Maytag loss of $75 million generates plan to sell Hoover

Maytag loss of $75 million generates plan to sell Hoover
 
Date February 03, 2006
Section(s) Local News
Brief  
 
By PETER HUSSMANN

Editor

Maytag Corporation said today it plans to sell its floor care and commercial business units after reporting a net loss of $75 million for the fourth quarter of 2005.

In releasing its quarter and full-year financial results, Maytag reported consolidated sales of $1.24 billion, up 6.6 percent from sales of $1.16 billion in the same period the year before. However, restructuring charges, distribution costs and poor performance in its floor care business resulted in net loss for the quarter of $75 million or 93 cents a share compared with a net loss of $14.1 million or 18 cents a share a year ago.

“We showed solid top-line sales growth during the quarter with increases in all our major appliance product categories,” Maytag Chairman and CEO Ralph Hake said in the earnings announcement. “However, I am extremely disappointed that our positive sales gains in major appliances were more than offset by our overall high cost structure and poor floor care performance.”

During a conference call this morning, Hake outlined a number of initiatives — including new product launches, marketing and sales initiatives, productivity improvements and efforts to minimize the impacts of material cost increases — aimed at improving the struggling appliance manufacturer’s bottom line. Hake said these plans, however, will not be enough to improve its financial condition.

“I know they will be insignificant because of the magnitude of the recovery required,” Hake said. “We must take strategic actions which will fundamentally step up our performance.”

Hake called its Hoover floor care results “a major disappointment.” He said the unit’s 2005 performance was below 2004 results with the fourth quarter earnings in the segment down 20 percent from the year before.

“We can no longer carry the burden of this underperforming product line, so now we are exploring other strategic options, including the sale of our floor care business,” he said.

The Maytag chairman also said Maytag would focus efforts this year on its core appliance business. To that end, the company also would consider the sale of its commercial business units.

“In addition to floor care, we will consider the sale of businesses composed of our commercial product segment, which includes Dixie-Narco vending,” Hakes said. “A successful sale of these businesses would allow us to focus all of our energy on addressing our cost competitive issues in our core appliance business. I believe that exploring our options at selling these business is the best course of action for Maytag, our shareholders and ultimately for Whirlpool.”

Whirlpool today acknowledged Maytag‘s decision to evaluate the future of its Hoover and Dixie-Narco operations. Under terms of the merger agreement, Whirlpool has the right to review any divestiture of major Maytag assets prior to the close of the merger agreement.

“Under the framework of the merger agreement, we have the right to approve the sale of significant assets by Maytag, including these businesses,” said Jeff Fettig, Whirlpool’s chairman and CEO.

During the conference call, Hake said efforts need to be undertaken to address its underutilized manufacturing capacity. He said Maytag is selling more sourced products at this time than its own manufactured products. He said a significant focus would be in its laundry business segment, although he did not elaborate on what potential actions would be taken.

For years, Maytag has said that its flag ship Newton production facility is its highest cost operation. Employment levels at the Newton plant have dropped dramatically over the last few years, reaching a high of about 2,600 people around 2000 and dropping to about 1,000 today. Estimates are that the plant is operating at only about 30 percent capacity.

Hake said Maytag is continuing to work with Justice Department officials on the merger with Whirlpool. He said closure of the deal is still expected in the first quarter this year.

Details of the financial report show fourth quarter earnings were negatively impacted by a $42.1 million restructuring charge in connection with the closing of its Florence, S.C., laundry plant. Results also included $10.2 million in merger related expenses.

Net sales were up 6.9 percent in its Home Appliances segment driven by sales gains in all major appliance categories, especially refrigeration. Maytag Services saw double-digit revenue growth versus the year before.

Maytag‘s net sales for the full year were $4.9 billion, up 3.8 percent from the $4.72 billion reported in 2004. Net loss for the year was $81.9 million, or $1.02 a share, compared to a net loss of $9 million or 11 cents a share in 2004.

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