Earnings Call: Q4 2020

Jan 28, 2021

Good morning, and welcome to General Dynamics' 4th Quarter and Full Year 2020 Earnings Please note this event is being recorded. I would now like to turn the conference over to Roxanne Warner. Please go ahead. Thank you, and welcome to our Q4 2020 conference call. Joining me today are Mark Bitzer, our Chairman and Chief Executive Officer and Jim Peters, our Chief Financial Officer. Our remarks today track with a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I remind you that as we conduct this call, we will be making forward looking statements to assist you in understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10 ks and other periodic reports. We also want to remind you that today's presentation includes non GAAP measures. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of results from our ongoing business operations. We also think the adjusted measures will provide you a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the presentation appendix and the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non GAAP items to the most directly comparable GAAP measures. At this time, all participants are in a listen only mode. Following our prepared remarks, the call will be open for analyst questions. As a reminder, we ask that participants ask no more than 2 questions. With that, I'll turn the call over to Marc. Thanks, Roquelin, and good morning, everyone. In difficult times like the ones we're living through today, it is important that we remain true to our guiding principles. Vopul's 110 year history is rooted in our value driven commitment to our shareholders, employees, consumers and communities in which we operate. In 2020, we faced unprecedented challenges due to the ongoing COVID-nineteen pandemic. Yet, we remain firm in our commitment to all of our stakeholders. The health and well-being of our employees was and it remains our top priority. We increased safety measures at all manufacturing plants and provided additional resources to care for families and those who fell ill. We established business continuity plans to ensure our consumers received our products to improve life at home with their families. And we continue to support our global communities by procuring medical supplies, making donations and engineering critical equipment for frontline workers. In parallel, we made significant advancements towards our sustainability targets, resulting in ratings improvements and external recognition. Most notably, we received a low risk rating from Sustainalytics, a year over year improvement driven by our outstanding energy and water efficiency programs and our strong global product safety systems. And we were named to the Dow Jones Sustainability North America Index in recognition of our long standing sustainable business practices. 2020 marked our 14th time on the list in the last 15 years. I'm very proud of the way our employees have managed through this pandemic. It is ultimately the agility of our organization and the resilience of our employees that allowed us to deliver record results in 2020. Now turning to our Q4 2020 highlights on Slide 4, we delivered strong organic net sales growth of over 10% driven by solid industry demand across the globe. Additionally, we delivered ongoing EBIT margin of over 11%, a second consecutive quarter of double digit margins and a year over year expansion of 4 10 basis points. Lastly, we successfully executed our go to market initiatives and drove strong cost takeout across the globe, leading to positive EBIT and EBIT margin expansion in all regions. Now turning to Slide 5, will discuss our full year highlights. We took immediate and decisive action as we announced and executed our $500,000,000 plus cost figure program. Further, we realigned our go to market strategy to effectively operate within a supply constrained environment. And structural and sustained positive demand trends and the exceptional execution of our COVID-nineteen response strategy resulted in record ongoing earnings per share of $18.55 a 16% improvement compared to the prior year above our previous guidance. Record ongoing EBIT margin of 9.1 percent, a 220 basis point improvement and a 25% increase in total EBIT compared to the prior year and record free cash flow of approximately $1,250,000,000 with free cash flow in North America, Latin America and Europe. Despite significant macroeconomic uncertainty, we strengthened our balance sheet and drove significant shareholder value. We reduced our gross debt leverage to 2.3x making progress towards our long term target of 2x. We delivered a return on invested capital of approximately 11%, representing the 4th consecutive year of improvement as we realized the benefits of continued EBIT margin expansion at an optimized asset base in our Europe region. Lastly, we returned strong levels of cash to shareholders through share repurchases and increased our dividends for 8th consecutive year. Overall, results we delivered in 2020 reflect the structural improvements we have made not just in 2020, but also in those made during the years before. We are a fundamentally different company with an improved margin and cash flow profile. 2020 could have been a setback for us, instead we were able to significantly accelerate our progress towards our long term financial goals. Turning to Slide 6, we show the drivers of our 4th quarter and full year EBIT margin. In the 4th quarter, pricemix delivered 3.75 basis points of margin expansion driven by reduced promotional investment and mix benefits as consumers invest in their homes. Additionally, we delivered on our cost takeout program positively impacting margins by 125 basis points. Server reduced steel and resin costs resulted in a favorable impact of 125 basis points. These margin benefits were partially offset by continued marketing and technology investments and the unfavorable impact of currency. For full year, very strong margin expansion from pricemix and our cost takeout program were partially offset by increased brand investments and currency. Overall, we're very pleased to be delivering on our long term EBIT margin commitment and are confident this positive momentum will continue to drive very strong results in 2021. Now I'll turn it over to Jim to review our regional results. Thanks, Mark, and good morning, everyone. Turning to Slide 8, I'll review our 4th quarter regional results. In North America, we delivered 4% revenue growth driven by continued strong demand in the region. Additionally, we delivered record EBIT driven by the flawless execution of our cost takeout and go to market actions. Lastly, we