Earnings Call: Q1 2021

Apr 22, 2021

Good morning, and welcome to the Whirlpool Corporation's First Quarter 2021 Earnings Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Senior Director of Investor Relations, Roxanne Warner. Thank you, and welcome to our Q1 2021 conference call. Joining me today I'm Matt Bitzer, our Chairman and Chief Executive Officer and Jim Peters, our Chief Financial Officer. Our remarks today track with a presentation available on the Investor section of our website at whirlpoolcorp.com. Before we begin, I remind you that as we conduct this call, we will be making forward looking statements to assist Thank you for your participation in understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements You may be able to discuss 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 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 Mark. Thanks, Roxanne, and good morning, everyone. Before we discuss our Q1 business results, I'd like to take a moment to discuss the volatile industry dynamics and our decisive response plan. In the Q1, global semiconductors and resin shortages amplified existing supply constraints and thus impacted our product availability. Further, we are faced with rapidly rising inflationary pressures, primarily in steel and resins. To address these issues, we swiftly responded with necessary actions to protect margins and product availability. We announced significant cost based price increase in various countries across the globe ranging from 5% to 12%. Additionally, we reset our supply chain model to constraint driven logic that constantly adjusts production based on component availability. I strongly believe that we have a right to protect our operating margins. These actions propelled our Q1 results and give us high confidence to significantly increase our full year ongoing earnings per share guidance by 18% to a range of 22.50 to $23.50 Now turning to our Q1 highlights on Slide 5. We delivered strong revenue growth of 24%, driven by sustained consumer demand and previously announced cost based pricing actions. Additionally, we delivered record Ongoing EBIT margin of 12.4 percent, the 3rd consecutive quarter of double digit margins. Server Generated positive free cash flow of $132,000,000 as a result of strong earnings and lower working capital levels. Lastly, we successfully delivered on our long term gross debt leverage target of 2x. Turning to Slide 6, we show the drivers of our Q1 EBIT margin. Price mix delivered 5.75 basis point of margin expansion, driven by reduced promotions and previously announced cost based pricing benefits. Additionally, we delivered margin improvement 3.75 basis points From net cost related to the carryover impact of structural cost takeout actions and higher volumes as we begin to compare against the impact of COVID-nineteen and the prior year. These margin benefits were partially offset by raw material inflation, particularly steel and resins, resulting in an unfavorable impact of 2 25 basis points. Lastly, increased investments in marketing and technology In continued currency devaluation, Latin America impacted margins by a combined 125 basis points. Overall, we're very pleased to be delivering on our long term EBIT margin commitment, and we're confident this positive momentum will continue to drive outstanding results throughout 2021. And now I'll turn it over to Jim to review our regional results. Thanks, Mark, and good morning, everyone. Turning to Slide 8, I'll review our Q1 regional results. In North America, we delivered 20% revenue growth driven by continued strong consumer demand in the region. Additionally, we delivered another quarter of record EBIT margin driven by strong volume growth and the flawless execution of our go to market actions. Lastly, we continue to optimize our supply chain operations, resulting in modest sequential share gains. The region's outstanding results continue to demonstrate the fundamental strength and agility of our business model. Turning to Slide 9, I'll review our Q1 results for our Europe, Middle East and Africa region. Strong demand and share gains in key countries drove a 3rd consecutive quarter of Double digit revenue growth in the region. Additionally, the region delivered year over year EBIT improvement of $36,000,000 led by increased revenue and strong cost takeout. These results again demonstrate the effectiveness of our ongoing strategic actions. Turning to Slide 10, I'll review our Q1 results for our Latin America region. Net sales increased 18% with revenue growth Excluding currency of 35%, led by strong demand across Brazil and Mexico, the region delivered very strong EBIT margins of 8.5% With continued strong demand and the early impact of cost based pricing actions offsetting significant currency devaluation. Turning to Slide 11, I'll review our Q1 results for our Asia region. In Asia, we delivered strong year over year net sales growth, led by demand across the region and share gains in China. Additionally, we delivered