Top appliance makers Whirlpool and Electrolux are raising prices to pass soaring raw material costs on to customers, but their attempts may not pass muster with bargain-hungry shoppers.
The move comes as both companies missed quarterly profit estimates and grapple with tepid demand in key developed markets like the United States and Europe. The news weighed on shares of both companies.
Many analysts questioned the timing of the move, especially since consumers in the developed world continue to look for incentives to buy expensive goods like appliances.
They can call out price increases, which is what I expected to hear from them given the increase in (prices of) steel, but whether those price increases stick is another thing altogether, Wall Street Strategies analyst Brian Sozzi said, citing failed attempts by the company to raise prices early last year.
Some also worried that the price increases would erode Whirlpool's market share, especially since some Korean rivals are sticking with existing price tags.
Korean manufacturers LG Electronics and Samsung have not announced increases and appear to be planning to hold existing prices, Longbow Research analyst David MacGregor said in an earlier note.
Still, Whirlpool's chief executive, Jeff Fettig, insisted it was not economically feasible for Whirlpool to remain indefinitely in the promotional mindset it adopted for the holiday season and last year in general.
Whirlpool sees raw materials costs for this year rising to between $250 million and $300 million. Its shares were down 3.2 percent at $82.65 at midday, off an earlier low at $79.76.
For 2011, we expect positive but uneven demand levels around the world, Fettig said, adding the company still hoped to expand operating margins in the year through price hikes and efforts to boost productivity.
Whirlpool has shut plants, cut jobs and moved some manufacturing to lower cost centers like Mexico. It has also started using common parts across its lineup of dishwashers, refrigerators and washing machines.
Net earnings at the maker of Maytag and KitchenAid appliances rose to $171 million, or $2.19 a share in the fourth quarter, from $95 million or $1.24 a year earlier. Excluding items, it earned $2.11 a share, missing the analysts' average estimate of $2.26 a share.
Sales rose 4 percent to $5.0 billion, above the analysts' average estimate of $4.8 billion.
For the year, Whirlpool expects to earn $12 to $13 a share.
Sweden's Electrolux also missed earnings forecasts and further disappointed investors by not returning money to shareholders via a hoped-for special dividend. The cash-rich company instead extended its share buyback program. Its shares sank 7.8 percent.
It is a bit disappointing there is no extra dividend, said DnB NOR analyst Ole-Andreas Krohn.
Adding more pain, Electrolux said it put plans to buy Egypt-based appliance maker Olympic Group on hold due to unrest there.
TO RAISE OR NOT TO RAISE
Electrolux, which sells under its own name as well as the Zanussi and Frigidaire brands, is planning to raise prices by 8 to 10 percent in North America from April and gradually in Europe and other markets.
The move comes as manufacturers around the globe plot price hikes to offset higher materials costs and claw back ground lost in the recession.
Copper hit a record high on Wednesday after rising 60 percent since last June.
Electrolux Chief Executive Keith McLoughlin said the rise in raw materials' costs had been across the board.
In the first quarter we are going to have raw materials hitting us immediately, he told Reuters in an interview after reporting core earnings of 1.71 billion crowns ($257.8 million).
This was just below the forecast of 1.78 billion crowns and down from 2.0 billion crowns in the same period of 2009.
The company raised its forecast for the impact of raw material costs to a range of 1.5 billion to 2 billion crowns, higher than the previous 1.5 billion crown forecast.
The uneven demand forecast from Whirlpool echoed Electrolux's earlier comments.
It expected modest growth in demand for appliances in Europe and North America this year after demand in Europe rose 2 percent in 2010 following more than two years of decline.
McLoughlin said that overall markets were growing, but again most of the growth was coming in emerging markets like Eastern Europe, China and India.
There is a global economic recovery happening, he told Reuters. Market growth was in the low single digits in mature markets but up to 7 to 9 percent in places like China and India.
($1 = 6.632 Swedish crowns)
(Reporting by Dhanya Skariachan in New York and Patrick Lannin in Stockholm; editing by Erica Billingham, Dave Zimmerman and Matthew Lewis)