Friday, May 14

Electrolux’s shares skid after it warns of extra U.S. costs and savings delays

STOCKHOLM (Reuters) – Shares in Electrolux (ELUXb.ST) plunged 12% on Monday after the appliance maker warned of a bigger than expected hit to fourth-quarter earnings at its North American business, and slashed its savings forecast for 2020 from its investment program.

FILE PHOTO: The Electrolux logo is seen during the IFA Electronics show in Berlin, Germany September 4, 2014. REUTERS/Hannibal Hanschk

The Swedish company, in a statement released on Sunday, forecast a $70 million earnings hit in the quarter, partly due to a slower than expected startup of its new automated refrigerator and freezer plant in Anderson, South Carolina, which has hit deliveries and entailed extra costs.

“The transition to the new facility has resulted in temporary capacity constraints impacting deliveries to some customers in the fourth quarter,” Electrolux said.

The new plant will replace manufacturing at St Cloud, Minnesota and at another facility in Anderson.

Electrolux shares were down 12% by 0942 GMT on Monday, after rising 34% since the start of 2019 partly boosted by the expected benefits of the shift to the new factory.

“This is a setback for Electrolux, which was previously confident that this material factory transition would be more successful than prior big moves that had resulted in significant issues over the past 20 years,” JP Morgan said in a research note.

Electrolux, which is investing about $250 million in the new Anderson plant, said it will now run its two Anderson facilities in parallel into the second half of next year to meet market demand and ensure a continued high product quality.

“This is a temporary setback and I am confident that the measures we are taking to strengthen our competitiveness in North America are the right ones,” Chief Executive Jonas Samuelson told a conference call.

The company said its investment program and streamlining measures were still on track to generate about 3.5 billion crowns ($364 million) of annual cost savings, with full effect from 2024. But it slashed the forecast for 2020 to 200 million crowns from 800 million crowns.

Electrolux, which previously forecast a negative impact of $25 million on fourth quarter earnings from the move to the new factory, said it expected the capacity constraints in Anderson to be gradually resolved in the first half of 2020.

It said the $70 million impact now foreseen also included effects from accounting adjustments from previous quarters and a reduction in inventory by a large U.S. customer.

Reporting by Johannes Hellstrom in Stockholm and Shubham Kalia in Bengaluru; Editing by Edmund Blair and Susan Fenton

Our Standards:The Thomson Reuters Trust Principles.

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