New York Electrical Products Group
Leonard A. Hadley
Maytag Chairman & CEO
Spring Conference
Longboat Key, Florida, May 6, 1996
When I first came to this group two years ago as CEO, I said our top
priority must be to take steps to increase shareholder value. I'm pleased
to report that we have made significant progress. We're delivering
improved performance because of our many accomplishments.
I won't list all of them, but I will share a few:
- We sold our underperforming operations in Europe and Australia,
plus an electronic components business in Ohio.
- We've reduced debt over $400 million since June of 1994.
- Our interest expense was down 30% last year.
- We've lowered our working capital requirements by 20%
(about $100 million) in the last two years.
- We've leveraged the strength of our most powerful brands.
- We raised the quarterly dividend last December from 12-1/2 cents
to 14 cents a share.
- To date we have repurchased 5.3 million shares of Maytag stock
out of the 10.8 repurchase that is currently authorized.
- We continue to make substantial capital investments for the future.
In short, I think we've done what we needed to do for our shareowners,
for our employees, for our customers and for this company's future.
As a result, Maytag is stronger today than it has ever been financially,
competitively, organizationally. Where do we go from here?
We enter a new era of opportunity, dominated by three key business
objectives: profitable growth, strong customer focus, operating excellence.
Let me comment on each.
Profitable Growth
Profitable growth means we will increase revenue in a way
that will drive earnings growth and increase shareowner
value. Our target is double-digit annual earnings growth compounded
over time, recognizing we're operating in a single-digit industry environment. We're well positioned to deliver that performance and, of course,
I'm dating from the base year of 1993 when I became chairman.
We're now focused on our North American major appliance and floor
care businesses as well as Dixie-Narco. The North American focus is an
appropriate strategy for us at this time, because those operations generate
the cash flow necessary to achieve our growth targets. Also, the U.S.
economy has proven to be one of stable growth; our industries are driven
by a strong replacement market; we have the strongest product lines ever;
and we have significant brand preference in all of our business segments.
We have improved our sales teams and our distribution systems to
leverage that brand strength, and we have a diversified earnings stream.
At each of our business units we have established specific annual growth
targets for revenue, operating income and unit volume stretching out over
the balance of the decade. Methods of achieving the goals have been
identified and plans and projects are under way.
Here's how we plan to grow the businesses and drive that profitable
growth. We will do it with new models, new product lines, brand strength,
and we'll continue to explore new business opportunities.
We will continue to introduce new models of major appliances, floor
care and vending equipment. They typically will offer feature enhancements or target new price points within the product category. They will
extend and strengthen the product lines and provide incremental growth
opportunities.
Already in 1996 we have introduced a new Maytag dishwasher line,
new Maytag brand cooking models, redesigned models of Magic Chef
ranges, new side-by-side refrigerators in all brands, new commercial
laundry products and a new Hoover hand vacuum with a unique swivel
nozzle. The plan for new models doesn't stop. We have more planned
for later this year; more in 1997, as well as others further out on the
drawing board.
One important activity is a $50 million project to develop a high
efficiency washer and companion dryer. We plan to offer some models
late this year. The new product will be a valuable addition to our
commercial laundry line. Maytag is a market leader in providing
washers and dryers to route operators and owners of self-service
coin laundries throughout the U.S. and Canada.
Water and energy costs are significant overhead items for these
important customers. Our high-efficiency washers will cut their operating
costs while still delivering customary Maytag dependability. As we move
into 1997, we will use this new washer to reinforce our leadership position in premium laundry products by offering consumers a choice between a
traditional automatic washer or one that's even more water and
energy efficient.
Another major project is our investment of $180 million in an entirely
redesigned line of refrigerators. Some new models, the top mounts, will
come on line in 1997, the side-by-sides in 1998. In addition to redesign,
this project involves new manufacturing equipment and processes plus
additional production capacity. The specific objective is to improve our
competitive position in the refrigerator business.
Our new refrigerators will have a greater variety of the features that
consumers want, improved quality, greater energy efficiency, and they
will be more environmentally friendly. Also, we will achieve improved
manufacturing efficiencies that reduce the cost base and additional
flexibility which will help working capital management when the
new units are on line.
In addition to new models, we will also deliver profitable growth by
continuing to look to totally new and different product categories that
will provide additional revenue and income. Successful recent examples
are Hoover's deep carpet cleaners and Dixie-Narco's glass-front coolers.
Brand strength is another key to profitable growth. We're unique
because of the strength of our Maytag, Jenn-Air and Hoover brands,
plus Dixie-Narco's leadership position in the industry. These brands
have powerful recognition, strong consumer preference and respect
for the unparalleled quality that we represent.
