Maytag predicts lower earnings, hints at plant closings

Maytag predicts lower earnings, hints at plant closings
 
Date September 20, 2005
Section(s) Local News
Brief  
 
By DAVID PITT

AP Business Writer

Maytag Corp. says its earnings for the third quarter and for the full year will be significantly lower than earlier estimates, and the company’s chief executive released a statement suggesting factory closings could be coming.

Higher costs from a high manufacturing overhead, increasing distribution and fuel expenses and rising raw materials costs all are cutting into profits, the company said Monday.

“Our fixed cost structure remains a barrier to acceptable financial performance, and we intend to address this issue,” said Ralph Hake, the Newton-based company’s chief executive.

“The actions we take might require restructuring charges, including asset write-offs, accelerated depreciation and certain cash costs. These actions will need to be undertaken irrespective of the pending merger with Whirlpool.”

Benton Harbor, Mich.-based Whirlpool Corp. officially notified the Federal Trade Commission and the U.S. Department of Justice last week of its intent to purchase Maytag in a cash-and-stock deal valued at more than $1.7 billion, plus the assumption of nearly $1 billion in Maytag debt.

Industry analyst Laura Champine, with Memphis-based Morgan Keegan & Co., said Maytag undoubtedly is establishing the need for factory closings.

“Oh, absolutely they’re setting up to close plants, they’ve been doing that for years. Perhaps this accelerates it,” she said.

Maytag shares closed down one cent to $18.54 Monday on the New York Stock Exchange. Shares dropped 73 cents in after hours trading. The statement was released after trading closed for the day.

Hake said sales projections in Maytag‘s top-line appliances are strong compared to last year, but cost increases are hurting profits.

He said that despite uncertainty in recent months caused by the pending sale of the company to Whirlpool, Maytag achieved high single-digit sales growth in its major appliances product lines through the first two months of the third quarter.

Hake said unfavorable product pricing in floor care also is hurting performance. The company also expects to record significant merger and acquisition expenses in the third and fourth quarters of this year.

The full-year results will be “significantly lower” than earlier guidance and “Maytag expects to report a loss before any restructuring charges in the third quarter.”

As a result of the current business performance and uncertainty of the restructuring, Maytag will no longer provide earnings guidance, the company said.

Champine said it’s no surprise that skyrocketing oil prices may cause Maytag to miss previous earnings estimates. She said what is perplexing is that the company cites its manufacturing platform costs as a reason for the unexpected cost increases.

“What’s frustrating from an investor’s perspective is the difficulty in forecasting that burden,” she said. “It is frustrating, the continual earnings warnings, as it has been for some time now.”

Maytag also announced it would move forward with a new asset-based $600 million, five-year borrowing plan, which will replace a current $300 million credit line.

The new credit line will be led by J.P. Morgan Chase Bank, N.A. and Citigroup Global Markets, Inc. and secured by accounts receivable and inventory of certain Maytag subsidiaries.

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