continue to optimize our supply chain operations, driving weekly improvements in our production yield. Delivering top line growth and a record EBIT performance, the region's outstanding results again demonstrate the fundamental strength of our business model. Turning to Slide 9, I'll review our Q4 results for our Europe, Middle East and Africa region. Share growth in Italy and the UK along with strong demand in the region drove another quarter of double digit revenue growth. Additionally, the region delivered year over year EBIT improvement of $29,000,000 led by increased demand and strong cost takeout. We overcame the challenges presented by COVID-nineteen and restored profitability to the region, in line with our commitment at the start of the year. Our 2020 results demonstrate the effectiveness of our strategic actions and the progress we have made to date. Turning to Slide 10, I'll review our 4th quarter results for our Latin America region. Net sales increased 5% with organic net sales growth of 28 percent, led by strong demand in Brazil. The region delivered very strong EBIT margins of 12% with continued strong demand and disciplined execution of go to market actions, offsetting significant currency devaluation. Overall, the region's 2020 performance serves as a proof point of the viability of our long term financial goals, highlighting our ability to deliver double digit margins in a strong demand environment. Turning to Slide 11, I'll review our 4th quarter results for our Asia region. In India, we delivered strong year over year net sales growth driven by demand recovery. In China, we delivered Whirlpool branded share growth in addition to EBIT improvement led by cost productivity actions. Overall, we are pleased to see a rebound in Asia and look forward to building on this momentum in 2021. Turning to Slide 13, Mark and I will discuss our full year 2021 guidance. I will now turn it over to Mark to begin. Thanks, Jim. Well, needless to say, some uncertainty remains as we continue to operate in a COVID environment. However, we do believe increased disposable income, investments in the home and a favorable housing shift are here to stay and will drive strong demand. Based on our internal model for industry and broad economy, we expect global industry growth of 4%. As we have demonstrated in 2020, we are uniquely positioned to capture these structural shifts and further advance our strategic priorities. It is with confidence that we provide our 'twenty one guidance, which reflects our 4th consecutive year of record earnings per share and significant top line growth. We expect to drive net sales growth of approximately 6% as we capitalize on strong demand and share gains in all regions. Additionally, we expect to deliver above 9% ongoing EBIT margin and deliver free cash flow of $1,000,000,000 or more. Turning to Slide 14, we show the drivers of our 9% plus ongoing EBIT margin guidance. We expect price mix to deliver approximately 100 basis points of margin expansion through 3 key initiatives. 1, discipline execution of our go to market actions 2, recently announced cost based price increase in Brazil, Russia and India and 3, new product launches. Just to give you a few examples of our legacy for innovation. In 2020, we rolled out our new global dishwasher architecture featuring the largest capacity 3rd rack dish washer. In Europe, we launched a Red Dot award winning built in induction cooktop. In the United States, we entered the consumables detergent business that we launched of our ultra concentrated swash detergent. Next, we expect net cost to positively impact margin by 150 basis points. As ongoing cost productivity efforts coupled with a carryover benefit from our 2020 cost takeout program more than offset elevated freight and labor costs. We expect raw material inflation to negatively impact margin by 150 basis points led by higher steel and resin costs. Further, as we continue to invest in the future, we expect increased marketing and technology investments to drive a negative margin impact of 50 basis points. While unfavorable currency primarily in Latin America expected to impact margins by approximately 50 basis points. In total, we expect these actions to deliver 9% plus ongoing EBIT margin, an EBIT improvement of over $100,000,000 compared to the prior year. Now, I'll turn it over to Jim to highlight a few remaining guidance items. Thanks, Mark. Turning to Slide 15, we show our regional guidance for the year. Starting with industry demand, we expect a robust demand environment for North America supported by continued strength from consumer nesting trends and increased discretionary spending. Additionally, the impact from positive U. S. Housing starts, which began to strengthen in late 2019 and strong existing home sales will translate to higher appliance demand. In EMEA, we expect a continued recovery in the first half of the year to support strong growth, while in Latin America, we expect modest growth of 2% to 4% as the benefits from government stimulus in Brazil are lessened. Asia industry is expected to accelerate by 6% to 8% as the region rebounds from prolonged shutdowns in 2020. Regarding our EBIT guidance, we expect very strong margins of 15% or more in North America. We expect the impact of favorable go to market initiatives and disciplined cost actions to offset cost inflation. In EMEA, we expect the strategic actions laid out during our 2019 Investor Day to drive EBIT margin expansion of over 2 50 basis points and a full year EBIT margin of over 2.5%. In Latin America, we expect to deliver EBIT margins of 7% or higher, as steady demand improvements and positive price mix are offset by continued currency devaluation in Argentina and Brazil. Lastly, we expect to achieve EBIT margins of 2% or higher in Asia, driven by demand recovery. Turning to Slide 16, we will discuss the drivers of our 2021 free cash flow. We expect another year of very strong cash earnings of approximately $2,000,000,000 driven by sustained EBIT margins. We plan to increase capital investments to historical levels to support the launch of innovative products around the globe. Additionally, we will continue to invest in world class manufacturing and our digital transformation journey. Further, as we ended 2020 with record low inventory levels, we are planning for a moderate inventory build. We anticipate restructuring cash outlays of approximately $225,000,000 primarily due to the impact of COVID-nineteen related restructuring actions executed in 2020 and the exit of our Naples, Italy operations. Overall, we expect to drive free cash flow of $1,000,000,000 or more