In their Third Quarter 2024 Results Presentation, the company announced a 6.2% increase in organic sales, driven by higher volumes across all business areas, with notable performance in Brazil. Despite a decrease in European demand, the company saw improvements in operating income, rising to SEK717 million from SEK314 million year-over-year. Cost efficiency measures have positively impacted finances, though logistics remain a challenge. The company's strategic divestments are on track, and liquidity remains strong at SEK33.9 billion.
Key Takeaways
- Organic sales increased by 6.2% with significant contributions from Brazil.
- Operating income more than doubled to SEK717 million from SEK314 million year-over-year.
- Cost efficiency measures resulted in a SEK1.2 billion positive impact in Q3.
- The company is advancing with strategic divestments, including the expected closure of the South African water heater business by Q4 2024.
- Positive cash flow after investments was reported at SEK1.1 billion.
- A cautious outlook for 2024 is maintained, with negative price pressures in Europe and high promotional activity.
- Positive sales mix expected as consumer sentiment improves, despite a negative outlook for organic contribution.
- Investments in new product architectures and premium kitchen offerings are driving growth.
- Cost reduction efforts are on track to achieve a SEK4 billion savings target for the full year.
- External factors are expected to contribute neutrally to earnings in 2024, with currency headwinds from Latin America.
Company Outlook
- The company maintains a cautious outlook for 2024 with stable expectations for the North American market.
- Negative price pressures and high promotional activity in Europe may persist.
- Latin America, particularly Brazil, is expected to continue driving positive performance.
- Guidance for organic contribution remains negative for the year, with a partial offset from growth in premium product categories.
Bearish Highlights
- Weak housing markets in Europe and North America impact sales, with interest rates declining.
- Consumer confidence in Europe is below the long-term average, potentially delaying demand.
- North American aftermarket sales were affected by hurricane-related distribution issues.
Bullish Highlights
- Strong growth in the Brazilian market positively influences regional demand.
- The company expects growth in premium product categories and has made substantial investments in new product architectures.
- Positive sales mix anticipated as consumer sentiment improves.
Misses
- Despite overall growth, the European market demand has declined slightly.
- North America showed reduced operating losses but is still facing challenges.
- The outlook for organic contribution remains negative for the year.
Q&A Highlights
- Management discussed the impact of weak housing markets and consumer confidence.
- They addressed the challenges in North America, including ramp-up costs and competition from Asian imports.
- The company is not planning to divest the Zanussi brand but will explore monetization through licensing.
- CEO Jonas Samuelson will be succeeded by Yannick Fierling, emphasizing the company's commitment to cost reduction and innovation.
The company, with its ticker symbol prominently mentioned in the financial markets, has shown resilience in the face of challenging global market conditions. Their strategic focus on premium product categories and cost efficiency measures are poised to help navigate the uncertain economic landscape. With the upcoming leadership transition and continued emphasis on innovation and market adaptation, the company is positioned to maintain its competitive edge and investment-grade credit rating.
InvestingPro Insights
Electrolux's recent financial performance, as highlighted in their Third Quarter 2024 Results Presentation, can be further contextualized with insights from InvestingPro. Despite the reported 6.2% increase in organic sales and improved operating income, InvestingPro data reveals some underlying challenges for the company.
According to InvestingPro, Electrolux's revenue for the last twelve months as of Q2 2024 stood at $12.64 billion, with a slight decline of 1.79% year-over-year. This aligns with the company's cautious outlook for 2024 and the negative price pressures mentioned in the European market. However, it's worth noting that the quarterly revenue growth for Q2 2024 was positive at 3.57%, which could be reflecting the improvements seen in Brazil and other regions.
An InvestingPro Tip indicates that Electrolux suffers from weak gross profit margins. This is corroborated by the data showing a gross profit margin of 12.68% for the last twelve months as of Q2 2024. This relatively low margin underscores the importance of the company's ongoing cost efficiency measures, which have already shown a positive impact of SEK1.2 billion in Q3.
Another InvestingPro Tip suggests that analysts do not anticipate the company will be profitable this year. This is consistent with the reported operating income margin of -2.76% and the negative EBIT of $348.88 million for the last twelve months as of Q2 2024. These figures highlight the challenges Electrolux faces in turning its increased sales into bottom-line profits, particularly given the weak housing markets and consumer confidence issues mentioned in the report.
Despite these challenges, Electrolux's market capitalization stands at $2.6 billion, reflecting investor confidence in the company's strategic direction and potential for recovery. The company's focus on premium product categories and investments in new product architectures could be key factors in improving its financial performance going forward.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a deeper understanding of Electrolux's financial health and market position. With 6 more tips available on the InvestingPro platform, subscribers can gain further valuable insights to inform their investment decisions.
