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By Gustav Sandstrom
Of DOW JONES NEWSWIRES
STOCKHOLM -(Dow Jones)- Swedish home appliance maker Electrolux AB (ELYX-B.SK) Monday posted a stronger-than-expected rise in third-quarter net profit on the back of cost savings and lower raw material costs, although it said markets continued to decline in the quarter.
Chief Executive Hans Straberg told Dow Jones Newswires that Electrolux's European markets still haven't reached the bottom, due in particular to weak market conditions in the eastern parts of the continent. However, he said that the U.S. market should improve in the fourth quarter from a year earlier after having declined for 13 consecutive quarters, although the recovery will be slow.
"The U.S. is beginning to turn around, but we're down at a low level," he said.
The maker of vacuum cleaners, fridges and dishwashers posted net profit of 1.63 billion Swedish kronor ($241 million) for the three months to September 30, up from SEK847 million a year earlier and ahead of analysts' expectations for SEK782 million.
"Previous price increases, an improved mix, lower costs for raw materials and low levels of marketing investments contributed strongly to the improvement in income," the company said.
Electrolux's resilience in the face of the economic downturn is being driven by its long-running restructuring program, which includes moving production to low-cost countries. It has also forced through price increases for some of its products.
It announced Monday a plan to further cut costs in the U.S. by closing two plants and moving production to Mexico. It will close laundry products plants in Webster City and Jefferson and move production to Juarez, Mexico. The closures, which will be finalized in 2010-2011, will affect 950 employees and cost around SEK630 million, which will be booked in the fourth quarter 2009.
Straberg told Dow Jones Newswires that the restructuring program, which was launched in 2004 with the aim of achieving SEK3 billion in annual cost savings when fully implemented in 2010, is progressing according to plan. He said further efficiency measures are likely to follow but added that his company doesn't plan any more restructuring of the same extensive scope.
Last week, Electrolux's U.S.-based rival Whirlpool Corp. (WHR) posted a 47% dip in third-quarter profit amid falling sales on its home market, but raised its 2009 profit outlook thanks in part to cost-cutting in the U.S.
Electrolux's third-quarter sales rose to SEK27.62 billion, from SEK26.35 billion a year earlier, beating expectations for SEK27.09 billion.
"Sales were adversely impacted by lower volumes, while higher prices and an improved mix had a positive impact," Electrolux said.
Its operating margin improved to 8.3% from 4.9%.
Analyst Ann-Sofie Nordh at Nordea, who has a sell rating for Electrolux, said the result was ahead of consensus expectations, mainly thanks to lower costs. "Everything seems to have gone their way this quarter," she said.
However, the analyst noted that Electrolux gave a cautious comment on the market and raw material and marketing costs are likely to rise in coming quarters.
At 1248 GMT, Electrolux shares were up 7.9% at SEK178.00, outperforming a 0.4% drop in the broader market. The shares have gained 153% since the beginning of 2009, outperforming a 42% rise in the wider Stockholm market and rebounding from an earlier downturn as the company's earnings so far in the current year have beaten market expectations thanks to cost cuts and higher prices for its products.
-By Gustav Sandstrom, Dow Jones Newswires; +46-8-5451-3099; gustav.sandstrom@dowjones.com