Date: Thu, 18 Dec 1997 00:15:56 GMT
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Remarks to Financial Analysts
Leonard A. Hadley
Chairman and CEO
Maytag Corporation
May 5, 1997
Maytag's Platform for Growth
The image of the Lonely Repairman has been one of the best known and most
recognizable images in the marketplace for three decades. What is not so well known
is the diverse strength of the corporation behind that brand ... and the wide platform for
growth we have built at Maytag.
Because today Maytag the Corporation is much more than Maytag the Brand.
Maytag is a much different and stronger corporation than it was in the early 1990s
when the economy dipped and so did our results; it is different and stronger than it was
even in 1993 when I was named CEO. Here are the actions that have changed Maytag:
- We restructured our balance sheet, reducing debt and interest expense by more than a third, while improving the corporation's underlying financial strength and flexibility.
- We divested poorly performing businesses in order to reinvest in stronger core businesses.
- Maytag's business mix today is more clearly focused on what we do best, where we compete best, and where we can grow profitably.
- That focus is targeted to selected markets, but it is not global in the sense that "one size product fits all." We are focused in the two largest homogeneous appliance markets in the world: The U.S. and Canadian markets in North America; the Chinese market in Asia.
Supported by Brands, Products, Value
So while the Maytag Repairman's image hasn't changed, Maytag has. We rapidly are
reclaiming our heritage of great brands, great products, great distribution, and strong
financial discipline all focused on creating value and growth.
Maytag has built a platform for profitable growth that is uniquely our own.
- It is a platform supported by brands that are uniquely our own Maytag, Jenn-
Air, and Hoover.
- By products from the Hoover SteamVac to Maytag laundry and Jenn-Air
ranges.
- By distribution from Best Buy to the Maytag Home Appliance Centers.
- And by strong financial discipline.
From this platform for growth, we have built consistent performance momentum year
after year. The normalized earnings per share performance we have delivered the last
four years represents a compound annual growth rate of more than 30 percent. This
steady progress is one of the best illustrations of how much Maytag has changed and
how much stronger we are.
That earnings progress also is an important part of our confidence about the future and
about the positive cash flow we can generate cash that we have directed in the past
24 months to reinvestment, share repurchases, and dividend increases.
- We have invested $360 million in capital to grow our strongest brands and to
improve every product category.
- We also invested nearly $30 million in a new brand RSD in a new market
China.
- We have returned $330 million to shareholders through share repurchases and
dividends.
And we have paid down ad additional $150 million in debt.
Stronger Than We've Ever Been
Maytag is stronger financially, competitively, and organizationally than it has ever
been. Our restored strength is bolstered by a number of unique characteristics and
business fundamentals that distinguish us and challenge the conventional wisdom that
labels Maytag "Consumer - Durable - Cyclical".
First is a balanced earnings stream. Maytag's business mix creates a balanced earnings
stream that is not dependent on any one set of economic or industry dynamics.
- We compete in seven product categories in four different businesses that are
driven by different purchase decisions and industry dynamics.
For major appliances, the consumer is spending between $400 to $700 on a purchase
that itself is less "major" than it was 25 years ago. On an "hours worked to purchase"
basis, the purchase is 30 to 50 percent less costly than 25 years ago.
- Those purchase decisions are not so much driven by new housing starts and
interest rate changes as they are driven by replacement buying, housing resales
and remodeling, and higher levels of discretionary income.
- As a result, the major appliance industry is less cyclical and more stable than
most investors recognize. For example, since 1984 total shipments of Core 5
major appliances have been consistently stronger and less volatile than during
the period from 1970 to 1983.
In floor care, the product cost decline is even greater than in major appliances, and
today the consumer purchase decision is virtually an impulse buy.
- Consumers typically spend between $100 to $300 for a vacuum cleaner. There
are any number of stick and hand-held models that cost well under $50. And
most households own several different vacuum cleaners.
- The purchase decisions are made at the Wal-Marts and Circuit Cities of the
retail world, often on the spur of the moment. Consumers pick the product off
the shelf, take it through the check-out lanes, and right to the car.
- Due largely to this type of purchase decision coupled with consumers getting
a lot more value for the money spent the floor care industry has grown twice
as fast as the major appliance industry in the past decade.
Commercial laundry and vending equipment, however, are not consumer purchase
decisions they are business investment decisions.
- We are selling capital equipment to business owners.
- These business owners are investing in products in order to serve consumers
with coin-operated washing machines or soft-drink vending machines.
- And, typically, these businesses are not cyclical.
Across all four businesses lines, while the majority of purchase decisions are made in
the U.S. marketplace, not all of them are. In fact, nearly 14 percent of the corporation's
revenues are generated outside the U.S. which means it is revenue that is not linked
directly to U.S. industry dynamics or Federal Reserve Board policies.
Maytag's unique business mix creates a balanced earnings stream that today shows
more than 40 percent of the corporation's earnings driven by purchase decisions not
linked to the traditional major appliance industry. To say Maytag is only a major
appliance company is only about half right.
Distinguishing Premium Brands
Maytag's premium brands further distinguish us from the competition and add a second
unique characteristic to our business mix and earnings stream. The premium brand
names we own are synonymous with the product categories in which we compete:
Maytag laundry and dishwashing; Jenn-Air cooking; Hoover floor care.
- When consumers are asked which brand of washer, dryer, dishwasher, or
cooking appliance they would prefer to buy, Maytag and Jenn-Air brands are
mentioned more often than any other brand.
