Electrolux Sinks as Higher Costs Will Continue Into 2019

(Bloomberg) -- Electrolux AB plunged the most in almost three years after reporting that costs are increasing and customers in North America balked at paying higher prices for its products.

  • The combined cost of raw materials, tariffs and currency will total 3 billion kronor ($333 million) in 2018, and the Swedish manufacturer of home appliances expects a similar hit in 2019. It had previously estimated about 2.7 billion kronor for 2018.

Key Insights

  • Profit from North America was much worse than expected, due to higher costs and negative impact from private-label cooking products after the bankruptcy of Sears.
  • The guidance suggests that headwinds from the rising costs, tariffs and forex headwinds are tougher than expected, and cost savings smaller than expected, according to Christer Magnergard, head of DNB Equities, Sweden. He expects analysts to chop their consensus profit estimates by about 7 percent for 2019.
  • Citigroup says the focus now is on the extent to which the higher costs can be offset by savings and price mix. CEO Jonas Samuelson said on a conference call that the company is “fully committed to offsetting these headwinds through price increases."
  • The biggest raw-material challenge looking forward is higher oil prices, which translates into higher costs for chemicals and plastics in the coming year, Samuelson said. He said tariffs on components and finished goods made in China are having “a significant impact on our cost base, which we are then recovering in pricing.”

Market Reaction

  • The shares fell as much as 14 percent, the most intraday since December 2015, touching their lowest since April 2014. Electrolux was down 9.1 percent to 163.75 kronor as of 10:15 a.m. in Stockholm, shedding 4.6 billion kronor in market value.

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  • Sears Kenmore-branded products represent 10 percent of Electrolux sales in North America, Samuelson said. In most product categories the company is “well placed" to take advantage of migration from Sears, but cooking products “would be harder for us to supplement” with sales of branded goods.
Electrolux Sinks as Higher Costs Will Continue Into 2019

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