Electrolux 3Q profit rises 93 percent

October 26, 2009 8:09:13 AM PDT
Swedish appliance maker Electrolux AB on Monday reported a 93 percent rise in third-quarter profit as cost cuts and increased prices on its products helped it defy weak market demand.

The group, which makes refrigerators and vacuum cleaners, said net profit was 1.6 billion kronor ($236 million), up from 847 million kronor in the same period a year earlier.

Revenue for the quarter increased by 5 percent to 27.6 billion kronor from 26.3 billion a year earlier, boosted by higher prices on the goods sold and favorable currency exchange rates. In comparable currencies, revenue fell by 3 percent.

The result sharply beat analysts' expectations, making it the third consecutive quarter of strong results for Electrolux. The company's shares rose 9.7 percent to 181 kronor ($26.7) in early trading on the Stockholm stock exchange.

Chief Executive Hans Straberg said Electrolux has managed to raise prices on its products despite a competitive market. He warned, however, that demand remained depressed.

"Market development continues to be weak, as expected," he added. "Even though we see things stabilizing in North America, the European market has not yet hit bottom."

Electrolux, based in Stockholm, said cost savings and lower costs for raw materials contributed to the higher income.

However, raw material prices have started to rise again, which will increase expenses in coming quarters. It also said it reduced its marketing investments during the quarter to levels that are not sustainable in the long run.

Johan Eliason, an analyst with research firm Cheuvreux, said the result was much better than expected.

"They are good numbers. Partly the raw material costs were much lower than expected and they have also cut back their marketing costs, which has had a bigger effect than forecast," he said.

However, he cautioned the company won't manage to sustain the operating margin - which reached 8.3 percent in the third quarter - as costs increase again.

The company last week said it plans to close a plant in Spain, slashing 450 jobs, and is considering phasing out production at a Swedish facility which could result in more cuts.

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