STOCKHOLM (Reuters) - Electrolux (ELUXb.ST), one of the world’s biggest home appliance makers, is launching an 8 billion Swedish crown ($950 million) investment drive to modernize its factories, especially in North America, to better compete with cheap Asian competition.
The increased investments would see the group’s overall capital spending rise to around 6 billion crowns next year from an estimated just over 4 billion in 2017 and would be spread over the coming 3-4 years, it said.
The Swedish group, and rival of U.S. Whirlpool Corp (WHR.N), has been weeding out less profitable product lines and fine-tuning production, mainly in Europe, helping it reach a long-elusive 6 percent operating margin in the past two quarters.
Making production nimbler and less costly is key in the white goods business which faces intense price competition from Asian rivals such as LG Electronics (066570.KS) of South Korea and China’s Haier Group.
CEO Jonas Samuelson is now moving to modernize Electrolux’s global production footprint along the same lines as he did as head of the group’s European arm before taking the helm of the group early last year.
The latest investment push should yield annual cost savings of 3 billion crowns from 2020, Samuelson said in a presentation to investors.
The group will expand automation and modularization - a technique that reduces complexity and allows manufacturers to raise the number of components common to a range of products - at its plants in North and Latin America as well.
“This drives a fair amount of incremental capital over the next three to four years, but with an extremely strong payback,” Samuelson said. Still, news of the steeper spending weighed on Electrolux shares which were down 1.7 percent by 1013 GMT.
More flexible production, allowing quicker lead times from drawing board to customer home, is also a way to help the company tap into the robust market growth seen ahead.
In its first full outlook for next year, Electrolux said it expected industry demand to rise 1-2 percent in Europe and 2-3 percent in North America.
Higher raw material prices, primarily for steel, have taken a toll on white goods makers this year, with Electrolux forecasting a 1.4 billion Swedish crowns ($166 million) hit to 2017 earnings from input costs.
It said it expected cost efficiencies to offset a hit of around 1 billion crowns from input cost increases in 2018.
Shares in Electrolux are up 25 percent this year, outpacing a gain of just under 10 percent in the STOXX Europe personal and household goods index .SXQP.
($1 = 8.4186 Swedish crowns)
Additional reporting by Johannes Hellstrom; Editing by Mark Potter and Susan Fenton