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Electrolux logo on microwave

Electrolux Warns of Bigger Hit From US Factory Overhaul

Dec. 16, 2019
Electrolux is investing $250 million in automation and digitization of a plant in South Carolina to replace one nearby and another slated for closure in Minnesota.

Electrolux AB, the Swedish maker of Frigidaire appliances, said it will incur a bigger-than-expected financial hit from merging fridge-and-freezer factories in the U.S. amid delivery disruptions.

The upgrade, combined with destocking at a key U.S. customer and accounting adjustments, will shave $70 million off fourth-quarter operating income compared with a previous estimate of $25 million, according to a statement Sunday. Electrolux also said that cost-savings targeted for next year will take until 2021 to materialize. Shares slumped as much as 12% at the start of trading in Stockholm.

Electrolux is investing $250 million in automation and digitization of a plant in Anderson, South Carolina, to replace one nearby and another slated for closure in St. Cloud, Minnesota. The transition led to temporary capacity constraints that affected deliveries to some customers, which are expected to be resolved in the first half, it said. The company now sees cost savings of 200 million Swedish kronor (US$21.3 million) next year, one-third of what was budgeted.

The announcement comes only days after the head of Electrolux’s North American unit left the company.

“Several issues have gone wrong in the quarter that the company did not know anything about ahead of the quarter, which is alarming,” DNB analyst Christer Magnergard said in a note. “We see a clear risk that the weak performance can continue to impact earnings throughout the first half of 2020.”

Europe’s largest appliance maker has been working to offset higher costs and currency moves by increasing prices and selling more higher-margin appliances. At the same time, it is investing heavily in new and more efficient manufacturing facilities with increased automation. In the third quarter, Electrolux took a charge of 1.6 billion kronor (US$170 million) to finance cost-cutting measures that include almost 1,700 job cuts.

The shares fell 12%, their lowest intraday price since Oct. 26 last year, to 220.90 kronor at 10:58 a.m. local time.

By Tara Patel

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