Full transcript - Electrolux AB Class B ADR (ELUXY) Q3 2024:
Jonas Samuelson: Good morning and a warm welcome to the Third Quarter 2024 Results Presentation. With me today, I have Therese Friberg, our CFO; and Oscar Stjerngren from Investor Relations. Before I continue, I'd like to mention that this session is recorded and will be available on our website as an on-demand version. Organic sales increased by 6.2%, driven by higher volumes in all the group's business areas. Organic growth was strong in Latin America, especially in Brazil which continues on the trajectories ordered in the fourth quarter of 2023. In Europe, market demand declined slightly with continued weakness in the important built-in kitchen category. Despite challenging market conditions, volume and mix were favorable, supported by the attractive product offer in the mass premium segment. Price was negative, partly as a consequence of weak consumer demand in Europe; however, less negative than the market as a whole. In the U.S., promotional activity increased year-over-year, although continued to stabilize consequentially. Aftermarket sales decreased slightly year-over-year mainly as a consequence of weather impact on shipments in the U.S. Excluding nonrecurring items, operating income amounted to SEK717 million, up from SEK314 million last year, corresponding to a margin of 2.2%. Operating income improved in Europe, Asia to SEK610 million from SEK434 million. In Latin America, operating margin increased to 6.5% from 5.6% prior year. And the gradual improvement in North America continued, with a reduction in operating losses to SEK249 million from SEK440 million in the prior year. Cost reduction activities contributed to a positive earnings effect from cost efficiency of approximately SEK1.2 billion year-over-year, although negatively impacted by higher logistics costs. The negative effect on earnings from lower price year-over-year was partly offset by higher volumes. Investments increased in innovation and marketing to support the group's strong product range. Lower raw material costs, partly offset negative currency effects and labor cost inflation. Our strategic divestment initiatives on noncore assets are progressing at different speeds, with the pace being adapted to the geopolitical situation and market environment. We have, during the preparation phase, assessed that the value of the Zanussi brand will be better monetized as part of the group's licensing business and is, therefore, presently not being divested. The total potential divestment value is consequently currently expected to be below the previously communicated SEK10 billion. Closing of the divestment of the water heater business in South Africa is anticipated during the fourth quarter of 2024. Therese will now walk us through the results of the third quarter.
Therese Friberg: Despite having an organic sales growth in the quarter, we had an organic -- we had a negative organic contribution to earnings. This was driven by a negative effect from price and mix combined of 2.7 percentage points in the quarter, with negative price mainly in Europe and in North America. We have seen the price levels in North America stabilize throughout the year and also in the third quarter, while there has been a higher promotional activity in Europe with the larger share of the market volumes sold as replacement sales. Sales mix continues to be positive overall for the group based on a strong product portfolio and high consumer star ratings. This was also supported by an increase in marketing investments in the quarter. Volume grew in the quarter in all business areas but mainly on the back of strong growth in Latin America. Cost efficiency was positive by SEK1.2 billion. The cost reduction program is on track and Jonas will go into some more details on the next page. External factors turned negative in the third quarter as currency headwinds increased which was more than offsetting positive raw materials. As last quarter, external factors also including labor inflation as well as the effect related to Argentina and Egypt. And Jonas will now give you an update on the progress of the cost reduction.
Jonas Samuelson: Cost reduction activities are developing more or less according to plan despite the negative impact from logistics. We're continuing to reduce our headcount and are now at 40,000 employees globally compared to 53,000 in second quarter of 2022, when cost efficiency measures were first initiated. The Springfield ramp-up is continuing and we are now in the beginning of the fourth quarter, producing according to plan, although still working to improve productivity further. Year-to-date, cost efficiencies amounted to SEK2 billion and we are on track to reach around SEK4 billion for the full year. The new organization is fully implemented and staff-related savings are developing as planned. Cost reduction activities are now and going forward mainly focused on product cost through low-cost country sourcing, value engineering and supply base consolidation in all of our factories globally. As we look forward, we plan to continue to drive product cost reduction activity at similar levels as in 2023 and 2024 in the coming years through further acceleration of these activities. Let's have a look at our cash flow and liquidity, Therese.
Therese Friberg: Cash flow after investments in the quarter was positive SEK1.1 billion, in line with last year. We are now back to a cash flow reflecting what could be considered to be a normal seasonal cash flow. And operating working capital by the end of the third quarter is at 5.8% of annualized sales compared to 7.4% last year. And looking at our liquidity and maturity profile. From a balance sheet perspective, we have solid liquidity of SEK33.9 billion, including revolving credit facilities as of the end of September. In the third quarter, a sustainability-linked loan of US$100 million was issued. And we also prolonged one of our revolving credit facilities of SEK3 billion by 1 additional year, so now maturing in 2026 instead of 2025. And we have a well-balanced maturity profile and we have no financial covenants. And the focus to maintain a solid investment-grade rating remains. Jonas will now go into the business areas performance in Q3, starting Europe, Asia Pacific, Middle East and Africa.
