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Electrolux Warns on Full Year Amid Consumer Gloom

Reuters
Thursday, 17 Jul 2008 | 11:43 AM ET

World No. 2 home appliances maker Electrolux warned on Thursday that full-year earnings will fall more than previously forecast due to weaker demand, closing its shares down, by almost 4 percent.

The company -- whose brands include AEG, Zanussi and Frigidaire as well as its own name -- said it expected operating income for the year of 3.3 billion to 3.9 billion Swedish crowns ($654 million), excluding items affecting comparability.

"The figures are good but the outlook is bad," said one analyst, referring to a smaller-than-expected drop in second-quarter core profit.

Electrolux shares were down against a gain in the broader market.

"They are guiding lower than consensus and there are likely to be many forecast downgrades now, for next year as well," a second analyst said.

The Sweden-based maker of washing machines, fridges and other white goods -- whose competitors include world No. 1 Whirlpool -- had previously seen operating income at the lower end of a single-digit percentage rise or fall compared with last year.

The new full-year forecast would translate to a year-on-year earnings decline of between 19 and 32 percent.

Market expectations ahead of the report were for adjusted operating income of 3.9 billion crowns this year.

"Based on the very weak market developments we have decided to decrease our forecast for the markets in North America and Europe. A consequence of this is that we have changed our outlook for the full year," Chief Executive Hans Straberg said in a statement.

Electrolux posted earnings before interest and tax of 793 million Swedish crowns, excluding extraordinary items, versus a year-ago 921 million and a mean forecast of a 716 million in a Reuters poll of 10 analysts.

Straberg reiterated his April warning on rising costs and told Reuters that raw material costs would go up by 1 billion crowns year-on-year.

High-End

After spending years slashing costs to offset the effects of growing competition from low-cost rivals and surging raw material prices Electrolux now must contend with a sharp market downturn, especially in North America where the group generates roughly one third of its revenues.

With the U.S. economy mired by a financial crisis and housing slump, North American industry shipments of core appliances have fallen nearly 10 percent in the first half of 2008, especially awkward for Electrolux which is in the midst of launching a new line of high-end products in the market.

The company said the launch of its new Electrolux-branded products in the more profitable premium segment in North America had begun well, adding that excluding investments in the launch, it was maintaining its results in the region despite the sharp decline in demand.

Electrolux struck a more sombre tone regarding Europe, the group's single biggest market, where earnings had been negatively affected in the second quarter by declining demand in western Europe as well as high product costs.

"When I presented the report for the first quarter of 2008, I compared Electrolux to a six-cylinder engine, where five cylinders are running well while the sixth one had not quite reached its full capacity," Straberg said.

"The cylinder not up to speed is Europe."

Electrolux said demand continued to rise in eastern Europe, but at a lower pace, while deliveries in western Europe fell as markets such as Spain, Italy and Britain weakened.

"However, demand in France and Germany increased during the quarter," it added.

While results in Europe remained unsatisfactory -- sales and earnings were flat on an annual basis -- the group had begun to see signs of improvement, with market share gains in the region and cost cuts there beginning to bite, Straberg said.

Whirlpool reports on July 23.

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