WHR Whirlpool Corp

By James R. Hagerty 

The U.S. and Western Europe--markets once widely derided as mature and stodgy--are providing the main sparks of growth for makers of home appliances.

Whirlpool Corp. and Electrolux AB, two of the world's biggest makers of home appliances, reported higher third quarter earnings Friday as profit growth in those markets offset weakness in Brazil, Russia and China. Both companies, though, are struggling to compete in the U.S. with imported appliances made by South Korean rivals Samsung Electronics Co. and LG Electronics Inc.

Though Whirlpool reported record operating profits and margins in North America, worries over its loss of U.S. market share helped push the stock down about 10% near midday on the New York Stock Exchange. Marc Bitzer, promoted two days earlier to president and chief operating officer of the Benton Harbor, Mich.-based company, said new products should start to drive the company's U.S. sales higher in the current quarter.

Electrolux also has run into problems in the U.S. this year. New refrigerators and freezers designed to meet tougher U.S. energy-efficiency standards were "over-engineered," resulting in excessive costs, said Keith McLoughlin, the Swedish company's, in an interview. Meanwhile, a new cooking-product plant in Memphis suffered from "too much complexity, too many new people" lacking experience in such manufacturing, he said, adding that those problems slashed productivity but now are being resolved.

Emerging markets have become drags on earnings. Both companies are finding that China has too many tough local competitors and a glutted housing market, Brazil swings from boom to bust and Russia is overly reliant on the energy industry.

Excluding the effect of currencies, industrywide unit shipments of appliances this year will rise about 5% in North America and 2% in Europe, the Middle East and Africa, while falling 20% in Brazil and 2% in Asia, Whirlpool forecast. Mr. McLoughlin of Electrolux said the recovery of the U.S. housing market and lower unemployment are spurring U.S. sales. Recent economic news, including big layoffs by major U.S. companies, doesn't appear to have dented consumer confidence so far, he said.

Electrolux is trying to expand in the U.S. by buying General Electric Co.'s appliance business, but the Justice Department is challenging that plan, saying it would hurt competition, Lawyers for the U.S. agency reacted skeptically this week to a settlement offer from Electrolux.

Electrolux is going back to the drawing board in China, just two years after it launched a new line of premium appliances there. Those haven't proved "economically viable," Mr. McLoughlin said, partly because the company's distribution strategy hasn't worked out. Electrolux wrote down the value of its inventory in China by 70 million Swedish kronor ($8.2 million). It will come up with a new China strategy early in 2016, Mr. McLoughlin said.

Whirlpool expanded what had been a tiny presence in China last year by acquiring 51% of Hefei Rongshida Sanyo Electric Co. there. This year, appliance demand in China is down about 4%, Whirlpool said, though the company expects an eventual return to healthy growth.

Whirlpool's purchase of Italy's Indesit Co. last year doubled the company's business in Europe, in time to benefit from a recovery in much of Western Europe. But Indesit also has brought a much larger share of Russia's deeply depressed market.

Whirlpool reported profit of $235 million, or $2.95 a share, up from $230 million, or $2.88 a share, a year earlier. Sales climbed 9.4% to $5.28 billion. Stripping out currency fluctuations, sales were up 25%.

Electrolux profit rose to 1.01 billion Swedish kronor, or 3.51 kronor per share, from 933 million kronor, or 3.24 kronor per share, a year earlier. Sales grew 8.7% to 31.28 billion kronor.

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(END) Dow Jones Newswires

October 23, 2015 12:55 ET (16:55 GMT)

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