you should expect going forward. Now, to also give you a little bit more color, this 10-year average appliance life cycle, think about a bell curve. It's a spread. It's also very different by product category. Typically, we see shorter replacement cycles in laundry, a little bit longer in refrigeration and cooking. On average, you can basically do the math of 10 years. Right now, the way we look at it, replacement, yeah, it's about 50%, 54%, 55% of the total market.
Given that view, if you just apply the 10 years, you're pretty much into year two of a trough, which you're now replacing. We know already how it feels, but also if you know, because you know what 2029, 2020, 2010, 2011 was. You know from going forward, it's not going to come down. It's going to be stable. In a positive way, I say, I know I have a floor in the market because we know that is the product volume, which is replaced. 55% of my market is pretty reliable because it's a stable number. Once you get in the outer years, we get much more momentum from replacement because then you go against the growth rates. To Joe's point is what we see right now, yeah, there's not a lot of momentum coming out of replacement.
We expected that because we're already in year two of a trough. What we saw in Q4 and Q1 was the other elements, the discretionary and the home-related one, they were much softer than most people would have expected, particularly driven by the home sector, which was sluggish.
Megan, please.
Good morning. Megan McGrath from Buckingham Research. Marc, I'm going to push you a little on Europe. I appreciate the 8% walk and that you said, you need to fix it and there's a timeline. What does it mean to be fixed? Can you give us a little bit more detail on, in your view, what that means? Is that a margin number? Is that a return number? Have you given Gilles a timeline on when he needs to reach that number? I'd love to hear it if you have it.
Did I give you a timeline? No. Megan, first of all, fixing. Again, I start out with the 8% target. We know there's at least two of our competitors who publish their numbers. They are on that level. It's not like, and you know you have a fairly solid market position. Historically, we've never been at 8%, but we've been pretty close to 7% as a standalone company. We're in as a standalone company was also mid-level. We know it's possible in this industry. It's not some moon number which is out there. It is possible. To really get to the full 8%, I believe it requires a lot of this built-in growth, because that's where the vast majority of the profit is. I would put the fixes in two pieces.
One is, obviously, we got to stop the bleeding, get to a break even. That largely comes from the actions which we announced in Q4, and as Gilles showed them, we are on track. Okay. There is a stop the bleeding and kind of stabilizing the business. One which takes longer is rebuilding the built-in and the premium business. That, by definition, you won't get that done in one or two years. In terms of our patience as a company, I'm not going to publicly talk about the timeline, but as you can also imagine, it's kind of because we get questions every quarter, our patience is not infinite. It is not.
This was a clear need at the beginning. All right, other questions in the room. Anyone who has not asked a question yet? Please, in the back corner. David.
Thanks for taking my question. Michael Finucane of PGIM Fixed Income. On the Embraco sale proceeds, first off on the Embraco sale, are there any regulatory hurdles remaining on closing the sale? Quick follow-up to that, could you provide a little more color on when those proceeds are expected to come in? Thanks.
Yeah. I would say right now, again, as we've said, we expect the closure of the Embraco deal to come in the near future. At this point in time, we have what we'd say is the final step is to get it through the European Commission, and we have a preliminary approval that's based on certain steps being taken by the buyer and being fulfilled. We're waiting for that to happen. Once it gets to that point of closing, the proceeds will come in a relatively short time thereafter, depending on timing of the actual closure. We expect to within less than a month, receive proceeds and pay down the debt. Again, it'll all happen relatively quickly once it goes forward.
Up in the front, please.
Hi, it's Peter Lawrence here from J.P. Morgan Asset Management. Sorry, it's another question on Europe and the roadmap to 8%. Firstly, Gilles, on the volume uplift of 300 basis points, what assumptions are you making there on recovery in end markets like the U.K. and also any market share gains on your side? Secondly, on the built-in uplift of 250 basis points, it's a big number, and I'm wondering, fine, it's going to take time, but what is your confidence on actually achieving that? Because your main competitor now has a well-entrenched position in that market. As you say, it's long-dated contracts, you just don't have the brand recognition that they have, particularly in the German-speaking world with AEG. Thanks.
On the first bit, this has started, we started in quarter four last year, regaining contract, this has been some major customers across Europe. As we speak, we have made really significant progress. In increasing the floor space, increasing in the U.K., also in the German-speaking countries we have in Central Europe. As we speak, the main thing is recover the volume and the floor space we had. This is happening. I do believe we need to strengthen this on the longer term to have a long-term business plan with those customers. Honestly, with both the product pipeline we have and this work, I'm pretty confident. The numbers we have seen so far, we are gaining share. In Q1 versus Q4, we are gaining share. It's visible in the numbers. I'm confident in this one.