significant EBIT expansion across both India and China, led by go to market and continued cost productivity actions. However, uncertainty remains as COVID-nineteen cases continue to surge in Turning to Slide 13, Mark and I will discuss our revised full year 2021 guidance. I will now turn it over to Mark to begin. Thanks, Jim. So while the macroeconomic environment remains uncertain, we are confident that sustained strong consumer demand and our previously announced cost base pricing actions will offset the impact of global supply constraints and rising input costs. We are raising our guidance for net sales growth from 6% to now 13% and EBIT margin from 9% to now approximately 10%. In addition, with higher earnings, we now expect to deliver free cash flow of approximately $1,250,000,000 instead of $1,000,000,000 Finally, we're also raising our EPS guidance significantly to $22.50 to $23.50 a year over year increase of 25%. Turning to Slide 14, we show the drivers of our revised EBIT margin guidance. We expect 600 basis points of margin expansion driven by pricemix as we continue to be disciplined in our go to market strategy and capture the benefits of our previously announced cost based pricing actions. We continue to forecast net cost takeout to favorably impact margins by 100 50 basis points as we realize the carryover benefits of our 2020 cost reduction program and ongoing cost initiatives. The global material cost inflation, in particular in steel and resins, will negatively impact our business by about $1,000,000,000 We expect cost increases to peak in the Q3. Increased investments in marketing and technology and unfavorable currency, primarily Latin America, are expected to impact margins by 75 basis points each. Overall, based on our track record, We are confident in our ability to navigate this uncertain environment and deliver approximately 10% EBIT margin. Now I'll turn it over to Jim to highlight our regional industry and EBIT margin expectations. Thanks, Mark. Turning to Slide 15. We show our updated industry and regional EBIT guidance for the year. We have slightly increased our global industry expectation to 5%, reflecting the demand strength in North America. We have updated the EBIT guidance of our North America and Latin America regions to reflect the benefits of pricing actions and continued demand strength. This brings our EBIT guidance for North America to 15.5 plus percent and Latin America to approximately 8%. Lastly, in March, Gallant's launched its formal partial tender offer for a majority stake in Whirlpool China. Our EBIT guidance for Asia assumes Gallant's Partial tender offer is successfully closed in the 2nd quarter. Based on this assumption, we would expect to see approximately 7 months of Whirlpool China revenue and EBIT removed from the region's results. This is approximately $300,000,000 in net sales and approximately $15,000,000 of EBIT loss. With the deconsolidation of Whirlpool China Business and continuation of our profitable India business, We anticipate an increase in Asia's EBIT margin to 5% plus. Turning to Slide 16, we will discuss the drivers of our 2021 free cash flow. With expectations for stronger top line growth and improved EBIT margins, we increased our cash earnings guidance by $250,000,000 From a working capital perspective, we expect to see inventory build throughout the year as we compare against record low levels in 2020 and unlock bottlenecks in our supply chain. Lastly, we now expect $150,000,000 from the sale of a majority of our shares in Whirlpool China, in addition to the continued optimization of our real estate portfolio. Overall, we now expect to drive free cash Turning to Slide 17, we provide an update on our capital allocation priorities for 2021. We continue to 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. Additionally, with a clear focus on returning strong levels of cash to shareholders, we increased our dividend for the 9th consecutive year. Also, we have increased our share buyback program by $2,000,000,000 bringing our remaining authorization to $2,400,000,000 Lastly, we have delivered on our long term gross debt leverage goal of 2 times. Now on Slide 18, I'll turn it back over to Mark to summarize our Thanks, Jim. Let me just recap what you heard over the past few minutes. We are highly confident in our ability to manage We have consistently demonstrated our ability to be agile, take decisive actions And deliver strong operating results despite challenging market conditions. I firmly believe that we have the right actions in place to protect our operating margins, which is once again demonstrated in our record Q1 results. With increased demand and pricemix expectations, We significantly increased our guidance for revenue, EBIT, earnings per share and free cash flow. Lastly, we remain unwavering in our commitment to drive Your first question comes from Michael Rehaut From JPMorgan, your line is open. Thanks. Good morning, everyone. Congrats on the results. Thanks, Alex. First question I