SEOUL (Reuters) - South Korea’s LG Electronics Inc (066570.KS) said on Tuesday increased marketing spending on new products could pull down earnings in its mainstay television business, making it difficult for second-quarter profit to match the first.
The world’s second-largest TV maker after compatriot Samsung Electronics Co Ltd (005930.KS) beat analyst estimates with a 44 percent rise in first-quarter operating profit, attributing the gain to lower TV panel and marketing costs during a seasonally weak period for consumer electronics.
But an advertising push ahead of the soccer World Cup starting June could render second-quarter profit short of the first and closer to the 479 billion won ($463 million) of April-June last year, said Chief Financial Officer Jung Do-hyun.
“Intensifying competition will make it difficult to maintain the level of TV business profit seen in the first quarter,” Jung told analysts at an earnings briefing. “It also seems some World Cup-related demand shifted forward into the first quarter.”
TV makers are trying to stand out by touting new high-end products such as ultra high-definition (UHD) liquid crystal display (LCD) TVs, which offer wider profit margins than high-definition (HD) TVs.
Comparatively higher prices and a dearth of UHD-quality content, however, could unravel any marketing drive and put off consumers in the near term, analysts say.
In the meantime, strong sales of large-screen sets helped the TV business - which contributes over a third of revenue - log profit of 240 billion won in the first quarter from 11 billion won a year earlier, LG said in a statement.
Overall operating profit for January-March reached 504 billion won - the highest since the second quarter of 2012 and eclipsing the 279 billion won mean estimate of 37 analysts polled by Thomson Reuters I/B/E/S.
Shares of LG, valued at $11.32 billion, ended 3.9 percent higher after the results, compared with a 0.2 percent fall in the Korea SE Kospi Index .KS11. So far this year, they have risen 5.3 percent versus a 2.3 percent decline in the benchmark.
In LG’s mobile division, where its nearest rivals are Huawei Technologies HWT.UL and Lenovo Group (0992.HK), profitability should improve in the second quarter from the first on shipment growth and the launch of flagship smartphone G3, Jung said.
The division fell into an operating loss of 9 billion won from last year’s 133 billion won profit, as lower prices neutralized a 19 percent growth in shipments to 12.3 million handsets.
LG plans to launch the G3 in South Korea by late May or early June, between the April launch of Samsung’s Galaxy S5 and expected launch of Apple Inc’s (AAPL.O) new iPhone later this year.
The G3 could help drive sales volume, but could also lead to increased marketing costs that would offset at least some of its contribution to LG’s bottom line. Jung declined to specify when LG expects its mobile division to return to profit.
Now well behind market leaders Samsung and Apple, analysts say LG may struggle to show meaningful earnings momentum in the absence of a significant turnaround in its handset business.
($1 = 1035.1500 Korean Won)
Reporting by Se Young Lee; Editing by Christopher Cushing