Jonas Samuelson: The business area reported an organic sales increase of 2.9%. Despite challenging market conditions, volumes increased and mix improved, mainly through a clear focus on premium brands and higher-value product categories. The subdued market demand continued to negatively affect especially built-in kitchen products, a key segment to the business area. Together with predominantly replacement-driven demand, this contributed to increased promotions and negative price year-over-year, however, less negative than the market as a whole. Operating income included a negative nonrecurring item of SEK368 million related to the divestment of the water heater business in South Africa. Operating income, excluding nonrecurring items, increased significantly year-over-year to SEK610 million. Volume growth and favorable mix, supported by the attractive product offering, partly offset the effect of negative price. The impact from cost efficiency was positive and lower raw material and energy costs more than offset labor cost inflation. Let's have a look at the European market. Market demand in Europe declined slightly in the quarter and was down 1% year-over-year, with a decline of 1% in Western Europe and an increase of 1% in Eastern Europe. Compared to the third quarter of 2019, demand in Europe decreased by about 13%, a similar decline as seen in recent quarters compared to 2019. In Europe, consumer confidence has improved slightly but remain below its long-term average, still negatively impacted by the cumulative effects of inflationary pressure, high interest rates and geopolitical tensions. Subdued purchasing power continued to result in consumers shifting to lower price points and postponing purchases in discretionary categories. Weak residential construction and remodeling activity continued to have a significant negative impact on demand within the European built-in kitchen category. In Asia Pacific, consumer demand is estimated to have increased year-over-year. Let's continue with our business area in North America. The business area reported an organic sales decline of 0.3% with a negative impact from price due to lower market price levels and increased promotions year-over-year. Slightly higher volumes contributed positively to sales, supported by the attractive product offering and the focus on growth in high-value categories. With industry-leading consumer star ratings, all key categories contributed to an overall rating of 4.6 on a 5-point scale. The business area reported an operating loss of SEK249 million, an improvement year-over-year as well as sequentially. The loss was primarily due to price pressure year-over-year. Sequentially, market price levels were largely unchanged at the lower levels established in the latter part of 2023. The lower market price levels have been enabled by input cost discrepancies between North America and certain parts of Asia, particularly in the refrigeration category. Reduced aftermarket product availability due to hurricane-related disruptions had a negative effect on earnings late in the quarter. Investments in marketing increased to support recent launches. Cost savings impacted earnings positively all the benefits from cost efficiency were somewhat limited by headwinds from increased logistics costs. While the ramp-up of the new cooking factory in Springfield resulted in some production inefficiencies, productivity is gradually improving. Production output and efficiency is expected to be normalized by the end of 2024. Lower raw material costs partly offset the negative effect from labor cost inflation. Now, we take a look at the U.S. market. Market demand for core appliances in the U.S. was flat in terms of units for the first 9 months of the year, a relatively stable development overall but with variations between quarters. In the third quarter, market demand increased by 5%. The cumulative effect of high inflationary pressure and high interest rates continued to negatively impact consumer sentiment, with demand remaining resilient but with consumers shifting to lower price points. Housing construction driven demand remained at low levels. Let's move on to Latin America. During the quarter, consumer demand for core appliances is estimated to have increased in the region driven by Brazil, where growth rates started to accelerate in the fourth quarter 2023. Higher consumer confidence and better economic conditions continue to support growth and demand. In Argentina, consumer demand started to recover compared to previous quarters, with an estimated slight increase in the third quarter. However, still a decline year-to-date. In Chile, consumer demand increased. The business area reported an organic sales increase of 25.8%, mainly driven by higher volumes in Brazil. Price was positive year-over-year and mainly driven by price increases in Argentina. Mix was essentially flat. Aftermarket sales continue to develop strongly. Operating income significantly increased year-over-year, mainly driven by the high organic sales growth. Cost efficiency contributed positively to earnings. Currency effects had a negative impact on earnings with a material adverse impact from the weakening of the Brazilian real, partly mitigated by lower raw material costs. Investments increased in brand building activities and consumer direct capabilities. And now let's go over to our market outlook for 2024. In the third quarter, housing construction and kitchen remodeling, in particular in Europe, remained at very subdued levels, while replacement demand continued to be relatively stable with high promotional intensity. Demand in North America has been stable year-to-date, supported by the aggressive pricing environment despite