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Electrolux to cut costs, sees demand drop this year

Tags: Electrolux
World number two home appliances maker Electrolux AB said on Friday it would seek further cost cuts after forecasting declining demand in key markets this year and reporting a sharp drop in third-quarter earnings.

The head of the company also forecast flat demand in 2012 as consumer confidence looked set to stay weak in its mature markets of North America and Europe.

Electrolux and larger rival Whirlpool Corp. (WHR-N), which reports later on Friday, have been struggling with falling consumer demand on both sides of the Atlantic and have steadily increased their footprint in faster-growing emerging markets.

"Given the weaker demand environment in the U.S. and western Europe we adjust capacity and our overhead costs," Chief Executive Keith McLoughlin told Reuters.

"We are doing that work now and we will comment on November 15 to the marketplace what that will look like," he added.

The company reduced its forecast for demand in Europe, saying it would fall by one percent this year rather than rise one percent.

It said it expected demand in North America to fall by between 4 and 5 percent rather than to increase by no more than 3 percent.

Analysts said many investors had already discounted bad news on demand and took heart instead from that the fact that the drop in earnings was not as bad expected.

"The current picture is that mature markets will be flat and emerging markets will continue to grow (in 2012)," McLoughlin added. He continued to expect raw materials cost rises this year of 2 billion crowns.

Electrolux, whose brands also include Frigidaire and AEG, reported a third-quarter adjusted operating profit of 1.10 billion Swedish crowns ($173 million) versus the 1.06 billion mean forecast in a Reuters poll and the 1.98 billion of the same period in 2010.

Sales came in at 25.7 billion crowns compared with an expected 24.9 billion, down from 26.3 billion in the same period of 2010.

RESULTS RELIEF?

The group said it would further adapt production capacity in North America and western Europe. "There will be overhead reductions, asset plant moves," added McLoughlin.

It had already decided to end production of one line of dishwashers in Kinston, North Carolina, moving it to one of its European plants, it said.

Analysts said market data so far this year, particularly delivery statistics provided by the Association of Home Appliance Manufacturers (AHAM), had paved the way for lower investor expectations on Electrolux. The AHAM data showed a drop of 4.7 percent in January to September.

Despite the cut in demand forecast, Electrolux reported a higher than expected profit for its European major appliances business. Earnings came in at 444 million crowns, well ahead of the 316 million expected.

The North American business, however, made only 107 million crowns rather than the 261 million forecast.

"The report may act as a relief, as management has been very, very cautious ahead of the results. The downgraded outlook should not come as a surprise to anyone," investment bank Carnegie said in a note to clients.
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