Stockholm: Home appliances giant Electrolux warned that weak demand in the US and Europe combined with rising raw materials costs would hurt second-half earnings, underscoring harsh conditions for consumer companies.
Electrolux, the world’s second largest maker of appliances like fridges and cookers, posted worse-than-expected second-quarter results alongside its gloomy forecast and saw its shares drop 13% to two-year lows on Tuesday.
That followed a surprise loss for on Monday for Philips, Europe’s largest maker of consumer electronics. The Electrolux warning also boded ill for its larger rival, Whirlpool, the appliances world number one, which reports on 21 July.
“It is a weak economic macro environment and appliance demand is directly connected to consumer confidence and discretionary income,” Electrolux chief executive Keith McLoughlin told Reuters, referring to the US market, where he said demand fell 10% in the quarter.
Important European markets like Spain and Italy were also sharply lower, hit by austerity and debt worries, he added.
Electrolux, buffeted by the debt crisis in southern Europe and a fragile US economy, reported core earnings of 745 million crowns ($113.2 million) versus 911 million crowns forecast in a Reuters poll of analysts and 1.5 billion crowns a year ago.
Electrolux shares were down 13.6% at 124.8 crowns, their lowest since July 2009.
In a statement, the company said it did not expect earnings in the second half to reach those of the second half of 2010
“We thought there was an opportunity to match the second half of last year. Given the current market environment and the update of what is happening in North America and west Europe, we don’t expect that will happen,” McLoughlin told Reuters.
Raw Materials and Price Woes
DnB NOR analyst Ole-Andreas Krohn said it was a disappointment that Electrolux did not expect to achieve the same result in the second half of 2010 as last year.
“Expectations for the third quarter were not so high, but most in the market had expected an improvement in the fourth quarter. That will have to be revised,” he said.
“There was a bad second quarter report and weak guidance for the second half of the year. I had expected the second half to be better than the second half of last year,” said one analyst, who declined to be named.
“They need to get their price rises through ... but we are not there yet. There is a lot of uncertainty,” he added.
As well as weak demand, Electrolux has suffered higher costs from soaring metals and plastics prices. It stuck to a forecast for raw materials cost rises of 2 billion crowns this year.
To offset the costs pressure and demand weakness, Electrolux is to push through price rises in Europe and announced a further price rise for North America.
In line with earlier statements, the company said it expected modest growth in demand in 2011, with Europe up about 1%, a downgrade from an earlier 2% growth forecast.
It expected North American growth of no more than 3%.
Like other consumer giants, Electrolux has focussed its market growth efforts on emerging markets.
In contrast to the weak West, eastern European demand rose 12% in the second quarter, the company said.
“What we have to do is take the action to navigate through the short term,” McLoughlin said, referring to cost cuts, price rises and strategic investments, such as the recent deal to buy Egypt’s Olympic
At the same time, Electrolux was no longer in talks to buy South Korean firm Daewoo Electronics , McLoughlin said. Creditor sources told Reuters in June that creditors had rejected Electrolux’s demand to cut the sale price by 5%.
“We are not putting a huge amount of effort on it. We are keeping our eyes open,” he said, when asked whether Electrolux remained interested in Daewoo.