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Electrolux (ELUXB:SS) - Fundamental Investment Case

Research

Publication Date: 26 Nov 2019 - By Vision Research Fundamental By Vision Research Fundamental
Actionable
Differentiated

Equity Fundamental Equity Global Consumer

Electrolux AB manufactures home appliances and appliances for professional use. The company has strong brands including AEG, Electrolux, Frigidaire, Westinghouse, and Zanussi. The company gets 34% of revenue from Europe, Middle, East and Asia as of the end of FY18.  31% of revenue from North America, 14% from Latin America, 7% from Asia, and 6% from Home Care & Small Domestic Appliances.  Finally, Electrolux generates 7% of revenues and 19% of FY18 profits from the Professional Products division.  The division will be spun off by the company at the beginning of FY20.

 

Qualitative Concerns:

  • Electrolux faces increased competition from Korean (Samsung and LG) and Chinese (Haier) competitors across almost all geographic regions.
  • Due to the competitive issues, Electrolux is losing significant share in most markets.
  • Analyst estimates do not reflect the reality that revenues, volumes, and profits could all continue to be pressured.
  • The upcoming spin (1H20) of the more profitable Professional Products business will only leave the appliance business more susceptible to competition and deteriorating fundamentals.

Fundamental Concerns:

  • Topline revenues and organic revenues are both weak.
  • Gross profit margins are in a long term downtrend with EBITDA margins also recently deteriorating.
  • Inventory and DIO trends point to further margin compression.
  • Operating and free cash flow trends continue to deteriorate.
  • Commodity, tariff, and currency risk remains with the company unable to fully offset headwinds with increased pricing. 
  • Valuation is at the high end of historical averages due to excitement about the known Professional Services spinoff. 

Bottom Line: An appliance manufacturer facing intense competition causing declining organic revenue, falling market share and weakening cash flow.

Electrolux ELUXB:SS - Fundamental Investment Case

Source: Vision Research Fundamental

Pages: 52

Released: 26 Nov 2019

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Vision Research Fundamental

Technology, Consumer, Industrials, Telecom & Media

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