had was on the real impressive progress, I think, around the North American top line. And you talked about driving those results There were continued improvements in supply chain allowing for some modest share gains. I was hoping you could Talk to the fact that it appears that you obviously grew maybe a touch in excess of the market. But from a volume perspective, I mean, there's obviously a price mix component. So maybe number 1, you could talk about Your volume growth roughly and how you're thinking about share right now, if you were able to match the AHAM shipment growth? And number 2, how you think about your excess backlog. This was an area that I think at the end of the year, you're at 7, 8 weeks. If you were able to make any progress there And given some of the continued challenges in the supply chain and the extraordinary industry growth, If that's pushed out now by, let's say, a quarter, if that backlog still remains fairly elevated? Michael, it's Markus. Let me try to answer both of your questions. First, on Menard top line, Obviously, we're very, very pleased with the 20% growth in Q1, and it feels right run rate, Certainly, much better than Q4 and Q3. So we feel we have the right momentum. To be clear on 2 parameters, we gained moderate Share sequential, I. E. Q1 versus Q4. However, on a year over year basis, we have not gained share, just to be clear. We would also there's a reason why we don't provide unit volumes anymore. Having said that, of 20%, there is A healthy component of price mix. It's roughly in line with what we show for the corporation, but there's also underlying growth. Now the comparison To AAM and the AAM T6 or T7, that's part of the reason why we stopped communicating with volume. First of all, as you know, even in the AAM numbers, there's Quite a bit of noise about the calendar days, which is very common to get into. And 2, it's always a question about the T5, Having said that, we feel good about where we are right now from a run rate in Q1, both on volume and revenue, And we're pretty confident we can sustain that growth relative to the market on a full year basis. Now to the second part of the question on the excess backlog. I think if I heard you correctly, you were saying, are we 1 quarter away from resolving the backlog? We're not. That's a simple answer. Now let me give you a much more qualified perspective on this one. In our January earnings call, I think we were referring to 7 or 8 weeks of order backlog. That had its peak pretty much around October, November last year and then slowly started to moderate Towards January, and that's why we felt, yes, we're on track to kind of really bring that down quite a bit, which obviously, we absolutely want to do because we have consumers waiting for our products. So two things happened since or actually, three things. One is the consumer demand did not only stay strong, Actually, it grew, and that's why we updated our full year expectation on industry. Keeping all of in mind, when we refer to these full year industry numbers, these In a certain way, constrained industry shipments. I think the unconstrained consumer demand will be well above the 6% which we guide right now. So, a, you have a demand which didn't slow down, actually got stronger 2, you had 2 major events on the supply chain. 1 was Texas winter storm, which unfortunately impacted big part of the petrochemical production and subsequently resins and what it means for our supply chain. 2, you had the semiconductor issue, which I know in other industries has been already a major headache in Q4 and Q1. Because of the different sourcing strategy which we have, we were largely mitigating these effects. But like the nature of any hedge, you can't escape it forever. And that Semiconductor shortage was amplified also by, again, a little bit with Texas winter storm because there's 1 or 2 important factories for us. And you have a Japan fire, which also unfortunately impacts us. So you put a constraint a COVID constrained supply chain plus Semiconductors Plus resins against the stronger consumer demand, it's stress on system. What it ultimately translates into, the back orders, unfortunately, will remain elevated for some time to come. I would expect right now And admittedly, it's very difficult to forecast it. But right now, we should assume that Q2, Q3 will be on similar elevated levels. And right now, it looks like Q4, we should see some moderation on this one. Sorry, it was a long answer, but I think it's probably helpful to give you a little bit more A perspective on all these moving parts in the supply chain. And your next question will come from Sanddarkas From Brandon James, your line is open. Good morning, Mark. Good morning, Jim. How are you? Good morning, Sam. Two questions actually regarding the raw material inflation guidance. The first would be and I don't normally would ask this question in April, but these are not normal times. I'm thinking about fiscal 2022 RMI. If all commodities, Prices and what have you were to