Electrolux looks to cut costs – thousands of jobs at risk
A weak quarter and a weaker market has caused Swedish appliance manufacturer Electrolux to launch a cost reduction and turnaround program.
Following a weak third quarter, the Swedish company has made the decision to launch a group-wide cost reduction and North American turnaround program. The company also says that it is reviewing its production capacity needs given the current market situation.
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.
Net sales for the quarter increased to SEK 35.2 billion (EUR 3.2 billion), compared to SEK 30.9 billion (EUR 2.8 billion) during the same period last year. However, operating income amounted to SEK -385 million (EUR -35.2 million), compared with 1.6 billion (EUR 146.4 million) during 3Q21. It is worth mentioning that the operating income includes a negative post of SEK 350 million (EUR 32 million), related to the exit from the Russian market
In addition to the weaker market environment, supply chain imbalances resulted in a significantly elevated cost level, mainly in the business area North America which reported a loss of SEK 1.2 billion (EUR 109.8 million). Income for the period amounted to SEK -605 million (EUR -55.3 million), a drop from SEK 1.1 billion (EUR 100.6 million) during the same period last year.
“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,” says CEO Jonas Samuelson in the third quarter report.
As a response to the gloomy figures and the current market environment, Electrolux initiated a A group-wide cost reduction and North America turnaround program during the quarter.
The company states in its third quarter report that the program will run the full-year of 2023 and is expected to result in a positive YoY earnings contribution of SEK 4-5 billion (EUR 366–457 million) from both cost efficiency and reduced Investments in innovation and marketing.
The majority of the targeted cost savings are to be realised in the business area North America. Electrolux says that the program is expected to lead to a restructuring charge of SEK 1.2-1.5 billion (EUR 109.8–137.2 million) in the fourth quarter of 2022. 3,500-4,000 positions will be affected by the program, the company states without specifying further.
“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,” the CEO concludes.