Electrolux and U.S. rival Whirlpool have cut costs and increased their exposure to faster-growing emerging markets to offset slowing growth in Europe and North America.
Demand has been increasing in the USA and Whirlpool has an advantage in being more exposed to the world’s biggest economy, which accounts for half of its sales versus 30% for Electrolux and this has shown in figures from both companies.
Whirlpool reported a higher than expected quarterly profit on Wednesday and stood by its earnings guidance for 2013 but this was largely attributed to gains that Whirlpool has seen from cost cutting and price increases.
For Electrolux Chief Executive Keith McLoughlin the problem is Europe, where consumer caution has spread from southern European countries to previously strong markets such as Germany and Sweden. The company now expects waning demand for appliances in the region this year, but growth of 3% to 5% in North America.
“We see improvements in the (U.S.) housing market… people trading up a little bit more,” McLoughlin told Reuters but also has been reported as stating that; “I would said that we don’t expect recovery in the first half,” adding that when the U.S. market starts to recover, Europe is typically “not that far behind”.
He saw no improvement in Europe in the first half of 2013.
“We’re hopeful that we will start to see something more positive in the second half, but we’re not changing our outlook for the year for Europe,” he said in a telephone interview.
Electrolux makes a wide range of appliances ranging from espresso coffee makers to cookers and owns brands including AEG and Zanussi.
It reported core first-quarter operating profit, stripping out one-off items, of 720 million crowns (£70.3 million), down from 907 million in the same period of 2012 and below the mean forecast of 873 million in a Reuters poll.
That included a mammoth 96% slump in earnings from major appliances in Europe, Middle East and Africa to just 11 million crowns from 271 million, but a rise in North American appliance earnings to 457 million crowns from 131 million.
Investors focused on Electrolux’s North American outlook and its stock was up 3.6% to 175.6 crowns.
Currency Problems
Rueters reported that Electrolux’s guidance was similar to Whirlpool’s, although Whirlpool expected a flat rather than a declining European market and saw North America up 2% to 3%.
“Whilst Electrolux is a well-run company geared into a consumer/housing market recovery, we view the appliance industry as the worst end-market in our coverage and in our view Electrolux’s valuation remains prohibitive,” said analyst Espirito Santo in a research note.
Electrolux’s first-quarter earnings were also hit by adverse currency movements. It blamed a strengthening of the U.S. dollar against the Brazilian real, a dollar rise versus several European currencies and a weakening of the British pound which could lead to price increases here in the UK and throughout Europe from many brands.