Electrolux Profit Tops Estimates as Europe Business Improves

Electrolux AB boosted earnings for the third straight quarter as Europe’s biggest maker of home appliances cut costs and pushed more profitable products amid subdued spending in its home region.

Operating income excluding one-time items rose 29 percent to 1.39 billion kronor ($190 million), the Stockholm-based company said in a statement today, topping the 1.32 billion-kronor average of 12 estimates compiled by Bloomberg. The shares jumped as much as 7.2 percent.

The operating margin in Europe more than quadrupled to 5.5 percent, boosted by cost savings, production efficiency and a shift toward more profitable items such as built-in ovens, Electrolux said. Demand in the region remains weak and is likely to grow at the low end of the company’s 1 percent to 3 percent forecast for the year, Catarina Ihre, head of investor relations, said on the sidelines of a press briefing.

“The strong margin performance in Europe is a clear positive and appears sustainable to us, at least in the near term,” Andre Kukhnin, an analyst at Credit Suisse in London, said in a note.

The shares were up 5.5 percent at 195.30 kronor as of 2 p.m. in Stockholm. The stock has gained 16 percent this year, while Whirlpool Corp. shares have lost 4.4 percent.

Electrolux has spent a decade restructuring its business, moving production to low-cost countries to boost profitability amid stagnating sales. That’s helping operations in Europe recover, even as demand shows few signs of recovery.

‘Relatively Sideways’

“We were cautiously optimistic that Europe was on a gradual recovery at the beginning of the year, but things have gotten weaker,” Chief Executive Officer Keith McLoughlin said today as he also reported a 6 percent gain in group sales to 28.8 billion kronor. “Our assumption is it will be relatively flat, move relatively sideways.”

Demand is stronger in the U.S., with the Swedish company forecasting 4 percent to 5 percent market growth this year. North American market demand for major appliances rose 7 percent in the latest quarter, the company said.

The operating margin in North America narrowed in the quarter to 5.7 percent from 6.9 percent a year earlier. That was lower than expected, Mattias Eriksson, an equity strategist at Nordea Bank AB, said in an e-mailed comment.

U.S. earnings were hurt by transitions required to meet new energy standards from the Department of Energy as well as a continued weak market for air conditioners, McLoughlin said.

Electrolux last month agreed to buy General Electric Co.’s appliances business for $3.3 billion, putting the maker of AEG stoves and Frigidaire refrigerators on a par with main rival Whirlpool Corp, with both companies chalking up revenue exceeding $20 billion.

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