remain static in perpetuity, just flat from here on out. What are you what would you guess As to what fiscal 2022 RMI looks like right now. And then the second question, You had a terrific obviously a terrific price versus RMI spread in the Q1. It was 3.5 Points, the difference between 5.75% and 2.25%. How do you envision That spread in Q2 and Q3 as your lead times are obviously and the industry lead times are obviously Still extended. I would think that, that spread would continue. Just give us a sense of how you envision those two metrics, if you could. Thank you. Sam, good morning. It's Marc. Let me first maybe start on the raw material, then maybe Jim can also offer his perspective. I don't start at 2022 because that is far out in the current environment, to be very honest, with so much uncertainties associated with that. But let me give you our perspective on the dynamics of how raw materials seem to unfold. And also, First of all, emphasizing there's a big difference between absolute levels of raw materials and increases year over year. So when I refer to increases year over year, we do That's a continued increase in Q2, also a strong increase in Q3, and probably the increases Seemed to likely peak in Q3 and then will start moderating it from there on down. The level of moderation, however, will still mean a level of Absolute raw material costs, which will be significantly increased. And I think that's also largely what we will carry into 2022. But again, there's Sam, and I hope you appreciate the last 10 weeks, we've all had dramatically changed in raw materials, and I don't think we're in a stable environment right now. But that's right now our best scenario again. Q2 further increased, Q3 peaking, Q4 probably slightly moderating in terms of increases, but We'll be on a very high absolute level. Yes. And Sam, I would align with Mark on that, that's kind of the So if you think about it year over year, a big part of the materials cost that we're seeing inflation right now will obviously be in the number. And so as we look That's why we can't really give any guidance at this point nor would we, but we do think we'll remain at And then a question on the spread from Q2 to Q3. Listen, what we from a price mix perspective, as we've shown, the Q1 kind of aligns with the guidance we've given for the full year. So what it says is, as you go through, but materials are still a little bit lower and that's to the seasonality that Mark talked about. As we go throughout the year, Materials will be more of a headwind, but we expect the pricing to take hold and that will be a bigger driver of The price mix versus the reduced promotional environment that now that year over year is coming down as a benefit, but the 2 offset each other and We believe we'll be flat on a price mix throughout the year. Sam, it's Mark again. And also, actually, I read the headline of your note this morning where you say, Assuming price can offset RMI, which I think is the core of everything, I think the little differentiation I would make is opposed to saying assuming it's we have been offsetting RMI and price in Q1, and we will do so going forward. That's why we guided to Five points material negative on a full year basis and 6 points of pricing. Again, it's a have been and we will. Your next question will come from Susan Maklari from Goldman Sachs. Your line is open. Thank you. Good morning. And also congratulations on a great quarter. I know it's a lot of hard work going into that. My first question is just going back to the inflation point, can you talk to us a little bit about what changed since we heard from you at the end of the 4th You took a big step up going from the $250,000,000 to $300,000,000 to the $1,000,000,000 Talk us through what's different there? And then also how should we think about the Possibility that we get further changes as we move through the year, how confident are you in this $1,000,000,000 guide that you've given us now? Yes. Susan, this is Jim. And I'll start off and let Mark kind of add. And what we'd say at least on your second question there in terms Confidence, this is what we see right now and based on our best forward looking estimate, the best information we have. And obviously, we've Now, but we wouldn't expect to see something in play at the rate we've seen within the Q1 here, which leads to what your first question was, From back in January till now, what we've seen is a significant increase in steel prices. And I think you'll hear many producers out there talking about that over the next few weeks As I've seen that, but also to some of the things Mark talked about earlier, especially around what's causing some of the issues within our supply chain of a lack of resins and all that, That also caused as you think about the Texas storms and the rising oil prices in that, has caused a higher cost within our resin space also. So steel and resins are probably the 2 biggest drivers. And then you think about all the components we have that may contain pieces of