Highlights of the third quarter of 2022
- Net sales increased to SEK 35,244m (30,929), corresponding to an organic sales growth of 1.2%. Strong price execution and mix improvements were partly offset by significantly lower volumes driven by weaker market demand.
- Operating income amounted to SEK -385m (1,639), corresponding to a margin of -1.1% (5.3).
- Operating income includes a negative non-recurring item of SEK 350m, related to the exit from the Russian market, impacting business area Europe. Excluding this non-recurring item, operating income amounted to SEK -35m, corresponding to a margin of -0.1% (5.3). In addition to the weaker market environment, supply chain imbalances resulted in a significantly elevated cost level, mainly in business area North America that reported a loss of SEK 1.2bn.
- A Group-wide cost reduction and North America turnaround program was initiated in the quarter and is expected to have a SEK 4-5bn positive earnings contribution in 2023. The program is expected to lead to a restructuring charge of SEK 1.2-1.5bn in the fourth quarter of 2022.
- Income for the period amounted to SEK -605m (1,143) and earnings per share were SEK -2.23 (3.98).
- Operating cash flow after investments was SEK -1,483m (-198), mainly a result of the reported loss.
President and CEO Jonas Samuelson’s comment
In the third quarter, the weaker market environment in combination with supply chain imbalances resulted in significantly lower volumes and operational inefficiencies that led to breakeven earnings, excluding the one-time cost to exit the Russian market. Price once again offset significant cost inflation, predominantly in raw materials and logistics. The year-over-year earnings decline was primarily driven by business area North America, that reported a substantial loss, but also by our European operations. Both of our other business areas, Latin America and Asia-Pacific, Middle East and Africa, increased earnings through successful product launch execution and good cost management.
High general inflation and low consumer confidence resulted in market demand declining in the quarter with the exception of Asia-Pacific, Middle East and Africa, where demand was solid. In Europe and the U.S., deteriorating consumer sentiment resulted in an accelerated demand decrease compared with the second quarter. The impact of the slowdown in consumer demand was further amplified by high retailer inventory levels. Consumer sentiment is also next year assessed to be negatively impacted by inflation and higher interest rates. Hence, market demand in both Europe and North America for the full-year of 2023 is expected to further deteriorate, i.e. be negative year-over-year.
Against this background, a Group-wide cost reduction and North America turnaround program was initiated in the quarter. We are also reviewing our production capacity needs given current market situation.
Cost reduction and North America turnaround program
The program is for the full-year of 2023 expected to result in a positive year-over-year earnings contribution of SEK 4-5bn from both Cost efficiency and reduced Investments in innovation and marketing. The activities implemented under the program will gradually contribute to earnings over the course of 2023 and into 2024. Total cost reduction from the program is estimated to be in excess of SEK 7bn. The majority of the targeted cost savings will be realized in business area North America. The program is expected to lead to a restructuring charge in the fourth quarter of 2022 in the range of SEK 1.2-1.5bn, which will be reported as a non-recurring item. 3,500-4,000 positions will be affected by the program. For the sake of clarity, the cost reduction from the program includes and replaces the previously communicated benefits from the SEK 8bn global re-engineering investments.
The Group-wide cost reduction element of the program will primarily focus on three areas.
One area is to eliminate cost inefficiencies in our supply chain and production by adapting sales and production plans to what can be supplied in a stable manner and to right-size the workforce in our factories.
Another area is to leverage the organizational changes which took effect on July 1 this year. Through these changes, we have created stronger global organizations for operations, sales, admin, R&D and IT, which is also enabling efficiency gains.
Finally, we are optimizing our R&D and marketing investments. This includes leveraging recent global investment programs in R&D and prioritizing the highest ROI-opportunities as well as centralizing marketing and brand building activities.
Regarding business area North America, I am obviously very disappointed with our performance. The production transformation with the two new facilities Anderson and Springfield including several new product platforms, in combination with the particularly challenging supply chain conditions, require additional measures to return to stability and profitability. In addition to the three areas mentioned above for the whole Group, key activities for the North America turnaround are to stabilize and improve operational planning and to significantly improve cost efficiency in Anderson and Springfield to ensure cost competitiveness in these new production facilities. We remain highly confident in the consumer appeal of the new product ranges, which also the sales execution in the quarter resulting in year-over-year market share gains proves.
Providing resource efficient products is at the core of our strategy and recently consumers have become more aware of both consumption and price of energy. Our new European built-in fridge freezer range is much more energy efficient and hence delivers significant electricity cost benefits to consumers as well as up to 20% less CO2 emissions in the user phase than the previous range.
Although we are experiencing a challenging time, I am confident that Electrolux remains well positioned to create value and we will continue to invest in consumer experience innovations.
Telephone conference 09.00 CET
A telephone conference is held at 09.00 CET today, October 28. Jonas Samuelson, President and CEO and Therese Friberg, CFO will comment on the report.
Details for participation by telephone
Sweden: +46 8 56 64 26 51
International/UK: +44 33 33 00 08 04
U.S.: +1 63 19 13 14 22
Slide presentation for download
Link to webcast
For further information, please contact:
Sophie Arnius, Head of Investor Relations
+46 70 590 80 72
Electrolux Press Hotline,
+46 8 657 65 07
This is information that AB Electrolux is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, on 28-10-2022 08:00 CET.