LG Electronics Q3 Profit Down on Weak Demand | Be Korea-savvy

LG Electronics Q3 Profit Down on Weak Demand

This photo taken April 5, 2021, shows an office building of LG Electronics Inc. in Seoul. (Yonhap)

This photo taken April 5, 2021, shows an office building of LG Electronics Inc. in Seoul. (Yonhap)

SEOUL, Oct. 28 (Korea Bizwire)LG Electronics Inc. on Friday reported record high sales backed by its electric vehicle (EV) components business but also experienced a big drop in net income in the third quarter on sluggish demand for consumer electronics amid high inflation and recession fears.

The South Korean tech company reported in a regulatory filing that its third-quarter net income came in at 336.5 billion won (US$237.1 million), down 34.8 percent from a year earlier.

Operating income for the July-September period was 746.6 billion won, up 25.1 percent from a year ago, the company said.

But LG’s quarterly profit, in fact, declined on-year after taking into consideration a recall provision of 480 billion won for General Motors Co.’s Bolt electric vehicle during the year-ago quarter.

Sales increased 14.1 percent to hit a record high of 21.17 trillion won, surpassing the 20 trillion-won mark for the first time in the company’s history, on the back of robust sales of high-end home appliances and electric vehicle (EV) components business, it said.

Its home appliance division reported sales of 7.5 trillion won, up 5.8 percent from a year ago, with an operating profit of 228.3 billion won, which declined year-on-year due to “increased marketing investments and higher logistics costs.”

LG’s TV business logged an operating loss of 55.4 billion won due to bigger marketing expenses amid intensified market competition and high logistics costs.

Its EV business reported 2.3 trillion won in sales, up 45.6 percent from a year ago, marking the business unit’s highest quarterly revenue. Operating profit came in at 96.1 billion won.

LG said in a statement a rise in sales of its EV business was attributed to the company’s proactive response to “higher demand from automakers with efficient supply chain management.”

The EV business is expected to turn to a profit for the year for the first time since the company entered the market in 2013, on robust demand amid the gradual easing of the auto chip shortage and a subsequent rise in auto production.

Visitors check out the MoodUp refrigerator at LG's exhibition booth at IFA 2022 in Berlin, in this photo provided by the company on Sept. 4, 2022.

Visitors check out the MoodUp refrigerator at LG’s exhibition booth at IFA 2022 in Berlin, in this photo provided by the company on Sept. 4, 2022.

During an earnings call, the company expected its accumulated order backlog to top 80 trillion won by the end of the year, higher than the previous estimate of 65 trillion won.

Like many other tech firms, however, continued macroeconomic woes paint a gloomy picture for LG’s bottom line for the remainder of the year and into next year.

Pandemic-driven pent-up demand for home appliances, including TVs, has lost steam, and aggressive rate hikes in major economies to bring inflation under control have significantly weakened consumer spending power.

According to research firm TrendForce, global TV shipments for the three months ending in September reached 51.39 million units, falling 2.1 percent on-year.

TV shipments in the fourth quarter are expected to grow by 10.8 percent on-quarter to 56.96 million units but still down 3.5 percent from a year ago, it said.

This year’s OLED TV shipments are estimated to reach 6.67 million units, down 0.6 percent from a year ago.

“Demand for high-end TVs, a segment that LG Electronics puts a high focus on, are slowing rapidly in the U.S. and European markets” amid rising interest rates and high electricity prices, Cho Cheol-hee, an analyst at Korea Investment & Securities, said.

High shipping costs amid supply chain disruptions are expected to continue hurting the company’s performance.

At the earnings call, the company said logistics costs are unlikely to fall by the year-end when it will renew its contract with logistics partners, but it hoped the problem will ease starting next year.

It also hinted at raising prices of its premium products to cope with falling profitability.

Citing continued market uncertainty and worsened consumer sentiment from deepened global inflation, the company said it planned “to ease cost burden by raising our selling price of the premium lineup,” of which demand is still robust among deep-pocket consumers, and “enhance cost structure and take proactive risk management measures.”

LG Electronics shares inched down 0.37 percent to close at 79,900 won Friday, versus the wider market’s 0.89 percent loss.


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