that. So it's pretty broad based Throughout our supply portfolio. Yes. Susan, just to echo what Jim is saying. As you know, Our 2 biggest components in the direct purchase is steel and resin, okay? Steel, if you look at the spot prices, Steel just for late last 8 weeks has seen a dramatic increase taking North America. It went up to $1500 Visa levels, I mean, unheard of. Now We do not buy spots, but ultimately, the way our contracts are shaped up, we can't escape spot trends forever. And so ultimately, you see also something around this one. And resins is our 2nd biggest buy, which is obviously a reflection of Higher oil prices into these constraints coming out of Texas, they certainly don't lead to lower prices. So put these 2 together, Plus then the subsequent or cascade impact it has on strategic components, which we buy because our suppliers also have to be paid for steel, etcetera. So you put that all together, that led to that fairly dramatic change. Now with regards to your question about the confidence level, right now, I can only Characterized it, that is our very best estimate at this point. I wouldn't characterize it as extremely pessimistic or optimistic. I think it's a well balanced. But of course, I mean, in the current world, which we're living right now, it's there's always uncertainty. I mean, we saw that the last 8 weeks, but I do believe it's fair to assume $1,000,000,000 is about the right number for this year. And your next question will come from Eric Bauschardt from Cleveland Research. Your line is open. Good morning. A little bit of clarity, if you could, price mix promotion, I know you put all of them in a bucket, But just interested in what the slope of the curve of each of those looks like. And specifically, what I'm trying to get a sense of is Seems like the North American price increases begin in 2Q and I'm not sure when the peak benefit arrives there, but Seems like more of that's in front of us. And so I was a little surprised that the 5.75 basis point in that bucket in this Q1 Feels like it can get larger than that as we work through the year. Perhaps there's some assumption about a change in promotions through the year. But if you could just And a little bit on the assumptions within those 3 contributors, that would be helpful. Eric, it's Mark. And as you know, we're not Typically breaking down how much of price mix is promotion, how much is list and how much is really SKU mix, and it's always a combination of all three factors. If you look at the, I would say the last 9 months or 3 quarters where we had significant positive pricing, that came both from mix because we got Coming out of this immediate crisis in Q2, we got more and more mix benefits and frankly also the strong reduction of promotional investments. I think that now in Q1 got increasingly augmented with the effect of price increases, which we have already in some markets. But frankly, in Q1, you still have quite a bit of effect of reduction promotion. Now coming with Q2 and Q3, where we already slowed down promotion last year, of Of course, year over year, you will have less effect. It doesn't mean that we go back to promotion, just you don't have an additional positive benefit. As you go into Q2, Q3, that's Then you will see much more impact over list price increases throughout the year. And then related to that, the promotional plans are getting built for 4th July and there's probably perspective on what the back half of the year might look like with promotions. Can you just give a sense, you referenced that not going back to where they were, But what are your plans? What are the retailers' plans? Where is that going relative to where it was last year and where it was historically? Eric, as you know, we don't give a guidance or perspective on future pricing, future promotion. I think the 2 things, which I would Just in general, in terms of making the comment, we've now, for multiple years, had a promotion strategy, which was strongly based on value creation. When we When we can create value, we promote. When we don't, we don't. Coupled with this one is, and coming back to the earlier comments which I made To Michael about the supply chain, our supply chain will be constrained. It doesn't make sense to promote products which you can't produce. So Now again, the promotion plans will always change, but right now, I think we are assuming supply constraints for an extended time period. And as such, I don't think we have very aggressive plans. And your next question will come from Mike Dahl from RBC Capital Markets. Mark, Jim, thanks for the color so far, really helpful. My question is another one around cost, but thinking about Logistics, you have maintained your expectation for net cost to provide 150 We've obviously seen a lot of moving pieces on transportation and logistics as well in terms of Inflation, so can you kind of talk through underneath the surface, were there incremental changes That you were able to find additional productivity or cost outs to offset