as we focus on continuing to deliver record EBIT margin levels and prioritizing our capital investments. Turning to Slide 17, we provide an update on our capital allocation priorities for 2021. We remain fully committed to funding the business, driving innovation and growth, while continuing to strengthen our balance sheet and return cash to shareholders. We expect to invest over $1,000,000,000 in capital expenditures and research and development, highlighting our commitment to driving innovation and growth in the future. We have reinstated our share repurchase program that had been temporarily suspended during the height of the pandemic. With a clear focus on returning increased levels of cash to shareholders, we expect to repurchase shares at moderate levels. Lastly, we have a clear line of sight to delivering on our long term goal of gross debt to EBITDA of 2 times. Now on Slide 18, I'll turn it back over to Mark to summarize our key messages. Thanks, Jim. Let me just recap what you heard over the past few minutes. We are extremely pleased to see that despite the enormous challenges of operating in a global pandemic, our teams were able to deliver on our long term value creation targets. In North America, we delivered nearly 16% EBIT margins for the full year, significantly above our long term margin goal for the region of 13% plus. We restored the European region to profitability. In Latin America, we capitalized on strong industry demand, demonstrating the long term margin potential in the region. And finally, we delivered record free cash flow of $1,250,000,000 or 6.4 percent of sales, above our long term goal of 6% of sales. Further, we demonstrated an unwavering commitment our environmental, social and governance priorities, resulting in significant advancements to our targets. Building on the momentum of our 2020 performance and the operational excellence of our global team, we are confident that we are well positioned to deliver another record year in 2021. Now, we will end our formal remarks and open it up for questions. Your first question comes from the line of David MacGregor from Longbow Research. Yes. Good morning, everyone, and congratulations on the strong quarter and a good guide. Mark, I guess I wanted to just ask about North America and the 4% revenue growth. And you indicated price mix was up close to 4% implying flat volumes versus Core6, it was up 20 percent. So you noted that you'd be back to normal in terms of the manufacturing efficiencies by the end of the second quarter. But what does the recovery path between here and there look like? And what are the implications for Q1? And then I've got a follow-up question as well. First of all, David, good morning and thanks a lot. First of all, stepping back on North America Q4, not just Q4, we're needless to say exceptionally pleased with the overall financial performance in North America and the margins which we achieved in light of a pandemic which is still pretty severe. Now specifically to the volumes and the supply chain, now I would say our overall volume directionally are in the line in the scope of what you talked about, which also means we kind of on a sequential base Q3 versus Q4, we directionally kept market share, but year over year we're down. It's the same down, which we had also Q3 and Q4, which is ultimately related to the supply chain constraints, which we have. Now with supply chain constraints and we talked about it in the prior earnings call, there are fundamentally pandemic driven, I. E, you have absenteeism in factories, you have labor shortage, you have component shortages, which have been significant and we have transportation bottlenecks. So yes, of course, we're improving month by month, but it's also against the demand, which is rising month by month. So we're kind of still having a fairly significant back order situation, slightly better than at the end of Q3, but only slightly. And from everything which we see right now, that's where we in our prepared remarks that probably by the end of Q2, a little bit depending on the progress of pandemic, which will be out of the constraints. But it will be around us pretty much as long as COVID is around us. It also be crystal clear, it impacts pretty much everyone producing in the Americas, producing in Europe. It is less, almost no impact if you produce in China or Asia. So is the recovery path through the first half? Do we see the Q1 kind of look more like the Q4 and then we see the inflection in 2Q or just how should we think about the first half? No, David, it's not going to be an inflection point. It will be gradual improvement month by month. And actually, frankly, already in January, it's slightly getting better. February will be slightly better. But we will the back order situation will not be resolved in short term. It's just too big from a back order overall perspective. So our production yield has increased a lot. We're also adding capacity. So every month, you will see improvement and frankly we've already seen it in January. So, but it will still take us a time to work through it. Okay. Good luck with that. And my second question was just with regard to your ongoing EBIT margin guidance where you indicated that the net cost would be 150 basis points against that RMI, raw material inflation of negative 150 basis points. I guess just trying to get some sense from you of your confidence in that 150 basis points on net cost. And I guess a third of that's the carryover. But just could you talk a little bit about your ability to just carve into costs further in 'twenty one and to offset that raw material inflation? Yes, David, why don't I start here and then Mark you can kind of follow-up, but I'd say David as you said, you've highlighted that 1.5 percent, I'd say, you've got $50,000,000 to $100,000,000 that is our carryover from last year. And again, we continue to implement and drive actions related to that. So we'll also have some additional actions that rolled out in Q4 that will continue to get a benefit for this year. The second thing is, if you look across our broader production base and as we get more efficient in understanding how to deal with some of the COVID inefficiencies that have come around that will be a help for us. Incrementally, we expect volume to be as we've talked about volume to be higher this year. So that will help to drive additional cost savings. And then on top of that, within any given year, we typically look to drive a certain amount of reduction in what we'll call infrastructure and SG and A spend. And so that's probably another big portion of what comes out there. But where we start