We intend to leverage that into continued growth, because Maytag is
definitely a brands company. That's our power, that's our future, that's where our investments are being focused.
One specific targeting of investment is to build the market share of
Maytag brand refrigerators and Maytag brand cooking products, Hoover
floor care and Jenn-Air. This would represent very profitable growth!
Appliance Manufacturer magazine has now published a composite
core five products market share chart showing Maytag as number three,
ahead of Frigidaire for the first time. Because we are a premium brand company, our shares and thus our competitive strengths in served market
segments are much stronger than the total shares that are accorded to us
when you look at the magazine.
With respect to Appliance Manufacturer's rating, it is important to note
that the competitive strengths of two of our key product categories are not
shown in the chart, nor was it represented to be. Our floor care position in
share is roughly double our white goods, and our vending share is roughly
double floor care. In overall revenues, just as a comparison from 1980
to present, no other manufacturer of the five top major appliance
companies has grown as dramatically as Maytag.
In the major appliance business we continue to manage for superior
financial returns and not the highest market share. This approach has
served us well, and our current competitive position has never been
stronger. Our plants are more efficient than ever and our utilization
of existing capacity has never been higher.
To achieve profitable growth we also must expand our corporate
horizons. We're actively looking beyond our existing operations for profitable growth through acquisitions, through joint ventures, and through
other beneficial relationships such as licensing some of our valuable
brands. Such future investments might be in North America, they might
be overseas. But wherever they are, our objective will be profitable
growth, investments that contribute to bottom line performance. Some
markets which may suggest higher growth rates must in our judgment
yield appropriate risk premiums to really provide shareholders value.
Strong Customer Focus
Our second strategic objective is strong customer focus.
And when I use the word customer, I could be talking about
retail dealers, commercial distributors, builders, bottlers, private label companies, actual end-users or any combination of all of the above. In every one of our businesses, we're concentrating on serving the changing needs of our customer better and more efficiently.
A strong customer focus is critical to our strength in the marketplace
and it is our foundation for profitable growth. That focus includes designing and building quality products, with features consumers want and
prices they're willing to pay; maintaining effective product order and
distribution systems; providing superior customer service; strong parts distribution; dealer support, and consumer information services.
The emphasis on customer focus through improved product quality
pays off in more ways than one. We please our customers by providing a
quality, trouble-free product. At the same time, improved product quality reduces our expenses for warranty service and we've seen that happen.
We have favorable trends in our gross margins now because of the improved warranty experience.
Our customer focus will be enhanced through the new regional
distribution centers that we are now establishing. This will consolidate
the delivery of all of our major appliance brands and will greatly improve
product availability. This will help us succeed with our dealers, and help
them succeed with their customers. And because we are liberalizing
minimum order requirements and allowing brand mixing in orders,
we're going to be able to enlist new dealers such as we've done
in the Pacific Northwest.
Strengthening our customer focus is the driving force behind our
current major appliance reorganization just announced in February.
We're consolidating the marketing, manufacturing, product design, logistics and customer service responsibilities for Maytag, Jenn-Air, Admiral, Magic Chef all into a single operation. Previously we had two separate businesses managing those brands for the previous three years.
The new streamlined business is called Maytag Appliances and the
specific objectives of the consolidation are to provide better service to
customers and become more completely customer driven; strengthen
the execution of our brand strategies making them more clearly defined
and more closely coordinated; meet our goals for growing market share
over time, and achieve efficiency and cost savings.
The transition into the consolidation is going very smoothly. Our
dealers have been very enthusiastic and supportive of the move. They've
been quick to recognize the benefits that they will achieve from a more
consistent and more coordinated approach to the market.
Part of the reorganization involves consolidating all cooking appliance
manufacturing in our plant in Tennessee and closing the Jenn-Air facility
in Indianapolis. Jenn-Air cooking products will continue to be designed
and manufactured as a separate, very upscale product line, but the
engineering and the manufacturing will be done in Tennessee.
As you might imagine, relocating manufacturing operations is a major
undertaking. We expect to accomplish this relocation without having any product availability problems, but presently we are in an interesting
situation. We want to take the Indianapolis plant down, but demand for
that product in the marketplace happens to be very strong. So now the
plan is that production in Indianapolis will not be completely down until November.
There will be significant cost savings associated with this reorganiza-
tion, but the primary benefit is we will be serving our dealers, our
builders and their customers in a more efficient and effective manner.
We will further strengthen our position in the industry because we
will be more coordinated in our manufacturing and marketing thrust.