the weak housing markets. Although somewhat later than anticipated, interest rates have started to come down and disposable incomes are expected to improve further. Consumer confidence in Europe has improved throughout 2024 but remains below its long-term average. Lower interest rates are positive for remodeling and new construction which are key drivers for appliance demand in mature markets like Europe and North America. However, there's always a lag before this shows in demand. Having said this, we're well positioned for a sustained recovery in construction and housing transactions in both Europe and in North America. In Latin America, the strength of the Brazilian market, where growth rates started to accelerate in the fourth quarter of 2023, has continued during the third quarter. Consumer demand in most other markets in Latin America improved in the quarter. On the back of this, we maintain our previously communicated regional market outlook. Market demand for appliances in North America in 2024 full year compared to 2023 is expected to be relatively neutral. For Latin America, we have a positive outlook driven by the strength in the Brazilian market. For Europe and Asia Pacific, the outlook remains negative as a consequence of the weak markets in Europe year-to-date. Let's look at our business outlook. We've made some minor adjustments to the business outlook for full year 2024, provided in the second quarter 2024 interim report. Guidance on organic contribution from volume, price and mix combined for the group is unchanged and is expected to be negative in 2024 for the year, driven by negative price. As expected, price was negative for the first 9 months of 2024, with price pressure in North America and high promotional activity in Europe. As previously communicated, we expect price to be negative full year 2024, also impacting the fourth quarter negatively. The promotional intensity in North America has stabilized sequentially year-to-date. And in Latin America, price was positive in the third quarter as a result of pricing actions to compensate for currency headwinds. In Europe, we expect a replacement-driven promotional intensity to continue. For the full year, the negative price is anticipated to be partially offset by growth in our focus categories, such as premium laundry and kitchen products, under our main brands, Electrolux, AEG and Frigidaire. The recent investments in new product architectures provide us with a great platform to drive growth in these focus categories going forward, even though the challenging macro environment remains a limiting factor. Our new products are very well received by consumers and we have a favorable mix in the first 9 months of 2024, even though disposable income has been under pressure. We anticipate to continue delivering a positive mix during the remainder of the year and to accelerate this further as consumer sentiment recovers and new housing and renovations take a larger share of sales. We expect external factors to be relatively neutral for the full year 2024, a change from positive and previous guidance, with a negative contribution to earnings in the fourth quarter 2024. As communicated previously, headwinds from currencies have gradually increased throughout the year driven by Latin America. Although the expected positive impact from raw materials remains relatively unchanged, we expect this to be offset mainly by currency headwinds for the full year 2024. We started to see a more material reduction of material costs during the fourth quarter of 2023 and consequently, we have lower raw material costs in the comparison base for the fourth quarter of 2024. It's important to emphasize that the geopolitical context gives rise to uncertainty on the impact [indiscernible]. We continue to execute well on the cost reduction activities and have delivered cost savings of SEK1.2 billion in the third quarter and SEK2 billion in the first 9 months. We reiterate our target to reach cost savings of approximately SEK4 billion in the full year 2024, excluding investments in innovation and marketing. Investments to strengthen our competitiveness through innovation, digitalization, automation and modernization continue in 2024 and we estimate total capital expenditure to be around SEK5 billion, a slight reduction versus previous guidance of SEK5 billion to SEK6 billion. To sum up the quarter and the strategic risk drivers that we have delivered on, we saw volume growth in very challenging markets and this indicates a strong position and product offer ahead of upcoming recovery in housing in Europe and North America. We saw improvements in all business areas, with significantly increased EBIT, excluding nonrecurring items in Europe and APAC. We had good traction on our products and we saw a launch of a new premium kitchen range from AEG which has been extremely well received. Our cost reduction efforts are yielding increasing benefits across all business areas. And with that, we will go to Q&A. Oscar?
Oscar Stjerngren: Thank you, Jonas and thank you, Therese. We'll now start the Q&A session. As usual, please limit yourself to one question and if you have any other additional questions, please dial back into the Q&A queue. Sharon, can you please facilitate the Q&A session?
Operator: Thank you. [Operator Instructions] And your first question comes from Uma Samlin from Bank of America.
Uma Samlin: So my first question is on your current savings. So you have guided SEK4 billion for the year which would imply, I guess, a higher saving in Q4 to about SEK2 billion. Can you give us a bit more color on the saving plans, how do you plan to achieve that? And how should we think about your like savings into 2021 as well?
