October 25, 2019 / 6:17 AM / 18 days ago

Electrolux reassures pricing will offset cost pressures, shares climb

STOCKHOLM (Reuters) - Swedish appliance maker Electrolux (ELUXb.ST) reported quarterly profit that narrowly topped forecasts and reassured investors it could shrug off the pinch from currency swings, higher costs and tariffs, sending its shares sharply higher.

Interiors of Electrolux R&D facility are pictured at their plant in Pordenone, Italy, March 27, 2019. REUTERS/Giulio Piovaccari

Electrolux and U.S. rival Whirlpool Corp (WHR.N) have spent the year pushing price hikes and greater efficiency as they seek to cushion the blow from higher raw material costs and tariffs on goods such as steel and aluminium.

The Swedish company said it expected a hit of 1.6 billion crowns (£129.1 million) - the top end of its previous forecast - from higher raw material costs, trade tariffs and currency swings this year, but that pricing would fully offset that.

“The net increase is driven by a more unfavourable currency impact, while raw materials and trade tariffs combined are expected to have a less negative impact compared to our view a quarter ago,” CEO Jonas Samuelson said.

“For the first nine months of 2019, price has fully offset this headwind and we expect that to also be the case for the full year.”

Operating earnings at the maker of appliances under brands such as Electrolux, Frigidaire and AEG fell to 1.19 billion crowns (£95.98 million) from 1.76 billion crowns a year ago, just topping a Refinitiv mean analysts’ forecast of 1.12 billion.

Earnings included a hit from non-recurring items of 412 million crowns, an impact previously flagged by the company that was also largely reflected in analysts’ estimates.

Shares in Electrolux, which is in the process of spinning off its professional appliances arm, rose 5 % by 0903 GMT.

“Despite higher headwinds (on currency), Electrolux comments that it can continue to offset headwinds on price,” Citi said in a research note. “Combined with the operating income beat in Q3’19, this should be seen as positive.”

A company spokesman said adverse currency levels affecting its 2019 outlook primarily related to swings in Latin American currencies in markets such as Argentina, Brazil and Chile.

While prices of raw materials have eased somewhat over the past several months, the group’s ability to offset the lingering impact is closely watched by investors after a gain of about 40% in the stock this year.

Samuelson has made lifting sales of high-margin products and pulling out of less profitable business a priority during his years as CEO, and Electrolux forecast a positive impact from both product mix and pricing in the fourth quarter.

Large-scale price hikes were not currently planned for the fourth quarter, Samuelson told Reuters, though increases could be needed in markets facing fierce currency headwinds, for instance in Latin America.

In terms of market demand for 2019, Electrolux stood by its outlook for slightly higher industry-wide shipments of core appliances in Europe and Latin America, as well as a slight decline in North America, where demand has been dented by higher prices and uncertainty over tariffs.

Looking forward to market demand in 2020, Samuelson said the outlook was mixed as he weighed a decline in many macroeconomic gauges in recent months with continued support for consumers from low interest rates and subdued unemployment.

“We are cautious and vigilant, but we don’t see any sharp drop anywhere right now,” he said.

Earlier this week, Whirlpool, the owner of brands such as KitchenAid and Maytag, reported lower-than-expected quarterly sales, dented by a decline in its Latin American business.

Reporting by Niklas Pollard; editing by Johannes Hellstrom, Subhranshu Sahu and Deepa Babington

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