Husqvarna Results Still Hurting from Orangeburg Production Problems
Jul 20, 2011
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Outdoor power equipment maker Husqvarna (Stockholm) reported net sales for the second quarter of 2011 were SEK 10,179 million (approx. US$1576 million), compared to SEK 11,457 million in the second quarter of 2010 – although adjusted for currency exchange rates, sales decreased by SEK 64 million or about 1%.
Sales prices increased slightly. Europe and Asia/Pacific accounted for an adjusted sales increase of approximately 4% or SEK 246 million. The Americas’ adjusted sales decreased by approximately 9% or by SEK 375 million. Construction’s adjusted sales increased by approximately 10% or SEK 65 million.
The group reported a negative operating income of approximately SEK 170 million, in part due to changes in exchange rates.
Acting CEO and President Hans Linnarson said that North American industry demand decreased, which wasn't helped by continuing "supply chain challenges" at its factory in Orangeburg, SC, both of which hurt sales.
Linnarson said the European market started the second quarter strongly but then slowed near the end of the quarter.
Orangeburg Problems Continue
Orangeburg problems also hurt North American results in the first quarter of 2011, when the company said the plant was dealing with an "increase in material complexity" as it assimilated the production from the recently closed Beatrice, NE plant and accommodate several number of new product launches.
"Production disturbances continued to hamper the output from Orangeburg as well as resulting in higher costs," Linnarson said. Measures have been taken to reduce the costs resulting from these problems. In 1Q the costs were about SEK 150 million, in 2Q the cost was SEK 180 million.
"Our highest priority going forward is to secure deliveries to our customers for the 2012 season in a timely manner. Further measures will be taken within the Orangeburg factory which is expected to result in SEK 100 – 150 million higher costs during the remainder of 2011," Linnarson said. "We are also planning to increase our pre-season production. As production capacity and flexibility to guarantee the highest delivery performance will be prioritized, we will also review the pace of our ongoing restructuring projects."
Linnarson said that savings from consolidating manufacturing in Orangeburg will be delayed.
"The Group's operating income declined in the second quarter. Higher selling prices and a favorable mix were not able to offset negative currency effects, costs related to the production disturbances, higher input costs and marketing expenses."
Sales for the first half of 2011 were SEK 18,953 million, down from SEK 20,539 million in the first half of 2010.
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