The built-in number is ambitious, I agree with you. However, the opportunity is there, the number is not either completely out of the moon. It is definitely more growth than the rest of the portfolio. That's still in a growth rate of our business that is in a high single-digit number. This is something I really believe we can achieve. We need the product, we are working on this, where this is the go-to market, the logistic and this, we're putting in place. I met, in my first week, a lot of those customers, they're impatient that we can grow with them. This is in the U.K., this is in Italy, this is in France. Of course, we have still a big opportunity in Germany, which is the biggest market.
Bauknecht has a strong brand heritage, in the past years, we have not always been able to leverage this as well as we could. The first bucket, we'll get there. We'll get there with good sales, operational discipline, and customer engagement. The second one, we'll get there as well. This is more a company enterprise initiative, it's not a number that is totally unrealistic. I repeat, it's a high single digit every year. We need to deliver year on year. Once the engine has started, we'll get there, we'll accelerate.
Peter Lawrence, maybe just give a little bit more color on these two questions. One is on the short-term volume regaining. Again, keep in mind, because the public number, we lost last year close to 20% of our volume. We are on track towards our 6%, and we wouldn't be standing here if we were not confident about better run rates. It also tells you we're not done with 6% volume. To fully recover that volume which we lost in the deleveraging, it's going to be a one- or two-year progress. Put it differently, if you don't see from Gilles Morel mid-single or high single-digit number of growth, then we're not on track to regaining the volume. Again, it's not done with one or two quarters. We have to get better and sustain pace.
I would say, yes, Gilles Morel, that so far so good, and with five months behind us, we're in good shape from that perspective, but it's not done, to be very clear. Build-in, first of all, also, and I know you have to go a little bit back in history. In 2007, Whirlpool as a standalone company was the number 2 player in built-in. It's not a market which is alien to us. It's not a market where brands don't have pull. We know how to do it. As you know very well, it takes a certain time, because the built-in, part of the reason why it's very profitable in Europe, it has many elements of a system business. It's a set of appliances which are delivered at the same time to a customer home. You have to have the design fits.
You need to have a logistics perfect set up. These are trade partners. We have long timelines. It's not just getting a flooring. You need to have an entire system business ready. Again, we've done that in the past. It's not an easy one. I'm not minimizing that. I would say there's still a lot of capabilities within our organization who remember that and know how to get it done. It's not a Q1, Q2 fixed issue. I think that David MacGregor.
Okay. Let's go back this way to the middle.
Yeah. David MacGregor at Longbow. A follow-up. Thanks. One of the interesting developments that's occurring right now in the industry is this whole potentially transformational change to direct sale to the consumer. I'd be interested in, I think Mr. Brega talked about it on his slide with respect to the Brazilian business as being a major growth driver for him down there. Mark, could you talk about direct to the consumer sales in North America? If you could dimension that for us now in terms of just how big it is and the size, then when is the inflection point, and how do you deal with retailer opposition? Thanks.
Let me maybe make the first comment, I would also ask Joe to add a comment. First of all, I start with the consumer. Consumers throughout the world, as Brega pointed out, it's their choice in terms of where they want to buy. Do I want to buy a traditional retailer? Do I want to buy an e-commerce player? Do I buy with OEM manufacturer direct? Just think about yourself as a consumer. Very many categories where you just look up a manufacturer website. In some cases, it's your expectation that you sell direct. By the way, it's already very present in the U.S. If you would go to a typical electronic retailer in the U.S., take a Best Buy. You would go through the entire floor.
You would recognize about 70% of that floor, not appliance, Best Buy floor, you can also buy direct with the manufacturer. Again, I see that as a reflection of responding to consumer needs. To now tell you exactly how much we want to grow the business in North America and where, that is a little bit premature. We have communicated two weeks ago we're starting it. By the way, we have done it for many years in KitchenAid small domestic appliances. There are certain parts of the world where we think we can grow a bit faster, where it makes more sense, and there are certain areas of the world where we will take a more conservative approach. I would say, back to Brega's presentation. You should expect Latin America will be one of our fastest countries or regions.
I think we will see a business where we will have about 20% of our business direct to consumer. That's where we see more dynamics. There may be other parts of the world where we see different opportunities. I don't think North America will be leading that charge. We've had a communication two weeks ago. We said we want to build the capabilities. We want to go direct, because ultimately, it's also we want to respond to what the consumer asks us for. Joe?
