HMI Industries, Inc.
HMI Industries, Inc.
Sales: $137.6 million
Stock Exchanges: NASDAQ
SICs: 3635 Household Vacuum Cleaners; 3317 Steel Pipe& Tubes; 3544 Special Dies, Tools, Jigs & Fixtures; 3559 Special Industry Machinery, Not Elsewhere Classified
Known until early 1995 as Health-Mor Inc., HMI Industries has diversified from its core in high-end vacuum cleaners to develop a product line that includes items ranging from automotive components to health care equipment. Offered in nearly 50 countries worldwide, the company’s “home cleaning systems” are sold primarily through an 8,000-member direct sales force. Although HMI’s Filter Queen, Majestic Triple Crown, and Princess vacuums comprise far less than five percent of the United States sweeper market, their $l,000-plus price tags help compensate for their meager market share. Under the direction of Canadian Kirk W. Foley, HMI surpassed the $100 million sales mark in 1993. The CEO, who himself owned an estimated 50 percent of HMI’s equity, predicted that the company would top $300 million in sales by 1998. He expected to achieve that goal by continually introducing new products and increasing international sales.
Creation and Early Development
The business was created in 1928 as Sanitation Systems, Inc., a Chicago-based distributor for Cleveland’s Scott & Fetzer. The founders included Martin Callahan, his son Frank, and their associate Ray Owen. Within just two years, these energetic salesmen had sold enough of Scott& Fetzer’s home cleaning systems to make their venture the largest organization of its type in greater Chicago.
Buoyed by their “sweeping” success, the three men contracted with one of America’s most experienced vacuum manufacturers, Cleveland’s P.A. Geier Company, to make an upright vacuum for them to sell. In 1930 the company name was changed to Health-Mor Sanitation Systems, Inc. to reflect its new product. The distributorship forged a strong relationship with its new supplier in the early 1930s, and by 1936 Health-Mor was one of P.A. Geier’s largest clients.
At the end of the decade, Health-Mor acquired the patent on a vacuum cleaner that utilized centrifugal force to generate suction and trap dirt simultaneously. A team of P.A. Geier engineers, including Max Fairaizl, Ted Fistek, and Gene Martinec, refined the concept into the Health-Mor Model 200, later renamed the Filter Queen 200. By incorporating proprietary technology, this appliance distinguished Health-Mor from many of its competitors.
A generational change in administration at P.A. Geier in the early 1940s combined with the manufacturing imperatives of World War II to bring a temporary halt not only to vacuum cleaner production, but also to appliance research and development. The business continued to struggle in the immediate postwar era, and its new leadership was reluctant to invest its meager resources in research and development. As a result, P.A. Geier engineers Gene Martinec, Max Fairaizl, Ted Fistek and their secretary Annette Clark left that company to form an independent firm called Team (later Jem) Development in 1947. Within a year, the group had created three prototypical Model 350 Filter Queen vacuums. Health-Mor paid the design company a 35-cent royalty on each appliance, and P.A. Geier manufactured the machines.
This tripartite arrangement crumbled in the early 1950s, when P.A. Geier suffered a bankruptcy, hostile takeover, and name change to Royal Appliance Mfg. Co. When the new owners broke their contract with Health-Mor, the latter company elected to undertake its own manufacturing operation. While maintaining its corporate headquarters in Chicago, the company launched its first self-produced vacuum cleaner in 1952.
Health-Mor’s strong emphasis on engineering and design won it several vacuum industry firsts over the ensuing years, including the first painted and chrome models with automatic cord reels. Led by co-founder Frank Callahan, the company incorporated in 1968 and made its initial public offering the following year. Although Health-Mor’s direct sales scheme and high prices (about 20 times the average retail vacuum) consigned it to a niche position in the overall vacuum market, the company’s multipurpose home cleaning systems won it a loyal core clientele. With a coterie of attachments, the Filter Queen could function as an air filter and freshener, paint sprayer, hair dryer, sander, polisher, and upholstery and carpet cleaner. By the end of the decade, Health-Mor’s 161 employees generated about $9 million in annual sales and the company’s net income stood at $1.3 million.
Although sources conflict with regard to corporate leadership, a company history notes that President John Licht tested retail sales in the early 1970s. Finding that the new outlet cannibalized existing direct sales, Health-Mor developed an alternate model, the Princess, especially for the retail market. Over the course of the decade, company sales tripled to $30.1 million in 1979. Net income growth nearly matched that performance, burgeoning to $3.3 million.
1980s Era Decline Reversed by New Management
Health-Mor’s lackluster performance under John Licht in the early to mid-1980s has been, justifiably, criticized. Sales slid from more than $30 million in the late 1970s to less than $25 million in 1986, and net income dropped to a low of $100,000 in 1987. That year, Health-Mor was reborn under the leadership of Canadian Kirk W. Foley.
Having gone into early retirement at the age of 44, Foley acquired vacuum parts maker Tube Fab Ltd. An associate who had invested in Health-Mor affiliate Filter Queen-Canada convinced Foley that Health-Mor was a worthwhile, but mismanaged, investment. Foley and his colleague teamed up to acquire 40 percent of Health-Mor via Filter Queen-Canada, thereby winning board seats and eventually negotiating the merger of the two companies with Foley’s own Tube Fab Ltd.
Starting in 1988, the new CEO launched a threefold turn-around program that began with the consolidation of manufacturing and administration at Cleveland and included product and geographic diversification. Product diversification, both within the core vacuum cleaner industry and via peripheral
markets, was achieved through a combination of internal research and development and corporate acquisition. The merger with Filter Queen-Canada, for example, added central vacuum systems to Health-Mor’s product line. These whole-house systems, which account for about 15 percent of all Canadian vacuum purchases, cost about $1,000 and are best installed during a home’s construction. Health-Mor’s tube fabrication subsidiary developed several consumer-oriented products, including a luggage caddy, flagpole, and firewood caddy. The 1993 acquisition of Canada’s Household Rental Systems gave Health-Mor an edge over typical carpet shampooer rental companies by offering delivery and pickup of rental units.
