Cleaning up at Hoover
One of two things is going to happen to Hoover, the line of vacuum cleaners and other floor-care appliances owned by Maytag Corp. It’s either going to be turned around, or it’s going to be sold.
That’s the message many, including me, took away from the company’s announcement on Nov. 21 that it would break out Hoover’s results in its quarterly financial statements, beginning in the first quarter next year. Currently, the company reports earnings results for two business segments, major appliances and commercial appliances. It now plans to add a housewares segment, which will include Hoover and Maytag’s houseware products.
The changes promise to provide “enhanced clarity” to investors and make managers more accountable for performance, Maytag Chief Executive Ralph Hake said in a statement announcing the change. Both of those elements are certainly true, and welcome. It will also make it easier for the company’s managers and potential buyers to put a value on the business. The genesis of the change came on March 11, when investors shaved 16 percent off of Maytag’s share price after it announced that first-quarter profits and sales would miss expectations, largely because of weak performance at Hoover.
It didn’t take Hake long to do some cutting of his own. On April 23, he named the president of Maytag’s Dixie-Narco subsidiary, Thomas Briatico, head of Hoover, putting 34-year Maytag veteran Keith Minton out to pasture. At Dixie-Narco, which makes vending machines for companies such as Coca-Cola Co. and PepsiCo, Briatico earned a strong reputation as a turnaround artist. Less than three weeks after his appointment, Briatico brought aboard two lieutenants: Annette Bravard as vice president of marketing, and David Baker in a new position as vice president of diversified products.
The move is a victory of sorts for William Beer, president of Maytag’s appliances unit. That division, which includes appliances marketed under the Maytag, Amana, Jenn-Air and Magic Chef names, has been weighted down by Hoover. In the past year, Maytag’s shares have lost about 13 percent of their value.
Hoover has been singled out for its poor performance in each of the last three quarters. In the third quarter, Hake had this to say about the division: “For floor-care products, sales volume, pricing and mix were dramatically lower year-over-year,” Hake said. Hake went on to say sales and earnings had improved marginally from the second quarter, and that a recovery strategy was under way. Part of that includes two new inexpensive models and “a plan for innovation at the high-end,” Hake said.
Competing with Hoover’s Asian rivals on cost is going to be tough. Maytag is working to cut expenses, though, ironically, it’s expensive to do it. Charges for restructuring this year are expected to be 53 cents a share, and another 40 cents next year – a little less than a quarter of Maytag’s expected profits. Some charges are related to efforts to shut its factory in Galesburg as its Mexican plant gets up to speed. One analyst I spoke with suggested that proceeds from a Hoover sale could make those charges easier to swallow.
The good news for investors is that Briatico, now out from the protection of the much-larger appliances business, is in a position to really make (or lose) his fortune and, in the process, help Maytag solve a problem.