Samsung Electronics and LG Electronics recorded record-high quarterly sales in the third quarter. What the two companies have in common is that ‘home appliances’ had an impact on overall sales growth. Since the COVID-19 outbreak, the length of time consumers stay at home has increased, leading to demand for home appliances, which has led to sales growth in the home appliance divisions of both companies since last year.
However, as raw material prices and logistics costs have increased recently, profitability has been declining since 3Q. The decline in revenue is expected to intensify in 4Q.
Samsung Electronics sells home appliances through the CE (Home Appliance) division, while LG Electronics is in charge of the H&A (Home, Air Conditioning) division and the HE (Home Entertainment) division.
■ Sales increased in the third quarter, but operating profit decreased… Rising raw material and logistics costs
According to the earnings announcements of these companies on the 28th, sales of Samsung Electronics’ CE division reached 14.1 trillion won, up 5% from the previous quarter. On the other hand, operating profit was 760 billion won, down about 300 billion won from the previous quarter (1.6 trillion won).
According to LG Electronics’ earnings released on the same day, the H&A division recorded 7.6 trillion won in sales, an increase of 3.6% from the previous quarter, recording a quarterly record high. This is the first time for a single business division’s quarterly sales to exceed 7 trillion won. However, operating profit was 555.4 billion won, down 16% from the previous quarter (653.6 billion won), and the operating profit margin fell from 9.6% in the second quarter to 7.2% in the third quarter.
The HE division also recorded sales of KRW 4,181.5 billion, continuing its sales of KRW 4 trillion for the last four consecutive quarters. On the other hand, operating profit was 28.3 billion won, down 37% from the previous quarter (333.5 billion won).
For both companies, the sales volume of the home appliance division increased in the third quarter compared to the previous quarter, but the operating profit decreased.
In response, Samsung Electronics explained, “We are expanding our premium TV and bespoke lineup in earnest, but profitability has decreased due to the increase in costs such as raw materials and logistics.”
LG Electronics said, “Sea and air freight rates are hitting all-time highs every day, acting as a major factor in the deterioration of H&A headquarters’ profitability. “The increase in logistics costs will affect our annual sales by about 2.5 to 3 percent compared to the previous year,” he said. He added that raw material prices are expected to rise next year, and steel prices in particular are expected to rise sharply.
■ Profitability of home appliance business to continue to deteriorate until next year
Securities analysts predict that the profitability deterioration of the home appliance divisions of both companies will continue until the fourth quarter or the first half of next year.
Park Yoo-hak, a researcher at Kiwoom Securities, said, “Samsung Electronics’ TV sales are expected to increase by 22% compared to the previous quarter due to the high season in the fourth quarter, but the operating profit of the CE division is expected to decrease by about 16% due to increased marketing expenses.”
Park Hyung-woo, a researcher at Shinhan Investment Corp., said, “There are concerns about the increase in raw and subsidiary material costs in the set industry next year, and the possibility that marketing costs, which have been lowered in the Corona 19 environment, will increase to the level of the previous year. It may decrease compared to the same period.”
Samsung Electronics and LG Electronics plan to minimize risks based on close collaboration with distributors.
Related articles
Samsung Electronics said, “We will minimize logistics risks by utilizing our differentiated global supply chain management (SCM) capabilities and focus on securing profitability through efficient cost management.”
LG Electronics said, “As the abrupt volatility of the macroeconomy has increased, we will take a preemptive response by negotiating prices with raw material groups in advance, diversifying sourcing, and optimizing SCM.”
