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Electrolux Results Hurt by Raw Materials Costs
Apr 28, 2011
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Swedish-based appliance maker Electrolux Group said first quarter 2011 net sales were SEK 23,436 million (approx. US$3.85 billion), down from SEK 25,133 million in the first quarter of 2010. Exchange rates were a negative factor– net sales actually increased 0.9% in comparable currencies. This increase came mostly from good sales growth in the Latin America and Asia/Pacific regions and in the Small Appliances product segment.

Electrolux's operating income in 1Q 2011 was SEK 696 million, down from SEK 1231 million in 1Q 2010, and income after financial items was SEK 637 million, down from SEK 1211 million. Electrolux put the blame primarily on price pressures and higher raw materials costs. Income was helped by improvements in product mix.

Electrolux said its ongoing global initiatives to leverage its global scale and scope to reduce costs are ongoing and on-schedule.

Major Appliances in Europe

Electrolux major appliances net sales in Europe, the Middle East, and Africa were SEK 7656 million in 1Q 2011, down from SEK 8921 million in 1Q 2010. Operating income in 1Q 2011 was SEK 311 million, down from 499 million in 1Q 2010.

Industry shipments of core appliances in Western Europe were down 2% in 1Q 2011 from 1Q 201. Electrolux reported seeing declines in demand in Southern Europe, including Spain, Italy, and France, while demand increased in Germany, the UK, and Nordic countries. Shipments in Eastern Europe were up 13%. With the Eastern Europe growth, demand for all of Europe was up 1%. Electrolux 1Q sales in Europe decreased due to lower volumes and price pressures, which are particularly strong in Southern and Eastern Europe.

Major Appliances in North America

Electrolux major appliances net sales in North America in 1Q 2011 were SEK 6728 million, down from SEK 7305 million in 1Q 2010. Electrolux reported an operating loss of SEK 71 million compared to a 1Q 2010 operating income of SEK 299 million. By Electrolux estimates the North America industry shipments of core appliances in 1Q 2011 were up 1% from 1Q 2010 with shipments of major appliances overall up 8%.

Electrolux's North America sales increased in comparable currencies in 1Q 2011, compared to 1Q 2010, driven by higher refrigerator and air-conditioner sales volumes, as well as by an improved product mix. The 1Q 2011 operating income decrease was blamed on strong price pressure, particularly in laundry appliances, and much higher raw materials costs. Manufacturing costs were higher in the quarter as a result of moving washing machine production from Webster City, IA, to Juarez, Mexico, but the company said these higher costs would be temporary. Increased cooking appliance sales helped boost the operating income.

Major Appliances in Latin America

Electrolux Latin America major appliances net sales in 1Q 2011 were SEK 3998 million, up from SEK 3796 million in 1Q 2010. Operating income was SEK 139 million, down from SEK 206 million in 1Q 2010.

Electrolux said major appliances demand in Brazil, which accounts for about 85% of its Latin American business, was up in 1Q 2011 compared to 1Q 2010, with other Latin American markets also showing growth. Electrolux sales volumes were up in the Latin American region.

The decline in 1Q 2011 operating income was the result of a weaker customer mix, which is itself the result of Brazil retailer consolidation. As in other regions, operating income was hurt by much higher raw materials costs.

Major Appliances in Asia

Electrolux Asian major appliances net sales in 1Q 2011 were SEK 1746 million, up from SEK 1666 million in 1Q 2010. Operating income was SEK 174 million, up from SEK 145 million in 1Q 2010.

The company saw overall Australian demand increase slightly in 1Q 2011 from 1Q 2010, but Electrolux sales were lower due to increased price pressure, with a strong Australian dollar making imported products more competitive. Operating income was higher due to exchange rates and better manufacturing productivity. Operating income was negatively affected by higher raw materials costs.

Southeast Asia and China showed a significant increase in demand in 1Q 2011 over 1Q 2010. Electrolux sales also showed strong growth in these markets and operations continued showing good profitability.

Small Appliances

Electrolux small appliances net sales in 1Q 2011 were SEK 1930 million, up from SEK 1936 million in 1Q 2010. Operating income was SEK 114 million, down from SEK 211 million in 1Q 2010.

Electrolux saw industry demand for vacuum cleaners unchanged in Europe and North America in 1Q 2011 compared to 1Q 2010.

Electrolux sales of vacuum cleaners and small domestic appliances increased in comparable currencies in the first quarter of 2011 in the first quarter, a result of higher sales volumes and a better product mix. Strong price pressures are still a factor in many markets. 2010 product launches in North and Latin America helped increase sales. Sales volumes of small appliances showed strong growth overall with especially good growth in Latin America. Operating income declines came about because of higher product costs and lower sales prices in many markets. Costs were higher for sourced products and raw materials. Operating income was also affected by investments made by the company to grow within this product segment.

Professional Appliances

Electrolux professional appliances net sales in 1Q 2011 were SEK 1378 million, down from SEK 1501 million in 1Q 2010. Operating income was SEK 177 million, up from SEK 91 million in 1Q 2010.

Electrolux saw stronger 1Q 2011 demand for foodservice equipment compared to 1Q 2010. Electrolux's lower sales in the segment resulted from the company's decision to part with a North American contractor, in the third quarter of 2010, that was showing lower profitability.

Operating income was up as a result of increased sales of appliances manufactured in-house, price increases, and better production capacity utilization. Higher costs for raw materials hurt income.

Electrolux expects small increases in demand for appliances in 2011 in Europe, which is expected to be up approximately 2%, and in North America, expected to be up 3-5%.

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