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Electrolux warns of bigger hit from U.S. factory overhaul

Tara Patel and Niclas Rolander
Bloomberg

Electrolux AB, the Swedish maker of Frigidaire appliances, said it will incur a bigger-than-expected financial hit from merging fridge-and-freezer factories in the U.S. amid delivery disruptions.

The shares slumped 12% Monday after Electrolux said the reorganization of its plants, combined with accounting adjustments and destocking at a key U.S. client, will shave $70 million off fourth-quarter operating income compared with a previous estimate of $25 million. Savings targeted for next year will also take until 2021 to materialize, with just a fraction coming in 2020.

In this Thursday, Jan. 9, 2014, file photo, workers assemble ovens at an Electrolux home cooking appliance factory in Memphis, Tenn.

Electrolux now sees a cost reduction of 200 million Swedish kronor ($21 million) next year, down from a previous estimate of 800 million. The savings are part of a bigger plan to revamp the factory setup, an effort that includes shutting a plant for cooking products in Memphis, moving U.S. refrigerator-production to a new site in Anderson, South Carolina, and outsourcing production of vacuum cleaners in Hungary. The company still expects the measures to yield about 3.5 billion kronor in annual savings by 2024.

DNB analyst Christer Magnergard said the postponement of savings will cut about 8% from next year’s operating profit, and that the problems Electrolux has encountered in the U.S. increase the risk of further disruptions to the efficiency plan. He said it’s “alarming” that the company was unaware of issues earlier and that there’s a “clear risk” that the weak performance will continue to impact earnings through the first half of 2020.

Electrolux is investing $250 million in automation and digitization of the plant in Anderson to replace one nearby and another slated for closure in St. Cloud, Minnesota. The transition led to temporary capacity constraints that affected deliveries to some customers, which are expected to be resolved in the first half, it said.

The announcement comes only days after the head of Electrolux’s North American unit left the company.

Europe’s largest appliance maker has been working to offset higher costs and currency moves by increasing prices and selling more higher-margin appliances. At the same time, it is investing heavily in new and more efficient manufacturing facilities with increased automation. In the third quarter, Electrolux took a charge of 1.6 billion kronor to finance cost-cutting measures that include almost 1,700 job cuts.

The shares fell the most since Oct. 26 last year and were trading 11% lower at 224 kronor as of 3:48 p.m. local time.