the year in terms of the cost takeout programs we've already initiated versus what we've got in the pipeline, we feel very good about that number. Additionally, as we've talked about from a manufacturing footprint, we ceased production in our Naples facility in Italy during Q4. And so we'll start to see the benefits of that also rolling in this year from a cost perspective. Yes. Dave, the comments I would want to add is, first of all, also coming back to last year. As you know, in last year, we significantly dialed up our cost takeouts. We started the year with a certain assumption, which we also gave you in the earnings call. And then we once the pandemic hit us, we massively ramped it up to $500,000,000 net cost takeout, and we did. So I would say we have a I know you see it, we have a track record of being able to deal with cost. Now of course, we do know raw material is a headwind this year. And we showed earlier it's €250,000,000 to €300,000,000 But I think we have other tools to overcome some of these headwinds and there's carryover, there's additional measures which we're taking. And yes, you also know it's not the 1st raw material headwind we're dealing with and we have dealt with very successfully in the past. We are everything also in raw material, because I see in some writing, not in your writing out there, people always referring to spot prices, etcetera. Keep in mind, we are either having long term contracts or hedged on certain positions. So I would say we're less exposed to volatility you see in spot markets than most other players and that's a good thing. And I think that also gives us probably higher level of confidence that's pretty much the range which we're talking about. Your next question comes from the line of Eric Baccard from Cleveland Research. Good morning. Good morning. Good morning, Eric. Good morning. Two things curious about. 1, if you could just give a little bit more insight into what you're seeing in North American demand trends, how that behaved through 4Q? And then secondly, I think you commented about gaining share in the U. S. In 2021. When during the year do you think the supply chain your supply chain will be in a position that's effective to allow you to start to accomplish that? So Eric, let me maybe first talk about the demand trends and maybe Jimmy want to cover the supply chain piece again. So Eric, on the demand trends, first of all, we got to recognize in 2020, yes, you've all seen the North America industry volume was positive. I think what most people lose sight of is the quality of demand has changed in a positive way. We saw in particular in Q2 and beginning of Q3, you saw a lot of duress or COVID related stress purchases in the freezers, the microwaves, etcetera. But that has gradually shifted more and more into the more higher mix, I. E. Remodel, kitchen upgrades or rebuilding or entire home construction. So beyond the numbers of a volume, we're really pleased with the mix which comes with increased volume. But it also means we do not see the demand as well. This is a COVID spike. Yes, there was a little bit of COVID spike. This is structurally and sustained healthy demand, which is yes, coming to extremely strong housing trends, but it's more than the housing, it's an entire home improvement. And we do not see that fundamentally changing anytime soon. That's probably on of all the global regions. I would say North America maybe the region where we're most bullish about from a structural demand trend. It's very healthy and we just do not see that slowing down. So I know the number which we've guided to, but it could even be it might be even stronger. So we're very confident about the structural sustained demand trends. I think we're particularly as we get our supply chain constraints resolved, I think we're confident we can capitalize on these demand trends. So and that's how many demands, Jim, you want to cover the supply chain? Yes. And I'd say, Eric, from a supply chain perspective, as we talked about earlier, is one, we've seen our supply chain now being able to at least keep up with the existing levels of demand. We're beginning, as Mark talked about earlier, starting to see improvements here early in the year in terms of our ability to start to catch up on some of that log. As we've talked about, by the middle of the year is when we expect to begin to work through that, assuming that nothing in the environment changes around us, because most of these, as we've said, supply chain issues are COVID driven. So that would put us in a place where we've really caught up not only on the demand, but on the need for higher retail inventory levels. And then as you get into the back half of the year, you'll begin to see us build our inventory levels slightly as we return to what would be a normalized environment. We talked about during 2020, how our inventory levels came down during this time period. So I think that's kind of the path we see throughout the year, but by about mid year normalizing from a trade inventory level and then in the 3rd to 4th quarter normalizing our inventories. Your next question comes from the line of Sam Darkatsh from Raymond James. Good morning, Mark. Good morning, Jim. I hope you both are well. Good morning, Sam. And good morning. A couple of questions, if I might. First off, with respect to the expectations for share gains in all of the regions embedded within your fiscal 2021 guidance, I'm trying to get a sense of what gives you the degree of confidence to categorically state that. I know you're going to have some easy market share comparisons and you've noted the new product rollouts. But I'm mostly interested if the industry promotional activity resumes like the normalized promotional activity resumes as lead times normalize as the discretionary replacement demand continues to improve. If that were to reoccur, what gives you confidence that you would still gain share in that sort of backdrop? Sam, let me take this one. First of all, as you rightly highlighted, I mean, I start with our new product innovations. The dish washers which we launched, the new top loaders, I mean the product pipeline which we put in place is very strong and we know from a trade flooring or trade reaction, the innovation. 