Ralph fights back

Ralph fights back
Date May 06, 2005
Section(s) Columnists
By Peter Hussmann Editor  
Ralph Hake appears to have had enough. Last week, the CEO attempted to stop the bleeding and reassure workers that Maytag was not on the final rinse cycle.

In the week following the release of Maytag‘s first quarter results — where earnings were off 80 percent from the same period a year ago — Hake stood by as business analysts took turns telling shareholders their take on the reasons for Maytag problems, which pushed stock prices to 15-year lows.

“Apparently there’s a new washing machine setting: the tailspin cycle,” wrote David Meier on the Motley Fool investment Web site. “On Friday, Maytag found that setting a bit harsh on the threads, as its shares fell $4.21, or 28 percent, to $10.89.”

“Last Friday, Maytag Corp., shocked investors by missing first-quarter profit estimates by a proverbial country mile and slashing its outlook, and then suffered the indignity of having its bonds downgraded to junk status and questions raised about the long-term viability of this American icon,” wrote Angela Barnes under a headline titled “The Maytag repairman sure has his work cut out.”

“With sales flat, retailers starting to drop its products and debt load weighing the company down, one analyst figures Maytag “is a 2-inch putt from bankruptcy,” wrote Michael V. Copeland in “Business 2.0.”

“We believe it may be too late to salvage this company as an independent player in the major appliance business,” analyst David MacGregor wrote in a report.

And analyst Nicholas Heymann likely put Mr. Hake over the edge when he wrote to investors that “nobody ever wants to see a great company slip away to irrelevance and possibly cease to exist. Maytag‘s franchise in the market simply seems to be slipping away faster than the company has the resources to rebuild and recapture it.”

Stop Already, Hake seemed to Say. In a letter to Maytag employees written late last week — and circulated fairly widely in the community this week — Mr. Hake put his spin on the factors causing Maytag‘s stock drop and the company’s continuing plan toward a business turnaround.

“Many of the analysts’ reports that have been written following our release of earnings have not been favorable,” the letter to Maytag employees states. “This is concerning for a number of reasons. First, it is important to remember that the basic role of analysts is to study the financial performance of a company and then recommend to investors whether to ‘buy,’ ‘hold’ or ‘sell’ its stock. Those that recommend ‘sell’ do not usually make positive comments.

“As a publicly held company, we must realize that we are subject to criticism — and I respect the thoughts of those whose job it is to write about our business.

“However, in reviewing much that has been written about us recently, I believe there to be a real lack of understanding of our situation and solutions to our issues. With respect to the analyst community, I would challenge many of their opinions and comments as being speculative or extreme. The mere suggestion by an analyst report of Maytag possibly entering into bankruptcy is totally misleading and inappropriate. What is true is that we are a profitable company with strong cash flow that is reducing our debt each year.”

OK, no blood pours from the nose of any analyst from that retort, but Mr. Hake can be seen standing up to the onslaught just the same.

The Maytag CEO goes on to try to calm nervous employees.

“I know that people are concerned so I feel that it is important to provide you with my perspective and appropriate context,” Hake wrote.

“It’s important that you understand a few facts. As I emphasized during our recent meeting session, our overall performance during the first quarter really wasn’t as bad as the headlines suggest. Our sales were down, but we must remember that the common Wall Street barometer measures only a year-over-year comparison, and we did very well in the first quarter 2004. Our sales trends are showing improvement.

“I believe the real reason for most of the negative press is due to our lower earnings-per-share (EPS) guidance for the remainder of the year. We lowered our outlook on the remainder of 2005 because of the fact that we did not see the pricing actions that we took in January providing us with the top-line boost that we had anticipated, as well as the higher fuel and energy-related raw material costs that we continue to face.”

Hake goes on to dismiss specific claims made by analysts.

He says Maytag market share gains show “consumers believe in, and are buying, our brands.” Company “debt levels are down $126 million from the prior year.” Standard & Poor recently gave Maytag a “stable” outlook, a “vote of confidence,” according to Mr. Hake.

Further, Maytag plans to introduce some 30 new product launches under the One Company organization in the coming months, he said.

While the letter appears to be directed to employees company-wide, Mr. Hake makes a couple of comments of particular importance locally. However, the specifics behind the comments are unclear and give little insight for the future of operations in Newton.

“We have identified several initiatives associated with manufacturing, retiree health care and raw materials that will allow us to further bring our costs in line,” Hake wrote.

“We are moving forward on a new credit agreement to fund our manufacturing restructuring and refinance our 2006 debt maturities.”

Mr. Hake tries to end on a reassuring note.

“Clearly our business message to our external audiences is interpreted in a skeptical and sometimes negative manner,” he wrote. “In the end, however, we must realize that our actions will speak louder than any words possibly can. We must continue to demonstrate sequential, quarter-by-quarter improvement in sales, market share and profitability.

“Looking forward, let’s not allow ourselves to become distracted by inaccurate headlines. I encourage you to stay focused and to continue to support our customers and your co-workers who may have a more direct impact in the marketplace. As I said in the employee meeting, sell more or help those who sell, to sell more. Together, we’ll continue work toward our business turnaround and give our critics something they can really write about.”


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