In the second quarter of 2024, Electrolux (ELUX-B.ST) reported a notable 7% organic sales growth, with volume increases across all business sectors.
The company's earnings before interest and taxes (EBIT) rose to SEK 419 million, a result of reduced losses in North America and robust performance in Latin America. Electrolux announced the divestment of its South African water heater business, aligning with its strategic focus on simplification.
Despite a negative cash flow after investments in the first half of the year, Electrolux maintains solid liquidity at SEK 32.8 billion. The company's outlook for major markets is mixed, with a stabilization expected and a positive outlook in Latin America, but a negative view on Europe and Asia Pacific.
Electrolux anticipates negative pricing for the full year, offset by positive product mix and external factors. The company's cost reduction efforts are on track, and it plans to continue investing in innovation and marketing.
Key Takeaways
- Electrolux achieved a 7% organic sales growth in Q2 2024.
- EBIT increased to SEK 419 million, aided by performance in North America and Latin America.
- The company divested its water heater business in South Africa.
- Cash flow after investments was negative at SEK 1.5 billion, but liquidity remained strong.
- Market outlook is mixed, with stabilization expected in most markets.
- Full-year negative pricing is anticipated, with positive mix and external factors providing some balance.
- Cost reduction activities are progressing, with investment in innovation and marketing ongoing.
Company Outlook
- Electrolux expects demand in major markets to stabilize.
- The company is optimistic about Latin America but sees a negative outlook for Europe and Asia Pacific.
- Investments in marketing and innovation will continue in the second half of 2024.
Bearish Highlights
- Negative cash flow after investments in the first half of the year totaled SEK 1.5 billion.
- Negative pricing pressure is expected to continue due to promotional activities in Europe and North America.
- The company anticipates a loss of SEK 0.6 billion from the divestment of the South African water heater business.
Bullish Highlights
- Strong organic sales growth across all business areas.
- Positive impact from lower raw material costs and consumer ratings on new products.
- Cost efficiency target updated from SEK 4 billion to SEK 5 billion in 2024.
Misses
- Ocean freight rates have risen, impacting logistics costs.
- The divestment of the South African business resulted in margin pressure and a weaker currency impact.
Q&A Highlights
- The company has revised its cost efficiency guidance down to around SEK 4 billion due to increased ocean logistics costs.
- Electrolux expressed confidence in their performance and outlook for the remainder of the year, despite market challenges.
- The stabilization of the net price level in North America was noted, although the net price remains negative year-over-year.
InvestingPro Insights
Electrolux (ELUXY) continues to navigate through a challenging economic landscape. The latest data from InvestingPro reveals insights that may be crucial for investors assessing the company's financial health and market position. With a market capitalization of $2.93 billion and a negative P/E ratio of -5.91, reflecting the company's current lack of profitability, Electrolux's financial metrics demonstrate the hurdles it faces.
InvestingPro Tips suggest that Electrolux's weak gross profit margins, which stand at 12.68% over the last twelve months as of Q2 2024, are a cause for concern. This aligns with the company's reported negative cash flow and anticipated negative pricing pressures. Additionally, the fact that analysts do not expect the company to be profitable this year underscores the importance of the company's strategic focus on simplification and cost reduction.
Despite these challenges, Electrolux remains a prominent player in the Household Durables industry. The company's strategic divestments and focus on innovation and marketing may help it to leverage its industry position in the future.
For investors looking for a deeper dive into Electrolux's financials and market performance, InvestingPro offers a comprehensive list of additional tips. To access these insights and make more informed investment decisions, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
InvestingPro Data metrics further reveal that Electrolux has experienced a slight quarterly revenue growth of 3.57% in Q2 2024, indicating some resilience in its sales operations. However, the overall revenue growth has declined by -1.79% over the last twelve months as of Q2 2024, which may reflect the mixed market outlook reported by the company.
In conclusion, while Electrolux shows signs of growth and strategic positioning, the company's financial challenges such as negative profitability and weak gross profit margins cannot be overlooked. Investors should consider these factors alongside the company's efforts to innovate and optimize costs when evaluating Electrolux's future prospects.