that? Just any sort of qualitative or Quantitative commentary you could provide there would be great. Thanks. Yes, Mike, this is Jim. And maybe I'll kind of start with this and say that, and I think you kind of already alluded to What we're using here is we do see increased logistics costs like many other manufacturers out there. However, we've also been able to take advantage of other opportunities within certain cost buckets within our P and L. And you know that net cost Lee, it's a whole bunch of different areas there. And so as we look at right now, what we would say is that our production volumes are very healthy, obviously, with the level of That you see today and additionally as we look at the cost actions we took last year and the amount of carryover and the benefit we're able to retain that is at or above the level that we saw previously. So those are the kind of things that we're using to offset, which is a what is a higher logistics cost environment. Got it. Thanks. And your next question will come from David MacGregor from Longbow Research. Your line is open. Yes. Good morning, everyone, and congratulations on all the progress and really kudos on navigating through these supply channel issues. It's Impressive execution. I guess I wanted to just step back a little bit with my first question and just ask about with all the progress in growing the North American margins, What's your latest thinking in terms of a longer term normalized margin for the North American business? And I guess a lot of moving parts here and not a lot of forward visibility, but just to think about sort of a steady state with everything you'd be able to accomplish in terms of the cost outs and everything else, how we should think about kind of a steady state normalized margin for the North American business? David, it's Mark. I mean if we step back a little bit in time and also the last couple of years, Whenever we hit a new record margin in North America, we were asked about is at the peak. And that question has been pretty steady for the last 3 or 4 years. And I think Our North America team has impressively demonstrated we can push it further. So now we increased the full year margin guidance to 15.5 Plus, and I think that the team work and demonstrate how much the plus can be over time. Now obviously, As we hear passes with a lot of, as you said, moving parts and big elements, we will then have to redefine what is a really long term steady Margin Objective for North America. But I would say the progress of the last couple of years has certainly encouraged To think differently about what can be steady state margins in North America, and I would expect that in the next investor meeting, which We will let the appropriate time announce when it will be, then when we'll give a perspective of our long term margin guidance. Yes. And just to add to that, David, I think the one thing that I'd like to highlight For Fooks 2 that you would have seen in 2020 in Q2 with North America is we had a significant volume loss and our margins still stayed about 12% in there. So To Mark's point, I think we have a very healthy business there that can now deal with many of the volume shifts and the volatility in other areas. And as we look forward, we expect that to continue to be a significant contributor. Okay, good. And the second question for me is just with regard to Europe. And can you just talk about some of the progress over there and what you may have been able to achieve recently in terms of new listings and Price increased traction and so on and so forth. I thought the incremental margins seemed a little light, but overall, certainly directionally, the margins are moving In the right direction. So can you just talk about some of the elements of your progress there? Yes. So David, I mean, first of all, The Q1, again, showed a really nice year over year progress. Keeping all this in mind, Q1 is Seasonally weakest quarter in Europe. We didn't make a profit in Q1 in Europe over the last 3 years, and we made a profit now. Admittedly, it is not Same level as Latin America and North America, but it's a profit and a really impressive year over year improvement. Also 2.5%, which we guided for this year, To be honest, that's perfectly in line with what we had in mind as our turnaround plan. Now we all know that is not the end stage, that's not the target, but it's exactly not what we had in mind for our turnaround plan. That is largely driven, yes. The European team also demonstrates good discipline in costs. We're also facing the same cost inflation in Europe as we are in North America, maybe not the exact same magnitude, but it's almost the same. And frankly, we got nice progress in regaining market share in several key countries in Q1. The European market also has been very strong in Q1, but I think even against the strong market, we grew market share. As I said repeatedly in the past, The biggest element of progress where we need to continue to demonstrate progress throughout the next couple of years