Operating Profit 751.1 Billion KRW
Sales 22.1769 Trillion KRW...4 Consecutive Quarters of Growth
LG Electronics posted a disappointing performance in the third quarter of this year, falling short of market expectations. Operating profit failed to surpass the 1 trillion won mark due to soaring maritime freight rates and increased marketing expenses amid intensified competition. However, sales recorded the highest level for a third quarter, continuing a four-quarter streak of sales growth.
LG Electronics announced on the 8th that its consolidated sales for the third quarter reached 22.1769 trillion won, with an operating profit of 751.1 billion won. Compared to the same period last year, sales increased by 10.7%, while operating profit decreased by 20.9%.
The company’s operating profit this quarter was significantly below the market expectation of around 1 trillion won. Securities firms had forecasted LG Electronics’ third-quarter results at 22.0331 trillion won in sales and 968.6 billion won in operating profit. The actual results fell short by about 23% compared to the consensus.
The company attributed the results to the impact of sharply increased logistics costs and higher marketing expenses in the second half of the year. In a conference call following the second-quarter earnings announcement, LG Electronics had noted, "The average maritime freight per container is expected to rise about 58% year-on-year based on second-half bidding results, and marketing competition costs such as advertising expenses are expected to increase."
Nonetheless, sales hit a record high for the third quarter. LG Electronics has achieved year-on-year sales growth for four consecutive quarters since the fourth quarter of last year.
Looking at the business divisions, securities firms estimate that the H&A Business Division, responsible for home appliances, posted operating profits around 500 billion won. LG Electronics did not disclose detailed results by division in its preliminary earnings announcement. Various business model changes such as appliance subscriptions, direct-to-consumer (D2C) sales, and volume zone expansion have driven steady sales growth in the core home appliance sector, which is considered a red ocean market. The B2B segment, which is relatively less affected by economic fluctuations, also continues to grow steadily. From a profitability perspective, platform-based content and service businesses are rapidly expanding and steadily increasing their contribution to operating profit, which is positive.
In particular, the home appliance sector’s subscription business, which combines products and services, is seen as continuously growing. Although the third quarter’s profitability was somewhat affected by factors such as maritime freight increases and delayed demand recovery in key markets leading to price declines, the company plans to sustain growth by diversifying product and price coverage by region and expanding its online business.
The Vehicle Components (VS) Business Division is expected to have posted operating profits between 86 billion and 118 billion won. LG Magna e-Powertrain has been somewhat affected by a slowdown in electric vehicle demand but continues to supply orders worth around 100 trillion won without disruption. The company also plans to increase sales of high value-added products such as advanced driver-assistance systems (ADAS).
The Home Entertainment (HE) Business Division, responsible for TVs, is projected to have recorded operating profits around 100 billion won. In the third quarter, demand for organic light-emitting diode (OLED) TVs in advanced markets such as North America and Europe showed gradual recovery, but the burden of raw material costs continued as LCD panel prices remained high compared to the same period last year.
Another key pillar of the business and a significant contributor to profitability, the webOS content and service business, is expected to continue its rapid growth. LG Electronics plans to accelerate the expansion of its webOS content and service business by enhancing content competitiveness and convenience, expanding the ecosystem, and advancing advertising business capabilities.
The Business Solutions (BS) division will strengthen customized order activities by verticals (specific customer groups) based on a diverse business portfolio and product lineup. It will expand its premium IT lineup including AI PCs and gaming monitors, and continue securing future technologies such as virtual production solutions to sustain growth in the commercial display business. Investments in promising new business areas such as robotics and electric vehicle chargers will also be consistently pursued.
Oh Kang-ho, a researcher at Shinhan Investment Corp., said, "Sales growth remains valid following the first half, and the expansion of price coverage products is expected to drive earnings growth. In particular, sales from home appliance subscription services increased by 33% in 2023 and are projected to grow by 60% in 2024."
An LG Electronics official stated, "Although challenging external conditions such as delayed demand recovery, rising raw material costs, and fluctuations in maritime freight continue, it is meaningful that LG Electronics steadily increases its overall sales scale. Efforts to enhance the portfolio through changes in business methods and models, and acceleration of business-to-business (B2B) operations, are leading to fundamental competitiveness improvements and maintaining growth momentum."
Meanwhile, LG Electronics plans to announce detailed results by business division at an earnings briefing scheduled for the end of this month.
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