Full transcript - AB Electrolux (ELUXY) Q2 2024:
Jonas Samuelson: Good morning, and a warm welcome to the Second Quarter 2024 Results Presentation. My name is Jonas Samuelson and with me today I have Therese Friberg, our CFO, and Oscar Stjerngren from Investor Relations. Before I continue, I'd like to mention that this session is recorded and will be available on our website as an on-demand version. In the second quarter, sales grew 7% organically with volume growth in all business areas. Market demand was mixed with strong growth in Brazil. Some catch up in North America from the weak sell in in Q1 and continued negative development in Europe. Mix continued to be positive, supported by our strong product offering in mid and premium segments. Despite the negative market demand mix pressure, pricing continues to be quite negative year-over-year, but was sequentially relatively stable in most markets. We're happy to report that EBIT improved sequentially by more than SEK 1 billion to SEK 419 million, mainly driven by significantly reduced losses in North America and a strong result in Latin America. The strong Latin results mean that we're now at 7% EBIT margin for the last twelve months, reflecting our strong and updated product offer combined with market recovery from the previously depressed levels in Latin America market. The organic contribution year-on-year was negative due to the significantly lower net prices, but was to a substantial degree offset by the positive product mix and volume development. This was accelerated by increased go to market investment in the quarter. Cost efficiency contributed positively but as guided previously, the main impact is anticipated in the second half of the year. We also announced yesterday that we have concluded the divestments of our water heat business in South Africa as part of our strategic focus and simplification and we are progressing on our other divestments. Therese will now walk us through the results for the quarters.
Therese Friberg: Despite having an organic sales growth in the quarter, we had a negative organic contribution to earnings. This was driven by a negative effect from price and mix combined of 2.8% points in the quarter with negative price mainly in Europe and in North America. We generally saw the first quarter price levels in North America stabilize into this quarter. While there was a somewhat higher promotional activity in Europe with a large part of the market volume that was sold on the replacement sales, mix continued to be positive across the group based on a strong product portfolio and high consumer star ratings. This was also supported by an increase in innovation and marketing investment in the quarter. Volume grew in all business areas but mainly on the back of strong growth in Latin America. Cost efficiency was positive by SEK 0.3 billion. The cost reduction program is on track for the first half and Jonas will go into some more details on the next page. External factors was positive in the first quarter driven by positive raw material. This was offsetting currency headwinds and headwinds related to labor inflation and similar as last quarter the external factors is including both the negative effect from currency and inflation as well as the positive price effects related to Argentina and Egypt. Jonas will now give an update on the progress of the cost reduction.
Jonas Samuelson: We have updated our cost efficiency target from SEK 4 billion to SEK 5 billion to approximately SEK 4 billion in 2024 versus 2023. This is as headwinds from logistics costs are affecting our ability to fully reach our previous targets. We will achieve these efficiencies through organizational simplification with headcount reductions of approximately 3800, we will finalize the Springfield ramp-up and we are increasing sourcing from local countries and continue the consolidation of our supplier base and number of components. We delivered SEK 0.8 billion in cost efficiency in H1 2024 and the new organization has been successfully implemented. Notification of staff affected by the savings program is proceeding according to plan with about 70% of vectors that are notified at this point. As a consequence of the lead times involved in both product and staff cost, the incremental savings from cost reduction activities are mainly weighted to the second half of 2024 as guided previously, and inside the second half more will come in Q4. Going forward, we will drive to achieve annual product cost reductions midterm at a similar rate as in 2023 and 2024. This will be achieved by driving low-cost country sourcing and supplier consolidation as a continuous process. We're stepping up cost engineering activities structurally in material and components reviews on existing products and we're further accelerating modernization and reduced complexity to leverage GA. Let's have a look at our cash flow on liquidity figures here.
