Products

• Technology news: Electrolux

  
  16 December 2008
  

  Sixteen days before the year-end looks awfully late to decide you will not make your profits guidance. Indeed, since Electrolux's year essentially ends on December 20 – after which white goods sales tail off sharply – its warning on Monday really did fall in to the five-minutes-to-midnight category.

  Electrolux’s operating profit guidance for the year always looked optimistic even after it was cut in July to SKr3.3bn-SKr3.9bn – down 19-31 per cent from 2007. But in fairness, like many others, Electrolux has been hit by one of the sharpest slowdowns manufacturers have seen. Modest year-on-year declines in white goods sales in Europe and the US in October almost doubled in November.

  A decent October made Electrolux believe it could still hit its full-year forecast. After all, November is normally the best month of the quarter, as consumers buy high-margin cookers before Christmas. Not this year: sales dived in the final two weeks. With fourth quarter profits to date of only SKr800m, Electrolux’s warning that a small operating loss is possible this month implies a 60 per cent-plus decline from SKr2bn in the same quarter last year.

  The broader picture, as financial crisis transmutes into recession, is of a progressive pullback in consumer spending. First houses, then cars, now fridges. Just how badly that will affect white goods makers depends on how protracted the downturn becomes. The first couple of months of the year usually see weak sales. Once consumers start buying fridges in the spring, cost-cutting measures will be kicking in.

  Electrolux is cutting 3,000 jobs, or 5 per cent of the global workforce – which should accelerate progress towards its goal of having 50 per cent of production in low-cost countries by 2010. Meanwhile, its shares still trade on just over 10 times consensus earnings forecasts for this year and next (forecast to be broadly flat). In the most uncertain consumer climate for years, that looks overly aggressive.

   

  (ft.com)