2nd of all, just do the math, I mean, our as I mentioned before, our back order level is still significant. I don't need to promote back orders. I just deliver them. So there's no promotional pressure on the back orders and resolving that. That on its own is a fairly sizable portion. Now on the promotions going forward, as you know, we're not commenting on our go forward pricing strategy. The only thing which I want to hint to and repeat is, our promotion strategy has not changed no matter what. We participate it's in general terms, knowing also there's raw material pressure, knowing that particular China transportation costs are rising rapidly, I'm not quite sure where promotional pressure will increase so rapidly as some people assume. Yes, I think Sam the other thing maybe to add to that is you kind of talked about on a global basis and I'd say if you look at EMEA right now, the share gains we've had there, especially within some of the key countries that we do business in, we expect to continue into next year as well as our supply chain while affected there is not as deeply affected as we see within the U. S. And then even within other large markets such as Mexico and India, we anticipate that we will continue to gain share there and Brazil as we've highlighted has also been a very healthy market for us. So around the globe, we really do see multiple opportunities this year in terms of just trends and where they are right now. And then my second question, Jim, if you had this in your prepared remarks, I missed that, I apologize. Normal seasonality from an earnings delivery standpoint is roughly about 40% in the first half, 60% in the second half. But I'm guessing your cost takeout rollover hits in your first half, your volume load in is going to be early on in the first half. So should we expect the normal seasonal earnings delivery to flip this year? I'm guessing the answer is yes. I'm just trying to get a sense to what degree. Yes, Sam. I think you're thinking about it the right way in terms of the variables you're putting in there and we do expect it to flip now not to the extreme. In many of the more recent years, maybe we've been closer to 45, 55, but we do expect actually higher earnings in the first half of the year due to the things you highlighted is that one as we catch up on our supply chain and the production as well as just the carryover of cost. And so I would just expect it to be slightly higher in the first half than it is in the second half of the year right now. Your next question comes from the line of Michael Rehaut from JPMorgan. Thanks. Good morning, everyone. Good morning, Michael. First question I had was just kind of circling back to price mix, particularly in the U. S. And this has obviously been a big area of focus by investors. Following 2Q and particularly 3Q and now in 4Q in terms of the dramatically reduced promotional backdrop helping price mix and obviously you saw that come through in the 4Q results. How should we think about price mix as 2021 progresses particularly in the U. S? I mean, Mark you talked about obviously not having to promote your backlog and by all accounts it appears that the demand trends that have allowed for that reduced promotional backdrop seems like will continue into the first half. And if that's correct, I mean should we be thinking about more of a flat to down price mix dynamic in the back half? Related to this is I heard that if I heard right you talked about price increases in Russia, Brazil, India, but not the U. S. Despite obviously having significant raw material inflation and I was just wondering if in lieu of those normally what we'd expect would be some price increases to offset raw materials In effect you're getting those because of the reduced promotional backdrop at least in the first half. Michael, it's Mark. So let me try to answer this one. First of all, as you know, we're not giving quarterly guidance on price and mix. We gave a full year number, which is a positive. So and we're confident in this one. As you point out, there are several elements which come here into play. One is you have carryover versus certain carryover element, which will give us quite a good momentum. 2, we have innovation, which I alluded to. 3, and that's a really important part is coming back to the demand trend. The mix on the current demand is rich, okay? So we have mixed opportunities. And then 4th, yes, we had already some price increase in certain markets as we alluded to Russia, India, Brazil. And we're not commenting on any planned future price increases. The only thing I want to repeat again, in the past, we've demonstrated our ability to pass on necessary pricing if a cost based price increases to market, okay. But that doesn't mean we have any precise plans, now will we announce any precise plans. Yes, I think the other thing to think about and you kind of alluded to this is Q1 is our least promotional quarter. So when you look year over year and even the first half of the year tends to be less promotional, while as Mark said, there's carryover, the amount of impact is less than it would have been in the back half of the year of what we saw this year. Important and maybe underappreciated to a degree. Secondly, maybe to focus a little bit on the EMEA region with the margins there, the margin trajectory, down a little bit sequentially in the 4th quarter versus the Q3 and the guidance being for 2.5% plus in 2021. I was hoping maybe you could comment on how you feel the margin improvement trajectory is unfolding and what are the kind of markers that we should expect over the next 2 or 3 years in order to drive that margin closer to what you'd expect to be more of a normalized level? Why don't I start with it Michael and then I can have Mark kind of add some comments to it. And to begin with, as we look at we're very happy with the performance that we saw in the back half of the year within EMEA and the margin improvement that we made. Now we have to remember that EMEA typically does have their Q1 as their lowest quarter of the year. So we do expect to continue to be profitable. But obviously, when you look at it quarter over quarter, we wouldn't expect to see continued margin growth within Q1. For the full year, we do expect the margin growth to obviously to materialize to 2.5%. And a big part of what drives that is, one, you've got cost takeout actions that took place and many of those were not implemented until the back half of the year within EMEA. 2, as I've talked about with the share gains that we've seen and the continued improvement in volumes there and demand there, we do feel very positive on that. And so both of those set us up coming out of 2021 on what I would say is a good trajectory that we feel will put us on track to our longer term margin goals there. Now the bigger drivers of that will continue to be cost takeout In addition to with the market share gains that we're seeing right now and some of the new product introductions we're doing, we do expect to grow volumes