- That translates into a competitive advantage for us because in the 1990s the
more profitable premium price segments in the major appliance industry have
been growing faster than the general appliance market.
- Ten years ago, less than half of the corporation's major appliance revenue came
from premium brands Maytag and Jenn-Air. Today, those brands represent
two-thirds of our major appliance sales.
- Maytag's premium laundry brand also extends into a unique presence in the
commercial laundry market, where Maytag is a market leader in providing
coin-operated and "on-premise" laundry equipment throughout the U.S. and
Canada.
- And last year we added more strength to the corporation's brand strategy in
major appliances with the well known RSD brand in China. Rongshida, our
partner in the JV, is also China's number-one washing machine manufacturer.
So we have the brand and market strength in China to fit our strategy.
The same premium brand strategy drives performance at Hoover, making it the fastest
growing earnings stream in the corporation. The Hoover brand continues to rank
among the top ten most widely recognized brands of products for the home. And its
brand preference among consumers in its category is even higher than that of Maytag
or Jenn-Air.
That preference is reflected in Hoover's strong position in the industry, a position that is
even stronger in the more profitable mid-to-high price categories. In fact, today, the
Hoover brand is more "premium" across its product line than it was five years ago.
And the 1997 product offerings will continue to push Hoover's product mix more
upscale.
Strength in the Markets We Choose to Serve
While Maytag may rank third in total share and volume in the major appliance industry,
we rank much higher in the premium brand segments. Our premium brands are
strongest at the more profitable, higher price points.
Maytag's premium brand strategy also translates into strong distribution and a stronger
presence with key retailers and other customers. And sales last year to the
corporation's top five retail customers those who sell major appliance and floor care
brands increased nearly 30 percent, which is further evidence of that strength.
Finally, Maytag is uniquely positioned for growth in ways few competitors can match:
We have combined a premium brand strategy ... with new product breakthroughs ... and
new market opportunities.
I often comment "Product is King" at Maytag. This year we will apply nearly $245
million in capital to strengthen our strongest brands, fix our weakest product categories,
deliver breakthrough product innovation, and pursue growth in China. The majority of
these new product initiatives will continue to challenge the higher price points, which
will further strengthen our premium brand strategy.
- The new SteamVac model will reinforce Hoover's leadership in the
extractor product category; the new Hoover upright vacuum will do the same
in the traditional vacuum product category utilizing new, patented
technology that will significantly enhance cleaning effectiveness.
- The Maytag Neptune high-efficiency washer was unveiled in the first
quarter. This new product features energy saving, horizontal-axis technology
and is already in use by our commercial laundry customers.
- Maytag introduced its new line of top-mount refrigerators late in the first
quarter.
- Later this year we will introduce new products in Maytag and Jenn-Air brand
dishwashing and cooking lines.
- And Dixie-Narco has introduced its new E-series, enhanced capacity vender,
which helped drive strong results in that business for the first quarter.
The benefits from these new product initiatives will begin to show as we move through
1997 and 1998, but will become clear only after we have a full-year marketplace and
financial impact from each. Looking ahead, we don't expect ongoing capital
requirements to quite match the high levels reached during the past two years. But we
are committed to investing the capital needed to drive brand positioning ... product
innovation ... and growth.
Finally, we are uniquely positioned for growth in a new market: China. Last fall, we
announced a $70 million, targeted investment over three years for a joint venture in
China.
- The investment is focused on a powerful brand name and two product lines that
we know and can manage well laundry and refrigeration.
- The laundry joint venture is an established business and has contributed
positively to Maytag's sales and earnings the past two quarters. This business is
a profitable, low-cost producer with established sales and distribution networks.
- Refrigeration for the Chinese market is a new product category for the joint
venture and a key reason the joint venture was created. Product planning
and design currently are underway in our Galesburg, Ill., refrigeration facility,
and facility construction has begun in China.
Maytag's Distinguishing Characteristics
So, what are the distinguishing characteristics of Maytag?
- Our growth strategy is focused in North America and China the world's
two largest markets for home appliances.
- Our platform for growth is supported by great brands, great products,
great distribution, and strong financial discipline.
- We will use those strengths to drive financial performance in reaching
our two financial targets: Double-digit growth in earnings-per-share and
above cost-of-capital returns in each business.
- We have created a balanced earnings stream supported by premium brands
and consumer preference for our brands in four very different business lines.
- And we are driving a premium brand strategy with product innovation that
distinguishes Maytag in the marketplace.
- Our brand and product strategies are based on a commitment to
demonstrable consumer benefits designed in from the beginning, not
added later by marketing. When consumers purchase a Maytag, Jenn-
Air, or Hoover product, they expect to pay slightly more ... and they
expect to receive much more in value, reliability, and performance.
- The heart of the consumer benefits we deliver in our premium brands is
superior product performance:
- In cleaning laundry, dishes, and floors;
- In cooking and in preserving food;
- In dispensing soft drinks;
- In quiet and energy efficient performance.
That is our platform for growth. In delivering growth, our strategy is simple: target
superior product performance in driving our premium brands. Compete in target
markets that offer the best profitability: North America; and the largest growth
potential: China. And do it all in our core competencies.
We have demonstrated our ability to execute this strategy and our discipline to not be
all things in all appliances to consumers in all markets of the world. Growth for Maytag
will result from the right investments which we have made in the right products
which we have done in the right markets in our core competencies wherever
those opportunities might be.
Those are the criteria we will continue to apply as we grow this corporation, as we
attract investors to participate in that growth, and as we position Maytag for the 21st
century.
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