Therese Friberg: Cash flow after investments for the first half was negative SEK 1.5 billion compared to negative SEK 2 billion last year. Both the second quarter cash flow positive SEK 1.2 billion and the first half is reflecting what could be considered to be a normal seasonal cash flow. As you know, we were during last year optimizing operating working capital and we are now SEK 3.5 billion below last year's level and at 5.1% of annualized sales by the end of the second quarter compared to 7.5% last year. And looking at our liquidity and maturity profile from a balance sheet perspective, we have a solid liquidity of SEK 32.8 billion, including revolving credit facilities as of the end of June. And in the second quarter a total of SEK 2.3 billion of new long term debt was issued and in June we also signed an eight year sustainability linked loan facility of $150 million with the Nordic Investment Bank. We have a well-balanced maturity profile and we have no financial covenants and the focus remained to deliver on the cost reduction program in 2024 and beyond, as well as divesting the previously communicated non-core assets over the coming years to maintain a solid investment grade rating. Jonas will now go into the business areas performance in Q2 starting with Europe, Asia Pacific, Middle East and Africa.
Jonas Samuelson: Low residential construction and remodeling activity is impacting the important built in kitchen category and led to an overall market decline of 3% in the quarter. The replacement segment has stabilized but with high promotional intensity leading to negative price in the quarter. Given these negative drivers, it's encouraging that we continue to deliver positive mix and also slight volume growth outperforming the weak market. EBIT decreased organically due to the negative contribution from price, but mitigated by volume and positive mix. Positive external factors were driven by lower raw material cost and we also had a slightly positive impact from cost efficiency. Let's have a look at the European market. Market demand in Europe declined in the quarter and was down 3% year-over-year. Demand declined 3% in Western Europe and was largely unchanged in Eastern Europe. Compared to the second quarter of 2019, demand in Europe decreased by 11%, a similar decline as seen in recent quarters compared to 2019. In Asia Pacific, consumer demand is estimated to have increased slightly year-over-year. In Europe, consumer confidence levels, while slightly improved, remained low, negatively impacted by the cumulative effects of inflationary pressure, higher interest rates and geopolitical tensions. Subdued purchasing power continued to result in consumers shifting to lower price points and postponing purchases in discretionary categories. Weak residential construction and remodeling activity continue to have a significant negative impact on demand within the European built in kitchen category. Let's continue with business area in North America. Organic sales growth was primarily driven by higher volumes outpacing the market. We continued to be impacted by negative price as promotional activity remains at high but stable levels sequentially. Market price levels were largely unchanged at the lower levels established in the latter part of 2023. Lower market price levels have been enabled by cost discrepancies between North America and certain parts of Asia, particularly in refrigeration. Positive mix was driven by the strong reception by retailers and consumers of our new product line-up, which also resulted in record high consumer star ratings at 4.6 on a five point scale. We're happy to report that the operating loss reduced by the SEK 0.8 billion sequentially due to volume mix and cost performance. However, year-on-year we still had a substantial negative organic contribution from price. The positive mix and higher volumes were supported by increased investment in marketing. Positive external factors were mainly driven by lower raw material costs and finally, productivity in the Springfield factory improved sequentially. Now we'll take a look at the US market. Market demand for core appliances in the US decreased by 1% in terms of units for the first half of the year, a relatively stable development overall, but with variations between quarters. In the second quarter, market demand increased by 4% in terms of sell in. Accumulative effects of high inflationary pressure and high interest rates continue to negatively impact consumer sentiment. Although purchasing power of the US consumer remains relatively resilient. Let's move on to Latin America. In Latin America, we had high organic growth, primarily from volume growth driven by increased consumer demand and warm weather in Brazil, and our strong product offering. Price was slightly negative and mix was slightly positive. Strong aftermarket sales growth also contributed. As a consequence, we saw a significant increase in EBIT with the strong organic growth driven by Brazil. We also had positive contribution from cost efficiency and slightly positive external factors, including negative currency effects. Rolling twelve-month EBIT is now at a solid 7%. Now, let's switch over to our market outlook for 2024. In general, inflation has been somewhat more sticky than anticipated, slowing the expected pace of interest rate cuts, which in turn has slightly delayed the anticipated improvement in demand, particularly in Europe. Housing construction and kitchen remodeling in Europe remain at very subdued levels, while replacement market