LG Elec. profit down on costs; automotive biz back in the black

LG Electronics Inc., the global home appliance maker, suffered a lower profit in the second quarter on the back of rising commodity and logistics costs, adding to the electronics sector's bleak outlook amid deepening recession fears stoked by inflation.

Its automotive division, however, turned to the black as disruptions to global auto production eased, with profitability expected to continue on increases in parts prices.

LG said on Thursday its preliminary operating profit declined 12% to 791.7 billion won ($608.5 million) for the April-June period on a consolidated basis from a year earlier, although its sales rose 15% to 19.5 trillion won over the same period. Its operating profit margin shed 1.2 percentage points to 4.1% on-year.

“Profitability declined on rising costs for raw material procurements and logistics, while expenses also increased to deal with intensifying competition and to manage appropriate levels of distribution inventories,” LG said in a filing to a local financial regulator, explaining the performance of its key home appliance business.

Major Korean companies, particularly electronics manufacturers, are facing risks from rising inventory assets given that consumption of durable goods is likely to weaken amid rising interest rates and slowing economic growth.

Sales in LG’s TV business fell in the second quarter as rising inflation hurt global demand, the company said without providing details. Higher marketing costs also weighed on the sector’s profit.

The company is scheduled to release the second-quarter earnings later this month.

FIRST PROFIT FROM AUTO SECTOR IN NEARLY SEVEN YEARS

LG’s automotive business bucked the industry's overall profit drop, turning to black.

Its vehicle component solutions (VS) division reported a profit on a quarterly basis thanks to rising sales and sustained cost structure improvement, the company said, although it did not provide the profit value. The division has been in the red since the fourth quarter of 2015 with an operating loss of 103.2 billion won in the April-June 2021 period.

Sales rose to more than 2 trillion won from 1.88 trillion won a year earlier as the easing auto-sector chip crunch allowed carmakers to gradually raise output. LG met additional demand by effectively managing its supply chain, according to LG’s filing.

The division is forecast to report record sales of more than 8 trillion won this year, according to industry sources.

“The VS business is expected to maintain profitability in the third quarter on the improvement in automotive electronics parts sales and efforts to raise auto component prices through negotiations with carmakers,” LG said.

The positive outlook, along with the rise in overall sales, helped LG’s stock end up 3.01% at 95,900 won on Seoul’s main bourse, outperforming the 1.84% gain on the wider Kospi.

LG was known to have boosted profitability in the third quarter, a peak season for the home appliances market, by ratcheting up sales of premium products such as organic light-emitting diode (OLED) TVs.

The Korean electronics giant has been concentrating on improving profitability since exiting the mobile business, which had been in the red for years, in 2021. LG also terminated production and sales of solar panels in June this year.

Starting in the second quarter of 2022, the company treated the performance of its solar business as a discontinued operating loss.

Write to Ji-Eun Jeong at jeong@hankyung.com
Jongwoo Cheon edited this article.