Highlights of the second quarter of 2023
- Net sales amounted to SEK 32,653m (33,749). The organic sales decline of 8.4% was driven by the continued weak market demand with consumers shifting to lower price points, resulting in significantly lower volumes. Supported by the competitive product offering, mix was flat despite the decline in market demand being particularly evident in key product categories for the Group. Price was somewhat positive although promotions increased significantly.
- Operating income amounted to SEK -124m (560), corresponding to a margin of -0.4% (1.7). Operating income included a previously announced non-recurring item of SEK -643m, referring to a provision mainly related to a French antitrust case. Excluding this non-recurring item, operating income amounted to SEK 519m, corresponding to a margin of 1.6% (1.7).
- The Group-wide cost reduction and North America turnaround program progressed well, resulting in a positive year-over-year impact of approximately SEK 1.6bn, a substantial sequential step-up in savings. This contributed positively to the underlying operating income year-over-year, while the volume decline impacted negatively.
- Income for the period amounted to SEK -648m (257) and earnings per share were SEK -2.40 (0.93).
- Operating cash flow after investments improved materially to SEK 3,137m (403).
- Preparations to divest non-core assets with total potential value of approximately SEK 10bn have been initiated as part of the ongoing strategic sharpening. Further structural simplification and complexity reductions are also being evaluated.
President and CEO Jonas Samuelson’s comment
The weak market demand environment, with lower consumer purchasing power resulting in more consumers shifting to lower price points, continued also in the second quarter. Lower residential construction and remodeling activity caused significantly weaker demand within the built-in kitchen category, mainly impacting us in Europe where we have a strong position in this category. This resulted in significantly lower sales volumes compared to last year. In light of this challenging market situation, I am pleased that we managed to keep mix flat in the quarter thanks to our attractive offering.
Promotional activity remained high because of the lower consumer demand. Price contributed somewhat positively to earnings, essentially driven by last year’s price increases, and thus tapering off in the quarter, while promotions increased significantly compared to last year. Given this, we expect net price to turn negative from the third quarter.
In the second quarter, organic sales declined by 8.4% year-over-year, while underlying operating profit was in line with last year thanks to the execution of the Group-wide cost reduction and North America turnaround program. Most prerequisites for stable operations are now in place with premium freight and spot buys at a minimum level, new ocean freight rates employed during the quarter and improved manufacturing efficiency. 83% of the 3,800 headcount reduction target was achieved. In the quarter, the combined earnings contribution from higher cost efficiency and lower innovation and marketing costs was approximately SEK 1.6bn, year-over-year, with a significant portion realized in business area North America. This was a significant step-up sequentially, where realization of logistic savings was a significant driver, along with improved productivity in North America. For the full-year 2023, we are now targeting savings of at least SEK 5bn, year-over-year. In 2024, the aim is to achieve savings of over SEK 7bn compared to 2022.
In the quarter, raw material cost was neutral. However, currency deteriorated and we continued to face higher cost inflation from labor and energy, year-over-year. The combined headwind from external factors was to a significant extent offset by price.
On a positive note, we had a material improvement in our operating cash flow after investments in the quarter to SEK 3.1bn.
Consumer sentiment related to consumer durables purchases is projected to remain negatively impacted by the high inflation and interest rate environment throughout 2023. Consequently, we expect market demand for full year 2023 to be negative for all regions, and hence revise the outlook for Asia-Pacific, Middle East and Africa to negative from neutral.
As part of our ongoing work to sharpen our strategic focus to grow profitably in selected home appliance categories in the mid- and premium segments, primarily under our main brands Electrolux, AEG and Frigidaire, we have initiated preparations to divest non-core assets with total potential value of approximately SEK 10bn. Although the businesses in Egypt and South Africa are profitable and the non-core brands we are now looking at divesting are all well-known in their respective markets, these assets, i.e., mass appliance brands and water heaters, do not have sufficiently strong synergies with our core strategy to warrant the required focus and investment from us. These actions will provide resources to execute our strategy at speed and scale, as well as supporting the work to optimize the capital structure.
In the challenging times we are now experiencing, it is vital to continue with strategic portfolio management to be able to provide attractive and relevant consumer experience innovations under our strategic brands. Further structural simplification and complexity reduction are thus being evaluated to enable increased speed, focus and profitability. Efficiency is a prerequisite and our number one priority this year remains; to deliver on the Group-wide cost reduction and North America turnaround program and further accelerate cost improvements.
Telephone conference 09.00 CET
A telephone conference is held at 09.00 CET today, July 20. Jonas Samuelson, President and CEO, Therese Friberg, CFO, and Anna Ohlsson-Leijon, CCO, will comment on the report.
To only listen to the telephone conference, use the link:
To both listen to the telephone conference and ask questions, use the link:
Presentation material available for download
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