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LG Elec Q2 profit surges, strong margins to ease

LG Elec Q2 profit surges, strong margins to ease
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First Published: Wed, Jul 22 2009. 02 22 PM IST
Updated: Wed, Jul 22 2009. 02 22 PM IST
Seoul: LG Electronics Inc posted a record quarterly profit on strong mobile phone and TV sales, helping it win market share from rivals Nokia and Motorola but concerns over weaker margins may stall a rally in its shares.
The world’s No.3 mobile phone maker is benefiting from a weak local currency and a strong lineup of flat-screen TVs, appliances and phones, including new premium products such as the multimedia touch screen phone ARENA.
LG, which battles Samsung Electronics and Sony in liquid crystal display (LCD) TV, is also enjoying robust sales and improving margins in flat-screen TVs.
But there are doubts about whether LG could maintain such strong earnings growth, after LG said third-quarter handset margins could slip slightly on marketing costs and lower-end phone sales.
“The second quarter is usually the peak season for LG,” said Choi Hyun-jae, an analyst at Tong Yang Securities. LG’s air conditioner unit, the world’s largest, usually reports highest sales and margins in the second quarter.
“Global economic risks remain and fierce marketing competition among new products could also result in price reductions,” Choi said.
The global environment was improving but not translating into better demand, LG executives told an investor conference.
LG shares ended 1.1 percent lower against a 0.3% gain in the broader market. The strong results had been largely priced in, analysts said, with the stock up about 76% so far this year versus the KOSPI’s 32% gain.
Phone Margins
LG, which trails Nokia and Samsung in cellphones, sold a record 29.8 million handsets in the second quarter, up from 22.6 million units in January-March.
It posted an 11% operating profit margin in handsets, compared with 6.7% in the first quarter, a figure Choi said was “pretty remarkable.”
The company said the margins would dip.
“LG Electronics expects sales to grow over 10% year-on-year (in the third quarter) as demand for LCD TVs and mobile phones continues to expand, with profitability comparable to last year’s level,” LG said in a statement on Wednesday.
The company’s operating profit margin was 7.8% in the second quarter and was at 4.3% for all of 2008.
Last week, Nokia downgraded its expectations for second-half underlying operating margin to the first-half level of 11.3%. Nokia also slashed market share forecasts amid price competition led by Samsung and LG.
Samsung posts earnings on Friday and indicated earlier this month its profits would be above expectations.
Others are not faring so well.
No.4 ranked Motorola is working to narrow losses through cost cuts in the face of sharp drops in sales, while world No.5 maker Sony Ericsson is also braced for a tough second half of 2009 as a demand slump hits its stronghold mid-range products focused on camera and music features.
LG’s global-basis operating profit, which includes foreign affiliates, was a record 1.13 trillion won ($903 million) for April-June, soundly beating a 988 billion won average forecast from nine analysts polled by Reuters.
It rose 32% from an 856 billion won profit a year ago and compares with the first-quarter profit of 456 billion won.
Quarterly net profit jumped 62% from a year earlier to 1.15 trillion won, marking a strong turnaround from the 198 billion won net loss in January-March.
Its global-basis sales were 14.5 trillion won, in line with forecasts.
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First Published: Wed, Jul 22 2009. 02 22 PM IST