LG Electronics eyes solid Q2 results after Q1 earnings surprise

LG Electronics Inc. is expected to report solid earnings for the second quarter after its first-quarter operating profit beat market expectations and that of its arch-rival Samsung Electronics Co. thanks to brisk sales of premium electronics and a sharp drop in costs, especially in logistics.

South Korea’s No.1 appliance maker on Friday reported in a regulatory filing that its preliminary operating profit on a consolidated basis for the January-March 2023 period stood at 1.5 trillion won ($1.1 billion), down 22.9% from the same period last year but 21 times that of the previous quarter. Its sales reached 20.4 trillion won, down 2.6% on-year and 6.6% on-quarter.

The operating profit came above the market consensus of 1.1 trillion won. Excluding the one-time gain from patent sales in the same quarter of last year, LG Electronics saw a year-on-year increase of up to 20% in profits across its mainstay businesses, the company explained.

The result was also higher than the operating profit of Samsung Electronics for the first time since the International Financial Reporting Standards (IFRS) were first adopted in Korea in 2009. On the same day, Samsung Electronics reported 600 billion won in operating profit for the first quarter of this year.

LG Electronics’ better-than-expected operating profit was largely attributed to lower costs, notably in logistics spending, and a jump in sales of premium electronics, offsetting the overall tepid electronics demand amid inflation.

Market analysts project LG Electronics’ earnings to remain strong in the second quarter when global demand for TVs and appliances is expected to recover. The effect of cost reduction in the automotive electronics division is expected to be even more pronounced.

LG Electronics is forecast to post 880.9 billion won in operating profit for the April-June period, up 11.2% from a year ago, while sales are expected to add 1.1% on-year to 19.7 trillion won.

COST CUT, PREMIUM PRODUCTS BOLSTER PROFIT

LG Electronics benefitted largely from the reduction in raw materials and logistics costs during the first quarter.

The company, whose overseas sales account for more than 60% of its sales, took a big hit from the surge in logistics costs during the COVID-19 pandemic. But its logistics spending has dropped by more than 1 trillion won this year compared with last year when it rose to 3.9 trillion won, taking up 4.7% of its total sales.

Brisk sales of premium TV models such as OLED TVs and high-end appliances including tumble dryers and robot vacuums also contributed to higher profits.

RESTRUCTURING TO IMPROVE PROFITABILITY

The company's efforts to restructure its business have paid off, said market analysts. 

LG Electronics has been in a crisis mode to boost profitability for sustainable growth since late last year under the direction of CEO Cho Joo-wan amid lingering uncertainties about the global economy.

The Home Appliance & Air Solution division has expanded business-to-business lineups to offset the weakening demand for consumer electronics. Its B2B electronics sales in the current quarter are estimated to have nearly doubled to up to 900 billion won from a year ago.  

Its Home Entertainment division in charge of the TV business succeeded at reorganizing its business structure with a greater focus on TV content and services. Its webOS platform sales for 2022 jumped nearly tenfold from 2018, helping the division turn around in four quarters despite softening TV demand in key markets.   

The outlook for its Vehicle Component Solutions (VS) business also looks bright after the money-losing business swung to a profit last year for the first time and extended its growth streak in the first quarter of this year.

The VS division's order backlog for this year is estimated at 100 trillion won.

LG Electronics will report detailed results later this month. Its share price ended up 0.35% at 114,300 won on Friday.

Write to Ye-Rin Choi at rambutan@hankyung.com

Sookyung Seo edited this article.