Electrolux pushes on with cost cuts in weak Europe

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Published October 22, 2012

| Reuters

Swedish home appliances maker Electrolux sees market demand staying weak in Europe and will push ahead with cost and production cuts in the region.

The company's view is more mixed on North America, where it sees market demand falling up to 1 percent this year -- in contrast to the earlier forecast for demand to be flat or rise 2 percent -- but where it expects a pick up in the near future.

"Europe is a pretty murky picture at the moment. It is hard to have good visibility on demand next year. It is hard to imagine it is going to rebound quickly," chief executive Keith McLoughlin told Reuters on Monday

"In the near term, demand looks more negative than positive in Europe," he added after the group repeated its forecast for European demand to be flat or fall up to two percent this year.

Electrolux, which on Monday also posted a rise in quarterly earnings in line with forecasts, has been steadily cutting costs by moving manufacturing from high wage countries in Europe to cheaper nations like Poland and Mexico.

As part of that process, it aims to stop making top-loading washing machines at a plant in France, though such products are still made elsewhere. Costs for restructuring measures will come in at 1 billion crowns ($152 million) in the fourth quarter, it said.

Given weak consumer demand in Europe, Electrolux has tried with recent launches to attract buyers by appealing to what it see as trend towards interest in cooking in mature European markets.

In September it released a luxury kitchen range after launching a wider kitchen and laundry range in May.

The world's second-biggest home appliances maker after U.S. group Whirlpool, Electrolux reported adjusted third-quarter earnings before interest and tax of 1.46 billion crowns, compared with a forecast in a Reuters poll of 1.47 billion.

The group said earnings where supported by price increases, previous cost-saving activities and current measures to reduce costs, while they were hurt by weak demand and lower sales volumes, particularly in some of the key European markets.

It said industry shipments fell 2 percent in the third quarter in western Europe but rose 2 percent in eastern Europe.

Electrolux shares, which have risen 51 percent this year, were up 0.24 percent at 166.8 crowns by 1051 GMT, in a slightly weaker European personal and household goods sector, which year-to-date is up almost 15 percent.

GROWTH ENGINE

McLoughlin said the group was modestly more upbeat about the North American market, a third of its sales, than Europe, partly due to some signs of recovery in the U.S. housing market.

The engine of future growth for the company however is set to be emerging markets, and the company's most recent deals were businesses bought in Chile and in Egypt.

The group has since 2004 been taking costs out of its operation and has saved about 3 billion crowns a year by shifting production from high cost countries to low cost ones like Poland and Mexico,

Late in 2011 it said it would take further restructuring measures at a cost of 3.5 billion crowns over 2011-2015 to save a further 1.6 billion crowns over the same period.

On Monday, it said it would take a charge of 1 billion crowns in the fourth quarter of this year, which one analyst said was in line with expectations.

As well as ending production of the top-loading washing machines in Ravin in France, it said it would down size at a plant for refrigerators in Mariestad, Sweden, and a plant for cooking products in Schwanden, Switzerland.

Handelsbanken Capital Markets analyst Rasmus Engberg said the earnings were in line with expectations and was not surprised by the gloomier forecast for North America.

"We have industry figures from the first nine months, so we know where volumes are, so it was expected," he said. ($1 = 6.5735 Swedish crowns) (Reporting by Patrick Lannin and Veronica Ek; Editing by Dan Lalor and Hans-Juergen Peters)

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