Maytag Corporation announced a comprehensive business restructuring that consolidates the Hoover Floor Care, Maytag Appliances, and its corporate headquarters organizations. The appliance maker said the "one-company" transformation will include layoffs, but is designed to achieve market-focused speed of execution, to improve Maytag's competitiveness, and to achieve an 8-percent operating profit margin goal in the first quarter of 2005. The company also lowered its earnings expectations for the second quarter and full year 2004.
"Maytag has made significant progress in product portfolio, brand position, process improvement, and quality trends," Maytag Chairman and CEO Ralph F. Hake said in a statement. "The restructuring announced today will leverage those strengths for improved performance in the highly competitive global marketplace of the major appliance and floor care industries and help us grow operating income."
Mr. Hake said the restructuring is logical since its major appliance and floor care businesses serve many of the same customers. "The restructuring will create enhanced value for our retail customers through one sales force and one marketing organization," he said. "It will eliminate redundancies across the organization in areas including logistics and administrative functions, and will also result in infrastructure cost savings. Maytag will be a much leaner organization, capable of better serving customers and more rapid decision-making."
As a result of the transformation, the Hoover brand will join the existing strategic business units within the marketing organization. The units will be Maytag, Jenn-Air, Amana, and Hoover, as well as a unit that will include Maytag Housewares and Hoover Diversified Products.
Integration of Hoover and Maytag Appliances into the new organization will eliminate about 20 percent of the salaried workforce, reduce Hoover's North Canton facilities to an R & D and manufacturing site, and downsize Maytag Appliances and corporate headquarters.
The restructuring will also include implementation of key operational process improvements and disposition of underutilized assets.
Maytag expects the restructuring to save U.S. $150 million annually and to be completed by year-end 2004. In connection with the restructuring, Maytag anticipates it will incur restructuring charges of $75 million to $100 million, primarily for severance costs and asset write-downs. The cash portion of the charge is expected to be in the range of $45 million to $60 million.
"This restructuring will cause hardship and challenges for many of our employees and their families," Mr. Hake commented. "Maytag Corporation has skilled and talented employees, which makes this decision so difficult. However, in order to succeed and grow, Maytag must rapidly reduce costs and improve market execution."
The appliance maker also announced tht it has lowered its earnings expectations for the full year. "We now expect that earnings will not meet previous expectations for the second quarter and the full-year 2004," Mr. Hake stated. "This is the result of lower than anticipated sales volume at Hoover and Maytag Appliances, coupled with lower factory volume related to balancing inventory levels, as well as higher steel and resin costs. In addition, we expect to incur restructuring charges and asset impairments associated with the comprehensive business restructuring announced today."
Maytag said there are other items that may impact the second quarter, including a legal charge for the unsuccessful appeal of a previously disclosed lawsuit and a gain in discontinued operations from the pending sale of Maytag's joint venture in China.
"Furthermore, while we continue to progress in our labor contract negotiations in Newton (IA, U.S.), the potential impact of the outcome is unclear," Mr. Hake said. "Due to the fluid nature of some of these items regarding amount and timing, we are not providing specific guidance for the second quarter. For the full-year 2004, including the items previously mentioned, we expect reported earnings per share to be in the range of $1.00 to $1.10 assuming continued favorable industry conditions and no further significant increases in steel and resin costs. This 2004 full-year guidance reflects restructuring charges of approximately $1.00 per share for the business restructuring and Galesburg, IL, U.S. plant closure."
Despite the lower earnings expectations and cash required for restructuring, the company says free cash flow remains on track and is expected to be approximately $150 million for the full year 2004. In addition, Maytag has completed $90 million in voluntary pension contributions for the year.
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