Electrolux Group Q3 2023 Interim report
Highlights of the third quarter of 2023
- Net sales amounted to SEK 33,427m (35,244). The organic sales decline of 7.9% was mainly driven by continued weak market demand and consumers shifting to lower price points. Mix was positive, supported by the innovative product offering, despite this market shift. Price was negative year-over-year as promotional activity has returned to high levels this year.
- Operating income amounted to SEK 608m (-385), corresponding to a margin of 1.8% (-1.1). Operating income included a previously announced positive non-recurring item of SEK 294m from the divestment of the Nyíregyháza factory in Hungary. Excluding this, operating income amounted to SEK 314m (-35), corresponding to a margin of 0.9% (-0.1).
- The Group-wide cost reduction and North America turnaround program continued to progress well, resulting in a positive year-over-year impact of approximately SEK 2.4bn. The substantial savings contributed to a positive underlying operating income development year-over-year, despite the negative impact from volume and price.
- Income for the period amounted to SEK 123m (-605) and earnings per share were SEK 0.46 (-2.23).
- Operating cash flow after investments improved to SEK 1,147m (-1,483).
- Acceleration of cost reduction efforts to restore margins have been initiated and are expected to result in net cost savings of SEK 10-11bn in 2024 vs 2022, compared to previous cost reduction target of over SEK 7bn. This is expected to lead to a restructuring charge of SEK 2-2.5bn in the fourth quarter of 2023.
President and CEO Jonas Samuelson’s comment
Organic sales declined by 7.9% in the third quarter. Like in the previous quarter, volumes declined significantly and as expected, net price was negative. We continued to execute well on the Group-wide cost reduction and North America turnaround program. However, the challenging market environment with demand mainly driven by forced replacements, consumers shifting to lower price points and high promotional activity, offset most of the SEK 2.4bn cost savings. Underlying operating income increased to SEK 314m compared to break-even in the third quarter of 2022. Operating cash flow after investments was SEK 1.1bn.
Lower residential construction and remodeling activity continued to lead to weaker market demand in the for Europe and Australia very important built-in kitchen category. As expected, this in combination with postponed purchases of more discretionary product categories resulted in a less pronounced positive seasonality in the normally strong third quarter.
Due to the lower consumer demand and the end of post-pandemic supply chain constraints, promotional activity remained high in all major markets, especially in North America. This resulted in a negative net price, year-over-year, in line with our communication in the interim report for the second quarter. We expect price also in the fourth quarter to be negative for the Group as a whole.
It is disappointing that our North American business area, although delivering a significant year-over-year improvement, reports a loss in the third quarter. Despite execution of the turnaround program ahead of plan, the industry’s high promotional activity negatively impacted primarily gross margin realization, but also sales volumes. I firmly believe we have the right strategy in place to return to profitability in North America. It is a sign of strength that we in the quarter grew in higher value categories, which the investments in new and innovative modular product architectures have enabled, and that we introduced and ramped-up production of our new freestanding cooking products. We need to further accelerate this commercial growth and at the same time increase our cost reduction measures, not just for our North America operation but the Group as a whole. The ongoing cost reduction program, while ahead of plan, is not sufficient to restore margins given the continued weak consumer demand and competitive pressure in the market, which is significantly exacerbated by large discrepancies in input cost inflation between Europe/North America and certain parts of Asia.
With today’s announcement, we are stepping up our cost reduction efforts significantly. This also means that we focus our growth efforts on selected mid- and premium categories under our three main brands and drive even more targeted portfolio management and simplification enabling faster cost reductions. Hence, the cost reduction target for 2024 vs 2022 is increased to SEK 10-11bn, compared to the previous target of over SEK 7bn. The new target comprises net cost reductions from Cost efficiency and Investments in innovation and marketing, combined. For 2023 the target is to reach cost reductions of approximately SEK 6bn, year-over-year, compared to the previous target of at least SEK 5bn. Given the time lag before the actions now put in place will have full earnings impact, we do not expect sequential improvement of underlying operating income in the fourth quarter.
We remain committed to achieving at least 6% EBIT margin mid-term. In addition to an attractive offering driving commercial growth in targeted areas, a key component to deliver on this under current market conditions will be to continue to annually reduce product cost at a similar rate as during the period 2023-2024. This is enabled by a new, more focused business approach and simplified organizational structure.
The Group will reorganize into three regional business areas and two global product lines reporting directly to me, leveraging the Group’s global scale with fewer layers, and resulting in increased focus and reduced costs. The new organizational setup is expected to affect approximately 3,000 positions, resulting in a restructuring charge in the fourth quarter of 2023 of SEK 2-2.5bn, which will be reported as a non-recurring item.
Consumer sentiment related to consumer durables purchases is projected to remain negatively impacted by the high inflation and interest rate environment throughout 2023. However, given high promotional activity we revise the market demand outlook in terms of units for North America for the full-year 2023 to be neutral compared to previously negative, while we continue to expect total market value development in the region to be negative.
We are making progress on our strategic divestment initiatives of non-core assets with a combined potential value of approximately SEK 10bn over the coming years. In the quarter, divestments of over SEK 1bn were announced, whereof SEK 0.5bn has been realized. Total liquidity, including revolving credit facilities, increased sequentially to SEK 33.7bn.
Our main priority remains executing on our cost reduction targets and to implement the new organization. We thereby aim to successfully strengthen our position in selected mid- and premium categories to restore margins and return to profitable growth.
Telephone conference 09.00 CET
A telephone conference is held at 09.00 CET today, October 27. Jonas Samuelson, President and CEO, Therese Friberg, CFO, and Anna Ohlsson-Leijon, CCO, will comment on the report.
To only listen to the telephone conference, use the link:
https://edge.media-server.com/mmc/p/hcdw3ekw
OR
To both listen to the telephone conference and ask questions, use the link:
https://register.vevent.com/register/BIcabd606149f449a5a594d9432d6abf8d
Presentation material available for download
This is information that AB Electrolux is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, on 27-10-2023 08:00 CET.
For more information:
Sophie Arnius, Investor Relations, +46 70 590 80 72
Electrolux Group Press Hotline, +46 8 657 65 07
Electrolux Group is a leading global appliance company that has shaped living for the better for more than 100 years. We reinvent taste, care and wellbeing experiences for millions of people, always striving to be at the forefront of sustainability in society through our solutions and operations. Under our group of leading appliance brands, including Electrolux, AEG and Frigidaire, we sell approximately 60 million household products in around 120 markets every year. In 2022 Electrolux Group had sales of SEK 135 billion and employed 51,000 people around the world. For more information go to www.electroluxgroup.com.