Electrolux Q3 2018 Interim report: Price Increases in a Challenging Environment
Highlights of the third quarter of 2018
- Net sales amounted to SEK 30,444m (29,042). Sales growth was 0.7%, mainly driven by price increases in several markets.
- Operating income amounted to SEK 1,756m (1,981), corresponding to a margin of 5.8% (6.8).
- Increased prices and mix contributed positively across all business areas but could not fully offset higher input costs, lower volumes and accelerating currency headwinds in Latin America.
- Major Appliances North America also faced higher cost inflation from tariffs in addition to lower sales to private label.
- Operating cash flow after investments amounted to SEK 1,352m (2,287).
- Income for the period decreased to SEK 1,162m (1,440), and earnings per share was SEK 4.04 (5.01).
President and CEO Jonas Samuelson’s comment
Our strategic focus on innovation improving consumers’ experience, together with high agility in today’s more challenging cost environment, are great competitive assets and I am very pleased to see that we are continuing to improve the product mix. Mix improvements together with cost-based price increases contributed step-by-step to the development in the quarter. Organic growth was 0.8% while the operating margin contracted to 5.8%, as we were not yet able to fully offset the negative impact from higher raw material costs, currency headwinds and lower volumes.
EMEA’s performance was once again strong and I am pleased to see consumer-experienced innovation resulting in market share gains under our premium brands. Our North American and Latin American operations implemented cost-based price increases, but also saw volumes declining. In addition to higher raw material costs, North America faced higher cost inflation from tariffs and also lower private label sales, while the currency headwind accelerated for Latin America. Asia Pacific increased its sales in Southeast Asia but was impacted negatively by the softer Australian market. Home Care & SDA is still in a product transition phase with lower sales volumes as a consequence. Professional Products’ earnings remained solid and it is encouraging to see good growth across all segments, including the new beverage segment.
Additional trade actions under Section 301 in the U.S. were announced in the quarter. We now estimate the negative year-over-year impact from raw materials, tariffs and currency to be approximately SEK 3bn in 2018, compared to the previous estimate of approximately SEK 2.7bn. Looking into 2019, based on current market conditions, these combined headwinds could continue with a similar year-over-year impact as in 2018. A significant portion of these effects are offset by already implemented and announced price increases. Further price increases will be implemented to mitigate cost inflation.
With one quarter remaining in 2018, we have improved visibility and revise our market outlook for 2018 to more narrow ranges. The UK is still largely impacted by Brexit and hence the European market is expected to grow by approximately 1% in 2018. Current macro trends indicate slightly softer market demand for Australia.
Our focus on creating best-in-class consumer experiences is vital to drive profitable growth. I am therefore very pleased that we launched a number of new products with relevant consumer benefits in the quarter; EMEA introduced a new range of induction hobs designed to enhance the consumer’s cooking experience. Home Care & SDA strengthened its floor care offering with a ground-breaking cordless vacuum cleaner that can fully replace its corded counterpart. Professional Products presented a new laundry line, based on new product architecture, using cutting-edge innovations and connectivity solutions to maximize uptime and best-in-class energy savings.
In October, we acquired SPM Drink Systems, thereby expanding Professional Products’ current beverage offering, which is important in order to become a full-service solution provider. Home Care & SDA has now completed its product portfolio review after divesting its North American commercial and central vacuum cleaner businesses.
I am confident that we are well positioned with the right business focus in this challenging cost environment to continue delivering shareholder value.