Jonas Samuelson: Yes, thanks for the question. It's really a question of kind of accelerating the pace of cost reductions, both from the impact of headcount reductions which has been kind of building gradually over the course of the year and also the product cost-out initiatives that were driving, that I mentioned, including value engineering, low-cost country sourcing and so on. So that takes a bit of time to fall through to the bottom line, let's say, in the P&L. And so we've seen that gathering pace throughout the year and we expect that to have a favorable impact also in the fourth quarter. And that's why we have high confidence that it will be around the SEK4 billion for the full year. And then as we go forward into 2025, obviously, these activities, particularly on product cost as I mentioned, remains a very, very strong focus, not just for '25 but for coming years. We've talked about this cost discrepancy that has built up between, let's say, North America and Europe on the one hand and Asia on the other and that is driven by just lower raw material costs, energy costs and so on in Asia. As a consequence, we're increasing our sourcing of components and materials from that region. So we have significant additional cost savings opportunities going forward. However, it takes a little bit of time to translate that change sourcing footprint into our P&L. So we see strong opportunities also going forward in the coming years.
Uma Samlin: Just a follow-up on that. So I remember you said that you had around 20% sourcing from Asia previously. Do you have any target on how much sourcing do you plan to have from Asia going forward?
Jonas Samuelson: No, we don't. Even though there's significant opportunities based on the current cost discussions, as I mentioned but of course, we also have to take into account geopolitical possibilities of trade tariffs and so on. So we're modulating exactly how and where we source based, of course, on the external environment. So as I mentioned also in my comments, there is an unusually high level of uncertainty around trade policy, especially relating to North America which has potential positive or negative impact depending on how it's implemented and that has an impact on where we source from as well.
Operator: Your next question comes from the line of Gustav Hageus from SEB.
Gustav Hageus: I have a question on the competitive environment in the U.S. than from Asia that you speak of in the report. Can you give some more clarity on -- you referenced that refrigerators are particularly tough. But is this more towards the low end of the market still? Or do you feel that the competition is also quite well spread in the upper parts the Frigidaire Gallery and so forth? And do you see any trends -- you say that promotional activity is flattish but do you see any pressure down or that prices are actually coming up into Q4?
Jonas Samuelson: Yes. No. I mean, as we indicated, the promotional intensity has been relatively stable sequentially over the course of the year and at the lower level that really happened towards really the end of last year, again, particularly impacting refrigeration as you mentioned. So what we see there is, obviously, refrigeration products are very global categories, let's say. And with very significant part of the world's refrigeration manufacturing happening in Asia, that category is especially taking advantage of the low cost that we see in Asia. And those lower costs are being exported really around the world and particularly to, in our case, the impacting our North America business through lower price level in the market. I would say that impact has already happened. And that's why we've seen that promotional environment that we've seen during 2024. So we're not at this point seeing any significant changes to that behavior. When it comes to our, let's say, higher price point, on categories, we are gaining share in those and we have a really strong offering. So I think that's really -- combined with sourcing more components out of Asia, unless there's significant trade policy action and focusing on the more premium categories is really the way forward here in combination with continued strong focus on productivity and so on.
Operator: Your next question comes from the line of Björn Enarson from Danske Bank.
Björn Enarson: Maybe you can help me a little bit. Looking at your savings program, you have your target of SEK4 billion and that's quite strong incremental development from Q3 going into Q4. Is it possible to give some indication? I mean, Johan stressing the FX situation in Q4, that is a negative. But looking at the volume, price, mix, et cetera, is that -- do you see that is going in stabilizing? Or is that going in a very different direction from what we have seen so far?
Jonas Samuelson: So obviously, as we talked about, starting with the external factors, raw material is still going to be favorable for the year and that's not really changing from prior guidance. However, the pacing over the course of the year means that as raw material costs were lower in the base of the fourth quarter of '23, the year-over-year impact is lower in the fourth quarter. And then on top of that, we have this negative currency impact, mainly from Latin America. So that's more of a Brazil or Latin America factor. In terms of the volume outlook, we have the guidance that North America is neutral for the year. It's neutral year-to-date. So we expect that more or less to continue on a similar pace. If you look at Europe, we've seen kind of a gradual improvement in the year-over-year comparison. So I think there's good reason to believe that, that gradual improvement will continue even though the year as a whole will still be negative as a consequence of the weak start to the year. And then Latin America, we see strong continued growth, even though we saw that growth kind of starting really in the fourth quarter of last year. So from a year-over-year perspective, the pace is relatively speaking, impacted from that. Mix, we are continuing to sell more of our higher-priced categories. And we saw a little bit less of a fall-through of mix on the quarterly result in Q3, mainly driven by softness in aftermarket sales in North America, particularly where our main port distribution warehouse was in a zone impacted by the hurricane which really impacted our ability to ship towards the end of the quarter. That is likely to be recovered in the fourth quarter as the operation itself was not damaged by the hurricane. It was just shut down for a week or so. So I think that's about the guidance that I can give you based on your question there.
Björn Enarson: I think it was good. Very good. So basically, what you have been talking about all year is quite material sequential improvement throughout the year and that goes as I read it also into Q4?
