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UPDATE 5-Electrolux steps up cost cuts, to spin off unit
Tue Feb 15, 2005 11:02 AM ET
(Adds news conference, U.S. shares, updates Electrolux share)
By Niklas Pollard

STOCKHOLM, Feb 15 (Reuters) - Electrolux (ELUXb.ST: Quote, Profile, Research) will shift more of its manufacturing to low-cost countries, dismaying its unions but boosting its share price by 14 percent as it grapples with rising raw material prices and stiff competition.

The world's top home appliances maker also said it expected to spin off to shareholders its lawnmower and chainsaw unit, which earned nearly one-fourth of its revenue last year and which analysts estimated could be worth 30 billion Swedish crowns ($4.3 billion).

In the welter of Tuesday's restructuring news, Electrolux also forecast lower 2005 operating profit and reported an expected drop in fourth-quarter profit.

Its shares were up 11.3 percent at 163 crowns by 1600 GMT, easing somewhat from the intraday high.

Electrolux's main rivals were also pulled higher, with Whirlpool (WHR.N: Quote, Profile, Research) rising 2.7 percent to $65 and Maytag (MYG.N: Quote, Profile, Research) adding 4.3 percent to $15.9.

Electrolux, whose brands include AEG, Zanussi and Frigidaire, said it was accelerating its restructuring programme, which aims to save an annual 2.5 billion to 3.5 billion crowns from 2009.

The move will cost 8 billion to 10 billion crowns, about 1 billion of which will be paid out in cash in 2005.


The Swedish firm plans to relocate many of its 27 plants in Europe and North America to Asia, Eastern Europe and Mexico, the company's chief executive said.

"We see that about half the plants in high-cost countries -- that is around 10 -- are at risk," CEO Hans Straberg told Reuters in a telephone interview. Unions were disappointed.

"It looks pretty grim," local news agency TT quoted union official Ulf Carlsson as saying. "What are we going to end up producing in Sweden?"

The maker of vacuum cleaners, washing machines, fridges and freezers has faced stiff competition and rising steel costs. It has already cut staff and moved plants to low-cost nations.

It said the outdoor products unit, which sold 27 billion crowns of gardening and construction tools and equipment last year, is expected to be spun off by mid-2006 and then listed, with its stock distributed to Electrolux shareholders.

"It is a logical step to split off outdoor products," said Kaupthing Bank analyst Peter Naslund. "They can now concentrate on their core operations."

JP Morgan analyst Andreas Willi estimated the value of the unit at 28 billion crowns, prior to debt and pension provisions, if listed. "If it is sold to a financial or industrial buyer, it will probably be about 34 billion, before tax," he added.

TOUGH 2005

Electrolux also posted a fourth-quarter pretax profit of 1.35 billion crowns excluding extraordinary items. This compared with an average 1.22 billion forecast in a Reuters poll of 12 analysts and 1.67 billion in the same 2003 quarter. One-off costs of 289 million crowns mainly related to closing a factory in France.

The firm, seen as a key indicator of global spending on consumer goods, said quarterly sales were 28.6 billion crowns, versus a forecast of 28.0 billion, and 28.3 billion a year ago.

Electrolux said it expected demand for home appliances in Europe and North America to show some growth this year compared with 2004, but operating profit would be somewhat lower with raw material prices, mainly for steel and plastics, weighing even more heavily on profits this year than they did last year.

"At this point we estimate the net impact to be about 2 billion crowns ... after our planned raw material cost savings," Straberg told a news conference.

The company said it had successfully pushed through price hikes, announced last year to offset the surge in steel prices, but increases in Europe were still being negotiated.

"In the U.S., we see that the price increases are sticking in the market," Straberg said. "In Europe we see a gradual implementation during the first and second quarters and I'm hopeful it will be the same here."

"We see some tactical manoeuvring in Europe because there are many players there. This could be expected, and our main competitors have announced similar increases as us." (Additional reporting by Jerker Hellstrom and Victoria Klesty)

© Reuters 2005. All Rights Reserved.
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