Maybe the only add is people use the words direct to consumer and e-commerce almost interchangeably. To Brega's comments earlier, the e-commerce side of things can be a marketplace, can be a pure play, can be a retailer, bricks and clicks. Direct to consumer, really from the manufacturer standpoint, is also nuanced. Our goal is to be very successful in all channels, irrespective of what they are. Direct to consumer is a channel that consumers expect us to be in, based on the feedback they've given us. Home delivery, service, technology are all assets to make sure we can do that very well. That's kind of our goal there. Consumers then will choose based on their preferences and needs, what's best for them.
Hi, thanks. Mike Dahl from RBC again. I had two follow-up questions or a two-part follow-up to Curtis and Kenneth's earlier questions. Just to circle back on the industry chart that was asked about with respect to replacement side. Marc, to be clear, within the other drivers, what is the assumption for new construction over that time period? That's question one. In terms of the second question, there's a lot of uplift that's expected from mix. In the broader kind of housing trends that we're seeing, to the extent that volume's coming back, it's increasingly focused on the low end. You may not necessarily lose an appliance sale as that shift occurs, but certainly there could be a mix impact. To what extent are you factoring in negative mix shift within housing towards entry-level in your overall mix bucket? Thanks.
You want to start or? I can start. Mike, just maybe on the broader construction mix, probably a longer answer. Again, first of all, keeping in mind that is to date, a small part of a market which is directly housing related, but of course, you have all these indirect effects. As we've stated repeatedly, if you look at the housing market total in the U.S., from day one of the recovery recession, it was supply constraints. First, there were not lots. There was no builders. You didn't have lumber at one point. You certainly didn't have over the last six years, skilled workers to actually do the building. It was massively supply constrained, coupled with tighter lending standards.
What it led to is, against still positive demographic trends and everything else, it led to an appreciation of home prices, which are faster than you would expect in the cycle. That's just the reality. You saw a 5% increase last year and in prior years. You saw supply-constrained markets with a price appreciation, which was more than you'd probably want to see for a healthy market. What we think we saw last year is the mortgage rate increase until Q3, which is still low in absolute terms, but it still came up one and a half points, coupled with broader uncertainty led to kind of a softness of buyers coming to the market. We do see that coming back because the fundamental demographic trends are intact, okay? More than intact.
If you look at it in terms of population growth, household formation is still at a 40-year low. It's now slowly coming back. It comes back in the segments which you referred to as more of a mass and below ends of the entry buyer. It is intact. From whatever angle you look at, you cannot come to another conclusion. The housing market still has quite a bit of runway. Keep also in mind that most people don't even talk about, look at the age of rental stock and owned housing stock in the U.S. Rental stock is now 40 years old. You all know how many 40-year-old rental stock, you can't just keep it forever. If you keep it very long, either it then drives the home improvement market, or it will drive a new construction market.
Rental and owned housing stock in the U.S. is at a historic high. Putting all facts together, that's why we said with confidence, you cannot come to another conclusion that the U.S. just to give them a demographic trend and the housing stock, you have to see a market with 1.5 million to 1.7 million new housing. We all know we're far away right now, it's still 1.2 million. We're not planning for 1.5. We would love to see it, but if you just put all the parameters together, that is still what we would consider a healthy runway for the U.S. To see right now 1.2, what is it, 1.2 something, and existing home sales of 5.19 is below where anybody would expect. We also see it is going to recover. Not only in the back half of this year, but also over time.
From every angle we look at it. To your point, yes, we see, and that's a positive. We see it as a positive, the entry buyer starts coming back. The household formation comes back in the market. Now, and that's the strength of our brand portfolio. We're not only selling general KitchenAid. With Amana, what we have also in the entry section of Whirlpool, that is a market we serve very well. Actually, you see now more and more of the national builders who have multiple portfolios. We have the right brand portfolio, and we can mix up very nicely within the brand portfolio. We're of course, we take that into account, the mix, but we see it also with a smiling face because we have a brand portfolio to serve all these segments.
Other questions?
On your right. Just one second.
Curtis Nagle, Bank of America. Oh, Go ahead.
You both have time.
Dueling microphones. Megan McGrath, Bank of America. Just as a follow-up to that, we haven't really talked a lot about the competitive pricing environment in the U.S. You have your market share chart there. Can you talk to us a little bit about the importance of maintaining that market share in light of your 13%+ margin goal? Would you be willing to give up some share to reach that margin goal? Are you assuming that everyone continues to play nicely in the sandbox on pricing over the next couple of years?
Do you want to start?
