STOCKHOLM (Reuters) – Electrolux (ELUXb.ST) warned on Friday the coronavirus outbreak in China would hit its sourcing of products and components from the country, while lingering U.S. production issues would push its North American arm into a first-quarter loss.
FILE PHOTO: The Electrolux logo is seen during the IFA Electronics show in Berlin, Germany September 4, 2014. REUTERS/Hannibal Hanschke
The cautionary near-term guidance from the home appliances maker eclipsed a smaller-than-expected fall in fourth-quarter earnings, sending its shares down 4.5% by 1014 GMT to trade around a near four-month low.
The Swedish maker of brands such as Electrolux, Frigidaire and AEG said the fast-spreading virus could have a “material financial impact” if its Chinese suppliers were further affected.
“As we are sourcing significant volumes of finished products and components from China to all our business areas, we are now implementing contingency plans to mitigate a potential extended period of supply disruptions,” CEO Jonas Samuelson said.
China is Electrolux’ single biggest sourcing hub, supplying not only components but complete products.
Samuelson said a dedicated team was working to secure alternative suppliers and shipping routes, an easier task with parts than finished goods.
In some categories, such as vacuum cleaners, air conditioners and small home appliances, China accounts for nearly the entire global supply for the industry, leaving alternatives scarce if not non-existent, Samuelson told Reuters.
“One week is manageable, we can make up for that. But if the closures are extended, then we face a bigger challenge.”
Along with the prospect of a loss in North America and a gloomier outlook for efficiency gains this year, the supply chain uncertainty was likely to lead to lowered profit expectations for the group, Citi said in a research note.
The rival of U.S.-based Whirlpool (WHR.N) said adjusted operating earnings fell to 960 million Swedish crowns ($101 million) from 1.67 billion, but that beat the 903 million on average expected by analysts, Refinitiv Eikon data showed.
The results excluded its Professional Products business which is due to be spun out to shareholders and listed separately in the first quarter.
The company warned in December that earnings in North America would be hit to the tune of $70 million in the fourth quarter, mainly due to the slower-than-anticipated start-up of a new refrigerator and freezer plant in Anderson, South Carolina.
“Given this situation, lower volumes and higher costs will impact earnings for the first quarter 2020 resulting in a loss for business area North America,” Samuelson said.
Electrolux’s North American arm accounted for just over a quarter of group sales in the final three months of last year.
During his years at the helm Samuelson has led a push towards greater efficiency and nimbler and more automated production to boost margins, and the December warning led to Electrolux shares losing a tenth of their value in a single day.
Against the backdrop of its lingering North American production issues, the company on Friday forecast roughly flat demand in the region this year, while seeing slightly firmer demand in both Europe and Asia.
Looking at 2020, Electrolux also said it expected little year-on-year impact from the combination of tariffs, material prices and currency swings that yielded a roughly 1.6 billion crown headwind last year.
Reporting by Niklas Pollard and Johannes Hellstrom; editing by Jason Neely and David Holmes