Electrolux to Cut Costs and Jobs as Profit Misses EstimatesKatarina Gustafsson
Electrolux AB, the world’s second-biggest home-appliances maker, said it will eliminate 2,000 jobs as it closes factories and shifts production amid declining demand for washing machines and refrigerators in Europe.
The measures, including the closure of a site in Australia and a review of four Italian manufacturing plants, will generate annual savings of about 1.8 billion kronor ($284 million), Stockholm-based Electrolux said today as it reported third-quarter earnings that missed analysts’ estimates.
Electrolux shares slumped as much as 7.8 percent, the most in about eight months. Today’s cost-cutting measures are an extension of a program started in 2011 and come in response to declining sales in Europe. Demand in the region will fall by as much as 2 percent in 2013, offsetting increased consumption in North America, the maker of AEG vacuum cleaners said today.
“We view the appliance market industry as one of the worst end-markets in our capital-goods universe,” Rob Virdee, an analyst at Espirito Santo in London, said in a note. “There is still chronic global over-capacity and the value proposition of appliance manufacturers is poor.”
Electrolux said the cost cuts and job reductions announced today will mainly affect its appliances businesses in Europe, the Middle East and Africa. The company had about 60,000 employees at the end of June, according to its website.
A factory that makes freezers and refrigerators in Orange, Australia will be closed and production moved to a plant in Thailand, the company said. The shutdown will lead to the loss of about 500 jobs, Australian Financial Review reported.
“We expect these actions to have a positive impact on our cost position and contribute to our margins,” Chief Executive Officer Keith McLoughlin said in a separate release. Electrolux expects to take 3.4 billion kronor in charges related to the measures in the fourth quarter and 2014.
Earnings before interest and taxes for the three months ended Sept. 30 fell 24 percent to 1.08 billion kronor from a year earlier, the company said. The average of 15 estimates gathered by Bloomberg was 1.32 billion kronor.
The shares were down 7.4 percent at 160.1 kronor as of 1:17 p.m. in Stockholm. The stock has lost 7.6 percent this year, giving the company a market value of 49.5 billion kronor.
In North America, business is benefiting from a recovering housing market. Electrolux predicted that demand for appliances in the U.S. will grow by as much as 9 percent this year, up from a previous forecast of as much as 7 percent.
“We think the environment in North America for appliances is quite good,” McLoughlin said in a telephone interview. The recovering housing market and a positive economy will be “good for appliance demand next year,” he said.
Whirlpool Inc. this week raised its full-year earnings forecast as the maker of KitchenAid appliances reported a better-than-anticipated third quarter. In the U.S., the Benton Harbor, Michigan-based company estimates industry shipments will increase by as much as 9 percent this year.
Electrolux is also seeing strength throughout Asia, though appliance demand in Brazil is anticipated to be “bumpy” for the next six months due to both the macroeconomic situation and government changes to incentive programs for appliances.
“We don’t think that changes any of the fundamentals, which is good, solid growth for appliances based on a growing middle class,” McLoughlin said of Brazil. “We are still quite positive and optimistic on Latin America in general and Brazil in particular.”
Third-quarter sales were little changed at 27.3 billion kronor while analysts had estimated 27.6 billion kronor. So-called organic revenue growth was 4.9 percent, while currency shifts reduced sales by 4.6 percent, the company said.