is on the build in of the kitchen business in Europe, It always takes a little bit longer to regain market share, but I think we had some nice, really impressive wins already in Q1 around the Kitchen business. And your next question will come from Ken Zener from KeyBanc. Your line is open. Good morning, everybody. Good morning, Ken. Good morning, Ken. It's just amazing, margins in North America. So a lot of hard work there. One of the things I had discussed with clients last night is you have your 5 brands in North America Versus some of your competitors that are more mono brand, are we with this backlog still persisting and supporting very strong net pricing functions in the U. S. Are you seeing That in particular categories and I haven't been parsing out AHAM, but I mean freezer sales up, Things like that, I mean, is there really a dramatic shift in the mix of products, I. E. Freezers or some other types as opposed to With homeowners having record near 30, 40 year equity levels in their house, are they just spending more? Could you give us a little feel on how that higher home equity is translating to demand in your business is my first question. Ken, it's Mark. So let me try to answer. 1st of all, on the mix of product and then maybe a broader comment on the fundamental nature of demand that we're seeing. The mix of products, of course, in Q2 and to some extent Q3 last year, we saw a lot of, call it, COVID emergency products, okay, for microwave, the small fridge or replacement product because the washer broke down, That mix has gradually shifted and continues to shift towards original mix, I. E, people are investing in the home. There's disposable income, and people are upgrading or investing. So it's not the COVID purchase anymore. It's really structural investment in the home. And that's a good thing to see. The broader comment I want to make, in the past, some people were referring to asking us, well, What you see right now on demand is that pull forward. Frankly, I don't think pull forward describes adequately what's going on because pull forward implies there's A fixed amount of years you get out in appliance, and if you buy this year, you don't buy next year. That is not an adequate description. I think we need to think more in terms of appliance From consumer perspective, how much use, how much mileage, how many cycles you get out in appliance? And what last year showed, these people spending so much time in home, The consumption was higher, literally the consumption. So what happened last year and what happened this year, if people are spending too much time at home, The appliance consumption is higher. So it's not a pull forward. It's an accelerated use, which drives a lot of demand And which we expect also to continue for quite some time. Right. It's really interesting because I mean I tried fixing my dishwasher And something reset and it did rather quickly, which is good. But it seems like that at home really is a Tayo went well into 2022 as well. And I think you've been very clear to guidance that second half margins domestically We'll normalize something in that sub-fifteen, but where we are in FY 'twenty two remains Do you think the promotional activity that we're comping or set that's already in next year's numbers or last year's numbers, Is that something that is there any reason promotional activity wouldn't return in your opinion given what's happened in the last 12 months in terms of Domestic capacity or categories, it seems like you really helped yourself up in the margins by your cost actions in the past. So let me maybe first start on the demand. We do believe And I'm not particularly referring to North America, but it's similar in other regions. What we're seeing right now is the demand is a sustained and multiyear Demand trend, it's not a blip. It's a strong upcycle. And in particular for North America, you have The general consumer trend of investing in the home, people also going forward will spend more days at home. Just think about all these flexible work People will spend more time at home, which ultimately drives higher investments in the home and accelerated use of appliance in the home. Couple that with the housing market in the U. S, which I think some people refer to golden age of housing. Housing demand will not Slow down the next couple of years, if it all will increase. So put that together, you will have multiyear strong consumer demand in U. S. And you heard us before talking about consumer demand. To be honest, in all the years I've been doing the earnings call, this is probably the year where I'm most bullish about Mid- and long term consumer demand trends in North America. So I'm not worried about consumer demand. On the promotional Environment, I can only repeat what I said before. We have our policy. That policy is unchanged. I can't comment what our competitors are doing, And I won't and that's a pure speculation, but right now from everything you heard from us before in a supply constrained environment, you should