Maytag chief executive says there’s no quick fix for lagging sales
North Canton’s Hoover Co. was once again the black sheep of the Maytag family Tuesday, as it shouldered much of the blame for a 63 percent drop in second-quarter earnings.
Citing a sickly market for Hoover vacuums, and the cost of eliminating jobs at an Illinois plant, Chief Executive Ralph Hake said Maytag Corp. earned $25.2 million, or 32 cents per share, for the quarter. That’s down from $68 million, or 86 cents per share, a year ago.
Total sales fell to $1.16 billion from $1.19 billion a year ago.
“Major appliances had a good quarter. Floor care hasn’t shown improvement,” said Maytag spokesman Kevin Waetke.
Sales in the appliance industry managed to rise about 1 percent, Hake said,but similar figures for floor care dipped 8.7 percent in April and May. Hoover was down 20 percent in the past year.
“The floor-care (sales) were certainly a surprise and there’s no quick fix,” Hake said in a conference call Tuesday.
Hoover has been under the gun since the first quarter of 2003, when Maytag tied its 39 percent earnings drop to the vacuum maker. Since then, Hoover has weathered about 400 production layoffs, management shake-ups and production cuts. Maytag also slashed 510 positions companywide, including about 85 at Hoover, to save about $20 million this year.
Hake said the shift toward making vacuums in Asia and selling them for less in the United States has crippled Hoover the most. In the first quarter, floor-care sales dropped about 7 percent as consumers started to snap up lower-priced vacuums and retailers started to promote them instead of expensive sweepers.
Right now, about 40 percent of Hoover’s volume involves vacuums priced less than $79, Maytag said.
“It’s not nearly where the industry balance is,” Hake said.
To compete, Maytag has decided to introduce more Hoover vacuums that sell for $79 or less. The goal is to lure customers to Hoover’s well-known high-end sweepers by first attracting them to its low-end models, Hake said.
“It’s up to us to create that product,” he said.
But how low will Hoover go to chase thrifty customers? Not to Bissell’s $49 range, Hake said.
One of Hoover’s inexpensive vacuums, the Fold Away, already made its debut in June. Hake said he’s optimistic about the cheaper sweeper’s appeal, but sales from the Fold Away won’t surface until the third quarter.
Hake said “several” other inexpensive vacuums will hit stores this year, too, including a new upright that will be built in China.
Hoover already runs production plants in Juarez, Mexico, and El Paso, Texas, because the labor — as in China — is cheaper. Maytag also shifted work offshore from the refrigerator plant it closed in Galesburg, Ill., earlier this year. But the Newton, Iowa-based company trails rivals Whirlpool and General Electric Co. in that trend.
“We’re late to the sourcing strategy, but we will recover,” Hake said.
Still, the CEO said he doesn’t plan to idle any more plants to restructure its appliance divisions. If Maytag had an opportunity to move more production to Mexico, the U.S. facilities affected would get new products to build, Hake said.
But with Hoover, “there’s a little more uncertainty” about closing U.S. plants, Hake said. The employment situation in North Canton is stable for the moment, though.
“We cannot be competitive with products produced in North Canton,” he said.
Analyst Laura Champine, of Morgan Keegan & Co., said the high cost of domestic manufacturing is Hoover’s biggest problem.
When that issue is added to the pressure to lower prices and the possible erosion of Hoover’s brand name through cheap products, Champine isn’t too optimistic about the unit’s future.
“I wouldn’t be surprised if Hoover’s best days are behind it,” she said.
For Hake, any hint of a recovery can’t come soon enough. He does expect some gains in the third quarter, but major changes for Hoover probably won’t happen until next year.
Companywide, Hake said Maytag’s earnings for the year should range from $1.80 to $1.90 a share, including pretax restructuring charges of 50 cents a share.
“We worked hard to reduce our costs, and those efforts should continue to pay off in the second half as we benefit from our restructuring savings, steel cost reductions and multiple product launches,” Hake said.
Maytag shares fell 62 cents to close at $25.73 in trading Tuesday.
Original article here from the Ohio Beacon