Maytag Is Cleaning Up Its Act


By Heesun Wee Every business day around 7 a.m., Maytag (MYG) Chief Executive Ralph Hake gets on a conference call with the appliance maker's various unit managers to discuss problems and plan strategy. "It's very important to keep in touch with the businesses," he says, adding: "It has worked well for me."

It seems to be working for Maytag, too. Since Hake took the helm in June, 2001, the white-goods maker has been busy exiting unprofitable, ancillary ventures and paring down costs. At the same time, as Americans continue their home-remodeling binge, it's ramping up plans to branch into new, high-end appliance categories, grab market share in kitchen appliances, and grow in select international markets. "Maytag is recovering from a lot of mistakes," says Laura Champine, an analyst at Morgan Keegan who follows home-appliance and furnishing companies.

Investors like what they see, bidding up the shares to a 52-week high of $47.94 on Apr. 15. The stock is still trading at around $46 -- 16 times the estimated fiscal year 2002 earnings per share of $2.82. That's higher than most competitors, including Whirlpool (WHR), which is in the low teens. Maytag still may have room to grow, say those who follow the company.

MISSTEP CORRECTIONS. Hake's no-nonsense management style is just one of the many recent changes at the Newton (Iowa) concern that most consumers associate with its perennial spokesman: the lonely, idle Maytag repairman with no broken washing machines to fix. In the late '90s, the company made some costly misfires under Lloyd Ward, a former Pepsi marketing executive brought in to shake things up. A joint venture to sell refrigerators in China went sour, as did a Web site offering fresh meats and patio furniture to go with Maytag grills and smokers. Ward resigned in November, 2000, stemming from differences with the board of directors over the outfit's strategic direction.

Enter Hake, a former CFO at Whirlpool, who has tried to return Maytag to its core competencies. A key first move was snapping up Amana Appliances for $325 million in August, 2001. Most analysts think the deal is a good fit, given Amana's premium brand name in major appliances and high-end refrigeration products -- right in line with Maytag's strategy. The acquisition is expected to add roughly 20 cents to its 2002 earnings per share.

Maytag may also consider acquiring small-appliance companies to complement existing brands. "In the future, something like that could happen," Hake told BusinessWeek Online.

SLIMMING DOWN. Largely because of the Amana deal, Maytag recorded revenues of $1.18 billion in its first quarter, a 20% gain from the $978.4 million of the year-earlier period. Earnings per share came in at 75 cents, up 63% after last year's earnings were restated to reflect discontinued operations.

Meanwhile, Maytag is steering away from unprofitable side businesses. It's trying to sell off its interest in the $70 million China venture. And in December, 2001, Maytag sold Blodgett, which makes commercial appliances for the food-service industry. Sales at Blodgett were stagnant.

Management also has been trimming costs. In the first quarter, it moved some component production and subassembly work from the U.S. to plants in Mexico, where labor costs are lower. Competitors like Whirlpool have already made similar shifts. "We believe the company's cost-cutting efforts will come to fruit, perhaps to a greater degree than the Street is expecting," says Sam Darkatsh, an analyst at Raymond James, who has a strong buy rating on the stock.

IN A VACUUM? Maytag still has its share of challenges. Chief among them is its struggling vending-refrigeration business, Dixie-Narco, which makes industrial-size coolers and freezers for the likes of Coke, Pepsi, and other consumer-goods companies. The commercial-appliances segment, including Dixie-Narco, reported first-quarter 2002 sales of $58.4 million, down 9.7% compared with the year-ago period.

Another concern is Kmart, one of the largest outlets for Maytag products. The troubled retailer is among the top 10 customers for Maytag's Hoover vacuum cleaners. Plus, some analysts fear the building boom for new homes could finally fizzle later this year if the economy doesn't start showing more robust signs of recovery. That could temper consumers' appetite for appliances.

Analyst Champine isn't worried. She notes that a lag of up to two years is common between new-home construction data, or housing starts, and increased appliance sales, which means manufacturers like Maytag should benefit for an additional year or two. Hake says roughly 20% of growth is pegged to new-home construction, while a portion of the remainder stems from consumers remodeling their current residences.

COLD FILM. Hake also says he's moving to deal with the problems at Dixie-Narco, which accounts for close to 5% of total sales. Maytag recently signed a deal with Kodak to provide refrigerated vending equipment for film. Such machines are available at baseball stadiums and were used during the Olympics in Utah. Maytag also is talking to chocolate makers, hoping to strike similar deals.

And Kmart? Hake says the relationship with the bankrupt retailer will continue, saying: "We don't see any near-term impact on our business."

Some analysts harbor their doubts. They want to see more emphasis on new outlets and new products. "Management is, at least for now, trying to restore the company's profitability to prior highs, rather than chart new territory," says Nicholas Heymann, who follows Maytag for Prudential. He has a hold rating on the stock.

BUSY BOOMERS. Hake says he's working on these concerns. The plan is to increase market share in the kitchen through new high-end appliances, like wine coolers and smaller luxury appliances such as stand mixers and toasters. As baby boomers reach their peak earning years and pile up disposable income, research data suggests many plunge into remodeling their homes -- primarily the kitchen. Hake also wants to expand Maytag's reach into Canada and Mexico, where sales are negligible. The bulk of revenues, about 93%, come from the U.S.

All these changes should add to profits beginning this year. Maytag anticipates 2002 sales will grow 15% compared with 2001, and estimates EPS of about $2.80, vs. $1.77 in 2001, thanks to strong continuing operations and excluding special items.

Hake "has done a lot just getting Maytag focused on what it does best, which is produce white goods or major appliances," says Champine, who has an outperform rating on the stock, the firm's highest rating. She expects Maytag to beat the Standard & Poor's 500-stock index over the next six months. Not bad in a market still shadowed by economic uncertainty. Wee covers the markets in New York for BusinessWeek Online


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