Europe’s Largest Appliance Maker Electrolux Takes Big Hit Amid US Factory Overhaul

Europe’s largest appliance maker Electrolux AB warned on Sunday night that its North American segment would incur costs of approximately $70 million, up from an earlier estimate of $25 million, reported Bloomberg.

Electrolux is moving its manufacturing plant from St Cloud, Minnesota, to Anderson, South Carolina. The company is investing approximately $250 million in automation and digitalization of the new facility.

The transition has resulted in “temporary capacity constraints, affecting deliveries to some customers in the fourth quarter,” the Swedish appliance maker said.

The upgrade has also led to a $70 million loss in Q4 for operating income compared with a previous estimate of $25 million.

“As a result of this, as well as of increased costs, the transition is now expected to have a larger impact on operating income in the fourth quarter than the approximately $25 million communicated previously.”

As a result of the drop in operating income and de-stocking at warehouses for US customers, shares in Electrolux plunged 12% in Stockholm on Monday.

Electrolux CEO Jonas Samuelson told investors during a call that at least half of the $70 million impact on Q4 operating income comes from capacity constraints at Anderson facility.

Samuelson said the rest of the negative impacts come from accounting adjustments and destocking at a “very large customer.” 

Bloomberg notes that the surprise loss in operating income comes days after the head of Electrolux’s North American unit resigned.

“Several issues have gone wrong in the quarter that the company did not know anything about ahead of the quarter, which is alarming,” DNB analyst Christer Magnergard said in a note. “We see a clear risk that weak performance can continue to impact earnings throughout the first half of 2020.”

The company expected to see cost savings in 2020, has now been pushed out to 2021. The new South Carolina plant could save the company upwards of $372 million of annual cost savings, with full effect after 2024.