We'll be more responsive to customers. We're going to drive the growth
of our two premium brands, Maytag and Jenn-Air, and we'll have
more effective support for our field sales organization which is a key
competitive advantage for Maytag. Our field sales force is recognized
to be the premiere sales force in the industry.
The reorganization involves costs of about $50 million, the majority
of which we took as a one-time charge in the first quarter. Beginning in
1997, we expect to realize about $35 million in annual cost savings from
lower employment and from the factory consolidation.
Another way we are going to strengthen our customer focus is by
expanding our relationships with key dealers. We are placing our branded merchandise on an increasing number of retail sales floors. One
recent example is the expansion of the Maytag brand from selling about
one-third of the Best Buy outlets to all 250 of them. Circuit City is
another example, they are a very large Maytag and Magic Chef dealer
but they don't carry the full product line of either brand. We're encouraging them to expand their floor coverage in other product categories and we're very encouraged.
On another front we have over 600 Maytag Home Appliance Centers
in the U.S. and Canada. This independently owned distribution channel
of full service dealer outlets continues to grow in importance. Until
recently they have handled only the Maytag brand. We've expanded this
relationship. They now have the opportunity to carry our full line of
Admiral brand products, which serves the needs of the mid-priced
customers. Now that our appliances are consolidated all under one
umbrella, we can consider whether the Home Appliance Centers might
be attractive outlets for some upscale Jenn-Air products.
Operating Excellence
Our third objective as we move into our new era of opportunity
is operating excellence. That includes a number of things, but
I'm really speaking of asset utilization, working capital management and
cost control. Since 1993 we have nearly doubled our return on assets, so
we're certainly headed in the right direction. We must continue to improve how we use our assets, because that is linked directly to improved financial performance, competitive strengths and reaching our full potential
as a corporation.
Effective working capital management means we must continue to
develop new and better ways to manage inventories, receivables and
accounts payables. We've made a lot of progress, but it is going to
remain a point of focus.
Cost control speaks for itself in our highly competitive businesses.
The programs we have put in place have been very effective and our operating income margins, which are double-digit in all three of our business
segments, are again world class in our industry. However, because we
compete against very strong companies we have to continually rededicate
ourselves to world class levels of performance, costs, working capital
management and asset utilization.
In summary, I'm confident that our strategic business objectives of
profitable growth, strong customer focus and operating excellence will
drive our performance this year and on into the rest of the decade.
Our results in the first quarter of 1996 were in line with our expectations.
Hoover had a strong quarter. Maytag Appliances performed well, off
somewhat from their extraordinarily strong first quarter of 1995, but
still high by historical standards. Dixie-Narco's business was negatively
impacted because they were unable to satisfy an unexpected surge in
demand for their newest product and demand for the older style vender
softened. This problem is still with us and will be probably on into the
third quarter. However, it's going to turn from a negative to a positive
because having demand you cant quite satisfy for a brand new product
category is a very high class problem.
Generally speaking, we feel 1996 should be another favorable business
year. We're pleased that our major appliance sales as we exited the quarter
were stronger than at this time a year ago and our April preliminary sales look encouraging. Because our business is subject to a variety of economic
and competitive factors, it is always somewhat risky to try and project
what a full year will bring.
Our trade associations, and a number of you, project that industry-wide
unit sales of core major appliances and full-sized vacs will exceed '95 by
1 to 2 percent. Remember '95 was the second best industry year on record
for majors and a record year for vacs, so if we're up from that it will probably be the second best year ever for majors and another record year for
vacs. Unit sales of soft drink vending machines is expected to be flat,
while glass-front merchandisers should show modest improvement. We
can't put that on an industry basis because a lot of that business of
course goes off shore.
In a nutshell, I think we have a continued strong level of business
activity expected for the year and we expect to surpass industry projections
by out-performing the competition in our businesses. We're looking for
growth in all lines, a continued stream of new models and products, and
continued improvement in consumer satisfaction. Also, we expect to
continue our share repurchase program as we move through the year.
We are about half done.
Undoubtedly the major appliance and floor care industries will be very
competitive. That's nothing new. I've been around this industry for 37
years, it's always been that way. Our brands have been going head-to-head
with the giants for the better part of this century and we've always met
those competitive threats, we've always dealt with those competitive
threats, and we have succeeded.
We're well positioned, I think, for the balance of the decade and I'm
very optimistic about our future. We're going to continue to change and
improve as we concentrate on our strategic business objectives of profitable
growth, strong customer focus and operating excellence. By making
progress in each of these areas, I think we will enhance shareholder value
by improving sales, operating income, earnings, cash flow numbers, and
all the key performance measures that we know are so critical to serving
all of our various constituencies in the best possible manner.