Yes. From a pricing competition standpoint, the environment has been very competitive for a long period of time. We expect that to continue. There's no real reason to expect otherwise, and we've not experienced really a different world in a decade. Everything we're doing in terms of launch, pricing, analytics, things like that, expect that. We've been very successful in the last, let's say, five years or so, managing that and generating EBIT growth. Our plans are, I would say, more of the same and expect more of the same going forward. Maybe some of the discussion around new launches and different products, in terms of services and things like that are a little different. Everything else, we expect to have a very disciplined system to how we manage price and how we look at analytics. That will continue.
Megan, maybe just to add into this one is, we don't give forward-looking statements on pricing. I think the way you need to look at market share and pricing. First of all, the last couple of years, you saw that we had for six years a very stable and very sound branded business. We also stated for the last six years is, when we look in particular more short-term promotional and tactical opportunities, we look at value creation. Can we create value? We're certainly not chasing what we would call a quicksand market share, which you quickly gain and quickly lose. We're looking for the sound structural market share business in our branded side, and that's what we've been doing very consistently, and I think that's our strategy. Also take into account the chart, which I showed at the very beginning of leading countries here.
Market share is a strategic asset, but you also need to be very smart about which strategic assets you want to build and protect, and you're not going to go for any short-term wins, which may never create any value. Yes, it's a key focus, but if we consider it a strategic asset, it needs to be earned over time, and we've done that very well in the last five years. On competitive pricing, this is a highly competitive environment. It just has been, will be, and as such, you need to be, of course, smart in how you operate it, and we've demonstrated the last six years. I don't think the competitive intensity will any way go down. The flip side is also you need to keep in mind the current round of pricing was driven by massive material cost increases.
I know some of you are speculating how quickly are material costs coming down. We had $650 million inflation, and all we talk about right now is that the further increase may slow down. The rationale for why we had to do pricing is intact, and that is not going to go away very quickly.
Curtis Nagle, Bank of America. What is your current share, or I guess the sales penetration in the U.S. for builders? I guess how does that compare peak to trough? Clearly, it's a business that requires a lot of scale and is defendable, but, have any of your competitors tried to make inroads, I guess the guys ex-GE?
Yeah, probably can't get into a lot of details in terms of what we expect for competitors and what to happen in the future, but I would say that channel of distribution, builder, is equally as competitive and has been, has some different characteristics in terms of how you fulfill the channel. Generally speaking, we want to be successful in all channels. We've, over the last five, 10 years, made a considered effort to have good balance across all the channels so that we can win as the channel grows, or frankly, mitigate it when it doesn't. We're pleased with our business there, but it's a lot of work to continue to maintain it. We're always looking to get better there, but generally speaking, that channel behaves just like retail in terms of its competitiveness.
Slightly different assets required, but competitiveness would be the same.
Curtis, maybe just additional color. The builders market or segment as people refer to, you got to think about two pieces. The one piece is more of a smaller, medium-sized builders, which very often go through the pro business or pro desk of a home improvement channel or a Ferguson, whatever. There's a pro business which we don't serve directly. It goes through our channels. It's hard to calibrate, but we have a pretty good understanding, and these are very much similar competitors as we see in other spaces. On the big national builders, I would say overall, there are less players in the field, and that's very strongly driven because it is as much as the product requirements, is a significant logistics capability. Because we need to deliver an entire set of appliances very often in a two or three-hour time window to the construction site.
You don't do that on a spot by spot basis. Very often these national builders are multi-year contracts. These multi-year contracts are typically either with one exclusive supplier or two, so it's a much more concentrated business. As such, you would see less players. You mentioned GE. GE and us, we are the largest player in that segment. Frankly, we have not seen, despite a lot of talk, a lot of dramatic moves in that segment in terms of new entrants or whatever. In the middle, please. Go ahead, Ken.
Kenneth Zener, KeyBanc. I'm looking at slide 12, which says unique structural position, best cost position. Seems important. Could you not pass up this opportunity and really talk about these mega factories, which you have six and the 17. Just kind of talk about what we should be assuming is the margin dispersion and I guess it's good news, no one's talked about tariffs today and new plants in the U.S. I think that makes sense in light of your recent margins. Clyde has, I believe, a five million capacity. Other new plants in the U.S. that have opened, from competitors, have had one million. Can you please flesh out, to the extent you can, what scale means specifically or just some details that you haven't shared yet from that slide 12? Thank you.
