Investing.com -- Shares of Electrolux (ST:ELUXb) tumbled more than 13% on Friday after the company’s third-quarter results revealed a sharp decline in operating profit, driven by weak performance in North America.
The Swedish appliance maker's Q3 report fell short of expectations, with analysts at Citi Research flagging a 27% miss in operating profit as a “clear negative surprise.”
While European markets provided some relief with solid margins, underwhelming results in the U.S. market dominated the narrative.
The North American division saw sales shrink by 0.3%, falling short of consensus estimates by 50 basis points.
“The weak US performance has been partly attributed to weaker pricing,” said analysts at Citi.
This shortfall outweighed better-than-expected growth in Europe and Latin America, leading to a mixed overall picture for the company.
Group-wide net sales for the quarter reached SEK 33.3 billion, coming in slightly above expectations, with organic growth at 6.2%, exceeding forecasts by 210 basis points.
However, the group’s operating income, excluding non-recurring items, came in at SEK 717 million—27% below market forecasts.
North America remained in the red, overshadowing Europe’s strong margin performance of 4.2%, which exceeded consensus estimates by 50%.
Meanwhile, Latin America, despite strong top-line growth, missed margin expectations with returns at 6.5% compared to the forecasted 7.2%.
Cash flow after investments was a bright spot, coming in at SEK 1.05 billion—more than double Citi's estimates.
However, the improvement in cash flow was offset by the announcement that proceeds from planned asset disposals are now expected to come in lower than previously guided, adding to the negative sentiment.
Looking ahead, Electrolux downgraded its outlook on “external factors,” such as currency and raw material costs, from positive to neutral.
This shift reflects the company’s lowered expectations for tailwinds that had previously boosted margins. Capital expenditure for 2024 was revised down to SEK 5 billion, trimming the earlier guidance range of SEK 5-6 billion.
Market-wise, Electrolux now expects mixed regional conditions, with Europe forecasted to weaken, Latin America projected to remain positive, and North America stabilizing at neutral. The company also anticipates further pressure on volumes and prices, citing weaker pricing as a headwind moving forward.
“We see double digit % consensus downgrades for 2024; we’d see 2025 expectations under pressure too,” Citi said.
The analysts also flagged risks to the outlook. Rising steel and energy prices could squeeze margins further, while there is some potential upside if Electrolux manages to stabilize prices and mix.
However, analysts at Citi caution that with pricing dynamics already turning negative, maintaining profitability in 2024 will be an uphill battle.