demand has stabilized with high promotional intensity. Demand in North America has been stable year to date, supported by the aggressive pricing environment despite weak housing markets. Recent data points indicate that inflationary pressure continues to subside and interest rates are expected to slowly come down. With this backdrop, we have not changed our view that we expect demand in major markets to stabilize. Lower interest rates are positive for remodeling and new construction, which are key drivers for appliance demand in mature markets like Europe and North America. However, there's always a lag before this shows in demand. In Latin America the strength of the Brazilian markets seen in the start of the year has continued during the second quarter and was supported by warm weather in the first half of 2024. On back of this, we maintain a regional outlook of relatively neutral market demand for appliances in North America in 2024, compared to '23. For Latin America we revised our outlook from neutral positive to positive. For Europe and Asia Pacific we revised our outlook from neutral to negative as a consequence of the weak start of the year and a subsequent slight delay in recovery or market demand. Let's have a look at the business outlook. We've made some adjustments to the business outlook for full year 2024 provided in the first quarter '24 Interim report. Guidance on organic contribution from volume, price and mix combined for the group is unchanged and is expected to be negative for 2024 full year, driven by negative price. As expected price was negative during the first half of '24 with price pressure in North America and high promotional activity in Europe. As previously communicated, we expect price to be negative for full year 2024, also impacting the second half negatively. We anticipate the promotional intensity in North America to continue to stabilize sequentially throughout the year, while in Europe we expect the replacement driven promotional intensity to continue. For the full year the negative price is anticipated to be partially offset by growth in our focus categories such as premium laundry and kitchen products under our main brands Electrolux, AEG and Frigidaire. The recent investment in new product architectures provide us with great platforms to drive growth in these focus categories going forward, even though the challenging macro environment is a limiting factor. Our new products are very well received by consumers and we have a favorable mix in the first half of '24 even though disposable incomes have been under pressure. We anticipate to continue delivering a positive mix during the remainder of the year and to accelerate this further as consumer sentiment recovers and new housing and renovations take a larger share of sales. We expect external factors to be positive for the year, mainly driven by lower raw material costs. The positive effect to external factors from raw material is, however, expected to be largely offset by negative currency effects, mainly related to countries with high inflation experiencing varying degrees of depreciation in their respective currencies. It has to be emphasized, however, that the impacts of currency are very unpredictable. Increased investment in marketing to capitalize on the momentum of our attractive product offering are yielding good returns. As in the second quarter, we project to increase investment in innovation and marketing in the second half of '24 compared to the second half of 2023. We continue to execute on the cost reduction activities with significant cost benefits expected to impact the second half of the year. However, Ocean freight rates have increased recently and taking this headwind from logistics cost into account, we are now targeting cost savings of approximately SEK 4 billion in 2024, excluding investment in innovation and marketing. Investments to strengthen our competitiveness through innovation digitalization, automation and modularization continue in 2024 and total capital expenditures are estimated to be around SEK 5 billion to SEK 6 billion. I wanted to give a heads up regarding the divestment of our waters heated business in South Africa. We currently see that out of the SEK 0.6 billion lost on sale that we anticipate about SEK 0.4 billion will be booked in Q3 and the rest are closing, most likely in Q4. So, to sum up the quarter and the strategic drivers we've delivered on, as mentioned, we saw sequentially improved operating profit by over SEK 1 billion in the quarter. This is driven by good traction of our new products and industry leading consumer star ratings in main categories. This volume growth and positive mix was delivered in a continued challenging market. And with that [Indiscernible].
Oscar Stjerngren: Thank you, Jonas and Therese, for those remarks. We'll now start the Q&A session, as usual please limit yourself to one question to allow other participants to enter the queue. If you have any other additional questions, just dial back into the Q&A queue. So, Sonia, can you please facilitate the Q&A session for us?
Operator: Of course. [Operator Instructions] We will now take our first question. Please stand by. And the first question comes from the line of Bjorn Enarson from Danske Bank. Please go ahead. Your line is now open.
Bjorn Enarson: Thank you. May I start with one question then on the ongoing petition with Department of Commerce in US on the price dumping, could you update us a little bit on the process? What is happening and what should we expect next? Thank you.
