Merging US Factories Tempers Electrolux Profit Expectations
STOCKHOLM, Sweden — Electrolux AB, the Swedish maker of Frigidaire appliances, has announced that it will incur a bigger-than-expected financial hit from merging fridge and freezer factories in the U.S. amid delivery disruptions. This plant reorganization, combined with accounting adjustments and destocking at a key U.S. client, cut $70 million off fourth-quarter 2019 operating income, compared with a previous estimate of $25 million. Savings targeted for this year will also take until 2021 to materialize, with just a fraction coming in 2020.
Electrolux sees a cost reduction of 200 million Swedish kronor ($21 million) next year, down from a previous estimate of about 800 million kronor. The savings are part of a bigger plan to revamp the factory setup, an effort that includes shutting a plant for cooking products in Memphis, moving U.S. refrigerator-production to a new site in Anderson, SC, and outsourcing production of vacuum cleaners in Hungary. The company still expects the measures to yield about 3.5 billion kronor in annual savings by 2024.
DNB analyst Christer Magnergard says the postponement of savings will cut about 8 percent from this year’s operating profit, and that the problems Electrolux has encountered in the U.S. increase the risk of further disruptions to the efficiency plan. He said it’s “alarming” that the company was unaware of issues earlier and that there’s a “clear risk” that the weak performance will continue to impact earnings through the first half of this year.
Electrolux is investing $250 million in automation and digitization of the plant in Anderson to replace one nearby, and another slated for closure in St. Cloud, MN. The transition led to temporary capacity constraints that affected deliveries to some customers, which are expected to be resolved in the first half, it said.
Europe’s largest appliance maker, Electrolux has been working to offset higher costs and currency moves by increasing prices and selling more higher-margin appliances. At the same time, it is investing heavily in new and more efficient manufacturing facilities with increased automation. In the third quarter of 2019, Electrolux took a charge of 1.6 billion kronor to finance cost-cutting measures that include almost 1,700 job cuts.