Whirlpool, Electrolux hike prices to fight costs

By @ibtimes on

Top home appliances makers Whirlpool Corp and Electrolux are raising prices to pass soaring raw materials costs onto customers and will rely on emerging markets to drive growth.

The move comes as both companies missed quarterly profit estimates and continue to grapple with tepid demand in key developed markets like the United States and Europe. The news weighed on shares of both companies.

For 2011, we expect positive but uneven demand levels around the world, Whirlpool Chief Executive Jeff 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 line-up of dishwashers, refrigerators and washing machines.

Whirlpool's promise to fight weak demand and rising costs of everything from steel to paint, with price hikes and productivity-enhancing efforts did not pass muster with some analysts.

In fact, some like Wall Street Strategies' Brian Sozzi wondered if Whirlpool's attempt to raise prices might prove too ambitious as consumers in many parts of the developed world continue to look for incentives to spend on 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, Sozzi said, citing failed attempts by the company to raise prices early last year.

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 share, 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 a share 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 Crown)

(Reporting by Dhanya Skariachan in New York and Patrick Lannin in Stockholm; editing by Erica Billingham and Dave Zimmerman)

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