Just after Whirlpool announce a rise in profits although to be fair they were mainly saved by the acquisition of Maytag, Electrolux, which is Europe’s largest appliance maker has gained in Stockholm trading after fourth-quarter profit declined less than analysts had estimated.
The Swedish maker of Frigidaire refrigerators and Zanussi stoves added 1 percent to 100 kronor. Profit fell 22 percent to 1.13 billion kronor ($175 million), the company said in a statement. Analysts surveyed by Bloomberg predicted 885 million kronor.
Electrolux forecasted earnings will be unchanged this year and CEO Hans Straaberg said today he plans to cut 400 office jobs in the spring to help bolster European margins. The company, based in Stockholm, has shifted about one-half of production to lower-wage countries. It has also raised U.S. prices after introducing more advanced products.
“People have been very concerned about the U.S., so for Electrolux to show that it can not only hold but improve its profitability is fantastic,” said James Stettler, an analyst at Dresdner Kleinwort who has a “hold” on the shares. “All the big players recognize entering into a price war isn’t in their interests.”
Straaberg’s strategy appears to almost mirror that of his counterpart at Whirlpool which became the world’s largest appliance maker when it acquired Maytag. Of course Whirlpool recently announced a 72 percent jump in quarterly profit after relocating plants and cutting costs.
Higher-than-expected costs for new products introduced in 2007 will continue to weigh on Electrolux’s results this year. A total of 2,000 new product variations in 35 countries were added.
“We did too much in too short a time last year,” Straaberg said, “The product costs were disappointing and we’re working hard to get it under control.”
Extending the product revamp to U.S. operations will add 100 million kronor in costs in the first quarter, Electrolux said.
“They have real problems with this premium brand launch in Europe but they could still turn things around,” said Morgan Stanley analyst Joseph Connolly, “Even if they do turn the European brand launch around, it’s still a really tight call on this one.”
Electrolux, which also competes with Bosch Siemens Hausgeraete is closing its unprofitable U.K. cooker factory with 500 employees. Production will be shifted to a plant in Swidnica, Poland, to take advantage of lower costs.
The company is meeting with unions to review the productivity of two refrigerator factories in Italy employing 1,900 people. The company has not decided whether to close the plants and is considering all options for improving their performance, Straaberg said.
Acquired brands such as AEG and Kelvinator are gradually being replaced with the Electrolux label in order to cut marketing spend and build recognition across national markets.
Electrolux aims to save as much as 3.5 billion kronor annually by 2010 amid competition from rivals that now include South Korea’s LG Electronics, Turkey’s Arcelik (Beko), and Gorenje.