April 26, 2019 / 6:55 AM / in 3 months

Electrolux sees slowing cost headwinds in 2019 after profit beat

STOCKHOLM (Reuters) - Swedish home appliance maker Electrolux scaled back its full-year cost guidance after reporting first-quarter earnings above market expectations as price hikes and improved product mix helped offset tariff and currency headwinds.

FILE PHOTO: A man walks past an Electrolux shop in Riga, Latvia November 12, 2013. REUTERS/Ints Kalnins

Electrolux has boosted margins in recent years by cutting lower-margin products and increasing efficiency, but its work was partly undone last year by mounting costs for raw materials and tariffs amid a trade stand-off between Washington and Beijing.

The company and U.S. rival Whirlpool have pursued a strategy of hiking product prices and further curbing spending to cushion the impact. Electrolux said on Friday that price hikes had fully compensated for cost increases in North and Latin America during the quarter.

Adjusted operating earnings at the owner of brands such as Electrolux, Frigidaire, AEG and Anova fell to 1.30 billion crowns (£105.74 million) from 1.36 billion a year ago, but came in ahead of the 1.24 billion forecast in a poll of analysts.

Handelsbanken Capital Markets analyst Karri Rinta said the main standout in the results was profitability in Electrolux’s North American arm, which was better than expected and slightly stronger compared with the second half of 2018.

Electrolux shares were up 2.5 percent by 0710 GMT.

Driven by price hikes, strong growth in Europe and better than expected demand in Latin America, sales grew 6 percent to 29.71 billion crowns, topping the 29.54 billion seen by analysts.

“On balance, the results appeared slightly better overall,” said Rinta, who has a 260 target price and “hold” rating on the Electrolux stock.

The results follow those of rival Whirlpool, which on Monday beat estimates for quarterly profit as price increases offset higher raw material and freight costs.

Electrolux said it estimated the negative impact from raw materials, tariffs and currency would be 1.7 billion to 1.9 billion in 2019, a smaller hit compared to a previous estimate of 2.0 billion to 2.4 billion.

The company, which also counts LG Electronics and Haier as rivals, scaled back its North America market demand guidance for the full year to “slightly negative” from its previous guidance of “flat to slightly negative”.

Reporting by Esha Vaish; editing by Niklas Pollard and Gareth Jones

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