Bloomberg News

Electrolux to Shut Europe, North America Plants Amid Weak Demand

November 16, 2011

Nov. 15 (Bloomberg) -- Electrolux AB, the world’s second- biggest appliance maker, will close factories in Europe and North America to cut costs amid weak demand. The shares fell the most in almost three months.

“We have underutilized assets, as the whole industry does,” Chief Executive Officer Keith McLoughlin said in an interview today during an investor presentation at the company’s Stockholm headquarters. “We’re getting the suit size adjusted to our right weight.”

Electrolux aims to save 5.1 billion kronor ($761 million) a year, compared with a previous target of 2.5 billion kronor, the washing machine maker said today in a statement. The shares fell as much as 9.5 percent, the biggest intraday decline since Aug. 18, and were down 7.9 percent at 111.5 kronor as of 11:43 a.m. in Stockholm.

The maker of AEG vacuum cleaners and Frigidaire refrigerators has suffered from the decline in consumer confidence in mature markets and increased raw material costs. Electrolux, which has about 35 plants, will close several of them, mainly in North America and Europe, McLoughlin said in the interview, declining to give further details.

Putting Off Spending

Electrolux, which trails rival Whirlpool Corp., said it will reduce staffing levels and improve purchasing. Sales volumes of household appliances sold in North America this year will probably be 25 percent lower than in the peak year of 2005, the company forecast. Volumes in western Europe will be 15 percent below the peak level in 2006.

“When consumer confidence gets this low, they put off discretionary spending,” McLoughlin said about U.S. consumers during his presentation.

In Europe, “the question is not if it’s going to recover but when it will recover,” he said. “Our view is not in the next couple quarters. It’s going to take some time.”

Higher prices for materials such as steel, plastics and resins will probably cut 2 billion kronor from 2011 earnings and less than 1 billion kronor off 2012 profit, the company said.

McLoughlin, an American who became CEO at the start of the year, said Electrolux must continue to raise prices across the globe to boost revenue. It will raise prices in North America in January, the third increase in the region in nine months. In Europe it started raising prices as much as 7 percent in October, a move that won’t have full effect until the first quarter of 2012, McLoughlin said.

McLoughlin succeeded Hans Straaberg, a Swede who shut 19 plants and moved part of Electrolux’s production to lower-cost countries as part of an overhaul that began in 2004 and finished early this year.

Of the 2.6 billion kronor of new savings, 1.6 billion kronor will come from adjusting manufacturing capacity, while 500 million kronor will come from measures such as improved purchasing and another 500 million kronor from trimming staff, Electrolux said. Costs for closing the plants and reducing capacity will be about 3.5 billion kronor, the company said.

--Editors: Thomas Mulier, David Risser

To contact the reporters on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net; Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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