Electrolux shares soar as long-awaited European demand returns

STOCKHOLM Fri Apr 25, 2014 8:04am EDT

Electrolux factory workers join the union-led protest outside a factory in Porcia, northern Italy, February 28, 2014. REUTERS/Stefano Rellandini

Electrolux factory workers join the union-led protest outside a factory in Porcia, northern Italy, February 28, 2014.

Credit: Reuters/Stefano Rellandini

STOCKHOLM (Reuters) - Electrolux, the world's second-biggest home appliances maker, said on Friday its European markets were finally growing again and that a recovery in the United States would continue, sending its shares up nearly 10 percent.

Electrolux, a smaller rival to America's Whirlpool (WHR.N), delighted investors who have watched it suffer from weak economies and currencies in Europe and Brazil that cost cuts and improvement in the North American market could not offset.

"You will see 8-10 percent earnings upgrades on this," Daniel Cunliffe, analyst at Nomura, said on Friday.

Electrolux said markets such as Germany, France and Italy had picked up and forecast demand would increase 1-3 percent this year in Europe - which accounts for around one third of sales - rather than the 0-2 percent it previously expected.

Helped by cost cuts, operating income in Europe rose to 142 million Swedish crowns ($21.59 million) in the quarter from 11 million in the year ago period.

"Importantly, the market in Europe has, in our view after several quarters of negative growth bottomed out ... and is now gradually recovering," CEO Keith McLoughlin said.

Electrolux, which sells under brands such as Frigidaire, AEG and Zanussi as well as its own name, also stuck by its forecast of growth in the U.S. market of 4 percent, despite a tough start to the year when freezing weather hit sales volumes.

By comparison, Whirlpool - which reported higher profits and sales on Friday - forecast United States demand would rise 5-7 percent this year and industry shipments in Europe grow between 0 and 2 percent this year.

By 1125 GMT shares in Electrolux were up 9.45 percent, their biggest one-day rise in some 5 years. So far this year the company's stock had been down 8.3 percent against a rise of 2.4 percent for the wider Stockholm index .OMXS30 and a flat Stoxx 600 European Industrial Goods and Services index .SXNP.

CHALLENGES REMAIN

However, the company warned that though European volumes would improve, there was still pressure on prices, while its second biggest market Brazil remained weak.

"In the near term .. the next 4-6 quarters, we are not anticipating a positive inflationary environment in Europe. In fact we are anticipating it will continue to be deflationary," McLoughlin said.

An economic slowdown in Brazil prompted a fall in demand there in the first quarter and negative currency effects meant that operating income in Latin America declined slightly despite the region posting strong organic sales growth due to higher sales of premium products and price increases.

McLoughlin said he expected demand to continue to fall in Brazil in the second quarter, but hoped for a recovery in the second half of the year.

"The visibility of that demand picture is not great," he said. "Could it (recovery) be Q3, Q4, Q1 next year? It could be. Our current view is first half down, second half starting to recover."

Whirlpool said on Friday it expects industry shipments in Latin America to be flat in 2014.

Overall, Electrolux said adjusted operating earnings rose to 749 million Swedish crowns ($114 million) from a year-ago 720 million to come in above a mean forecast of 541 million in a Reuters poll of analysts.

($1 = 6.5777 Swedish Crowns)

(Editing by Sophie Walker)

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