Electrolux warns on full year amid consumer gloom

STOCKHOLM (Reuters) - World No. 2 home appliances maker Electrolux warned on Thursday that flagging consumer demand will hit full-year earnings harder than thought, sending its shares down nearly 9 percent.

The company -- whose brands include AEG, Zanussi and Frigidaire as well as its own name -- said it expected operating income for the year of 3.3 billion to 3.9 billion Swedish crowns ($654 million), excluding items affecting comparability.

The news overshadowed forecast-topping second-quarter numbers from Electrolux, which said earnings before interest and tax for the period were 793 million Swedish crowns -- excluding extraordinary items.

This was below a prior-year 921 million but beat a mean forecast of a 716 million in a Reuters poll of 10 analysts.

"The new guidance is lower than what was expected and that will lead to forecast downgrades," said one analyst. "If we say that the market will pull down its estimates 10 percent, the share price fall is understandable."

Electrolux shares were down 3.6 percent to 67.50 crowns by 1029 GMT against a 3 percent gain in the broader market.

The Swedish producer of washing machines, fridges and other white goods -- dethroned as world No. 1 appliance maker when Whirlpool bought rival Maytag in 2006 -- had previously seen operating income at the lower end of a single-digit percentage rise or fall from last year.

"When I talked about our outlook earlier this year we had a more positive view of the market. Previously we thought that the U.S. market would pick up pace again during the second half of the year," Chief Executive Hans Straberg told Reuters.

"But now in the second quarter, we see that it will continue to fall and that means we feel compelled to adjust our forecast for the full year."

The new full-year forecast would translate to a year-on-year earnings decline of between 19 and 32 percent. Market expectations ahead of the report were for adjusted operating income of 3.9 billion crowns this year.

"Right now I estimate it's realistic to come in at the middle of that range," Straberg said.

Electrolux is basing its new outlook on expectations of a 1-2 percent contraction of the European market and a 5-8 percent fall in North America this year.

Straberg also repeated the group expected raw material costs to surge by 1 billion crowns year-on-year.

"The (second-quarter) results are really good, but then you have the lowered guidance and the weaker market outlook," Evli Bank analyst Michael Andersson said.

"But the lowering of the guidance is not hugely dramatic, I think, and the fact that the Q2 report was as good as it was indicates that everything is not complete darkness."

HIGH-END

After years of cost cuts to forced by growing competition from low-cost opponents and soaring raw material prices, Electrolux now faces a slump in key markets, including North America, source of roughly one-third of group revenues.

With the U.S. economy foundering amid a financial crisis and a housing slump, North American industry shipments of core appliances fell nearly 10 percent in the first half of 2008 -- especially awkward for Electrolux which is in the midst of launching a new line of high-end products there.

Still, the company said the introduction of its new Electrolux-branded premium segment products in North America had begun well, adding that excluding costs tied to the launch, it was holding its own in the region despite a sharp demand drop.

The group struck a more somber tone on Europe, its single biggest market, where second-quarter earnings took a knock from falling demand in the west along with high product costs.

Electrolux said demand continued to rise in eastern Europe, but at a slower pace, while deliveries in western Europe fell as demand eroded in markets such as Spain, Italy and Britain.

"However, demand in France and Germany increased during the quarter," it added.

While results in Europe remained unsatisfactory -- sales and earnings were flat on an annual basis -- the group had begun to see signs of improvement, with market share gains in the region and cost cuts there beginning to take effect, Straberg said.

Whirlpool reports on July 23.

(Additional reporting by Johannes Hellstrom; Editing by Louise Ireland)