Electrolux Shares Plunge After Q3 Results

Shares of Electrolux (ST:ELUXb) fell over 13% on Friday following disappointing third-quarter results, which showed a significant decline in operating profit, primarily due to weak performance in North America.

Q3 Performance

Electrolux's Q3 report did not meet expectations, with Citi Research highlighting a 27% miss in operating profit as a "clear negative surprise." While European markets provided some comfort with solid margins, underwhelming results in the U.S. market overshadowed this.

North America Struggles

The North American division reported a 0.3% decline in sales, missing consensus estimates by 50 basis points. Analysts at Citi attributed the weak performance to lower pricing. This decline impacted the overall mixed results despite better-than-expected growth in Europe and Latin America.

Group-Wide Results

Group-wide net sales for the quarter reached SEK 33.3 billion, slightly exceeding expectations, with organic growth at 6.2%, surpassing forecasts by 210 basis points. However, operating income, excluding non-recurring items, came in at SEK 717 million—27% below market forecasts.

Regional Highlights

• North America: Continued to struggle, overshadowing Europe's strong margin performance of 4.2%, which exceeded estimates by 50 basis points.
• Latin America: Displayed strong top-line growth but fell short on margin expectations, posting returns of 6.5% against a forecasted 7.2%.

Cash Flow and Future Outlook

A positive note came from cash flow after investments, reaching SEK 1.05 billion—over double Citi's expectations. However, this was countered by news that proceeds from planned asset disposals would be lower than previously anticipated, adding to negative sentiment.

Electrolux has downgraded its outlook, reflecting the impact of "external factors" like currency and raw material costs, from positive to neutral, revising 2024 capital expenditure down to SEK 5 billion from a previous range of SEK 5-6 billion.

Market Predictions

Looking forward, Electrolux anticipates mixed regional market conditions: Europe may weaken, Latin America is expected to remain positive, and North America should stabilize at a neutral level. Ongoing pressure on volumes and prices are predicted, with analysts indicating potential for double-digit consensus downgrades for 2024 and potential pressure on 2025 expectations.

Citi analysts highlighted the risks to the outlook, including rising steel and energy prices that could further squeeze margins. Despite some potential upsides if Electrolux stabilizes prices, maintaining profitability in 2024 is anticipated to be challenging.