assume we will not be very aggressive on the promotion side. And just to step out a little bit here too and echo what Mark said is obviously mentioned that our strategy on promotions Make sure that their value creating has not changed and we don't see that changing go forward. The other thing is, as I think as you think about these different dynamics Go forward in future years and while you can't exactly predict them, what you can look at and see the actions that we've taken, whether over recent years and our ability to offset these kind of And deal with them has just gotten better. And we talked earlier about whether it was cost based price increases we took in 2012, 2018, we're taking now. I think that's just a continued demonstration of our ability to adjust to the environment around us and still maintain and expand our margins. And your next question will come from Curtis Nagle from Bank of America. Your line is open. Great. Thanks for taking my question. Maybe I'll just pivot a little bit in terms of some stuff we haven't talked about yet. Thinking about, I guess, just kind of any changes in terms of the behavior of kind of how people buy appliances, obviously, General has shifted a lot more behavior online. I think for a while now, the buying journey per se has Been online, maybe goes to store and it goes from there. But in terms of the number of people who are purely buying Appliances online, don't visit the store, whether it's through Depot, Lowe's, whatever. How has that changed over the past year or so? What percentage is that now relative to couple of years ago. Kind of where do you think that goes? Curtis, it's Mark. So obviously, the Consumer trends in terms of buying online or purely online are vastly different country by country, okay? You have some countries where it's Already almost 50%. Like in China, you have U. K. Where it's reaching 30%. U. S. On a multiyear It has been more around 12%. Obviously, last year was increased. Now to also clarify, there's a big difference between Pure online purchase and kind of mix because pretty much every consumers goes online anyhow to the pre buy and pre information. And of course, the Your online transaction has significantly increased in particular Q2, Q3. But I would say in the U. S, less So when in other markets, and that's simply a reflection because many retailers remained open, which has not been the same in other countries. So I think will that settle back a little bit to pre COVID levels? I would say not entirely. I think you would, but COVID broad is a Structural percentage point change in terms of how many people will just buy purely online. So we may not see the COVID peak in terms of online sales going forward or next in the But it certainly will not go back to pre COVID. So I think coming out of this one and again, the dust has not settled, but I would not be surprised if you see in the U. S. Online pure online transaction in the ballpark of 15% to 20% already this year. Okay. Thanks very much, Mark, and good luck for the rest of the year. Okay. Thank you. Thanks, Curtis. So I think that pretty much marks the end of our questions. So let me maybe just close here. And usually, when you close these kind of calls, you repeat with confidence and you repeat everything you said. I'm actually going to keep that part fairly short because as you saw before, we increased our guidance from $18.55 to Midpoint 23, more than $4.50 You don't do that if you're not confident. We are confident, and I hope to express it adequately in the last I rather want to use this closer year actually to thank our employees and give you a little bit color. We always expect a lot from our employees, but what our employees are right now delivering and committing is beyond the extraordinary. What I mean with that is we have still COVID is still very real. I know U. S. Is getting out of the woods slowly, But it's very real throughout the world. And on top of that, we have these constraints and challenges that we just talked about. To give you a little bit of picture on COVID, it's very real. We have factory in Manaus. We had to shut it down because we had to give industrial oxygen to the local hospital because they ran out of normal oxygen. We have India fully being hit by the COVID wave, and we have several 1,000 employees in India. We have, in the month of April, 5 76 colleagues who got positively diagnosed. So it is very real, and that means a lot of pain and anxiety for a lot of our While at the same time, what we so easily and casually describe as supply chain constraints, it's hard to express what amount of stress That puts on an organization. So I'm sitting here, and I just I want to tell our employees it's not lost. We certainly do recognize the extraordinary effort being put into this one, and our organization is delivering. And I just want to express my thanks. And I guess that marks the end of our Q and A. Thank you, everybody. Bye. Thank you, everyone. That will conclude today's conference call. You may now disconnect.