Jonas Samuelson: Yes, specifically on the material cost, yes. So -- or cost efficiency, exactly. The reality is that we have sort of one cost improvement program 2 years ago that had its impact. Now we're starting -- now we started a year ago, a second one. And of course, it takes time before those initiatives hit the P&L, partially because it takes time for people to exit and partially because, of course, cost reduction in product takes time to work its way through inventory and so on before it hits the P&L. So we have pretty good visibility on the guidance that we're giving here for the year.
Operator: Your next question comes from the line of James Moore, Redburn Atlantic.
James Moore: I've got a couple, if I could. One was on external factors and pricing. I wondered if you could -- I guess, you don't want to put a number on it at this stage. But given current spot prices and exchange rates, how we should think about material costs and currency and price in '25? And the other one, if I could tack it on, was on trade policy, given the election coming up. In the instance that Trump is the next President, I wondered if you could help us think about your U.S. revenue and how much is made up of stuff coming out of Mexico versus Asia in terms of source, just to remind us of the exposures.
Jonas Samuelson: So obviously, on 2025, as you know, we usually give that guidance in the Q4 report and I think we'll stick to that. Of course, you can make extrapolations on current spot prices but that's not usually how it works, right? This is a negotiated set of -- and depending on contract structures and so on. So I don't want to pre-empt that. On the trade policy, it's, of course, as I said, very, very difficult to predict, partly because if new tariffs are implemented, it matters a lot how they are implemented on what goods and on what sources. So we really don't have very good visibility there. It could be favorable for operations but also in certain instances, be unfavorable to our operations in North America, depending on how they're implemented. So on the sourcing; we haven't broken up exactly what we source out of Mexico versus the U.S. But clearly, we have 2 factories in Mexico in food preparation and in fabric care. We also have certain component suppliers there, although not a huge amount. And then we source and we have said this before, approximately 20% of our sourcing out of Asia into the U.S. So yes, both -- certainly both risks and opportunities but more than anything, uncertainty around the trade policy.
Operator: And your next question comes from the line of Timothy Lee from Barclays.
Timothy Lee: Can you hear me?
Jonas Samuelson: We can hear you but barely.
Timothy Lee: Is this better now?
Jonas Samuelson: That's a little better.
Timothy Lee: I would like to ask a bit about Latin America. So you also mentioned that growth will continue but probably the momentum or the comps become a little bit more difficult in the fourth quarter. So I'm trying to see if you are seeing the overall market development in the Latin America? How do you see the overall demand going forward? And in particular, if you see some more competition probably coming from the other players, like the Chinese players, gaining exposure in the region, including new plants from the Chinese players? How do you see the overall condition like? And also with sort of margin, we saw that in Latin America, EBIT margin in the third quarter, it came down a bit from the previous quarter. So apart from the impact, do you see other factors that will impact the margin in the region potentially?
Jonas Samuelson: Thank you. I mean we have a very strong position in the region, particularly in Brazil, of course which is by far the largest share of our total sales in Latin America. And if we look at macro developments in Latin America or particularly in Brazil, they remain quite favorable. So we have a positive outlook on consumer sentiment and demand in Brazil. We see growth in Chile and also recovery in Argentina. So the overall context is quite favorable, remains quite favorable. When it comes to the competitive strength, we've broadened our offering and premiumized our offering over the last several years. So we have a very strong position now and -- to face any competition in the region. I'm not concerned about our competitive position in Latin America. And then on the margin, on the EBIT margin in the quarter, yes, you're right. In looking at the exchange rate, the immediate impact of the exchange -- the weakening of the Brazilian real, in particular, had an effect in the quarter. We are raising prices. We have raised prices to compensate for that going forward.
Operator: Your next question comes from the line from Mads Lindegaard Rosendal from Danske Bank.
Mads Lindegaard Rosendal: Can you hear me?
Jonas Samuelson: Yes. Good morning.
Mads Lindegaard Rosendal: So my question pertains to your credit rating. Today, you announced that you will not be selling Zanussi. I think the rating agencies have modeled in that you will do SEK10 billion in divestments. So how do you intend to make up for this gap? And what other things can you do to preserve your credit rating and also just give some thoughts on how important your credit rating is to you? I mean how long for or far are you willing to go to preserve it?
