Date: Thu, 18 Dec 1997 00:15:16 GMT Server: Apache/1.2.3 Connection: close Content-Type: text/html Corporate News: Executive Speeches




    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.





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