Jonas Samuelson: Thank you, Bjorn. Yeah, this is a relatively specific issue related to what we consider to be dumping of refrigerators produced in Thailand. So, it's a process that will take several months. A commerce department has initiated a anti-dumping review that can take five to seven months. It's, you know, we consider it important that we have a level playing field, but this is not a major category for us in North America. It's one subcategory of refrigeration.
Bjorn Enarson: Okay, thank you.
Operator: Thank you. We will take our next question. And the next question comes from the line of Martin Wilkie from Citi. Please go ahead. Your line is now open.
Martin Wilkie: Yeah. Thank you. Good morning, it's Martin from Citi. I did a question on your market outlook in Europe. The change that you were expecting for the year, does that largely reflect what we've seen in the year so far or are there signs that things could get incorrectly worse into the second half, particularly with interest rates having peaked and so forth? There might be some hope that housing related markets could begin to find a bottle or even recover. So just trying to understand what drove that change. Thank you.
Jonas Samuelson: So, I guess a fundamental view is exactly what you said. We do expect that the housing market has or is bottoming out and interest rates will come down. So that will have a positive impact on demand. I think, though, the change in guidance reflects that. We see that kind of pushed forward a bit. You know, we saw the continued weakness in built in kitchen in Q2. And this really is a built-in kitchen issue. The replacement market has recovered, is quite normalized, let's say, even though, as always, the replacement market is quite promotionally driven. But new housing and demand related to remodeling is still quite subdued, and we expect that recovery to be pushed out a bit.
Martin Wilkie: Great. Thank you very much.
Operator: Thank you. We will take our next question. And the next question comes from the line of Gustav Hageus from SEB. Please go ahead. Your line is now open.
Gustav Hageus: Thanks, operator. Thanks for taking my question. My question regards the US volumes. And you state, if I'm not mistaken, that you take some share in Q2, and the ramp up of the Springfield facility is doing well. To what extent are those connected that you are now able to supply your main customers from that plant, and to what extent does it relate to other competitive reasons? And if you look into H2, what do you expect with that dynamic?
Jonas Samuelson: Yeah. No, for sure, Springfield being more stable and producing more predictable output, which, again, is the normal situation when you ramp up a major factory that is a positive for us in the quarter. I would say the big story, though, is that with a lot of effort and a lot of new products and factories, we now have a really competitive offering. And that's reflected in the very strong consumer store ratings, as I mentioned. And we expect that the fact that we now have a balanced, strong, comprehensive offering will continue to be a positive factor for us going forward. This, of course, is the main thrust of our efforts in North America. Still have work to do to fully ramp up Springfield. We still have a lot of work to do to reduce cost. So, we're not taking a break there. It's a lot of hard work still. And as mentioned, we still have this significant cost discrepancy between production in North America and in Asia that we have to compensate for. So, a lot of hard work, but our products are fantastic.
Gustav Hageus: Thank you, Jonas.
Operator: Thank you. We will take our next question. Please stand by. And the next question comes from the line of Alexander Virgo from Bank of America (NYSE:BAC). Please go ahead. Your line is now open.
Alexander Virgo: Yes. Thanks very much. Jonas, I wondered if you could talk a little bit about two things for me, please. The first thing in terms of Latin America and profitability there, I just want to make sure I understand that this is down to operating leverage and not down to big pricing tailwinds in Argentina, or even the broader pricing developments that you're taking in response to the FX weakness. That would be the first, I guess small question. Second question, bigger picture. Just thinking about the various moving parts into the second half, you've obviously got increased innovation. You've got increased costs in Europe that you're talking about, increased costs, that is promotional activity, increased costs to help exploit the new product launches. The logistics costs you talked about are taking a haircut to the efficiency savings. I guess I'm just trying to get a feel for how strong your H2 EBIT could end up being. Ultimately, are we seeing sort of performance in terms of tailwinds from your own cost actions actually now starting to decline and therefore the headwinds that you're flagging are going to start to offset? I guess that's the big picture question. Thanks.