there and we've talked about over the next few years. That's one of the key drivers to get those margins to a healthier longer term level. Yes. Michael, just what I want to add on Europe, a little bit echoing Jim's point is, we are actually very pleased with the 2020 full year results in Europe. It's, as a reminder, the pandemic from a consumer sellout hit Europe harder than it did Latin America or North America. So Q2, as you all remember, was pretty devastating from demand and also what demand. So I'm very pleased that with that huge stand in Q2, we were able to achieve on a full year base a profit in Europe, which mid year was a very difficult target to even think about. But we achieved a full year profit now. We all know achieving a profit is not a heroic achievement, but it's an important milestone. And what it basically tells me with the second half performance is we're back on track with the trajectory which we laid out in front of you, which says we want to get Europe very quickly to 2% to 4%. And when while we're working with long term strategic levers, get it on track to versus 7% or 8% operating margin target, which we talk about. And today, I would say the second half performance, I'm not reading too much between Q3 and Q4. The second half performance gives us all the confidence we're back on this trajectory. Your next question comes from the line of Curtis Nagle from Bank of America. Good morning. Thank you very much for taking my question. So forgive me if you guys have already addressed this, but just a quick one on the backlog. So in 3Q, I think you said it was 7 to 8 weeks that compares to 1 to 2 weeks normally. Where does that stand? Or where did that stand in 4Q? And roughly, I know there will be improvements coming through 2Q or the end of 2Q, but how should that kind of phase through the first half of the year in terms of that time? Yes, yes, Kurt, this is Jim. And what I would say is, listen, it continues to be, as we've said previously in the call, it continues to be at that similar 7 to 8 week level. But right now that our production is caught up with the current levels of demand And we haven't given a forecast or an outlook of how that's going to go, but throughout the upcoming two quarters. But what we do see in terms of production improvements, we do believe we will have it resolved and it worked through it by the middle of the year. So you could think about that, that would obviously be relatively ratable throughout the 1st two quarters. Okay. I guess just a quick follow-up. In terms of cancellations, I think you had said no issues there. Is that still the case? And then just kind of a modeling question here in terms of demand flow. At the Analyst Day 2019, I think 55% was replacement, 15 new housing, 30 discretionary. Presumably, that math has changed a little bit. Could you give an update in terms of where those percentages stand now? Yes, Curtis, it's Mark. Without getting into details of the percentages, I think let me maybe more make the qualitative comments, which also adds why we're confident, particularly in North America, in the long term demand trends. As you know, on the replacement side, we were running against the trough of the industry in 2008 to 2010. We're now pretty much coming out of this trough. Keep all the mind when people typically take this reference to 8 to 10 years appliance that's when you replace. Last year was a year of extreme intense use at home, which probably accelerated that replacement of the need for replacement. So I would say on a fundamental replacement, we're now coming I think, soon, but 12 will be behind us. So that will give strength. On top of that, we saw last year, throughout the years, I talked about significantly high discretionary demand, first coming from really with the rest and stress to really structure improvement. And I think on top of that, the housing side will come stronger and stronger and stronger. The housing side, the only thing that you probably don't see extreme numbers in short term is, it's housing supply constraints, okay? But you saw housing starts 1,700,000 or 1 667, in December. That is a promising sign, and it's been the highest in a long time. Still far away from where we believe it should be. It should be around 2,000,000 housing starts. So that is not yet fully in the numbers. But again, that's these are all the data points, which give us the high degree of confidence in the structural demand improvements. Your next question comes from the line of Mike Dahl from RBC Capital Markets. Hi, thanks for taking my questions and appreciate the color so far. Mark, I share the overall enthusiasm around home improvement spend and what that can do for long term appliance demand. I guess, I'm trying to think more about cadence and to the point of some of the replacement cycle potentially got accelerated. For all the comments around potential for kind of structural shifts in stay at home. There's also viewpoints out there about this kind of roaring 20s post vaccine distribution and kind of potentially some shift in pent up demand towards restaurant dining and dining away from home in general. As to what extent do you again, appreciating the favorable overall construct, to what extent does that play into your view on cadence for demand for this year, especially later in 2021? Michael, first of all, you hit already all the points which I would have answered. But again, it comes back to the fundamental confidence in consumer demand. Now first of all, in macro scheme, of course, there's uncertainty. There's uncertainty every year around what happens in raw material, current, etcetera. But I think this year, and that's different from last few years, we have a high degree of confidence in structural demand trends, and that's just real, okay? It's the housing side, it's the home improvement side. And the one thing which I really want to emphasize is, which sometimes outside observers get wrong is, everybody thinks about post COVID, everything will go back to where it used to be, it won't. First of all, COVID will be around as longer than we want it to be. 2nd of all, a consumer who has been more than 1 year essentially at home will not change behavior overnight. It's not consumer mind is not a flash memory, which you just erased. That behavioral trend is not going to go away. And also in the context of how people talk about future work, you should assume that going forward, the average consumer spends more time at home than before. It's just going to be that way. What it leads to is a fundamental reorientation of a consumer towards the house, the purpose of the house, how I live in