Electrolux AB (ELUX) Q2 2016 Conference Call

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Jonas Samuelson, CEO and President

Performing well in major appliances

“Electrolux operating income for the second quarter increased significantly compared to the same period previous year and amounted to SEK 1,564m. Of the Group’s six business areas, four achieved an operating margin of above 6%. The improvement was particularly strong in Major Appliances EMEA and Major Appliances North America. Major Appliances Asia/Pacific and Professional Products showed a stable development in earnings.”

Uncertain times in Europe following the Brexit yet positive in outlook

“Following the Brexit referendum, the outlook for UK demand and the British Pound is uncertain…We expect the European market to continue to grow in 2016 and therefore increase our outlook to 2% to 4% growth for the year from 2% to 3%, reflecting the good trend but also an increased uncertainty in the UK.”

Currency movement are eating into earnings

“Currencies continue to have a negative impact on earnings. However this was to some part mitigated by price mix. All-in-all earnings improved in all business areas versus last year except for Latin American.”

Outlook positive for Europe and North America, negative for Latin America

“We expect the positive growth trend in Western Europe to continue in most markets but with the Brexit uncertainty. In Eastern Europe we have seen Russia stabilizing and expect the region as a whole to show growth going forward. We anticipate demand in North America to remain positive in 2016, supported by a solid macroeconomic environment and good consumer confidence. Latin America continues to be weak with low visibility.”

They see opportunity in North America

“North America is the largest professional kitchen equipment market in the world, so it’s interesting from that perspective…a lot of the global chains are headquartered in North America and we’re relatively weak in the North American market which means that we have a lower chance than we otherwise would have of being a key supplier to some of these chains. So that is one of our key strategic priorities, to make sure that we build the presence in North America so that we can become a true global supplier. I think we see a lot of opportunities there.”

Anna Ohlsson-Leijon, CFO

Sluggish organic and acquisitive sales growth

“Organic sales was down 0.9% in the quarter mainly due to lower volumes in Latin America and the repositioning in small appliances, in combination with lower private label sales in North America. Acquired growth was 0.1% positive due to contribution from our acquisition of Veetsan last year. The currency impact was negative 3.6% and this resulted in reported sales of negative 4.4%.”

Significant cost cutting boosted earnings

“Moving to the net cost efficiency. This shows the net impact from product cost improvements of in total, SEK761 million. This included cost savings from raw materials which was about SEK250 million in the quarter and the impact of other productivity work and efficiencies throughout the Group. In total we had a margin accretion of 0.6% from the organic part and a 2.5% in contribution from cost efficiencies.”

A strong cash conversion rate gives them the firepower to invest and acquire going forward

“The strong cash conversion rate in 2014 and 2015 leaves us with a strong balance sheet which means that we have the funds and the firepower to continue with our investments as well as look at further acquisitions.”

Additional note on cash by Jonas: “the Board will make sure that we have a plan to have an appropriate balance sheet strength going forward but not over-capitalized and of course that includes M&A and possible cash distribution.”