Jonas Samuelson: Right. Yes. So as Therese mentioned, we don't have any covenants or any other restrictions that are related to credit ratings in our debt portfolio. So in that sense, it has limited immediate impact what our credit rating is. Of course, we want to maintain a solid investment-grade rating. And that's our policy and we will continue to work towards that. The divestment program, as we discussed, is more to do with focusing on our core strategic priorities. And that gave us an opportunity as we're exiting effectively the Zanussi brand in Europe to look at monetizing that brand in a different way. So what we've looked at is assessing what it would be an outright sale mean versus adding the Zanussi brand to our licensing portfolio. We are -- we have a fairly broad portfolio of brands that we are no longer using for appliances that we license out. And given the geopolitical and, let's say, macro context, we feel that now is not the right time to divest it. It's better to monetize through licensing. And then we'll see later on if the time is more appropriate to monetize the brand through a sale. So that's still on the table. When it comes to the other divestitures, they're progressing well. On the rating agency side, obviously, will not do their job for them but it's a very all-encompassing analysis that they do, looking at the balance sheet, looking at the earnings and cash flow. And as you know, we have established a fairly solid cash flow performance this year. Working capital is down significantly, 2 percentage points year-over-year and we're seeing significant sequential earnings power improvement. Particularly in Latin America and Europe, we're now given the weak context in Europe, I would say, in a strong position. And we're improving our earnings power in North America, even though it's still not where we want it to be, of course. So when you put all that together, I would say that we have a strong position to defend our investment-grade rating. And then, of course, I won't speculate specifically on what S&P would do but that's our position.
Operator: Your next question comes from the line of Martin Wilkie from Citi.
Martin Wilkie: It's Martin from Citi. The question I had was on promotional activity. In the past, it was often very much focused in the fourth quarter. But I think that, over time, the promotion activity has been spread around a bit more. So it's no longer just simply Black Friday and Cyber Monday and these kind of things. When do you begin to get a sense of how promotion activity is going in the fourth quarter? And is it something that we think this is going to be a sort of typical year for Q4? Or any other effects we should think about in terms of how we might see that impacting pricing in the fourth quarter?
Jonas Samuelson: Yes. I mean at this point, we don't really have an indication of any unusual activity on Black Friday promotion. So yes, no indications of that. So you're right, the promotional intensity has increased throughout the course of the year. I think it's driven by a couple of factors. One is that the overall demand is very replacement driven, both in Europe and in North America and replacement sales are very often made on promotion. So as an average sort of share of our total sales, promotional sales has become a higher share. So that impacts the total. And then we have the situation that we've highlighted where there's a cost discrepancy between Asia and Europe and North America which has allowed Asian competition to be more promotional. And of course, we're -- the other places are responding to that. So the combination of those 2 factors has led to a fairly promotional environment. We're not seeing that change sequentially. That's the key point, right, to your question. It's just the reality we're in right now.
Therese Friberg: And for Q4, I guess what we can add is also for the last couple of years, we've really seen the Black Friday promotion being extended, so becoming kind of Black November. And then if that is not getting gaining full traction, we've also seen that, of course, going into almost a full month of December. But that is something that, of course, we would not have visibility to at this point in time. That is more something that has happened in the...
Jonas Samuelson: And you can say that's the baseline, right?
Therese Friberg: Yes, exactly.
Martin Wilkie: Great, that's very helpful. And if I may like to ask a second question just on Europe. So profitability came in better than expected. It sounds like some of that was mix. I don't know how much of that was this more emphasis on the Electrolux brand, less on things like Zanussi and therefore sort of a permanent step-up in terms of the mix effect, or was there sort of temporary effect there for some particular new models being launched, things like that. How should we think about the durability of that better mix in Europe?
Jonas Samuelson: No, I think it's very solid. We're gaining share with the Electrolux brand and with the AEG brand in Europe. And that's driven by continuous product innovation and strength in our offering in premium laundry and built-in kitchen in particular. And I see significant further opportunity there as building kitchen retail segments recover in the coming years. I think it's fair to say that the overall mix of the market in Europe right now is at a quite weak point, with a high share of sales being forced replacement-driven which typically drives down mix. And then got that in combination with subdued purchasing power in Europe for the factors that we all know, the starting point for the market as a whole is very low. So I expect as we go forward, the market mix having an upward opportunity and us being very well positioned inside of that.
Therese Friberg: And when it comes to launch our new kitchen range under the AEG brand, we don't see any results of that in this quarter.
Jonas Samuelson: That will mainly start to impact next year.
Therese Friberg: Yes.
Operator: Your next question comes from the line of Johan Eliason from Kepler Cheuvreux.
Johan Eliason: This is Johan from Kepler Cheuvreux. I think you're doing a great job in Europe and Latin America. But obviously, North America remains an issue. Do you think with the current actions you have implemented there and are on track to implement, that you can actually regain profitability without the help of, let's call it, well-designed import tariffs?