the house and how much money I invest in the house. And frankly, some people refer to Wallace Voalte, a housing play. I wouldn't even say it's a house, we are home play. I don't care. Well, I do care, but if you improve your home, it will benefit us. If you upgrade the kitchen, it will benefit us. If you build a new house, benefits us. So there's multiple trends, which are all ultimately coming from a consumer reorientation to the home, which really play in our favor. Got it. And just a quick kind of follow-up to that. And I think it kind of plays into an earlier question around seasonality of earnings. So based on that answer, we shouldn't expect that within your guidance there's necessarily a huge spread in your growth expectations for first half versus second half, I. E, not some up high single digits in certain parts of first half of the year and then flat to down in second half of the year? No, Michael, this is Jim. You shouldn't assume that there's some high first half. Now what you should assume within there is think about when you're looking year over year, you're going to see the first half of the year just being stronger because around the globe, you had numerous closures of various within various countries that would have impacted obviously our shipments and our sales. So we will show stronger year over year growth. But when you think about it starting from Q3 of this year and on through Q4 of next year, quarter over quarter growth won't be anywhere near as dramatic as it was this year. And Michael, just to add to this one, Jim highlights an important point is, this will be a year where the baseline comparisons are just a little bit misleading because you had this I mean, we all know April, May and you had so just the year over year comparisons just will not make a whole lot of sense. I think you should particularly look at the sequential per run rate. And I think that's where you need to be looking at. And with that in mind, I would see you see a lot less seasonal swings this year. We will have very balanced year. We yes, we will have a very strong first half, frankly also second half will be strong. So I would say you see much more balanced dispersion of earnings throughout the year, and that's a good thing. It's just the baseline comparisons are will be a little bit misleading. Your next question comes from the line of Susan Makari from Goldman Sachs. Thank you. Good morning. Good morning. Good morning, Stephanie. My first question is focusing on capital allocation. You mentioned that you are modestly resuming your share buyback activity this year. I believe in that past, that's kind of when you use that language, it kind of refers to a $200,000,000 to maybe $300,000,000 range. Is that how we should be thinking about it this year? And any thoughts in terms of the cadence there and kind of your appetite to be buying the stock back? Well, Susan, this is Jim. And obviously, in the past, we haven't given specific guidance on the amount or the cadence that we'll do it within the year. But what we always have said is, 1, we at least intend to buy back any dilution that comes through any of our executive compensation programs or other things. So that's kind of the minimum that we look at. Again, when we say a moderate amount, we're also going to keep an eye on what the situation is around us and globally, and we feel very confident as we've talked about our balance sheet is in a very strong position, but also we want to be cautious throughout the year just with any of the unknowns that could come. So I think you should think about it being, as I said, at a minimum on that lower level that at least eliminates any dilution that could occur. Okay. All right. That's helpful. And my second question is turning to Latin America. You had another quarter with a really nice margin in that region. Can you maybe just talk to kind of the sustainability of what's of that, a little bit of what's going on on the ground there? I know you mentioned that you're putting some price increases through in Brazil. Just any color on that part of the world? Yes. Susan, I would read right now, the second half performance in Latin America, it's not only Brazil, we also had Mexico, very strong business in the other parts, but very impressive. The way I read it is this is a demonstration of what this region can deliver. Now there are, of course, crazy swings coming from currency, and you all have seen what the Brazilian real does and Mexican peso has now strengthened region a little bit. So I would say that performance is even more impressive knowing how much currency losses we had in particular in Brazil. So the way I would look at it going forward, that region is absolutely reached from structural perspective, which is able to deliver 8% to 10%. And right now, we guided 7% plus, and we're pretty confident. And I would also emphasize, we're confident on plus. Our Latin America business is a very well run business, operating very strong. We have exceptionally strong brands. But demand trends in that probably has been really positive surprise, held up pretty strong in Latin America. And I would even argue last year was the least impacted from demand trends of all regions, which is largely a result of the COVID stimulus in the respective countries. So but we see that continuing. The demand holds up strong. Of course, we're observing currency fluctuations. We're observing raw material increases, which are particularly impactful in Latin America. But again, coming from the second half of last year, I'm very encouraged by what our Latin America business can Your next question comes from the line of Adam Baumgarten from Credit Suisse. Hey, good morning. Thanks for taking my questions. So you guys had outlined industry growth for North America of about 4% to 6%, yet you still will have some capacity constraints in the first half. So maybe if you could walk us through Whirlpool's ability to grow with the market next year given some of the constraints in the first half? Yes, Adam, this is Jim. And as we kind of talked about here is, 1, we believe and we know that our supply chain is kind of caught up with where the demand levels are. So right now, it's just working through a backlog. And if you think about last year, that backlog is what we built. And as Mark talked about earlier, that was due to disruptions in our supply chain that were a result of COVID and whether it was impacted our suppliers or our own factories. So we're confident right now that we're able to keep up pace with the industry year. Okay, got it. Thanks. And then in the presentation, you noted the potential for opportunistic