Sure. Kenneth, you successfully embedded two or three questions in one question. Let me, in particular, let's talk about laundry as one example. Yes, our Clyde factory is about 4 million-5 million capacity. That's just washers. We have, as you know, Marion is similar sized dryers, this is just washers, which is by a long shot, the largest. If you compare it to the second in the U.S. is about twice to, well, more than three times the size of a number 2 in the U.S. We have a significant scale advantage. I would say when we talk about these large mega factories or in Clyde in particular, there's a hard scale dimension, rule of thumb, it has been always just the hard scale. Typically, doubling the volume, you have about a 3-point benefit or advantage. It's much more than pure scale.
It takes some time to build a capable workforce. In particular, when we talk about deploying some of the tools like world-class manufacturing, et cetera, it's not anymore that you, "Well, I train you for two hours," and you get on the line and done. Having a capable workforce, which also not an ongoing production, which can introduce new products, which can launch new products, is a non-trivial matter. It's more than just the scale, it's also the experience curve. Don't underestimate this one. That's why people just look at the numbers, having an experienced workforce, having a training system in place is a big deal, that provides benefits way beyond the hardcore scale benefits.
All right. One final question from David MacGregor.
Yeah, thanks. David MacGregor at Longbow. Question for Joe, I guess. On page 39, you had talked about the levers to expand margins to 13%+ in North America. At various points through the discussion here this morning, we've touched on a few of these. I wonder if you could just make reference to that slide, just rank order for us maybe the two or three largest, or most impactful that you would expect to play out from that list, maybe you have already. If that's the case, say so. Just help us understand, as we look at six or seven different points here-
Sure
What are the two or three that are most impactful? Thank you.
Yeah. Obviously, that slide is important to us. That's kind of the growth leverage as we've detailed them. Product mix, and we, by and large, sell products, right? When we launch innovation, when we launch new feature sets, that's always going to be a big contributor to our margin. That's always going to be primary for us. Things like the KitchenAid oven, things like the laundry front load machines that we talked about, you have differences there. You have some things that are high-end on the KitchenAid brand that generate, obviously, a good business for us. You have laundry, which is a big category for the industry, as well as for Whirlpool. That generates quite a bit of value there. Our ability to be effective on our pricing and merchandising is always going to be a sensitive one for us.
We have a lot of units that we sell annually, so the sharper we are, could always increase incremental value. That's a big one. I think some of these areas that we've talked about that are new and growing, along with Yummly, connected products, some services that we touched on, may be in a little bit of a more diverse bucket, but they're all immature and growing. That should all be incremental for us as we're not in those businesses or those categories today. Those are probably the bigger ones. From a cost standpoint, we're certainly a big company, an industrials company that has a lot of opportunity. Marc touched on the manufacturing side of things, and the slides preceding that showed the quality and the productivity side of things. That's going to be a very big bucket.
Hard to dimensionalize here in this discussion, but obviously, given the amount of things we touch, number of units we touch, and dollars associated, if we can become sharper there, that's going to be a big contributor going forward.
All right. We'll pass it over to Marc for closing remarks, and then I'll wrap up the presentation.
First of all, again, thanks for coming here. Thanks all for these questions here. I'm not going to cover another slide. I just want to come back to where we started out this discussion. First of all, this meeting is not about updating our guidance. I want to repeat, we are on track. I think Ken mentioned the tariffs. Whatever noise was around tariffs, first of all, I think there's maybe too much noise about tariffs, but we were very clear in our Q1 earnings call, we factored that possibility already into our original guides. Very definitely, it has not changed. We're well on track. We're confident about business, and that confidence has not changed in the last 12 weeks since we had the earnings call. That's the good news.
We want to spend the time here, and that's what you had at the beginning of the slide is talking about why we believe Whirlpool is a great long-term investment and why we can bring the company to a different level. It starts off with structural position, and again, that's just, in a certain way, I inherited it for 108 years. It took a long time to build it, but it's an incredible asset. But the really big part is what you saw, what Joe presented is the broad transformation for our company, not only on products, on services, how we go to market, how they talk to consumers down to the factories. That is a fairly massive undertaking, and to what we alluded to earlier, it will lead to a different business model. Of course, a business model where we expect higher margins.
That's why we do this whole strategic transformation. You also saw on the other side, if you go region by region, there are a lot of opportunities to further create value in the respective regions. In some cases, it comes on the back of market growth. In some other cases, it comes on our own improvement, like in Europe. I think there's plenty of opportunities, kind of. We're not relying on just one region, across all regions to further expand the margins. That's why we gave the targets which we gave, and that's why we're committed to these targets. With that in mind, again, thank you very much for coming. Great pleasure, good questions, and safe travels back home. Thanks a lot.
On your way out, please grab lunch. It will be set in just about three minutes. Also, we have a small gift for you. Once again, on behalf of the entire Whirlpool team, we do thank you. Safe travels.