Jonas Samuelson: Right. So I mean, if we start with the basics, we've invested heavily in our product offering in North America. Consumers really, really like our products. We have industry-leading consumer star ratings. So the fundamentals are really there. We're improving our mix. We're selling more of our -- of the higher-value categories in North America. Having said that, we are still, of course, impacted, as you know, by the ramp-up costs and volume restrictions related to Springfield. That's going to improve sequentially. And we're still sort of step-by-step getting more traction from the new products and getting wider distribution of the more premium parts of our offering. On the cost side, we've been pretty transparent on the fact that there is a big cost discrepancy between North America and Asia and that is really the main challenge that we're facing there. There are 2 ways to address it. One is to source more in Asia, more components and more finished goods out of Asia into the U.S. We're already doing that and we're accelerating that, as mentioned, through looking at our supply base more strongly out of Asia. Now the uncertainty, to your point, is we are -- at this point, we don't know what will happen in terms of trade policies. So that could either speed up or slowdown that migration. But on the other hand, it also changes the competitive position of manufacturing in the U.S. which is by far the majority of our production. So I would say if either their limited trade policies which means that we will source more lower cost input which has an upside opportunity, or the risk trade policy actions and then we're positioned with a strong manufacturing base in North America. Of course, we are already sourcing both finished goods and components out of Asia. So any sort of trade actions would, of course, impact that. So it's a balance of what -- the ups and downs. But at this point, it's -- yes, it's anybody's guess what that environment will look like. Either way, we have opportunities. So in conclusion, I would say, the fundamentals are there for us to recover profitability to sustain a profitable base in North America.
Johan Eliason: But I think your market share in North America was 10% last year. It's half of where it was a decade ago. How has the market share development look like so far this year?
Jonas Samuelson: Market share is about flat this year. Year-to-date, actually almost exactly flat. But we are continuing to improve our -- the mix of our offer, where we're selling less of our low-end products and more of our higher mix, higher category products. So overall, our value share is improving year-over-year, while the volume share is stable.
Johan Eliason: Okay. And good luck with your next endeavors, Jonas.
Jonas Samuelson: Thank you. Appreciate it.
Operator: [Operator Instructions] And your next question comes from Uma Samlin from Bank of America.
Uma Samlin: So, I just wanted to have a bit more color on the Springfield ramp-up. You mentioned that the productivity has been gradually improving. But how should we think about that impact in relation to your margins in Q4 and perhaps in 2025? And when do we expect the ramp-up to complete?
Jonas Samuelson: Yes. So Springfield produces the majority of our food preparation, our cooking products in North America, except for some parts that are sourced like microwaves and so on. So it's an important factor for us. However, it's just one of our categories. So it's important to mention that it's 1 factory out of a total of 5 in North America. So it's important but it's one factory. But it's an important category for us. And the products that we produce in Springfield are extremely well received in the market and allow us to improve mix sequentially as we go forward. The production start-up of any new factory, especially highly automated like this one, will be requiring continued work on productivity, efficiency and so on. And we're doing that. We're seeing that progress. As I mentioned right now, in October here, we're now up to the needed production rate in terms of output, so we can meet market demand for the first time this year which is a positive. In terms of productivity, though, there's still work to be done. So in terms of the amount of labor and hours going into each product, there is significant additional opportunity to improve that. But we are able to meet market demand which is one important milestone. And then as we go in, we have -- into next year, we certainly have a much better running operation than we have had on average for 2024.
Operator: Your next question comes from the line of James Moore from Redburn Atlantic.
James Moore: Yes. I just got one, if I could. The headcount reduction that you're doing and you mentioned some of that takes time. Is it possible just to quantify what percentage of the current plan is done in terms of headcount to the end of -- and what's still to come?
Jonas Samuelson: Yes. There's still -- in terms of actual sort of cost impact, there's still, I would say, a couple of thousand that have -- I mean, in terms of the actual impact on the P&L. But it's not more than that. I mean we reduced headcount, again, as I mentioned, from 53,000 2 years ago to about 40,000. And from here on, compared to that number, there's not that much more but the impact of it is still to come to some extent. So we'll see most of it, let's say, by Q4.
James Moore: Well, okay. And if I could say thanks a lot for all you help over the last 20 years and best of luck for the...
Jonas Samuelson: Yes, it's been a pleasure. Thank you very much.
Operator: That was the final question. I will now hand the call back to Jonas for closing remarks.
Jonas Samuelson: I guess that was an appropriate final question because, again, James, we have been exchanging thoughts over many years. And as this will be my last quarterly results presentation, I really wanted to take the opportunity to thank our investors and our analysts for your interest and support over the years. I have to say I'm very happy to welcome Yannick Fierling as our incoming CEO. And I know that he, together with the leadership team, will take Electrolux to the next level, building on the foundation of excellent products that our consumers tell us they really appreciate through our industry-leading consumer star ratings. Our cost reduction activities will be further intensified and our speed of innovation and market agility will be enhanced by a modularized set of product architectures and a simplified organization structure. There's a lot of hard work in a challenging market environment that remains but we are on the right track. And with that, thank you and my best wishes to all of you.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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