M and A. Maybe if you could give us a sense for what that may entail, would it be geographic based, could it be new product categories, maybe just a little bit more color? Yes, Adam, this is Jim again. And as we've talked about at our various Investor Days over recent years, as we look in all those areas. And the first thing we really look to do is see, is it value creating? Is it something that we think can be earnings accretive? And do we have the management capacity to do it? And we don't limit it to any specific thing. So again, we're continuously looking at product expansion within the portfolio we have or on top of the portfolio we have, as well as geographic expansion. And one of the things that we had talked about in recent years is that we believe that the first thing we needed to do was focus on some of the acquisitions that we did over the prior years, whether they be in Asia or they be in EMEA. And we feel very good with where those are right now. So we'll continue to look and we always are looking, but there's nothing specific that we would highlight outside of what we've talked about in our Investor Days. Your next question comes from the line of Ken Zener. Good morning, everybody. Good morning, Ken. What a year, very well done. Obviously, with a lot of this, what you would focus on in mix and perhaps structural changes due to accelerated cycle uses, Could you just expand on your North America margin guidance of 15% in the context of lower seasonality and sequentiality as opposed to year over year. I guess what I'm looking at is, just at the average margin swing in North America in 2018 2019, so the quarters versus the average. And it was only about 50 basis points, which kind of surprised me, but not really considering how you guys are executing better. Is that a reasonable way to think about margin volatility in 'twenty one is that it's going to kind of be off the average by maybe that much each quarter given your comments around seasonality lacking? Yeah. And Ken, this is Jim. And I think the best way to think about it is that our North America margins will be relatively similar to our overall seasonality of the business that we've talked about, because just think of the percentage that they are of our overall business and our overall profits. So that's obviously one of the bigger drivers there. 2 is, as we've talked about, as we look towards the year, we do believe in terms of volume and demand, the front half of the year being strong as we work through some of the backlog that will help normalize our business on a full year basis and especially within North America. Additionally, as we've said, we had more of the cost savings there within probably starting in the Q2 through Q4. So the dispersion of additional cost savings isn't as big in North America as it might be in the rest of the globe. So I think, yes, thinking about it that way is probably correct. Okay. Because just kind of surprising that you actually had such low EBIT volatility in 'eighteen and 'nineteen pre COVID. Just switching across the continent, I was really surprised. I mean, Indesit, I think when you guys did the Indesit, FY 2021 was when you were supposed to earn $21 is my memory. So, you know, dollars at the high end is off, but it's been hit a ride. And EMEA, if you're looking at 2.5% margin, it really seems like your A, market share has improved. I know you guys have been really focused on delivering positive EBIT, but was there it seems like you must have gained a lot of share. So perhaps because it's a country by country event and you guys really lost a lot of floor space and usually it took you a while to get back in. I know you had success at IKEA, but what really happened? I mean, did you guys just have better throughput so people accepted your product perhaps ahead of your expectations in terms of share gains? It seems like you might have actually leapfrogged where you were pre COVID in terms of your expectations in Europe. So Ken, it's Mark. First of all, it is true that towards the back half of last year, we started structurally gaining share back, okay? As you also know, there is no European market, there's a lot of countries. And I'm particularly pleased that in several of our key countries such as UK, Italy, but also France and now also lately Russia, we expanded our share position, which I think ultimately is a result of we have strong products, strong placement and very good execution. So I think it's a combination of all of that. But I also want to be very clear, we're not yet back to the level where I would expect us to be from a share perspective. I think we're still quite a bit of room to grow. You also know strategically our particular focus on the kitchen business, where it naturally takes a little bit longer to gain back per share. And that remains our focus. So I would say, I would read the share gains. Yes, we're proud, promising sign, but we're not done. So with that in mind, and also given that we're coming almost back to the top of the hour, so this was the last question. So, before you all check out and hang up and get the new keyboards, let me just pass on one important last message. So just stay with me another 1 or 2 minutes. When I reflect on your questions, a lot of them were what happens next quarter, 2 quarters down the road, supply chain seasonality. So, they were short term and maybe rightfully and that's what you also obviously talk about. But I would also strongly encourage you zoom out. And what I mean with that, look at the long term, look at the fundamentals. Last year has been the 3rd year in a row where we delivered all time record EPS. We just guided towards a 4th year in a row. 4 years in a row doesn't make it a one time wonder. We're not a COVID play. This is a structural improvement in a different company. I know Ken you just highlighted what we promised several years ago, we are delivering towards our long term shareholder targets. And I'm very pleased. A long way, you guys had some questions. We are delivering. We are guiding $19 to $20 So if you beyond, of course, the short term challenges, I think you should also give us some credit that we demonstrated sustainability to deal with whatever is thrown at This is it's 3 years in a row, now 4 years in a row. That is an exceptional strong long term fundamental trend. And I think it is fair to say that the Vodafo today is a very different company than it was 10 years ago. So with that in mind, thanks for listening to us and have a wonderful day. Ladies and gentlemen, this does conclude today's conference. We thank you again for your participation. You may now all disconnect.