LG Electronics Q2 Operating Profit 493.1 Billion KRW... Home Appliances Lead Recovery Amid COVID-19 Impact (Comprehensive)

[Asia Economy Reporter Ki-min Lee] LG Electronics managed to hold up relatively well in its second-quarter performance despite the impact of the novel coronavirus disease (COVID-19).

LG Electronics announced its preliminary consolidated results for the second quarter on the 7th, reporting sales of 12.834 trillion KRW and operating profit of 493.1 billion KRW.

This represents a 24.4% decrease compared to the operating profit of 652.3 billion KRW in the same period last year, and a significant 54.8% drop compared to the first quarter’s operating profit of 1.0904 trillion KRW. The overall decline in performance is attributed to the consumption slump caused by the spread of COVID-19 in the second quarter.

However, the operating profit exceeded the securities firms’ consensus estimate for the second quarter of 405.8 billion KRW by about 21%. Because of this, the securities industry views that the high exchange rate caused by COVID-19 and strong performance in the home appliance sector drove LG Electronics’ defense of its second-quarter results.

Earlier, the home appliance industry faced disruptions in production and distribution in major markets such as North America and Europe until April, when the COVID-19 pandemic phase began, which also impacted the Home Appliance & Air Solution (H&A) business division responsible for home appliances.

However, driven by increased preference for hygienic appliances, demand for premium new appliances such as the Styler garment care system, dryers, and dishwashers quickly recovered, mainly in the domestic market and online channels. Notably, overseas, major appliance stores in key markets reopened from late May to early June, and promotional events around the US Independence Day led to increased overseas appliance sales.

The securities industry expects that although the H&A business division’s second-quarter operating profit was somewhat lower than usual at around 500 billion KRW, LG Electronics maintained its global No. 1 position in home appliance sales and operating profit, surpassing its global competitor Whirlpool in the second quarter.

This is analyzed to be because LG Electronics’ diversified presence across major markets, including the US where COVID-19 damage was severe, offset the impact, unlike Whirlpool which relies heavily on one market. As of last year, LG Electronics’ North American business accounted for about 24%, whereas Whirlpool’s was about 55%, more than double.

The Home Entertainment (HE) business division, responsible for the TV business, is estimated to have seen a decline in second-quarter performance due to adverse factors such as the postponement of sports events including the Olympics caused by COVID-19. On the other hand, the premium TV market including OLED and NanoCell is expected to perform better than anticipated. The securities industry forecasts the HE division’s second-quarter operating profit to be around 120 to 140 billion KRW.

The Business Solutions (BS) division, which has shown growth since last year, is evaluated to have generated over 100 billion KRW in operating profit due to increased demand for IT products such as laptops and monitors, driven by untact (non-face-to-face) meetings and online school openings amid COVID-19.

The Mobile Communications (MC) division and Vehicle Component Solutions (VS) division are estimated to have continued their losses as in previous years. In particular, the VS division likely suffered significant damage due to the global shortage of automotive parts. The MS division’s operating loss is analyzed to be about 200 billion KRW, reduced due to decreased marketing expenses amid the COVID-19 shutdown. This is more than 100 billion KRW less than the operating loss of 313 billion KRW in the second quarter last year and over 30 billion KRW less than the first quarter’s operating loss of 237.8 billion KRW this year.

However, the industry expects LG Electronics to recover its performance starting from the third quarter, with the second quarter being the bottom. Kang-ho Park, a researcher at Daishin Securities, said, "In the second half, performance will recover centered on the home appliance (H&A) and TV (HE) businesses," adding, "Especially, premium appliance sales such as dryers, dishwashers, washing machines, and Stylers are expected to perform well."