Bloomberg News

LG Operating Profit Beats Estimates as Smartphone Shipments Rise

July 24, 2013

LG Electronics Profit Misses Estimates on Stalling TV Demand

A customer sits in front of LG Electronics Inc. 3-D Smart televisions at one of the company's bestshop stores in the Gangnam area of Seoul, South Korea. Photographer: Woohae Cho/Bloomberg

LG Electronics Inc. (066570), the world’s second-largest television maker, posted operating earnings that beat analyst estimates as smartphone shipments rose to a record and hot weather in South Korea boosted air conditioner sales.

Operating income, or sales minus the cost of goods sold and administrative expenses, was 479 billion won ($430 million) in the three months ended June, the Seoul-based company said today. That compares with the 462 billion won average of 25 analyst estimates compiled by Bloomberg.

LG will add its new flagship G2 handset next month to bolster smartphone shipments that rose to a record 12.1 million units in the second-quarter. The air conditioner division, which accounted for just 11 percent of sales, was the biggest contributor to earnings amid hot and humid summer weather.

“Air conditioner sales typically slow from the second half of the year, but if G2 sells well, it will make up for any profit decline at air-conditioning,” said Park Kang Ho, a Seoul-based analyst at Daishin Securities Co. “Higher-than-expected operating profit and rising hopes for the upcoming G2 smartphone are boosting shares.”

LG rose 2.3 percent to 74,200 won on the Korea Exchange as of 3:21 p.m while the benchmark Kospi index gained 0.4 percent.

The air-conditioner business had an operating income of 171 billion won, compared with the 133 billion won median of five analyst estimates compiled by Bloomberg.

Net Income

Net income, excluding minority interest, fell to 132 billion won in the period, missing the 346.5 billion won average of 14 analyst estimates compiled by Bloomberg. Sales rose 10 percent to 15.2 trillion won.

LG’s mobile division had a second-quarter operating profit of 61.2 billion won, compared with a 28 billion won loss a year earlier.

The home-entertainment division, which makes TVs and accounted about 42 percent of revenue last year, had an operating profit of 106.5 billion won in the second quarter, down from 304.3 billion won a year earlier.

With weaker demand crimping profitability in televisions, the company is pushing into high-end TVs using organic light-emitting diodes, or OLEDs, and upgraded liquid crystal displays to try and boost earnings amid competition from China and Japan.

OLED Televisions

The company introduced its first OLED set, priced at 11 million won, in South Korea in January and a 84-inch ultra-high-definition TV using upgraded LCD technology in July 2012. It also started selling smaller ultra HD sets following Chinese and Japaneses rivals.

“Demand for TVs also doesn’t seem very bright,” said Lee Seung Woo, a Seoul-based analyst at IBK Securities Co. “Until the OLED market takes off, it needs to bear it.”

Ultra-HD sets use conventional LCDs that offer resolution rivaling OLED screens for about half the price.

Worldwide shipments of liquid-crystal-display TVs may total 208.8 million units this year, less than the 215.5 million projected earlier, market research firm TrendForce said in a June 13 report.

LG’s home-appliance division had an operating profit of 121 billion won on 3.19 trillion won of sales.

To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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