October 20, 2014 / 6:18 AM / 3 years ago

Electrolux sees anaemic growth in Europe as cost cuts lift profit

The Electrolux logo is seen during the IFA Electronics show in Berlin September 4, 2014. REUTERS/Hannibal Hanschke

STOCKHOLM (Reuters) - Global home appliances maker Electrolux (ELUXb.ST) struck a note of caution over its European business, predicting market growth at the low end of its forecast range after reporting slightly better than expected quarterly profit on Monday.

The Swedish group, vying for market leadership with U.S. rival Whirlpool (WHR.N) and China’s Haier (1169.HK), said it expected demand in Europe, which accounts for around a third of sales, to grow about 1 percent this year, at the bottom of its expectations for expansion of 1-3 percent.

“The market in Europe is weak. It is weaker than we would have anticipated at the beginning of the year,” Chief Executive Keith McLoughlin told a news conference.

Despite the weakness in Europe, years of plant closures and cost cuts in the region have helped to boost profitability, enabling Electrolux to report a better than expected 29 percent rise in earnings, lifting its share price 6.5 percent by 0939 GMT (10.39 a.m. BST).

Handelsbanken Capital markets said in a research note that the strong margins in Europe should drive positive revisions in 2015 estimates for the maker of household appliances such as dishwashers, refrigerators and washing machines. “There is scope for raised estimates for next year,” the bank said in the note.

The group posted a third-quarter operating profit of 1.39 billion Swedish crowns (119.63 million pounds), against an average forecast of 1.33 billion crowns in a Reuters poll of analysts.

The company’s recent $3.3 billion acquisition of General Electric’s (GE.N) appliances business will boost its returns from a resurgent U.S. market in which industry-wide sales of the six top categories of home appliances are up 5 percent in the year to Sept.

McLoughlin said U.S. market growth of 4-5 percent this year was a “reasonable forecast”, compared with the group’s previous forecast for growth of about 4 percent.

STAGNANT EUROPE

The European and North American markets each account for about a third of group sales, but sales growth in Europe has been more modest as the region’s economic recovery has faltered.

Growth prospects in Europe, not least in euro zone powerhouse Germany, have soured in recent months, leaving the outlook for sales of household appliances in greater doubt.

Electrolux, which sells under brands such as AEG and Zanussi as well as its own name, said that market conditions remained difficult and pointed to the recent weakening of leading indicators and consumer confidence in Europe.

“Eastern Europe is decidedly down, Western Europe kind of flat,” McLoughlin said.

Brazil is another difficult market, with a slowing economy hitting demand and its weakening currency prompting Electrolux to compensate by raising prices. The real BRL= has retreated 10 percent against the dollar over the past six months.

“Although market demand in Brazil has stabilised following the very weak spring and summer, other parts of Latin America have continued to deteriorate,” the company said in a statement.

Additional reporting by Helena Soderpalm; Editing by David Goodman and Louise Heavens

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