LG Electronics Q3 Record Sales... Focus on Profitability in Q4 (Comprehensive)

Even with Weakness in Home Appliances and TV,
Electronics Components Business Continues Profit Streak in Q3 Following Q2

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Yeju Han] LG Electronics recorded its highest quarterly sales in the third quarter of this year. It also surpassed the record of 20.969 trillion KRW set in the first quarter, which was the highest ever. However, due to the triple impact of inflation, exchange rates, and interest rates, consumer sentiment weakened and raw material cost burdens were reflected, causing profitability in the home appliances and TV sectors to fall short of expectations.

On the 7th, LG Electronics announced its preliminary third-quarter results, reporting consolidated sales of 21.1714 trillion KRW and operating profit of 746.6 billion KRW. Compared to the same period last year, sales increased by 14% and operating profit rose by 25.1%.

The third-quarter results include a base effect from last year's third quarter, when a bad debt provision of approximately 480 billion KRW was recorded due to General Motors (GM)'s electric vehicle battery recall costs. Considering this, LG Electronics, like other home appliance companies, is interpreted to have experienced profitability challenges in the third quarter.

In fact, compared to the second quarter, sales increased by 8.8%, but operating profit decreased by 5.8%.

LG Electronics' third-quarter operating profit also fell short of market consensus (average securities industry forecast). According to financial information provider FnGuide, as of the previous day, the average securities forecast for LG Electronics' results was sales of 20.1 trillion KRW and operating profit of 870 billion KRW.

LG Electronics reflected the impact of inflation and interest rate hikes on consumer sentiment in its third-quarter results.

In the H&A Business Division, which includes home appliances, despite an overall slowdown in home appliance demand, strong sales performance of premium home appliances such as the LG Objet Collection centered in North America was observed. However, operating profit is believed to have declined compared to the same period last year due to rising raw material prices, increased logistics costs including maritime freight, and higher competition expenses, falling short of market expectations.

In particular, TV demand has been in a prolonged decline, making it difficult for the HE Business Division to achieve sales growth and profitability. On the other hand, the VS Business Division, which includes automotive electric and electronic equipment, is believed to have maintained profitability in the third quarter following the second quarter by actively responding to semiconductor supply issues through effective supply chain management and the continued expansion of production by automakers. The VS Business Division already achieved new orders worth 8 trillion KRW in the first half of this year, and the total order backlog is expected to exceed 65 trillion KRW by the end of the year.

LG Electronics plans to focus on defending profitability by increasing the proportion of sales from high value-added products in the fourth quarter. This is because the management environment is expected to remain challenging due to ongoing uncertainties such as global power competition and supply chain risks, compounded by factors that suppress consumer sentiment caused by inflation and interest rate hikes.

The H&A Business Division is expected to proactively respond to external environmental risks and focus on securing profitability through thorough global supply chain management, cost structure improvement, and efficient resource operation. The HE Business Division is also predicted to focus on sales growth and profitability by leading with newly launched premium products such as the world's first 97-inch OLED TV and the gaming-dedicated bendable OLED TV, ‘LG OLED Flex,’ amid declining global TV demand.

In the North American market, a major shopping season is anticipated, including Halloween (October), Thanksgiving and Black Friday (November), and Christmas (December), providing LG Electronics with an opportunity to increase sales of premium products with higher profit margins. The World Cup drives demand for larger and better-quality TVs, and during Black Friday and similar events, consumers tend to show interest in premium products with relatively larger discounts. Accordingly, LG Electronics is highly likely to actively target premium TV demand in the second half by launching a large number of new products and offering the world's largest OLED TV lineup.