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Electrolux hikes prices to fight higher costs

Electrolux hikes prices to fight higher costs
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First Published: Wed, Feb 02 2011. 02 23 PM IST
Updated: Wed, Feb 02 2011. 02 23 PM IST
Stockholm: World number two white goods maker Electrolux is set to raise prices to battle higher raw materials costs after reporting weaker earnings, a theme larger peer Whirlpool is expected to echo.
Both US-based Whirlpool and Sweden’s Electrolux rely more on growth in emerging markets than in crisis-hit developed nations and have been slammed by soaring metals and oil product costs.
Shares in Electrolux sank more than 6% after the cash-rich company on Wednesday said it would extend its share buyback programme, instead of giving money back to shareholders via a special dividend as some investors had hoped.
“It is a bit disappointing there is no extra dividend,” said DnB NOR analyst Ole-Andreas Krohn.
Electrolux is to raise prices by 8% to 10% in North America from April and gradually in Europe and other markets, as manufacturers around the globe plot price hikes to offset higher costs and claw back ground lost in the recession.
Electrolux chief executive Keith McLoughlin said the rise in raw materials’ costs had been across the board.
“In the first quarter we are going to have raw materials hitting us immediately,” he told Reuters in an interview after reporting core earnings of 1.71 billion crowns ($257.8 million).
This was just below the forecast of 1.78 billion crowns and down from 2.0 billion crowns in the same period of 2009.
The company raised its forecast for the impact of raw material costs to a range of 1.5 to 2 billion crowns, higher than the previous 1.5 billion crown forecast.
Some Growth
Whirlpool has forecast 2010 energy/raw materials cost inflation towards the lower end of the $200-$300 million range.
Analysts on average are expecting Whirlpool to earn $2.26 a share, before items, on revenue of $4.84 billion, according to Thomson Reuters I/B/E/S.
David MacGregor, an analyst at Longbow Research, cut his 2011 earnings forecast for Whirlpool earlier this week, raising concerns about recent rises in costs of energy and raw materials as well as weak January sales volumes.
“We suspect that in 2011, this figure (costs) may revert back to the 2007 level of $500 million to $600 million driven by high levels of inflation in steel, plastics and paint, non-ferrous metals, components, diesel (logistics), etc,” MacGregor said.
Electrolux expected a modest growth in demand for appliances in Europe and North America this year after demand in Europe rose 2% in 2010 after more than two years of decline.
McLoughlin said that overall markets were growing, but again most of the growth was coming in emerging markets like eastern Europe, China and India.
“There is a global economic recovery happening,” he told Reuters. Market growth was in the low single digits in mature markets but up to 7% to 9% in places like China and India.
Electrolux raised its dividend to 6.50 crowns a share from 4.0 crowns.
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First Published: Wed, Feb 02 2011. 02 23 PM IST