Demand from Europe and the United States for the company's core appliances has plunged in the third quarter and at a significantly faster pace than the decline recorded during the second quarter. The company blamed the dwindling demand on high inflation, low consumer confidence and high retailer inventory levels. (Related: Walmart cancels billions in order to align inventory with plummeting consumer demand.)
"In combination with supply chain imbalances resulting in significant production inefficiencies and increased costs, the third quarter earnings for the Group are expected to decline significantly compared to the second quarter of 2022, also excluding the one-time cost to exit the Russian market," wrote the company in its initial report. "This has been driven mainly by Europe and North America."
The company added that the losses experienced by its North American business area are expected to exceed the losses Electrolux incurred during the second quarter.
Following the announcement of Electrolux AB's dismal third quarter, company shares fell by as much as seven percent in the European markets. The company also announced that it does not intend to initiate any additional share buyback programs before the company's annual general meeting in 2023.
Consumer confidence in Europe, North America to remain low
Electrolux AB warned that demand in 2023 from Europe and North America is expected to remain weak.
"I think people will hold on to their wallets quite hard," said Electrolux AB President and CEO Jonas Samuelson, referring to consumer confidence in Europe. "The same is likely true in the U.S. – consumers have backed off buying durable goods and focused on purchasing staple products as the highest inflation in decades has sent wage growth deeply negative for more than a year. Households on both sides of the Atlantic are struggling."
In response to the massive losses experienced by the company's North American business, Samuelson said: "I'm obviously very disappointed with our performance."
Ricardo Cons, CEO of Electrolux's Latin American branch, was recently appointed head of the North American region and will lead the cost-saving and turnaround programs in the region. Cons has been credited with leading the transformation of Electrolux's Latin American division over the past six years.
The company's cost-reduction program will be focused on its North American and European operations and will target both variable and structural costs. Electrolux said, "special attention" will be given to eliminating inefficiencies in the company's supply chain and production.
Electrolux will also begin prioritization and efficiency measures leveraging recent organizational changes. Furthermore, the company is also planning to figure out ways to increase productivity in operations, as well as optimizing the R&D portfolio and trimming down costs and improving efficiency in administration, sales and marketing activities.
The company is expected to lay out the plan in more detail, including a potential material restructuring cost, when the company's full report is released in late October.
Electrolux added that its cost-cutting and other optimization plans for the United States will "result in a material positive earnings contribution" by next year.
The manufacturing company's dismal forecast of its finances came just hours after the Thule Group, a major Swedish manufacturing company, said retailers had cut back on purchases as a result of "consumer uncertainty" and excess inventory, similar to Electrolux AB's report.
Thule said sales will continue being hit next year. Like Electrolux, following Thule's report, the value of its shares in European stock markets went down by 11 percent.
Learn more about the coming recession at MarketCrash.news.
Watch this episode of "World Alternative Media" podcast as host Josh Sigurdson discusses how record-breaking inflation is leading to an economic collapse.
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