Jonas Samuelson: Right, starting with Latin America, this is largely different by the strong performance in Brazil. Argentina is a headwind for us. So pricing in Argentina is barely offsetting the negative currency development and the market is massively down. So, this is really driven by, by Brazil. And I would not consider it to be strong demand, it's recovering demand from what has been quite subdued levels for quite some time. So good recovery in demand and we've been able to capitalize on that through our very, very strong product offering. We've done, as we talked about, a similar kind of refresh of our product offering as we've done in North America, in Latin America, and it's gone a bit smoother and we're really able to capitalize on that demand recovery. So very, very good execution in a bit more favorable market. Then if we talk about the outlook for the rest of the year, I want to make sure that we were clear in our communication there. So in terms of the cost efficiency, which we've done guiding for SEK 4 billion net savings in cost efficiency, excluding then innovation and marketing. Of that, we've achieved SEK 0.8 billion year to date and hence the rest is yet to come in the second half, with a bigger impact of that in Q4 than in Q3, but still favorable effect in Q3 and Q4 and the rest of the year, the investments that we're doing to support our, our products in the market that go to market investment. We increased those in Q2 a bit, very selectively to fuel the good market receptions that we have of our new products really in all of our [Indiscernible], and we expect to continue to do that. But for sure not that level commensurate with the cost savings that we're seeing in cost efficiency. So that's a, that's significantly smaller number. So, we're still net, we still have significant cost reductions in the second half of the year also, including these go to market investments. Now then, as we look into the second half, we also want to highlight that the market remains soft in Europe. We're not seeing a significant recovery there. And we, and as the market in Europe in particular is very replacement demand driven, that is a very promotionally intense part of the market. So, we continue to see that headwind in pricing also in the second half of the year in Europe. And just to be clear on it also from North America, we mentioned that this new price level was established towards the end of 2023. So even though sequentially we see stabilization of the net price level in North America, that still means that we have negative year-over-year net price in North America. So, you kind of have to put all that together to understand the outlook for the second half.
Therese Friberg: Maybe one comment to add on the cost efficiency. So previously, you know, that we guided for SEK 4 billion to SEK 5 billion, and we have now taken that down then to around SEK 4 billion. And the main reason for that is the effect of ocean logistics that has gone up lately and it's not related to that. We are delayed in our restructuring program or our efforts on kind of pure cost productivity.
Operator: Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Johan Eliason from Kepler Cheuvreux, please go ahead. Your line is now open.
Johan Eliason: Yes. Good morning, Jonas and Therese. I was just curious about the quick cut divestment you did, managing to sell it. It seems like you have actually been growing that business quite nicely since you acquired it, but you sell it for around SEK 600 million less than you bought it for back in 2017, 2016 and also, navy sales multiples. The multiple look looks much lower today. Is there a significant reason? Is the margin much worse than it used to be in quick cut? Or is it just that it's difficult to achieve good price levels today? And obviously, what does that imply for the remaining businesses you aim to sell in Egypt and the Sanuse brand? Thank you.
Jonas Samuelson: Yeah. So, the profitability in the water heater business in South Africa has been very good, but has been under some pressure by higher competitiveness in the market. And of course, the overall, let's say, country outlook for South Africa has, of course, been under some pressure in recent years, and that also has resulted in a weaker currency. So, we see a fairly significant part of this anticipated loss on sale is the weaker currency. So, it's a combination of margin pressure, still good, but less than it used to be, and kind of country. So I don't think there's a very strong read across against the other divestments, although, of course, as we have said, Egypt is impacted by its own, let's say, geopolitically driven challenges, as we said, impacting a bit the timing on that process.
Operator: Thank you. As there are no further questions, I would like to hand back to Jonas and Friberg for closing remarks.
Jonas Samuelson: All right. Thank you very much, operator. So, thanks so much for your questions. As mentioned, we are really pleased by the sequential improvement in our operating profit by over a billion in the quarter, reflecting the good traction that we have on our new products and also reflected in the industry leading consumer star ratings that we have in main categories. And this volume and mixed and improvement is delivered in a very challenging market. So, with that, we have good confidence, a lot of hard work remaining to get back to our target profitability, but really taking stock in the good performance that we saw in the second quarter and with confidence looking out at the rest of the year. Thank you very much. Enjoy your summer, and talk to you soon again.
Operator: This concludes today’s conference call. Thank you for participating, you may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.