Electrolux is a company under pressure.
In 2010 it made an after-tax profit of 4 billion Swedish kronor. In 2011 its profit was 2.06 billion. Last year it made 2.37 billion kr. Last week it announced its September quarter results along with the planned closure of its Orange factory.
Sales for the quarter were flat at 27.3 billion compared to the same period last year. Profit was down 29 per cent on last year at 656 million kr, and below analysts’ expectations, according to Bloomberg. Its after-tax profit for the nine months year to date is 1.66 billion. $1.00 equals about 6 kr.
It is on track to make less profit again this year. The figures suggest costs are Electrolux’s biggest problem. The Stockholm-based company is the world’s second biggest producer of home appliances. It operates about 45 factories worldwide.
Early last week, the biggest producer and Electrolux’s main competitor, the Michigan-based Whirlpool, announced much better-than-expected profits.
Electrolux’s CEO since early 2011 has been 57-year-old American Keith McLoughlin.
He said production in Orange would be moved to the company’s low-cost operation in Thailand.
The company also intends to reduce annual costs by 1.8 billion kronor at its Middle East, European and African operations.
The job losses in Orange will be part of 2000 jobs to go worldwide.
McLoughlin also said the company was reviewing the future of its four manufacturing plants in Italy.
Electrolux’s share price three years ago (27-10-10) was 162.2 kronor. Last Friday it was 162.8 kr. Whirlpool’s price three years ago was US$81.04. Last Friday it was US$146.18, a gain of 80 per cent versus Electrolux’s no progress.
Electrolux’s battle to improve productivity and efficiency and cut costs began back in 2004. The previous CEO, Swede Hans Straaberg closed 19 factories around the world, moving production to low-cost countries.
Since 2011 McLoughlin has continued efforts to raise prices and reduce costs. In 2011 he closed two factories in Michigan. One Frigidaire refrigerator plant employed 2700 people. The work was moved to the company’s operations in Mexico. Whirlpool also closed a factory in Michigan.
McLoughlin has raised the prices of the company’s products in the recovering North American market several times in an effort to boost margins. This has brought better profits there, but sales in Europe and Brazil remain weak.
In late 2012 the company introduced an ultra-premium stove, the Grand Cuisine range, selling for US$100,000 each, targeting the super wealthy. The ranges are commercial style, computer-enabled and equipped with a USB port to upload recipes to them. The product has been a profitable addition.
In October last year Electrolux lowered its sales and profit forecasts and announced the closure of a washing machine factory in France.
In August this year it closed a factory in Montreal, Canada with production moving to Memphis, Tennessee.
Electrolux has no choice but to continue to reduce costs and raise prices where it can. It is lagging behind its main competitor Whirlpool and its profits are down.
Consumers continue to seek out the best deals on their appliances. We live in a fiercely competitive world where sentiment counts for nothing.
Electrolux has paid regular dividends to shareholders, but its share price hasn’t risen in three years.
Shareholders aren’t interested in a company that doesn’t provide an adequate return on investment.
It is extremely disappointing that the Orange factory will close. It will be devastating for those involved and will seriously impact our economy.
The closure would probably have happened several years ago but for the success of manager Mark O’Kane and his team in boosting efficiency and quality.
But that’s cold comfort.