Both shareholders and employees of Maytag
Maytag is one of the nation's largest appliance manufacturers, trailing only Whirlpool
Maytag has made a tactical error in targeting only the high-end and mid-range of the vacuum cleaner market. More often than not, price-conscious consumers have been taking low-priced models off the shelves -- the one area where Hoover is conspicuously underrepresented. As a result, first-quarter sales and operating income in the housewares division plunged 35.8% and 16.4%, respectively. Contraction in the floor-care segment has been accelerating, and the unit now represents less than 15% of total revenues.
Coincidentally, my family has been involved in the retail floor-care business for three generations. Hoover's limited presence at the low end of the market is only part of the problem. Maytag has made a concerted effort to push products through discounters such as Wal-Mart
As a result, local vacuum stores have been nearly priced out of the Hoover market, and have increasingly turned to other brands such as Miele, Riccar, and Matsushita's
The consolidation of Maytag's floor-care and appliance divisions will eliminate operational overlap and is expected to reduce expenses by $150 million this year. The streamlined new company, though, still faces a number of challenges.
Higher steel and resin costs have forced management to lower full-year earnings guidance to $1.00-$1.10 (including restructuring and severance expenses). Labor contract negotiations have yet to reach a resolution, and huge pension-related obligations consume much of the company's cash flow. Furthermore, the possibility of a slowdown in the construction of new homes (the sector represents 30% of appliance sales) looms large.
The proposed restructuring is a step in the right direction, but Maytag has been in a turnaround phase for years. If these efforts finally gain traction, and Hoover climbs out of the doldrums, the stock may again hold promise.
Fool contributor Nathan Slaughter owns none of the shares mentioned.
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