Sweden’s Electrolux (ELUXb.ST) on Monday announced plans to cut costs and warned its profit would drop as high inflation and low consumer confidence squeezed demand for its home appliances, while large investments in North America had yet to pay off.
Demand for appliances in Europe and the United States decreased at a significantly accelerated pace in the third quarter, with high retailer inventories and supply chain imbalances increasing costs and inefficiencies, Electrolux said.
“Third quarter earnings for the group are expected to decline significantly compared to the second quarter 2022 also excluding the one-time cost to exit the Russia market,” the group said in a statement.
In the April-June quarter, Electrolux booked a weaker-than-expected operating profit of 560 million Swedish crowns ($53.4 million).
Europe’s biggest home appliances maker said cost cuts across Europe and North America would result in a material positive earnings contribution in 2023.
“The program, which starts immediately, will focus on reducing variable costs, with special attention to eliminating cost inefficiencies in our supply chain and production,” the company said in a statement.
While Electrolux has invested heavily in its North American plants, CEO Jonas Samuelson told analysts on a call that the pandemic and component shortages had delayed the ramp-up of local production.
“So far, focus has been almost exclusively on getting the output up at any cost…Now we have to flip into much more of a cost productivity perspective, both in the supply chain side and in our own manufacturing.”
In Europe, Samuelson said, Electrolux expected customers to continue to delay purchases.
“For as long as we see consumer confidence at these very low levels in combination with very high general inflation…people will hold on to their wallets quite hard,” he said.
Shares in Electrolux, whose brands include Frigidaire, fell as much as 7% and were down 1% at 1106 GMT, leaving them 42% lower so far this year. Electrolux said it would detail cost reduction targets and restructuring costs in its third-quarter report due Oct. 28.
($1 = 10.4865 Swedish crowns)