Electrolux faces tough European market as Q2 underlying profit disappoints

By Greta Rosen Fondahn

STOCKHOLM (Reuters) -Swedish home appliances maker Electrolux's second-quarter underlying profit - dented by a difficult European market - missed expectations on Friday, triggering a sharp 15% drop in its share price.

Operating profit at the group, whose brands also include Frigidaire, AEG and Volta, was 797 million crowns ($82 million) as its North American business drove organic sales growth of 2%. That compared to 419 million crowns a year ago.

Excluding a 180 million crown one-off gain from the sale of a trademark in India, however, it fell short of the average profit forecast of 710 million crowns included in a poll provided by Electrolux. Analysts highlighted a lag in Europe.

Electrolux said its main brands continued to outperform the market in Europe but that general market demand declined with increased competitive pressure.

"Europe has been an extremely tough market in the second quarter. We have seen very aggressive price levels in Europe," CEO Yannick Fierling told analysts and journalists during a call. "The market in Europe ... was especially depressed and difficult."

Shares in Electrolux were down 15% at 0800 GMT. They've now fallen 34% on the year to date.

Electrolux said that in both Europe and North America demand was affected by uncertainty due to geopolitical developments, with households continuing to shift to cheaper products.

The company, a rival of China's Midea and U.S. firm Whirlpool, maintained a "neutral to negative" full-year market outlook for North America, and a "neutral" outlook for Europe and Asia-Pacific markets as well as Latin America.

OFFSET TARIFFS

Analysts at JPM, with a "neutral" stance on its shares, said in a note that underlying profits were soft and increased competitive pressure in Europe and high promotional activity and competitive pressure in North America were unfavourable signs.

Electrolux's North America business, however, which has struggled for years due to high costs and factory underperformance, swung to profit, outperforming the wider market in the region.

The division, which last year accounted for a third of group sales, made a profit of 57 million crowns.

Electrolux said in April that Washington's tariff plans had hit consumer sentiment, and lowered its North America market outlook, adding that it aimed to offset tariff increases with more price hikes.

Fierling said on Friday that the decision had succeeded in allowing the company to offset the impact of tariffs, and it would continue the strategy.

"We reiterate our aim to offset tariff-related cost increases in North America through price increases," he said.

The company produces most of its goods sold in North America in the region, where it has production sites in both the U.S. and Mexico, with most raw materials also sourced locally. However, it imports some components and products from China.

($1 = 9.7272 Swedish crowns)

(Reporting by Greta Rosen Fondahn; Editing by Anna Ringstrom and Joe Bavier)