Health-Mor broadened its manufacturing capacity largely through acquisition in the late 1980s and early 1990s. The company purchased three tube makers—Precision Tube Formers, Inc., Ultrametl Mfg. Co., and Advanced Metal Technologies Inc.—in 1990 alone, thereby adding to its varied line of products for the aerospace, military, communication, and appliance industries. That year also saw Health-Mor’s largest-ever acquisition, that of Youngstown, Ohio’s Bliss Manufacturing Co. The $15 million purchase gave the company a position in the production of metal stampings for the automotive industry. In 1994, Health-Mor’s Manufactured Products Division, encompassing the tube and automotive operations, surpassed its Consumer Goods Division in terms of sales.
Foley transformed Health-Mor from what he characterized as “a member of the Flat Earth Society” into a company striving for and thriving on global expansion. From its base in the United States and Canada, Health-Mor carefully sought new geographic markets for its core home cleaning products in the late 1980s and early 1990s. The company targeted Japan, for example, because of the market’s relative affluence and its cultural obsession with cleanliness. Although Health-Mor’s vacuums sold under the Princess brand for about $2,500 in Japan, sales there climbed to about $7 million by 1991. Health-Mor made a timely push into another affluent market, Kuwait, in the aftermath of the Persian Gulf War. In 1991 the company acquired Holland Electro B.V., a European manufacturer of vacuum cleaners and vacuum cleaner motors, via a stock swap valued at about $900,000.
The turnaround at Health-Mor under Foley was a success on several fronts. Vacuum production, for example, increased from 25,000 in 1988 to 180,000 in 1993 and 250,000 in 1994. This unprecedented growth prompted the 1995 purchase of a new plant that had the potential to double the company’s production capacity. The combination of geographic and product expansion fueled a tripling of sales, from $39.3 million in 1989 to 133.6 million in 1994. Profits mounted even faster during this period, from $1.4 million to $7.2 million. Industry observers ratified HMI’s achievements. The company was ranked among Forbes magazine’s Best Small Companies of 1994 and had earned four consecutive spots on Northeast Ohio’s Weather-head 100 by 1995.
Our relationship with our customers worldwide adds value to the organization each and every day. We measure our growth through our customers, and our success by their continued satisfaction. And that translates directly to the bottom line. As we incorporate this annuity value into our plans, our products and our programs, we truly make our customers our most valuable asset.
Growth in the Late 1990s and Beyond
Having made its inaugural diversification in the late 1980s, HMI brought out a parade of divergent products in the mid-1990s. The Comfort Lounger, for example, was a portable, adjustable bed powered by a vacuum cleaner motor. The Activa AdvantaJet needleless insulin injection system (a relative bargain at $700) offered an alternative to traditional insulin delivery systems. The AdvantaJet, which used air pressure to inject insulin, was competing with about six other similar medical devices for the nation’s 13 million diabetics. In 1995 Health-Mor created a new subsidiary, Personal Care Corp., to manage this product line. Health-Mor simplified its corporate moniker to HMI Industries, Inc. that same year in recognition of its varied product line.
With its program of geographic expansion firmly in place, the company forecast double-digit growth in Europe, Asia, the Middle East, and Central and South America. By 1995, international sales contributed more than 40 percent of HMI’s annual revenues.
HMI suffered a slight setback in 1995, when its net earnings slid 13 percent to $5.6 million. Foley attributed this “uninspiring performance” to several factors, including a labor dispute at Bliss (which was resolved with a six-year contract) and the Mexican economic downturn.
Tube Form, Inc.; Tube-Fab Ltd.; Bliss Manufacturing Company; Health-Mor B.V. (Netherlands); HMI Inc. (Canada); Health-Mor Acceptance Corp.; HMI Acceptance Corp. (Canada); Health-Mor Acceptance Pty. Ltd.; Health-Mor Mexicana S.A. de C.V. (Mexico); HMI Personal Care Products; Home Impression Inc.; Experimental Distributing Inc.
Cleaver, Joanne, “Health-Mor Eyes Markets for Built-Ins,” Grain’s Chicago Business, June 27, 1988, p. 19.
“A Look Back,” The Health-Mor World, company publication. Phillips, Stephen, “HMI Industries Is Looking To Move,” Cleveland Plain Dealer, March 11, 1995, p. 1C.
Prizinsky, David, “Health-Mor Looks East,” Grain s Cleveland Business, March 16, 1992, pp. 1, 29.
Sabath, Donald, “Health-Mor CEO Sees Growth, New Products,” Cleveland Plain Dealer, June 14, 1994, p. IE.
—, “HMI Expects Air Cleaner To Fuel ’96 Sales, Profits,” Cleveland Plain Dealer, January 25, 1996, p. 2C.
—, “HMI Industries Says Labor Woes Held Down Earnings,” Cleveland Plain Dealer, December 7, 1995.
Silverstein, Evan, “Non-Needle Technology Offers Diabetics Freedom From Pain,” Cincinnati Business Courier, December 13, 1993, p. 32.
Solov, Diane, “Health-Mor Cleans Up with Pricey Vacuums,” Cleveland Plain Dealer, July 4, 1992, pp. 1E, 9E.
—, “Health-Mor Meeting Is Bit Unusual,” Cleveland Plain Dealer, January 22, 1993, p. 1F.
—April Dougal Gasbarre