Electrolux AB, the world’s largest maker of household appliances, will spin off its outdoor-products unit and step up the relocation of production after fourth-quarter net income fell 37 percent.
Electrolux said it plans to have shifted most manufacturing by 2008 as part of a plan to save 2.5 billion and 3.5 billion kronor a year from 2009. Net income slid to 728 million kronor ($104 million) in the quarter from 1.15 billion kronor a year earlier, the Stockholm-based maker of Frigidaire refrigerators said today in a statement.
Chief Executive Hans Straaberg is moving production from Western Europe and the U.S. to countries such as Mexico and Hungary where labor is cheaper. Electrolux and rival Whirlpool Corp. are also raising prices as costs for materials such as steel climb. Whirlpool cited increased steel and oil prices when it reported a 22 percent drop in quarterly profit earlier this month.
“Consolidation and relocation of production are requirements for achieving long-term competitiveness and profitability,” Straaberg, 47, said in the statement.
Electrolux said it will complete the spinoff of the outdoor business no later than mid-2006. The division, which makes Husqvarna chainsaws and cutting tools, had sales of 27 billion kronor last year and about 11,500 employees.
Demand for appliances is expected to show “some growth” in the U.S. and Europe this year. Operating income, excluding extraordinary items, will be “somewhat” lower than in 2004 because of higher costs, Electrolux said.
Electrolux shares fell 2.5 kronor, or 1.7 percent, to 146.5 kronor in Stockholm yesterday. The have declined 2.6 percent this year, less than Whirlpool’s 8.8 percent drop. Electrolux said it plans to delist its American depositary receipts from the Nasdaq Stock Market.
Shares of Maytag Corp., the third-largest U.S. appliance maker, have plunged 28 percent. Maytag last month cut its forecast for 2005 profit and posted a fourth-quarter loss.
Metals, Energy Prices
Metal and energy prices have soared as China, the world’s largest consumer of copper, aluminum and coal, helps fuel the fastest global growth in three decades. Outokumpu Oyj, the world’s third-biggest stainless-steel producer and an Electrolux supplier, said last week demand for the alloy in the European Union will rise 4 percent this year as expansion boosts wages.
Steel’s benchmark price in Europe almost doubled in 2004 and reached a 17-year high of $592.50 a metric ton, according to industry consultant Metal Bulletin. Oil traded at records of more than $55 a barrel.
Electrolux aims to pass higher costs on to consumers. The company has begun raising prices, particularly in the U.S. It planned to charge 5 percent to 10 percent more for a “significant number” of its products in December and January. Some prices can rise 15 percent or more, Straaberg has said.
The company has said it expects to raise the amount of components it buys from low-cost countries to about 27 percent in 2004 from 20 percent in 2003.
Electrolux’s origins date to 1910, when Swedish salesman Axel Wenner-Gren saw an American-made vacuum cleaner in a Viennese store window and had the idea of selling the devices door-to-door using a technique he learned in the U.S. By the 1920s, he even won the blessing of Pope Pius XI to vacuum the Vatican for a year.
Analysts surveyed by SME Direkt expected Electrolux to report a 489 million-kronor profit.
From Bloomberg