Electrolux: steel tariffs suck profit
Home appliance maker Electrolux cut its full-year forecast for sales growth in North America, its biggest market, after higher US steel tariffs forced it to increase prices for its products.
Home appliance maker Electrolux cut its full-year forecast for sales growth in North America, its biggest market, after higher US steel tariffs forced it to increase prices for its products.
The Swedish company said on Wednesday it expected demand in North America to grow by 0% to 2% in 2018, lagging its previous forecast of 2%-3% growth, while it also lowered its outlook for the smaller Latin American and Australian markets.
CEO Jonas Samuelson said Electrolux had raised prices in North America by 2% after US tariffs inflated prices of locally sourced steel and that it would lift prices further to offset any additional inflation due to the trade conflict.
“Steel tariffs and fuel cost inflation are affecting the market as a whole and we are passing that through as an industry, and ourselves, as a price increase, and that has a negative effect on demand,” Samuelson said. “Everything is interrelated.”
Electrolux, which competes with Whirlpool, LG Electronics and Haier Group, estimated that the negative effect from raw material price changes would be about 1.8-billion Swedish krona ($203m) in 2018, at the top end of its previous guidance.
Samuelson told analysts the impact from steel tariffs was accounted for in the guidance and that Electrolux would also see an impact of $10m or more on its net cost efficiencies in 2018 from a second batch of tariffs imposed in July.
Since taking the top job two years ago, Samuelson has focused on raising profitability at Electrolux through greater efficiency and by cutting lowermargin products, but new US tariffs on steel and aluminium imports, as well as duties on plastics, in 2018 have challenged his plan by leading to unexpected costs.
The US is also considering tariffs on additional goods worth $200bn, whose potential impact on Electrolux is unknown.
Samuelson said Electrolux would explore curbing discretionary spending in areas such as marketing to offset some cost inflation and was also rethinking its capital investment in North America. “We are committed to making sure that we have a competitive manufacturing footprint in North America and that is the core source of our products. But the scope and scale and form of our investments [there] are affected by these tariffs.”
Shares in Electrolux were down 1% at 200 Swedish krona on Wednesday. This marked a reversal from earlier in the day, when shares rose as much as 5% after Electrolux reported slightly better than expected quarterly earnings thanks to cost controls.